Judge Rejects State Farm Settlement

In another apparent legal blow to State Farm Fire & Causalty Co., U.S. District Judge L.T. Senter rejected a Mississippi class-action settlement related to Hurricane Katrina damage, claiming that the proposed settlement favored the needs of the insurance company over those of the policyholders.

Senter asked for more information before he would approve the deal. “In the absence of substantially more information than I now have before me, I am unable to say, even preliminarily, that the proposed settlement establishes a procedure that is fair, just, balanced, or reasonable,” he said in his decision.

The initial agreement submitted to Senter for approval called for $80 million to be used to settle the 640 existing lawsuits in Mississippi, with an additional amount of at least $50 million earmarked for settlement of reopened claims. (There are roughly 35,000 policyholders who are eligible to have their claims revisited.) However, the two parts of the agreement were submitted as separate settlements. Senter hinted that the class-action settlement should include both current litigants as well as other policyholders.

“There is no evidence that State Farm will evaluate the class members’ claims in any way different from the way these claims have already been evaluated by State Farm in the past adjustment process for these claims,” Senter said.

He added, “To be a true global settlement, any proposed arrangement should take all of the State Farm claims into consideration, and such a settlement agreement should represent a realistic compromise that both parties will find attractive. It would be wise for the parties who have proposed the current class settlement to broaden the scope of the settlement discussions to include the representatives of those parties currently engaged in litigation.”

Mississippi Attorney General Jim Hood had been working with State Farm representatives to reach the settlement. Hood filed a major civil suit against the insurer for fraudulently denying claims and was also overseeing a criminal investigation undertaken by the state.

“Although it was contemplated that the federal court was better prepared to handle this type of process, our office did not negotiate the terms of the proposed federal court class action. In fact, our office had reservations about some of the terms of the class agreed to by the plaintiffs and State Farm,” Hood said in a statement.

“Nevertheless, I knew that Judge Senter would make sure that the class was a fair procedure for all. I am confident that Judge Senter will make the plaintiffs and State Farm fix the problems he has raised in his order.”

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