In a verdict that surprised industry observers, a federal jury has told State Farm to pay a Biloxi, Mississippi couple $2.7 million for refusing to cover damage to their home caused by Hurricane Katrina. Mississippi U.S. District Court Judge L.T. Senter Jr. ordered the Bloomington, Ill.-based insurer to pay $233,292, the full value of Norman and Genevieve Broussard’s home, saying the insurer’s handling of their claim was “impermissible” because it gave them no recourse but to file a lawsuit. Punitive damages were then set at $2.5 million.

“I find the defendant did not have any legal or arguable reason for refusing to pay the plaintiffs’ claims,” Senter said from the bench, according to a transcript of his remarks.

The judge ruled that State Farm did not provide sufficient evidence to prove what damage to a Mississippi family’s house was caused by wind versus water, and that the homeowners needed to only prove a direct physical loss. After State Farm refused to pay for any damage to their demolished home after Katrina, the Broussards sued to obtain full insured value of their home plus $5 million in punitive damages. They maintained that winds from Katrina destroyed their house. State Farm, however, denied any payment, arguing that all the damage was caused by storm surge waters. Insurers maintain that traditional homeowner policies cover damage from wind but not from water or damage caused by a combination of both.

Senter’s ruling maintains that in the Broussard case, the insurer failed to prove as it claimed that all of the damage to the Broussards’ home was caused by storm surge. He also said the insurer failed to show how much damage was caused by wind and how much by storm surge.
State Farm spokesman Phil Supple said the insurer is “disappointed and surprised by the court’s ruling” and the company’s next steps “will likely include an appeal.”

Hundreds of similar lawsuits are pending, and State Farm is in settlement talks between State Farm and Mississippi Attorney General Jim Hood. A day before his decision, Judge Senter ordered 83 cases involving policyholders and insurers into mediation, including two cases involving Sen. Trent Lott (R-Miss.) and Rep. Gene Taylor (D-Miss.), both of whom saw their homes destroyed in Hurricane Katrina. Both Taylor and Lott are among those suing State Farm. Prior to this trial, Judge Senter had ordered 55 cases into mediation, 28 of which have resulted in settlements.

Key Katrina Ruling Favors Homeowners (Insurance Journal 1/12/07)
 
Judge Orders 83 Katrina Cases to Mediation (Insurance Journal 1/12/07)

January 17, 2007