Insurance Claims and Bad Faith Law Blog

Katrina CatClaims Revisited: State Farm Settles, Is Sued Again.

    It appears that State Farm may have been sued again for Bad Faith as a result of Hurricane Katrina Catastrophe Claims -- indirectly, this time.

    There was once a settlement agreement, among many policyholders and State Farm, in Mississippi.  The proposed settlement agreement was subject to Federal Court approval.  The Federal Judge was confronted with more questions than answers when he was presented with the proposed settlement for his approval.  The Federal Judge refused to approve it, at least until the many questions were answered.

     State Farm then reportedly reached a settlement agreement of many of the same claims with the Mississippi Insurance Commissioner's Office.  This lengthy previous history was summarized in "Update to the Update:  New Settlement in Mississippi," posted on March 20, 2007 on "Insurance Claims And Issues".   

    It is now reported that the State of Mississippi, through the Mississippi Attorney General, filed a new Complaint on Monday, June 11, 2007 in Mississippi State Court.  The new Complaint contains allegations, it is reported, that State Farm breached the (first) settlement agreement and thus breached a contract.  The new Complaint contains demands for compensatory and punitive damages.  More will be posted as the Complaint becomes available.  As of the night of June 11, 2007, there was a momentary silence on the subject on the web sites of both the Mississippi Attorney General and the Mississippi Insurance Commissioner.

     Here is a link to State Farm's Press Release of June 11, 2007,which State Farm entitled "Mississippi Attorney General's Lawsuit Threatens to Disrupt Hurricane Katrina Settlement Process with MIssissippi Insurance Department". 

     Here is a link to the whole available story on "Insurance Claims And Issues".
   
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Partial Payment of Claims ... UPDATED!

     This post updates the post here on January 12, 2007 regarding:

Punitive Damages, Katrina and the Insurance Contract:  Lessons Revisited and a Tale Told in Pieces or in Parts.

   

     On January 31, 2007 Federal Judge L.T. Senter, Jr. entered an Order reducing the Punitive Damages Assessment in the Broussard case.  The Federal Judge reduced the Punitive Damages assessment in that case to 40% of what the Jury assessed, reducing the assessment from $2,500,000.00 to $1,000,000.00.  Here is a link to the Order:  Norman J. Broussard & Genevieve Broussard v. State Farm Fire & Cas. Co. (S.D. Miss. Case No. 1.06CV6, Order entered January 31, 2007) .  For another report on this same decision, go to the February 1, 2007 post on Insurance Claims And Issues.     

     The Federal Court's ruling on January 31, 2007 adds to the facts coming in about the bases for this lawsuit, about the Bad Faith allegations in it, and about the reasons behind the Jury's finding of entitlement to Punitive Damages under Mississippi law.

     The Homeowner's Policy involved in the Broussard case was "an 'all perils' policy in the case of the dwelling and a 'named peril' policy as to contents, i.e., windstorm."

     Second, the initial investigation by the Homeowner's Insurance Company showed clearly that the Policyholders' home "was reduced to a slab by Hurricane Katrina" and that the damage was caused more by flood than by wind, the Federal Judge wrote.

     The Insurance Company "did not obtain any expert opinion on this particular loss."

     Rather than obtaining any expert opinion, as the Federal Court noted, the Insurance Company instead established a procedure for homes reduced to nothing remaining except the slab, a procedure which it applied in the Broussard case.  The subject procedure was to use "the debris line" and declare that in the instance of only a slab remaining, all damage would be presumed to be caused by FLOOD which was NOT a covered loss, thereby leaving it to the Policyholders to bear the burden of proving damages caused by a covered loss such as WIND.

     Although not repeated at any length in the January 31, 2007 Order, the Federal Court had PREVIOUSLY RULED in that same case that the burden of proof was INSTEAD on the Insurance Company to prove at Trial in Court that all or part of the damages claimed by the Policyholders were EXCLUDED.

     The Homeowner's Insurance Company "relied on its flood exclusion to totally deny the claim."

     The Federal Judge held that there was clear and convincing evidence in the Broussard case supporting a finding by the Jury of entitlement to Punitive Damages.  There was in other words clear and convincing evidence, the Federal Judge wrote, "that Defendant acted in such a grossly negligent way as to evince willful, wanton, or reckless disregard for the rights of the Plaintiffs."

