Before a federal judge threw a monkey wrench into the process, some insurance groups expressed hope that the proposed State Farm class-action agreement to settle water-related Hurricane Katrina damage claims for thousands of Mississippi homeowners would put an end to anti-industry rhetoric along the Gulf Coast and all the way to Congress.
U.S. District Court Judge L.T. Senter Jr. sent the negotiators back to the bargaining table last week to overcome a number of objections he raised, but even before the deal was derailed, industry officials had mixed reactions.
"This settlement is a forward-moving event that's in the best interests of State Farm's policyholders and rebuilding the Gulf," said Nancy Grover, a representative for the National Association of Mutual Insurance Companies. "It doesn't further these efforts to engage in political posturing at this time."
The settlement, which could affect 35,000 claims and cost the company over $500 million, closed 639 open lawsuits while allowing other policyholders to reopen claims in three coastal counties where homes were hit with storm-surge waters.
Joseph Annotti, a representative for the Property Casualty Insurers Association of America, said State Farm had made "a business decision that allowed the company to preserve the sanctity of the water damage exclusion in its contract, serve its policyholders, and move forward in the ongoing effort to rebuild the hurricane-ravaged economy of the Gulf Coast."
He added that much of the rhetoric around the cases–which he called "persistent saber-rattling" by Mr. Hood–"only increases the level of contentiousness in the state and the region."
However, Robert P. Hartwig, president of the Insurance Information Institute, called the proposed settlement bad for the industry, adding that "the deck is stacked against you in a state like Mississippi."
The whole issue in the settlement is very unsettling for the insurance industry, according to Mr. Hartwig. "Fundamentally what is happening is that insurers are being forced to pay hundreds of millions, if not ultimately billions in excluded flood losses–a type of loss for which insurers have never collected a penny in premiums," he said.
In the end, he predicted, the settlement will see "very substantial amounts go to trial lawyers rather than those whose homes have been destroyed."
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