Cyrus Dugger
State Farm Katrina Settlement Denied: Double the Disappointment
On Friday, Judge Senter denied the initial settlement with State Farm Insurance for the Katrina claims of Mississipi homeowners.
When I mentioned the pending settlement in my most recent Katrina post I stated:
“While I’m a little bit concerned about the exact details of the binding arbitration process that the re-opened claims will go through (my assumption and hope is that plaintiffs’ counsel will have a say in selecting a truly neutral arbitrator), it’s still wonderful to see that the more than 35,000 policy holders will get what appears to be a thorough evaluation of their previously denied claims.” (link)
Well, I’m sad to say that the above caveat to my support of the settlement was an important one to have made.
It turns out that Judge Senter found the mandatory arbitration process for the un-litigated claims to be highly problematic. After getting a chance to review the written decision evaluating the settlement that he released on Friday, I’m inclined to agree with him.
It’s in many ways disappointing that this settlement did not go through because it would have paved the way for settlements by the other major insurers. However, it’s even more disappointing that the plaintiffs’ attorneys in this instance appear to have constructed a settlement that did not effectively safeguard the claims of the unnamed plaintiffs.
Here are a few excerpts of Judge Senter’s problems with the arbitration process as proposed in the rejected class settlement:
“The proposed settlement agreement establishes a claims handling procedure that is under the indirect control of State Farm. The proposed settlement agreement contemplates State Farm’s participation in the selection of the Special Master, a choice that is exclusively within the prerogative of the Court. The proposed agreement also
allows State Farm to train the arbitrators, control much of the administrative process, and control the compensation of all those involved in the administration of claims. This arrangement has the potential of allowing State Farm to exert a substantial measure of control over the claims resolution process without oversight by any independent or
neutral authority. Any alternative claims resolution procedure must give the parties finality, but the integrity of the procedure must be assured by meaningful Court supervision. A Special Master appointed by the Court must be authorized to exercise effective control over all aspects of the claims resolution process lest the parties lose
confidence that their claims are being resolved by a truly independent arbitrator.”(link)
…………….
I am also uncomfortable with the concept of sending a large number of policyholders into the process of binding arbitration when none of these individuals has ever agreed to participate in that procedure. Binding arbitration involves substantial reductions in the rights of the parties and in the procedural protections of due process. Requiring the members of the proposed class to arbitrate their claims would necessarily result in a diminution of the procedural safeguards these individuals and other entities presently enjoy. The proposed process would result in the loss of a right to trial by jury, the right to present any extra-contractual claims the class members may have, and the loss of the right to seek a declaration of the rights of the class members under their State Farm policies. Requiring binding arbitration for this potentially large group of policyholders who have not invoked the jurisdiction of the Court or sought affirmative relief of any kind must carry substantial corresponding potential benefits for those policyholders. It should be clearly understood, however, that binding arbitration in some form may provide an acceptable alternative to litigation. Once negotiations have failed, once the parties have unsuccessfully attempted to resolve their claims through non-binding mediation, each case must be resolved by some means. Binding arbitration offers one option. (link)
Judge Senter also found additional problems with the settlement including but no limited to:
1) The opt-out procedures were unduly onerous for those members of the class that did not wish to participate.
2) The amount of guaranteed payment may not be sufficient given the unknown number and value of future claims.
3) The general complexity of the claims procedure.
4) The fees asked for by plaintiffs’ counsel as to the unnamed plaintiffs was not specifically detailed and justified on the record.
In response to the ruling, the Scruggs Katrina Group legal team had this to say:
After the months we have spent in negotiations trying to establish a mechanism to get thousands of families on the Gulf Coast paid, Judge Senter’s opinion this afternoon was somewhat disappointing. While it was not an outright rejection, going back to the negotiation table will unfortunately delay payments for thousands of Mississippi families and business owners.
Fortunately, we have been given some guidance as to the questions we must answer and the requirements the settlement must fulfill. As soon as possible, we plan to sit back down with State Farm, Attorney General Hood, Insurance Commissioner Dale and others involved in the negotiations of this settlement to quickly resolve the issues and get a revised settlement proposal in front of the Judge.
On a separate track, next week we plan to begin disbursing the settlement payments to the hundreds of families we represent apart from the proposed class settlement. We hope that Judge Senter and others watching those payments realize the importance of reaching a fair and timely solution for all policyholders. Mississippi needs to recover from Hurricane Katrina now, not spend years fighting case after case. Given Judge Senter’s prior rulings, requiring that each individual case be tried separately would take years for families on the Coast to get the relief they could have now through this class resolution process. (link)
More discussion to come.
Posted at 12:15 PM, Jan 29, 2007 in Permalink | Comments (0) | TrackBack (0)