     That ruling affirmed the issue of Mr. and Mrs. Broussards' entitlement to Punitive Damages under the facts of this case.  As to the amount of Punitive Damages, to $1,000,000.00, the Mississippi Federal Court reduced them as noted, doing so both under Mississippi State law and under "due process considerations under the United States Constitution."

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Jury Pools in the Wake of Katrina in Mississippi.

    Bad Faith Cases receive careful attention.  Part of the focus in every Bad Faith Case is the potential Jury Pool, or the Venire.  They are the people deciding issues of fact and who they are is clearly important.

    Before Katrina struck Mississippi, most Mississippians were like most residents of the rest of the Gulf Coast.  Few people carried Flood Insurance.  However, the focus on Insurance Coverage for Katrina Damages Claims can divert attention from the fact that many people did not have Property Insurance Coverage or  Homeowner's Insurance  either.

     They are the people who make up the Venire for Mississippi Bad Faith Cases like the recent case reported in newspaper articles and in a post here on January 15, 2007.

    Briefly, the recent case in Mississippi involved First-Party Bad Faith Claims including Punitive Damages Claims.  A Federal Judge directed a verdict for the full Policy Limits available under a Homeowner's Policy.  The case went to the Jury on the question of Punitive Damages under Mississippi law, which is fully discussed in the January 15, 2007 post.  Without repeating all of that post here, in general terms Mississippi law allows the assessment of Punitive Damages for Bad Faith Breach of Contract and it can be Bad Faith not to pay any part of Damages which are covered.

    It is reported that the Homeowner's Insurance Company in that case never made an offer.

    The Jury assessed $2,500,000.00 in Punitive Damages.

     See the detailed discussion of the situation in which these potential Jury members live today, Peter Whoriskey, "As Aid Lags, Volunteers Shoulder Rebuilding on Gulf Coast/Local Gratitude Mixes With Frustration Over Government's Failures" (Washington Post, Sunday, January 28, 2007, p. A03), and the discussion generally of Venires available for Katrina Cases across the Gulf Coast, in Insurance Claims and Issues.

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Partial Payment of Claims ....

                Punitive Damages, Katrina and the Insurance Contract:                           Lessons Revisited and a Tale Told in Pieces or in Parts.   

    An Insurance Company has been assessed $2,500,000.00 in Punitive Damages by a Jury in Federal Court in Mississippi.  Here is the Punitive Damages Verdict that was filed on Thursday, January 11, 2007:  Download Broussard_v. State Farm Fire & Casualty Co. Verdict January 11, 2007 (S.D. Miss. Case No. 1.06.cv6).pdf.

    The Federal case involves Claims for Damages following Hurricane Katrina.  News outlets began broadcasting the report on the evening of the day this Punitive Damages Verdict was filed, and news outlets continued to report on this Verdict the next day, as expected.  An insightful article is published online at Bloomberg.com.  Here is a link to it:  Lawrence Viele Davidson & Erik Holm, "State Farm Must Pay Couple $2.7 Million for Katrina (Update4)" (www.bloomberg.com/apps/news, dateline Jan. 11, 2007 (Bloomberg)).  The Punitive Damages Verdict was also blogged.  See for example Insurance Claims and Issues Blog.  This post will suggest some missing information that may be needed in order to understand how this Verdict was rendered and to explain something of what it means.

    As was noted at the beginning,  the  Broussard case is one of many Hurricane Katrina-related lawsuits.  It involves Insurance Coverage Claims for Damages to a Home.  It clearly also involves a claim for Punitive Damages under Mississippi law since that Punitive Damages Claim went to a jury.  Although the Complaint does not appear to be accessible in the Federal Court's online docket as the case was removed to Federal Court from Mississippi State Court, piecing together various reports about this particular case with established Mississippi case law yields the following possible scenario.

    "At its core, Plaintiffs' cause of action is based on an alleged breach of contract.  The Complaint does not even contain separate counts."  Download Broussard_v. State Farm Fire & Casualty Co., Order on Motion for Partial Summary Judgment entered November 6, 2006 (S.D. Miss.  Case No. 1.06cv6).pdf.  The Federal Court's November 6, 2006 Order also provides the information that the Court itself did not have a lot of allegations and exhibits to go on.  Although the Complaint attached a specimen Homeowner's Policy, it was not the policy issued to Mr. and Mrs. Broussard.  "This attachment does not disclose the policy limits.  The Plaintiffs' residence apparently was reduced to a slab by the storm, although it takes a lot of reading to reach that conclusion.  The tension in the record is between the damages sustained by Plaintiffs and the manner in which their claim was handled by Defendant."  Id.

