Facing hundreds of hurricane-damage lawsuits on the Mississippi coast, State Farm Fire and Casualty Co. cited back-to-back years of storm losses in announcing Friday it will not renew coverage for about 2,600 policyholders mainly in Alabama’s beach resorts.
Bloomington, Ill.-based State Farm has the biggest market share on the Alabama coast and is the state’s largest home insurer. Most of those affected by the non-renewal notice own beach condominiums, state regulators said.
“This has been a difficult decision — one that was made with careful review and great consideration,” Karen Carter, State Farm’s Alabama vice president for agencies, said in a statement. “The catastrophes in 2004 and 2005 show that we must continue to manage our property loss exposure along the coast for the sake of all of our policyholders.”
Hurricane Ivan struck on Sept. 16, 2004, battering Gulf Shores and Dauphin Island, followed by Katrina on Aug. 29, 2005, causing heavy damages at Bayou La Batre and again at Dauphin Island.
The announcement came after State Farm agreed to pay about $80 million to more than 600 Mississippi policyholders who sued over Katrina damage and at least $50 million more to resolve thousands of other disputed claims by policyholders who didn’t sue.
Separately, a jury awarded a Biloxi couple a $2.5 million judgment against State Farm, an amount recently reduced to $1 million by a federal judge.
In efforts to limit exposure on Alabama’s coast, the next two largest insurers, Alfa Insurance and Allstate, also have either dropped coastal policies or announced their intentions to do so. But coastal property owners may turn to other insurers for coverage.
State Farm’s cutbacks in Alabama affect properties within about 1,000 feet of the shoreline of the Gulf of Mexico, Mobile Bay and its connected bays, the Intracoastal Waterway and Orange Beach’s inshore water bodies, such as Terry Cove and Old River, said Ragan Ingram, assistant commissioner with the Alabama Insurance Department.
The policies that won’t be renewed include all of those on Ono Island and the Fort Morgan peninsula, as well as most on Dauphin Island and those of many Gulf-front condo owners who have State Farm policies to cover the contents of their units, Ingram said.
State insurance officials met with State Farm on Thursday and asked them to reconsider their decision, Ingram said. But State Farm spokesman David Majors said letters warning affected policyholders of the decision were mailed earlier in the week.
“We’re going to continue to move forward with our plans so that we’re financially able to deliver on the promise that we’ve made to each of our policyholders,” Majors said Friday, adding that the decision was unrelated to the Mississippi lawsuits.
The policies not being renewed represent less than 1 percent of the company’s policies statewide, he said.
Majors said that the letters sent to affected policyholders serve as advance notice and that further notification will be issued 60 days before the renewal date, as the Insurance Department requires. If the renewal date is March 1, 2008, for example, the coverage continues until then.
With about a 30 percent market share, State Farm is by far the largest writer of homeowners insurance in Alabama. In 2005, the company collected about $296 million in homeowner policy premiums throughout the state, according to Alabama Insurance Department data.
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