State Farm Strikes Deal To Settle Thousands Of Mississippi Katrina Claims

State Farm and Mississippi's insurance regulator announced an agreement for handling Hurricane Katrina claims last week, which the company said includes many provisions of a proposed class-action settlement that collapsed earlier this month in federal court.

On March 12, a group of attorneys involved in the federal class-action proposal notified U.S. District Court Judge L.T. Senter Jr. in Gulfport, Miss., that they were withdrawing their request to have the settlement approved.

Based in part on withdrawal of the class-action deal, Mississippi Insurance Commissioner George Dale said he had arranged with the company to undertake a re-examination of claims, where policyholders requested it, which could eventually impact some 35,000 homeowners.

The commissioner explained that his latest arrangement with the insurer was an expansion of his March 6 agreement with State Farm to reopen about 1,200 coastal claims. That agreement–which applied only to homes that were swept off their foundation slab–called for such claims to be reviewed by a new team of adjusters.

Scruggs Katrina Group–the combination of plaintiff attorneys that was part of the proposed federal court settlement–criticized the commissioner's March 6 arrangement as a “milk toast deal” (sic) lacking the binding arbitration in their proposal.

A State Farm representative, Fraser Engerman, said the newest arrangement with Mr. Dale does not include binding arbitration, but “upholds the spirit” of the federal court proposal, which “essentially was dead” when Scruggs Katrina Group pulled out.

He said the company pledged to pay a minimum of $50 million in claims and would be contacting slab owners within 14 days in Hancock, Harrison and Jackson counties. At issue are claims initially rejected as policy-excluded flood damage.

Mr. Engerman said the arrangement with Mr. Dale would include renters and commercial claims–including those that are, or were, in mediation. He noted that commercial claims were not in the proposed federal court settlement.

Mr. Dale said if a claim already is in litigation, the insured's attorney will need to ask that it be readjusted. As a starting point, he said State Farm will use the settlement numbers under the proposed class action.

State Farm offered to pay 50 percent of slab claim policy value without question. The commissioner said his department believes that in a lot of cases, there is a strong possibility the insured will be receiving more than what was offered in the class-action settlement.

When he learned that the proposed class-action settlement had stalled, Mr. Dale said his department “opened negotiations with State Farm immediately, working virtually around-the-clock to come to this agreement.”

He said “this plan presents a consumer-friendly way to resolve these disputes and quickly put substantial amounts of money into the hands of those waiting to rebuild their homes and lives on the coast.”

He added that combined with recently passed wind-pool legislation (detailed later in this story), “this is another big step toward a more stable insurance environment.”

He said State Farm will review claims, make payment offers and, if requested, rely upon his department's Hurricane Katrina Mediation Program to resolve differences. Representatives from the insurance department will monitor the claim review and payment offers.

Mr. Dale described the arrangement as a “no-lose proposal for coastal policyholders. It's a free process and presents them with the opportunity to have their claim looked at again by different eyes, under the supervision of the Mississippi Insurance Department.”

He said State Farm indicated it hopes to have all claims readjusted within 60-to-150 days following notification from the policyholder, and will create a toll-free number to answer any questions.

In addition, the commissioner said he is continuing to have discussions with State Farm about reopening their Mississippi markets. The company said in February that it would stop accepting new homeowners business in the state.

Commissioner Dale said discussions with other companies on expediting their claim-handling practices were ongoing as well, and further announcements to aid in stabilizing the state's insurance market could come in the following weeks.

Republican Gov. Haley Barbour issued a statement calling the announcement “great news. Commissioner Dale's action should allow hundreds if not thousands of Mississippi homeowners to receive insurance payments from State Farm after these claims are readjusted. Everyone's goal should be to get as much money as possible into the hands of as many people as possible so they can continue to rebuild. This agreement is another way to do that.”

Meanwhile, Mississippi's passage of legislation to alter the state's wind pool has drawn praise from insurers.

The state's legislature gave final approval to a measure that, according to the American Insurance Association, will permit the insurance commissioner to authorize a surcharge on property insurance policies, which would be used by the wind pool to repay insurers for any assessments they paid to make up for future deficits in the pool.

Gov. Barbour last week signed the bill–HB 1500, the Mississippi Economic Growth and Redevelopment Act–which passed without a dissenting vote, AIA noted.

Under the current wind pool structure–which provides property coverage to homes and businesses in six coastal counties–private property insurers are required to make up any deficits incurred if the wind pool does not have sufficient funds.

After Hurricane Katrina, Mississippi property insurers were assessed $545 million, based on their market share, to make up a pool deficit caused by heavy losses. AIA said at that point the only way for carriers to be reimbursed for assessments was through a future rate filing.

Under HB 1500, property insurers–which can be assessed up to 10 percent of their total property premiums in the state–would be repaid through a surcharge on property policyholders throughout the state.

HB 1500 also gives the wind pool the authority to issue bonds if the amount assessed is not sufficient to pay claims.

Other provisions include a four-year, $20 million-a-year subsidy to the wind pool to reduce policyholder premiums, and a change in the appointment process for the wind pool's board of directors.

Monies allocated to the pool, with legislative approval, can be used by the state insurance department to help with expenses and costs for reinsurance for the pool operation. Any money that remains in the pool above a $50 million threshold is returned to the state's general fund at the end of the fiscal year.

The measure is important for the state and for insurers, according to Cecil Pearce, AIA's southeast region vice president.

“We applaud the state's political leadership, including Gov. Haley Barbour, Insurance Commissioner George Dale and legislative leaders, who showed a strong commitment to this legislation, and who worked with AIA to craft a solid reform package.”