 In a later Order, the Federal Court repeated that "Plaintiffs' cause of action at its core is based on an alleged breach of contract."  The Federal Judge also acknowledged a very important Claim:  "Plaintiffs also assert that they are entitled to punitive damages and/or extra-contractual damages due to the Defendant's alleged bad faith conduct in handling and denying their claim."  Download Broussard_v. State Farm Fire & Casualty Order on Motions In Limine entered on December 28, 2006 (S.D. Miss. Case No. 1.06cv6).pdf.

    The Policyholders' Insurance Company never made an offer for any part of the  Claim.  A spokesperson for the Insurance Company is reported as stating that it was sued by the Policyholders after it had refused to pay anything on their Claim.  See the news report by Joseph B. Treaster, "State Farm Told to Pay Gulf Claim" (New York Times, Friday, January 12, 2007).

   However, according to the Federal Judge's Law Clerk and reported in the same article in The New York Times, Experts for the Insurance Company stated in unspecified documents filed in the Court File, that some damage to Mr. and Mrs. Broussard's home was caused by Wind, a Covered Peril.

    Further, before Trial of the Broussard case, the same Federal Judge ruled in other cases pending before him, that (1) presumably similar Flood or Water Exclusions will exclude Coverage for all damage caused by Flood or Water, in part here pertinent, but that (2) the Policy does not exclude all Coverage if part of the Damages are caused by Flood.  These rulings were certainly generally known, as previously noticed by a Federal Judge in the Eastern District of Louisiana, for example, and in a post on  December 5, 2006 here and in Insurance Claims and Issues Blog.

    Thereafter, the Insurance Company could defend against Punitive Damages only by (1) paying or perhaps at least making an offer to pay the clearly covered part of the Claim or (2) successfully arguing the total applicability of the Flood or Water Exclusion to exclude all damages.

    Mississippi standards for assessing Punitive Damages in First-Party Bad Faith cases have been pretty clear for a very long time.  Mississippi  requires more than proof of First-Party Bad Faith and certainly requires more than proof of carelessness, for example.  "Carelessness, however, does not rise to the level of bad faith required for plaintiff to prevail on her [Punitive Damages] claim."  Mixon v. Provident Life & Accident Insurance Co., 616 F. Supp. 139, 142 (S.D. Miss. 1985), aff'd mem., 783 F.2d 1061 (5th Cir. 1985).   Mississippi Punitive Damages law requires more than a finding that a credit life insurer, for example, in another First-Party Bad Faith case "lacked an arguable reasonable basis for denying the claim....  A further finding is required showing malice or gross negligence or disregard of the insured's rights."  Barber v. Balboa Life Insurance Co., 747 So. 2d 863, 868 (Miss. Ct. App. 1999).  These and similar rulings are further addressed at much greater length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (2nd Ed. 1994), published by West Publishing Company online and in print.

    Further, as early as 1979 the Mississippi Supreme  Court held that a  Punitive Damages instruction is properly given to a Jury, and a First-Party Insurance Company is properly assessed Punitive Damages, where the First-Party Insurance Company declines to pay all of its Policy Coverage where some of its Coverage applies.  See Travelers Indemnity Co. v. Wetherbee, 368 So. 2d 829, 833-35 (Miss. 1979) and the cases discussed by the Supreme Court of Mississippi in that decision.  These Mississippi rules of law were visited by the same Federal Judge assigned to the Broussard lawsuit, in an earlier case in which he also cited to Travelers Indemnity Co. v. Wetherbee (Miss. 1979), for example.

    The same Federal Judge who submitted a Punitive Damages Claim to a Jury in Broussard similarly submitted a Punitive Damages Claim to a Jury several months earlier in another First-Party Bad Faith case -- which also involved a similar Claim that "Hurricane Katrina completely destroyed Plaintiffs' home" and unresolved "issues related to claim handling", particularly handling the Claim after "a report in November, 2005, indicated that damage was due in part to something other than water."  In that earlier decision, the Homeowner's Insurance Company did tender payment "in August 2006" -- and the Policyholders' Punitive Damages Claim still went to a Jury:  Download Odom_v. Armed Forces Insurance Co. (S.D. Miss. Case No. 1.05cv669, Order entered on August 31, 2006 on Defendant's Motion for Partial Summary Judgment).pdf.

