In talking yesterday about the grumblings I've been hearing since State Farm struck a settlement of its disputed Katrina claims in Mississippi, I neglected to mention one recurring and disturbing theme–that the carrier was insane not to make sure the claims of political big wigs were paid regardless of merit to avoid drawing their wrath in the courts, the media and Congress. I think that's total nonsense.

Two of the politicos involved–U.S. Senator Trent Lott, R-Miss., and U.S. Rep. Gene Taylor, D-Miss.–may be on opposite sides of the country's normal political divide, but they were united in their indignation against State Farm for denying their Katrina claims. Both were told that because flooding was involved, their homeowners policies didn't apply. Both sued, contending that coverage exclusions were vague, while also arguing that their homes were damaged by wind and a related storm-surge, and should therefore be covered.

They have every right to contest their claims–in court, if they feel strongly enough about it–but the two went on to abuse their political might by making their personal battles a national cause. Sen. Lott slipped a provision into a Homeland Security Department budget bill ordering a federal investigation of Katrina claim-handling, while Rep. Taylor is one of the leading backers of a bill to undermine the industry's federal antitrust exemption.

That stinks. But to suggest, as a number in the industry have to me privately (though never on the record), that State Farm was short-sighted and downright stupid to piss off two such powerful policyholders, with the fallout impacting the entire industry, is warped, if you ask me.

My feeling is that if State Farm really did believe that the claims of these two federal power brokers were not covered under their policies, to pay them off anyway would constitute bribery, wouldn't it? And how would State Farm explain paying Sen. Lott's or Rep. Taylor's claims, but not those of their neighbors? Their preferential treatment would not only be morally wrong, but wrongheaded politically.

When I posit that retort, some call me naive, but I still think honesty is the industry's best policy.

Of course, if State Farm really didn't believe all these water-related claims were excluded because of the wind factor, then their big problem wasn't stiffing two Washington bigs, but betraying all of the policyholders affected. At this point, I have no reason to believe that was the case.

State Farm's settlement will include the claims of Sen. Lott and Rep. Taylor, but the political damage is already done, with probes progressing and damaging legislation looming. Lamenting State Farm's failure to give special dispensation to the two D.C. powerhouses regardless of the terms of their policies is cynical to the extreme.

Am I being naive here? What do you think State Farm should have done?

Special Reports /

Sen. Lott Deserved No Favors

Related Stories

Recommended For You