Miss. AG Hood Sues State Farm For Bad Faith

Mississippi Attorney General Jim Hood announced last week he was suing State Farm Fire and Casualty Company for breach of contract and bad faith over a failed January settlement agreement concerning Hurricane Katrina claims.

In response, the Bloomington, Ill.-based company called Mr. Hood's action a headline-making move that would not do much for policyholders, and said a separate agreement to cover such claims that it arranged with the state insurance department is working well.

Mr. Hood's action, seeking compensatory and punitive damages, was filed in the Circuit Court of Hinds County.

“We filed this lawsuit in an effort to help the more than 30,000 Gulf Coast policyholders who have suffered for nearly two years because of State Farm's inaction,” he said in a statement.

“The State Farm re-evaluation procedure through the Department of Insurance has only resulted in a little more than 300 new offers. That does not comply with the terms we have with them in black and white,” said Mr. Hood.

According to the attorney general, “we have a state court order that they signed and then backed out on. If they will breach a clear agreement with a state, then this is further evidence that they have breached their own policy provisions with their insureds on the coast.”

Mr. Hood charged that State Farm has violated several specific terms of the settlement agreement, including their failure to make “an offer of settlement to the policyholder based upon criteria and guidelines approved by the United States District Court for the Southern District of Mississippi.”

State Farm “has intentionally and in bad faith acted with disregard toward the rights of its policyholders,” said Mr. Hood.

Mike Fernandez, State Farm's vice president of external relations, said it appeared Mr. Hood was “more interested in making headlines in an election year than in making headway for the people of Mississippi.”

“You have to wonder, what would motivate Attorney General Hood to disrupt an agreement that mirrors the one he was 'happy to announce' on Jan. 23 and asked other insurers to emulate as 'a step to recovery' two days later?” he added.

State Farm noted that the settlement in question was reached in January with the Woullard class-action agreement, which was ultimately dropped at the request of the Scruggs Katrina Group attorneys after the judge expressed displeasure with it.

After the Scruggs action, State Farm arranged with the Mississippi Insurance Department to extend a settlement to Mississippi policyholders in which it agreed to re-examine claims it had handled.

The department's settlement was “without a 'set aside' of millions of dollars in compensation for trial lawyers,” State Farm noted in its statement.

Kim Brunner, executive vice president, general counsel and secretary of State Farm Insurance Companies, said, “The attorney general's actions only further highlight the unpredictable legal and business environment that led to our February decision to suspend writing any new homeowners or commercial property business within the state of Mississippi.”

State Farm said that under the insurance department settlement, it has:

o Mailed over 30,000 letters to policyholders in Jackson, Harrison and Hancock counties.

o Received thousands of responses from these policyholders.

o Processed claim re-evaluation requests.

o Made offers totaling over $10 million.

According to State Farm, Mr. Brunner wrote to Mr. Hood: “We want to work with you. The terms of the [insurance department] program mirrors the re-evaluation program that we had hoped to accomplish through the Woullard settlement. It is working, and we will be providing you with a status report in the days ahead. It is completely voluntary, and State Farm receives no release until a policyholder accepts the settlement offer. Policyholders who do not participate in the process or who reject an offer retain all of their legal rights.”

State Farm said it has already paid more than $3.1 billion to settle all Hurricane Katrina claims–over $1.2 billion of that in Mississippi–adding that more than 99 percent of all State Farm Katrina claims have been settled.