Policyholders who settled Hurricane Katrina lawsuits confidentially with insurance companies can keep those payments, along with federal grants for structural damage other homeowners were ineligible to receive or must repay.
A federal grant modification that created the situation has gone unnoticed by many, but others are angry about the Mississippi Development Authority policy.
“It doesn’t seem right that they don’t ask for repayment,” said Gulfport resident Nancy Fish, who had flood and homeowner insurance coverage for the loss of two homes and cars.
The Homeowner Assistance Program administered through MDA at first helped residents without federal flood insurance if they lived outside flood zones but suffered flood damage and carried homeowner insurance. Each grant of up to $150,000 was based on a home’s insured value, plus 35 percent. The grants covered structural damage not covered by insurance, regardless of whether wind or flood caused it.
Insurance proceeds homeowners received for structural damage caused by wind were deducted from grant amounts. Homeowners receiving grants must turn over to MDA any subsequent insurance payments for structural damage. A federal law called the Stafford Act prohibits duplicate benefits.
The Scruggs Katrina Group asked MDA for clarification regarding grant money after reaching a settlement agreement in late January for 640 State Farm Fire and Casualty Co. policyholders, attorney Zach Scruggs said.
MDA published a change to the HUD-sponsored grant program in February without public comment or formal submission, the document says, because it was not a “substantial amendment.”
“We have excellent news,” Scruggs announced Feb. 24 on the SKG Web site. “SKG clients who took part in the recent 640 settlement with State Farm are not required to repay money they received from the Mississippi Development Authority. This is in large part due to the efforts of Gov. Barbour’s office.”
MDA’s executive director, Gray Swoope, had notified attorneys by letter a day earlier. “Because these settlements involve claims beyond structural damage and do not include a specific payment for structural damage … “the letter said, “Your clients are not required to repay any of these funds to MDA.”
The Scruggs Group has to date settled more than 1,200 cases for $200 million, according to its Web site. Group settlements of 28 other cases have been reached for policyholders represented by Biloxi attorney Jack Denton.
Denton said in many cases, clients needed both the legal settlement and grant money to be made whole, a sentiment Scruggs echoed.
Scruggs added: “The difference between settling a lawsuit and just getting some more money from your insurance company unsolicited – there’s a big difference. You’re suing for all kinds of claims. When a settlement is reached, it’s not broken down as to how much was for structure, breach of contract, bad faith, emotional distress, breach of the duty of good faith and fair dealing, fraud, negligent adjustment of the claim. Every lawsuit we’ve settled has had at least 10 or 11 legal claims.
“Nobody can slice and dice the settlement of a lawsuit in such a way to figure out what is owed. It’s a situation that they didn’t envision when the payment provisions were written.”
MDA’s disaster recovery director, Donna Sanford, said the agency is not tracking the lawsuit settlements because they are confidential.
“That was the whole purpose of this modification,” she said. “We can’t tell from these closed settlements what structural-damage payments, if any, they’re getting.”
In addition, Nationwide and State Farm are re-evaluating thousands of homeowner claims under the direction of the Mississippi Insurance Department. State Farm is guaranteeing policyholders who had only slabs left after Katrina a total payment for all coverages that equals a minimum of 50 percent of their structural damage coverage, less any previous flood or homeowner insurance payments.
State Farm spokesman Fraser Engerman said MDA has not reached a decision on whether any additional payments to policyholders will be owed to MDA, but only about 150 claims would be affected.
“That’s their call and we’ll follow any direction they give us,” Engerman said. He said State Farm hopes policyholders will be allowed to keep the payments.
Information from: The Sun Herald, http://www.sunherald.com
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