U.S. District Court Judge L.T. Senter Jr. threw a monkey wrenchinto the controversial State Farm settlement of Hurricane Katrinaclaims on Friday. Among his many complaints was that plaintiffattorneys hit the jackpot with as much as $20 million in fees. Butwhile this is a setback, I don't think either side wants the dealto collapse altogether, and expect a modified program to be agreedupon fairly quickly, if only because going back to court is not analternative for the embattled carrier.

Indeed, as reported by our own Dan Hays in today's NU Daily e-newsletter, all the parties involved seem eager toaddress any objections raised by the judge and get the settlementback on track.

I am no fan of this deal, but I can appreciate the pressureState Farm is under to make it happen. After all, not only did thecarrier get hit with a $2.5 million punitive damage award on thefirst of many water-related claims against it, but MississippiAttorney General Jim Hood had convened a grand jury to pursuepossible criminal charges against the carrier. That's an awfullybig hammer to ignore.

Mr. Hood has made it clear that other insurers should followState Farm's lead, and I have no doubt they will. What impact thathas with the market is another story. Such litigation certainlywon't help convince carriers to rush back into the Gulf Coaststates.

Nationally, Katrina continues to reverberate as well, witha scoop from our Washington Editor, Dave Postal, thatlegislation might be introduced shortly modifying the industry'scherished antitrust exemption under McCarran-Ferguson. Dave reportsthat the bill would exempt the insurance industry from federalantitrust laws only to the extent each state had specificallyestablished policies providing such an exemption. That would leavetroubled states such as Florida and Mississippi free to tossinsurers to the wolves in Washington when it suits them, or atleast use such a threat as leverage to bend carriers to theirwill.

Rather than clarifying the industry's regulatory structure, sucha move would only further complicate insurance oversight. I do notsupport federal regulation–even on an “optional” basis–at thispoint, but if Uncle Sam is going to grab insurance oversight fromthe states, then do it already! Don't pass a half-hearted bill suchas this.

In any case, insurer lobbyists are going to have their handsfull in D.C. this year.