Cyrus Dugger

State Farm Insurance Considers Settling & Begins Losing Katrina Insurance Claims

Earlier this week it was reported that State Farm Insurance was considering settling insurance claims with many of the Katrina victims who lost their homes and had their homeowners’ insurance claims denied.

Perhaps, State Farm saw the writing on the wall.

State Farm Held Liable in Katrina Case
Jan. 11, 2007
By GARRY MITCHELL Associated Press Writer

Judge holds insurance company State Farm liable for damage in Mississippi Katrina case

A federal judge ruled against an insurance company Thursday in a Hurricane Katrina damage case that may have implications for hundreds of other homeowner lawsuits against insurers who refused to cover billions of dollars in damage from the storm’s surge.

U.S. District Judge L.T. Senter Jr. ruled that State Farm Fire & Casualty Co. is liable for $223,292 in damage caused by Hurricane Katrina to a Biloxi couple’s home, but said a jury must decide whether to award millions of dollars more in punitive damages.

The jury was expected to start weighing punitive damages on Thursday afternoon.

Some of Senter’s earlier rulings in other Katrina cases have favored the insurance industry, but his decision Thursday could give a boost to other lawsuits that homeowners filed against insurers after the storm.

The Broussards claim that a tornado during the hurricane destroyed their home. State Farm blamed all the damage on Katrina’s storm surge. When State Farm refused pay for the loss, the couple filed suit seeking the full insured value of their home plus $5 million in punitive damages.

State Farm and other insurers say their homeowner policies cover damage from wind but not from water, and that the policies exclude damage that could have been caused by a combination of both, even if hurricane-force winds preceded a storm’s rising water.

Senter announced his decision Thursday in denying a State Farm motion to rule out punitive damages in the case.

The judge said the insurer had not met the burden of proof in challenging the policyholders’ claim that the winds of Katrina were responsible for their loss. (link)

In short, today, the same judge who set the tone of the Katrina insurance litigation by ruling for Nationwide Insurance in the first of these claims today found for plaintiffs against the insurance companies.

Judge Senter’s first decision found that although the contract’s literal text was ambiguous and would be contrary to well-established Mississippi law, when interpreted in congruence with Mississippi law the plaintiffs were entitled to only the amount of damage caused by the wind. Typical homeowners insurance policies do not coverage cover flood damage (although plaintiffs argued that the damage was caused by a storm surge instead of flooding as defined in the contract, and a variation of this argument based on man-made flooding has initially succeeded in litigation in Louisiana).

In contrast to Senter’s first decision, supporters of the insurance industry have actually advocated the extreme position that the homeowners’ insurers should not have to pay a cent, even if only a small amount of the damage to their home was caused by flooding, and even if this damage occurred after the initial wind damage that destroyed or damaged the home.

As found by the judge in this case, State Farm failed to prove how much damage was caused by Hurricane Katrina’s storm surge. Today’s decision implies that the insurance company did not carry out any or only a perfunctory evaluation of the cause of the damage. Instead, it appears likely that State Farm simply claimed that the damage was due to flooding and was therefore not covered by the claims, without any actual proof that this was the case.

If what State Farm did to deny this claim was part of a larger practice, there may be many more victories for Katrina homeowners to come.

Posted at 2:54 PM, Jan 11, 2007 in Permalink | Comments (1) | TrackBack (0)