State Farm Agrees to Major Settlement of Mississippi Katrina Cases

After several weeks of negotiation, State Farm Fire & Casualty Co. has reached an agreement to settle all of its Mississippi lawsuits stemming from Hurricane Katrina. The settlement must now be approved by Judge L.T. Senter, the federal judge who ruled against the company in a damage-liability suit earlier this month. The settlement does not address damages to neighboring states.

The agreement calls for an initial payment by State Farm of $130 million, a tab that may grow several times larger depending on the number of policyholders who decide to reopen their claims. About $80 million will be used to settle the more than 600 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 own homes on the Mississippi coast and are eligible to have their claims revisited.

State Farm attorneys finalized the agreement with Mississippi Attorney General Jim Hood, who had previously filed a major civil suit against the insurer for fraudulently denying claims. The new settlement will most likely preempt that civil suit and put an end to any criminal investigation undertaken by the state.

Under the terms of the settlement, as reported by the Associated Press, policyholders will receive offers from State Farm in writing and be given 18 days to respond. If an offer is accepted, it would close the door on future legal action; if it is rejected, the policyholder is free to pursue a personal lawsuit. State Farm promises payment on accepted offers within five days. Those whose homes were completely destroyed will receive minimum offers of 50 percent of their total policy value.

To be sure, negative publicity lodged against the company played a role in spurring the settlement, but Judge Senter’s ruling against State Farm earlier this month certainly had an effect as well. On January 11, Senter held State Farm liable for damages to a couple’s Biloxi home following Hurricane Katrina. The company was responsible for paying $223,292 in damages to the home, plus an additional $2.5 million in punitive damages, after Senter ruled that the company failed to prove that flooding caused most of the damage. State Farm and other insurers had argued that they were not responsible for water damage.

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