State Farm Loses Benchmark Katrina Case

In a ruling that may have ramifications on hundreds of other lawsuits, a federal judge in Mississippi declared that State Farm Fire & Casualty Co. is liable for damage to a couple’s Biloxi home following Hurricane Katrina. While the insurance company is responsible for paying $223,292 in damages to the home, the key part of the ruling was the award by a jury of $2.5 million in punitive damages.

The ruling by U.S. District Judge L.T. Senter Jr. may be troubling news for State Farm and other insurers who are claiming that they are not responsible for damage caused by flooding. In the case of Norman and Genevieve Broussard, State Farm had contended that they were not responsible for the damages because they were caused by water. However, the judge sided with the Broussards, who claimed that the damage was mostly due to excessive winds. Senter left the decision about punitive damages to a jury, and the jury decided to award punitive damages because State Farm had initially (and illegally) denied the Broussards’ insurance claim.

Senter’s ruling put the burden of proof on State Farm to show that water was the primary cause of the damage. In Senter’s mind, the company failed to establish that fact and therefore is liable for the damages. With hundreds of Katrina-related lawsuits still pending, the outcome of this case may eventually cost insurance companies billions of dollars in payout.

As reported earlier this week, State Farm is also currently negotiating a settlement of more than 600 Katrina lawsuits in the state of Mississippi, to the tune of $80 million or more. Today’s ruling may give more leverage to the plaintiffs in negotiations.

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