Miss. AG Hood Denies he Threatened to Indict State Farm CEO

By | November 18, 2007

Mississippi Attorney General Jim Hood threatened to indict the chairman of State Farm Insurance Companies if the insurer didn’t settle lawsuits over thousands of Hurricane Katrina claims, according to the testimony of Lee Harrell, the state’s deputy commissioner of insurance.

Hood, responding to questions from The Associated Press, said he did no such thing. “Consistent with the policy of the attorney general’s office, all criminal and civil matters related to State Farm were handled separately,” Hood said in a written response.

Court records containing a deposition from Harrell were recently unsealed as part of a lawsuit filed against Hood by State Farm seeking to stop a criminal investigation into the company’s handling of claims. Harrell said in his sworn statement that he heard Hood say in 2005: “If they don’t settle with us, I’m going to indict them all, from Ed Rust down.”

Rust is State Farm’s chairman and chief executive officer.

Hood told The Associated Press: “I deny ever having made any such statement. Although I cannot speak for Mr. Harrell, his recollection on that issue must be faulty.”

Harrell gave his deposition in October as part of the State Farm lawsuit against Hood.

Harrell’s allegations raise serious questions about the dealings and negotiations between Hood’s office and private attorneys, said David Rossmiller, a Portland, Ore.-based lawyer who is following the case. “These are some really serious allegations but I’m going to reserve judgment until I see evidence. I think there are some troubling issues about whether somebody can bring a private lawsuit and threaten people to behave in a civil litigation with threats of criminal indictment,” Rossmiller said. “That is always an ethical gray area for a lawyer, but you hope the attorney general of a state has a higher standard.”

Harrell’s deposition said Hood wanted to force State Farm to settle a mass lawsuit brought by the state and another lawsuit filed by private attorneys in the Scruggs Katrina Group, or SKG. The group, which represented hundreds of State Farm policyholders, is headed by Richard “Dickie” Scruggs, a prominent Mississippi attorney and the brother-in-law of U.S. Sen. Trent Lott, R-Miss.

Hood Denies Coercion

Hood said he did not try to coerce a settlement.

“I continually insisted that SKG reach its own agreement with State Farm and allow this office to continue with our then-ongoing criminal investigation and to separately negotiate the terms of our state court settlement agreement with State Farm,” Hood said.

Scruggs said both Harrell and State Farm have incentives to suggest that policyholders’ attorneys were involved in backroom deals. Scruggs funded political advertisements against Harrell’s boss, Mississippi Insurance Commissioner George Dale, who lost his election this year. That means Harrell is likely out of a job, too, Scruggs said.

“I think Lee is confused and obviously bitter,” Scruggs said in a telephone interview.

Hood and Scruggs have been closely aligned since Hurricane Katrina. Scruggs gave the state attorney general’s office information about insurers’ practices in reviewing claims.

When U.S. District Judge William Acker in Alabama ruled in June that Scruggs violated a court order for providing Hood with documents taken from a State Farm-affiliated engineering company, Hood came to Scruggs’ defense.

Hood wrote a letter July 16 to U.S. Attorney Alice Martin in Alabama, asking her not to pursue charges. Hood said Scruggs “has functioned as a confidential informant for our investigations,” according to a copy of a letter in court records.

Harrell’s deposition and State Farm also claim former Mississippi Attorney General Mike Moore has worked with both Hood’s grand jury investigation and the Scruggs Katrina Group.

Hood said Moore “did not participate in the grand jury proceedings and was never given access to any information or documents obtained by the grand jury. He did, however, provide me with information and complaints from policyholders and offered advice concerning the criminal investigation.”

Moore chose not to seek re-election in 2003 and endorsed Hood. Moore is also the one who chose Scruggs to help sue tobacco companies on behalf of the state in the 1990s, a deal that earned Scruggs tens of millions of dollars.

During Harrell’s deposition, State Farm attorney Dan Webb asked about Moore’s involvement in the Katrina cases. “Did (Moore) ever say how much he was going to get paid or by whom?” Webb asked.

“We never could figure that one out,” Harrell responded.

Moore told The Associated Press that he never got paid by anyone and is “not a member of the Scruggs Katrina Group,” though he says he worked on a case alongside a law firm affiliated with the group.

“I had no involvement with the grand jury,” Moore said. “State Farm’s in trouble and they’re just trying to lash out. They don’t want Jim Hood to issue subpoenas and start finding things out. I understand that.”

Court documents also raise questions about whether Scruggs Katrina Group attorneys were privy to the behind-the-scenes negotiations that preceded Hood’s settlement with State Farm.

Don Barrett, a Scruggs Katrina Group attorney, wrote a letter to State Farm lawyer Sheila Birnbaum mentioning the settlement on Jan. 18 — nearly a week before Hood announced the deal on Jan. 23, according to a letter entered into the court record.

“Dear Sheila, This is for your eyes only. Your proposal to Hood is fair, and your letter is great,” the letter says. “I think he will take the deal. However, if Hood lacks the wisdom to go through with this deal, it would be in State Farm’s best interest to proceed just with us, and we offer to do that.”

In another letter to State Farm, Barrett says that if “State Farm or any of its employees are indicted, the value of our cases skyrocket.”

Barrett did not immediately respond to a message left at his office.

Hood said Barrett, as a member of the Scruggs Katrina Group, would have known that State Farm “refused” to finalize a class-action agreement unless the company could reach a settlement with the Mississippi attorney general’s office.

Scruggs said the Scruggs Katrina Group knew about the negotiations only because they were mentioned in conversations with State Farm attorneys, adding that Barrett “took it upon himself to write it.”

“It emphasizes the fact that we were trying to get Hood to make a resolution” that was beneficial to those struggling to recover from Katrina, Scruggs said.

Another portion of Harrell’s deposition accuses Scruggs of threatening political opposition against the insurance commissioner if Dale failed “to make State Farm put up $500 million for (Scruggs) to administer pay claims” in Hurricane Katrina cases.

“Lee Harrell has a fundamentally different recollection of the conversation than mine,” Scruggs said. Scruggs claimed that when long-time Mississippi Insurance Commissioner Dale got too “cozy” with insurance companies in the 1990s and was indicted over questionable campaign contributions, it was Scruggs who provided the bulk of his defense fund.

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