A state grand jury was impaneled in Pascagoula, Miss. yesterday to hear evidence in an investigation of State Farm's handling of Hurricane Katrina insurance claims.

The inquiry is looking into allegations that engineering reports may have been altered to minimize wind damage.

The probe, being conducted by State Attorney General Jim Hood, began months ago when subpoenas were issued, and was the subject last year of an unsuccessful court challenge by the insurer and a Houston engineering firm.

Last April, Circuit Judge Stephen B. Simpson in Gulfport, Miss., ruled against the insurer and Rimkus Consulting group, after they sought to limit Mr. Hood's investigation.

Phil Supple, a representative for Bloomington, Ill.-based State Farm, said he could "confirm State Farm is cooperating fully with the attorney general's investigation." He said because grand jury activities "are by nature confidential, there will be no further comment." Mr. Hood's office said it could not comment on grand jury proceedings..

Mr. Hood has also brought a civil suit against State Farm and other insurers, seeking to compel the carriers to cover damage created by wind-driven storm surge.

Settlement talks are underway between State Farm, Mr. Hood and plaintiffs' attorney Richard Scruggs in an effort to resolve more than 600 suits involving Gulf Coast homes with storm-surge damage, which the insurer contends is non-compensable under flood exclusion language.

Mr. Supple said it would be in the best interest of all parties in Mississippi if a settlement could be reached. Last week, the company lost a flood damage case in which Biloxi, Miss. homeowners were awarded $2.74 million--a figure that included $2.5 million in punitive damages.

A similar homeowner's suit against State Farm is due to begin Monday at U.S. District Court in Gulfport.

In the April court action, Mr. Hood's office was seeking all engineering reports prepared for all insurance companies as a result of Hurricane Katrina in Hancock, Harrison and Jackson Counties.

Judge Simpson ruled that request was too broad-based, and ordered that the attorney general should limit his demand for information to specific insurers and adjusters.

Special Reports /

Miss. Grand Jury Begins State Farm Probe

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