1998 Hurricane Deductible Lawsuit Resurfaces

State Farm Fire and Casualty Company and Allstate Insurance Company are named as defendants.

According to the plaintiff's lead attorney Richard F. Scruggs, who announced the motion in Jackson County Circuit Court, Pascagoula, Miss., the Mississippi's Supreme Court has never adopted class action procedures and the case would be the first state-level case of its kind if it were allowed to proceed.

A spokesperson for State Farm, Phil Supple, said the company at this point has yet to see any motion papers, and in any case its policy is not to comment on pending court actions.

He remarked, however, that the company has implemented hurricane deductibles because there has been a tremendous population buildup in coastal areas and that the use of deductibles is a mechanism that makes insurance "available and affordable, given the risk level" of the homes involved.

A spokesperson for Mr. Scruggs, Andrea Calise, said the filing of papers two days after Hurricane Isabel cut a widely publicized swath along the East Coast was "pretty coincidental, but the hurricane season does make the issue more relevant."

According to Mr. Scruggs, the lawsuit alleges the insurance companies caused unreasonable financial hardship for thousands of Mississippi Gulf Coast residents when they "conspired to unfairly penalize homeowners by imposing a 2 percent deductible on their insurance policies."

Mr. Scruggs announcement suggested that the insurance companies had blindsided homeowners "by deviously reducing or eliminating the amount of reimbursement they can receive."

The attorney maintains that "it is clear that, based upon their actions [that] the insurance companies conspired among themselves and threatened the Mississippi Insurance Commissioner to deny homeowners in the three coastal counties of Jackson, Harrison and Hancock unless an excessive deductible was levied."

"The Defendants' wrongful conduct included improper and unsupported claims that they would wholly cease to offer homeowners' insurance to Mississippi residents if their request were not approved," his motion stated.

Mississippi Insurance Commissioner George Dale said after Georges hit, he had required policies to have "a well identified notice" about the deductible. In spite of that requirement, he said, "I don't think anybody we heard from had a clue what a hurricane deductible was. It became an emotional situation."

He said that before the deductible was put in place, he negotiated with insurers to reduce it from 5 percent to 2 percent, and to lower a rate hike request. Mr. Dale said they had informed him if some form of deductible was not approved, "they were going to reduce their exposure on the coast."

"And, frankly, I did not have any companies to take their place," he said.

In the wake of Hurricane Georges, he said, a study by the Chicago accounting firm B.D.O. Seidman found the deductible was put in place with no violation of law involved. He added that if attorneys involved in the suit "are aware of any violation of statute, I would hope they would make the department aware."

According to attorney Scruggs, the deductible was discriminatory and unfairly penalized Gulf Coast homeowners because, "hurricanes often inflict damage to non-coastal counties of a magnitude equal to or greater, and costlier, than damage to non-coastal communities."

Calculating the effects of the deductible, he noted that, in the case of a policyholder with $5,000 in damages and a policy face value of $100,000, the insurance carrier would pay only $3,000. "In effect, the defendant insurance companies were attempting to profit from the misfortunes of those whom they were obligated to protect," said Mr. Scruggs.

"With a particularly severe hurricane season upon us, the ability of Mississippians, as well as hurricane victims across the country, to have access to appropriate insurance protection and to not be discriminated against is essential," Mr. Scruggs said.

His motion argues that a class should be certified because the identical issues of fact and law make a class action mechanism the most logical, prudent and fair manner to handle these cases and that proceeding as a class action promotes judicial economy, ruling consistency and is the only way to protect the rights of all policyholders that were wronged.

According to the court papers, unspecified "millions" of dollars are at stake from the total damage, but the dollar amount for most claimants was not enough to make pursuing a legal action worthwhile.

Mr. Scruggs said the lawsuit was originally filed in state court in 1998, moved to federal court and then returned to state court because the defendants failed to establish a federal jurisdiction for a case involving residents of three counties in Mississippi.

United States Fidelity & Guaranty Company had originally been a defendant in the lawsuit, but it agreed to voluntarily waive the deductible to its Mississippi policyholders. As a result, USF&G is no longer a defendant, Mr. Scruggs said.

None of those commenting on the case were able to say whether the 2 percent hurricane deductible is the basis of legal action in any other state.