Federal Judge Affirms Sending AG's Flood Suit Back To Miss. State Court

In his March decision, Judge Lee said while there are federal interests in the case, the subject is ultimately a state-oriented issue and should return to Chancery Court of Hinds County, Miss., where Mr. Hood filed his suit on Sept. 15, 2005. Judge Senter agreed with Judge Lee's ruling.

Robert P. Hartwig, who takes over this week as president of the Insurance Information Institute, said that while there is a perception insurers would be at a disadvantage in Mississippi, the industry must have confidence that the state courts will follow precedent and ultimately rule in favor of the companies. "State courts are going to have to seriously consider precedent that a federal court has already set in its own district," he said.

Mr. Hartwig said he was heartened by Judge Senter's comments that the passage of time has allowed the court "the opportunity to rule on issues that are raised" in the case.

This is a clear indication, he added, that there is substantial precedent upholding the flood exclusions.

"Insurers must have faith that the judge in this case will listen to all the evidence in an unbiased manner–as will jurors if there is a jury trial–and the evidence will lead to a dismissal of the Hood suit," Mr. Hartwig said. "A good case can be made that this case should be dismissed immediately because the precedent is so strong here that there is no reason why a different principle should apply in state court."

He added that "at the end of the day, what needs to be maintained is the integrity of the insurance contract. Courts or attorneys general cannot be allowed to rewrite retroactively the terms of an insurance contract–every word of which has been approved by the regulator of the state of Mississippi."

The five companies involved in the suit are Allstate Property and Casualty Insurance Company, Mississippi Farm Bureau Insurance Company, Nationwide Mutual Insurance Company, State Farm Fire and Casualty, and United Services Automobile Association.

In a statement, Mr. Hood said he has been in discussions with several companies, "with the aim of trying to resolve these issues without the expense and time of litigation." He said he was hopeful that insurers would "come forward and do what is right toward the policyholders."

However, he threatened that unless companies come to an agreement, they can expect investigations from Congress and a demand from the American people for "national insurance reform and an American Insurance Bill of Rights."

Mr. Hood said insurers should pay claims because they failed to include storm surge in their exclusion, referring to the companies as "sneaky" in their adjusting of claims.

"We are disappointed with the federal court's decision," said Raleigh Floyd, a representative for Northbrook, Ill.-based Allstate. "We are reviewing our options and feel that whatever court decides this issue, it will be consistent with past decisions upholding flood exclusion language." He said he could not comment on Mr. Hood's statement that insurers are in talks with the attorney general to reach a settlement.

Phil Supple, a representative for Bloomington, Ill.-based State Farm, said the company is disappointed in the decision, but is confident the state court will uphold the flood exclusions in insurance policies. He added that since Mr. Hood's filing of the suit, the company has had periodic contacts with his office in an effort to find a "proper and appropriate way to resolve these issues."

Columbus, Ohio-based Nationwide representative Joe Case said the company's attorneys are reviewing its options, and the insurer remains committed to defending its contract language. He added that the company feels it adjusted policyholder claims properly. He would not comment on any contacts Nationwide might have had with Mr. Hood.