Key Federal Katrina Ruling Favoring Homeowners Surprises Industry

January 12, 2007

In a Hurricane Katrina claims decision that surprised the insurance industry, a federal judge ruled that State Farm did not provide sufficient evidence to prove what damage to a Mississippi family's house was caused by wind versus water and the jury subsequently assessed $2.5 million in punitive damages against the insurer.

In a directed verdict, U.S. District Court Judge L.T. Senter in Broussard v. State Farm ruled that the homeowners needed to only prove a direct physical loss. He ordered State Farm to pay $223,000 in actual damages for the home and belongings of Biloxi couple Norman and Genevieve Broussard, before turning the case back to the jury to decide on the punitive damages.

State Farm and others in the insurance industry expressed surprise and concern over the ruling.

"We did not expect this decision," said Kim Brunner, general counsel for State Farm. "Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind."

After State Farm refused to pay for any damage to their demolished home after Katrina, the Broussards sued to obtain full insured value of their home plus $5 million in punitive damages. They maintained that winds from Katrina destroyed their house.

State Farm, however, denied any payment, arguing that all the damage was cussed storm surge waters.

Insurers maintain that traditional homeowner policies cover damage from wind but not from water or damage caused by a combination of both.

Senter's ruling, however, maintains that in the Broussard case the insurer failed to prove as it claimed that all of the damage to the Broussards' home was caused by storm surge. He also said the insurer failed to show how much damage was caused by wind and how much by storm surge.

"We believe that the ruling is inconsistent with the insurance contract and Mississippi law," said State Farm's Brunner.

State Farm also expressed disappointment with the jury's finding the company is liable for punitive damages in the amount of $2.5 million. The company will be evaluating its next steps with regard to this decision which will likely include an appeal.

State Farm said it has has closed 98 percent of the claims it received arising from the storm and has paid out over $1.1 billion in claims in Mississippi.