State Farm Settles Mississippi Katrina Claims

At last! The New York Times reports a significant "global settlement" has been forged for Mississippi customers of State Farm Insurance who suffered property damage during Hurricane Katrina. The hurricane struck the Gulf Coast in August, 2005, devastating almost the entire Gulf Coast.

Here are the details:

• State Farm will make an initial payment of $80 million to settle 640 pending lawsuits.
• Policy limits, or the fully insured value, will be paid to 300 homeowners whose houses were "swept away."
• "The owners of the 340 other homes, with varying degrees of damage, are to receive an average of $124,400."
• "At least" $50 million more will be paid to those among the 35,000 other State Farm customers whose claims were previously closed.
• That sum will increase to an estimated "$200 million to $600 million" depending on how many of the 35,000 customers make new requests to reopen their claims.
• Homeowners whose claims are reopened "may accept a new offer from State Farm or insist on binding arbitration."
• Any insured customer remains free to "ignore the settlement and file separate lawsuits against State Farm."

As for non-State Farm customers, unnamed "insurance executives" are telling the Times they anticipate other Mississippi insurance companies will agree to similar deals with their own customers. A State Farm mouthpiece from Philadelphia told the Times his client agreed to the settlement to "remove a major public relations headache."

Randy J. Maniloff, a lawyer at White & Williams in Philadelphia who represents insurance companies, said yesterday that it was clear that the bad publicity had been a big factor in State Farm’s decision to settle. "They spent 80 years building up a brand," he said, "and the adverse publicity from these lawsuits has been clearly doing damage to the brand. It just flies in the face of their portrayal of themselves as good neighbors."

Branding and the rotten reputation of State Farm aside, it's clear that the insurance company was motivated by something more -- namely, the fear of facing juries eager to mete out justice.

Two weeks ago, a Mississippi jury considered the first Katrina claim to get to trial and awarded policy limits of $232,292 in actual damages plus $2.5 million in punitive damages for the insurer's bad faith in rejecting a hurricane claim. Earlier this week, State Farm agreed to settle the second Katrina case headed for a jury trial by paying an estimated $1 million.

Ironically, one of the beneficiaries of the "global settlement" will be U.S. Senator Trent Lott (R-Ms.), a frequent critic of plaintiff's lawyers and class actions. Lott is the brother in law of Mississippi plaintiff's lawyer Dickie Scruggs, who was the principle driving force behind the first two jury trials as well as the 'global settlement' reached yesterday.

The Mississippi agreement has no binding legal effect on pending insurance claims elsewhere along the Gulf Coast, including Northwest Florida , Alabama, and Louisiana. Each state's insurance laws -- and courts -- differ. Even so, the Mississippi settlement establishes what could be considered the "market value" of a Katrina claim, bringing added pressure on insurers in other states to emulate it.