State Farm Insurance has agreed to settle a Mississippi class action brought by more than 600 policyholders involving property claims related to Hurricane Katrina and reopen thousands of additional Katrina claims.
There is no cap on the amount that may be awarded, according to Mississippi Attorney General Jim Hood. A rough estimate indicates that the minimum offers on the slabs alone will cost State Farm approximately $80 million.
In addition to the $80 million for the 600 in the civil suit, State Farm has committed at least $50 million to cover readjustments to other claims. According to attorney Richard Scruggs, who is representing policyholders, the agreement could eventually reopen as many as 35,000 additional claims of Mississippi famiies.
This is the first mass settlement of Katrina claims lawsuits by an insurer. The settlement affects only Mississippi policyholders and none in other states.
The process applies to State Farm policyholders – including homeowners, renters and owners of business properties – in Hancock, Harrison, and Jackson counties, who experienced property damage as a result of Hurricane Katrina.
“After months of heated negotiations, I am happy to announce that our office has reached a settlement agreement with State Farm in our state court litigation,” Hood said. “The settlement agreement will give coastal policyholders an expedited alternative to waiting for a jury trial.”
“This agreement can bring prompt and fair relief to residents of the three coastal counties who filed a claim with State Farm,” said Scruggs of the Scruggs Katrina Group.
“Thousands of families now have a second chance to have their claims reopened and receive money to rebuild,” added Don Barrett, an attorney also involved in the negotiations.
The deal resolves Hood’s civil and criminal complaints against the giant insurer. Hood claimed State Farm owed policyholders money for denying all claims with wind-driven damage.
The agreement was immediately praised by Senator Trent Lott, R-Miss, himself a State Farm policyholder who suffered homeowner damage as a result of Katrina. “We’ve been waiting for a development like this. This is good for Mississippi and is so important to people along the Gulf Coast and in South Mississippi in getting on with their lives and rebuilding their homes,” said Lott.
“This is a big step in the right direction,” said George Dale, Commissioner of Insurance for the State of Mississippi. “I’m pleased that this agreement will quickly put money into the hands of those along the Gulf Coast without lengthy litigation.”
“Our goal has always been to resolve these matters quickly, fairly and efficiently,” said Jeffrey W. Jackson, vice president and corporate general counsel, State Farm Insurance. “This settlement offers policyholders who resided in the areas most impacted by the unprecedented storm an opportunity to have their claims reviewed, share any additional information, and, if they choose, have their cases resolved through binding arbitration.”
In the settlement, State Farm has agreed to provide full disclosure of all documents in their claim files, including multiple engineering reports; independently reevaluate claims based on terms in the
state court agreement without using previous adjusters and engineers; make a minimum offer equivalent to 50 percent of the structural policy limits, less payments previously made in approximately 1,000 claims involving slabs; pay the costs of arbitration conducted by arbiters chosen by both sides; and provide annual notice to policyholders that clearly explains that storm surge is not covered by homeowner or windstorm residential policies.
This administrative process is to be carried out under the supervision of the Judge L. T. Senter in the U.S. District Court for the Southern District of Mississippi, whose court just two weeks ago assessed $2.5 million in punitive damages against State Farm in a Katrina lawsuit.
Policyholders may opt out of the settlement process without the loss of any rights and pursue a remedy in court.
If a policyholder chooses to stay in the class, then State
Farm will reevaluate the claim and make a new offer based upon the percentage of damage and the policy coverage limits.
State Farm has promised to not assert as a ground for the total denial of a claim that water contributed to the loss if wind damage occurred. State Farm will be required to show by a preponderance of the evidence that any damage denied was caused by an excluded peril.
Where only a slab or piers remain, State Farm shall make a
minimum offer of an amount equivalent to 50 percent of the structural policy limits. If the policyholder accepts the offer, then payment is to be made immediately. If the policyholder rejects the offer, then the case will quickly proceed to binding arbitration before fairly chosen arbiters.
Hood said he hoped the settlement could be a template for other insurers in their disputes.
“I hope that this settlement with State Farm will encourage
other insurers to join the settlement, so that we can get a quick flow
of capital into our coastal counties at this critical time,” Hood said.
“This will help stabilize our economic recovery and the insurance market on our coast, so that we can rebuild the lives, hopes and dreams of our beloved coastal families and businesses. I just pray
it all works quickly.”
Sources: Mississippi Attorney General; State Farm; Scruggs Katrina Group
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