Resetting State Farm’s Katrina punitive damages

February 11, 2007

At the trial of this cause of action, this Court submitted instructions to the jury for it to determine whether punitive damages should be awarded and, if so, in what amount. After deliberating, the jury returned a verdict in favor of Plaintiffs for punitive damages in the sum of $2,500,000.00.

In addition to the guidelines of Miss. Code Ann. § 11-1-65, the jury was instructed, consistent with Mississippi case law, that: “An insurance company such as the Defendant has a duty to its insureds- the Plaintiffs- to conduct a reasonably prompt investigation of all relevant facts and, after conducting such an investigation, make a realistic evaluation of the claim.”

The Defendant’s duty to investigate a claim is a continuing one, and its duty to promptly pay a legitimate claim does not end because a lawsuit has been filed against it for denying a claim. It may not look for a defense to deny paying an otherwise legitimate claim.

The evidence at trial showed, through the Defendant’s own representative (the claims section manager in Mississippi), that during the initial stages of the investigation it appeared that Plaintiffs’ home (which was reduced to a slab by Hurricane Katrina) “was more damaged by flood than wind.”

Despite this initial assessment that wind was a factor in the damage sustained to the insured dwelling, Defendant relied on its flood exclusion to totally deny the claim. To justify this decision, Defendant adopted a wind/water claim handling protocol that emphasized the exclusion but is at odds with other express terms of the insurance contract.

Defendant failed to take into account the coverage afforded under the Plaintiffs’ insurance policy for accidental direct physical loss to the dwelling and accidental direct physical loss to their contents caused by windstorm, which Katrina undoubtedly was. This protocol and actions taken thereunder attempted impermissibly to place the burden of proof on the Plaintiffs to establish that their losses were caused by wind rather than what are admitted to be covered accidental direct physical losses (otherwise known as an “all perils” policy in the case of the dwelling and a “named peril” policy as to contents, i.e., windstorm). In slab cases, the wind/water protocol assigned 100% of the loss to flooding unless the policyholder could show “independent windstorm damage” or produce an eyewitness to the destruction. The Defendant did not obtain any expert evaluation on this particular loss. Defendant used the debris line as its sole investigative guide in spite of the probability (as assessed initially) that some damage occurred from a cause other than flood.

Thus, instead of conducting a reasonably prompt investigation of all relevant facts, making a realistic evaluation of the claim (whether as an initial or continuing duty), and shouldering its burden of proof, the Defendant took the extraordinarily troubling position, even with expert reports in hand (obtained well after the lawsuit was filed), that it would rely on the jury to make the determination of the amount to pay the Plaintiffs for their covered losses.

This Court remains convinced that a punitive damages instruction and an award of punitive damages are appropriate in this case. Clear and convincing evidence supports a finding that Defendant acted in such a grossly negligent way as to evince willful, wanton, or reckless disregard for the rights of the Plaintiffs.

The devastation caused by Hurricane Katrina created substantial financial vulnerability to Mississippi policyholders insured by the Defendant, especially those whose homes were totally destroyed, of which there are a large number. The philosophy or attitude or position adopted by the Defendant that lasted throughout the consideration of Plaintiffs’ claim is reprehensible enough to warrant deterrence. What effect it may have remains to be seen, but substantial harm resulted from Defendant’s conduct, which was neither isolated nor mere accident.

The amount of punitive damages assessed by the jury in the instant case is almost 12 times the amount of compensatory damages. Fortunately, Plaintiffs only suffered an economic injury. It is my determination that a more appropriate punitive assessment against Defendant is the sum of $1,000,000.00, which is between 4 and 5 times the contractual/compensatory damages of $211,222.00. A remittitur to this amount will be incorporated ultimately in a final judgment.

SO ORDERED this the 31st day of January, 2007.

Excerpts from Senter’s punitive damages ruling in the U.S. District Court of the Southern District of Mississippi in the case of Norman. J. Broussard and Plaintiffs v. Civil Action No. 1:06cv6-LTS-RHW State Farm Fire and Casualty Company, Defendant.

Topics Flood Mississippi

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal Magazine February 12, 2007
February 12, 2007
Insurance Journal Magazine

Salute to “Super Regionals”; High Risk Property & Catastrophe Coverages; Yachts and Boats; The Commissioners, Part 1