    The Policyholders' lawyers in the Odom case are also the Policyholders' lawyers in the Broussard case.

    Back to the Broussard case and January 11, 2007.  At Trial, there was reportedly evidence that, at the least, the Flood or Water Exclusion did not exclude all damages. 

    The Federal Trial Judge directed a verdict on Compensatory Damages, awarding Mr. and Mrs. Broussard $233,292 under their Insurance Policy, it is reported in both of the news articles linked above.  The Federal Judge also thereby directed a verdict on entitlement to Punitive Damages.  The Jury in that case then unanimously returned its Punitive Damages Verdict less than three hours later.

    Mississippi is not, of course, the only State that requires payment of clearly covered Claims in Good Faith under First-Party Insurance Policies.  Almost all do, and recent examples always seem to be at hand, such as in Florida.  See the post entitled,  "CatClaims, Coverage, Part Disclaimer With Part Payment .... And Florida Statutory Bad Faith" on November 17, 2006, for example, in Insurance Claims and Issues Blog.  The same lessons apply in one State as in another, and in one reported case as in another with the same result.  The law applied by the  Mississippi Federal Court in the  Broussard case is not new law, and neither is the result, it appears.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

Computer Models: Facts In, Opinions Way Out.

    All Catastrophe Insurance Premiums such as for Homeowners Insurance and all kinds of Property Insurance, are based on a solid, fact-based Computer Model.  For example, Florida is the first State -- and as of now, perhaps the only State -- to develop its own CatClaims Computer Model which is used to assess Rate Hike requests.  The history of Hurricane damage, for example, is input into that Computer Model to reflect the reality on the ground since statistics about Hurricane damages began.

    This year Florida spent $2,700,000 to obtain a "computer catastrophe model" of CatClaims.  Florida officials are also continuing to use Property Insurers' computer models, which were the only source of claims predictions data available to Florida and other States until Florida developed its own CatClaims Model this year.  See my November 6, 2006 post.

    Recently, some corporate headquarters in other States have quietly submitted Premium Increase Requests in Florida using opinion-based 'models' instead.  One such 'model' originates in California and is based on the input opinions of several paid anonymous persons, for example.   See  my December 3, 2006 post here, and see Peter G. Gosselin, "Insurers Learn to Pinpoint Risks -- and Avoid Them" (Los Angeles Times, Tuesday, November 28, 2006, page A1, col. 2)(Note: Registration for this newspaper article may be required, but is stated on their Web Site to be FREE).

  However, the Florida Office of Insurance Regulation, it seems, is not accepting Premium Increase submissions based on anything but the facts.  One recent example is given by the submissions of USAA, one of many examples and not unique to USAA, a good and exemplary Company in many ways.

   USAA at first requested an increase in premiums for homes and condominiums for a statewide average of 40% in Florida.  USAA's first request was made as of August 11, 2006.

   Within a month and  a half, a Hearing was held by the Florida O.I.R. on September 26, 2006.  The evidence for the Rate Hikes requested was examined and of particular interest here, the regulators questioned the model that was used as a basis for the requests.

  On November 2, 2006 the O.I.R. rejected the 40% rate hike request.  The reasons of especial interest here include that (1) "[t]he company failed to provide sufficient supporting data for the catastrophe model used" in the submission, i.e., there were not enough facts presented that would allow people to review the facts used to support the requested increase, and (2) the 'model' used in the submission "is not currently accepted ...." November 2, 2006 Notice of Intent to Disapprove, from the Florida Office of Insurance Regulation (Mr. Ken Ritzehthaler, Actuary) to U.S.A.A. (Ms. Janet Ogle, Compliance Analyst).

    USAA then "amended its filing and lowered the overall rate requests to 16.3 percent."  USAA's Rate Increase Request of 16.3 percent was approved by the Florida Office of Insurance Regulation on Thursday, December 21, 2006.  It will take effect for Florida Homeowners and Condominium Owners insured by USAA as of February 8, 2007.   See December 21, 2006 Press Release, Florida Office of Insurance Regulation.

    Reporting on these complex issues is done by very few, and very few people report on these issues better than Ms. Kathy Bushouse, for example, and one way to read current and past reporting on these complicated issues is to link to this article:   Kathy Bushouse, "USAA Rates on Home Insurance to Rise by 16.3% Across State" (South Florida Sun-Sentinel, Friday, December 22, 2006). 

    More information needs to be made public about shifts away from reality that are requested anonymously by some people, and to a 'model' that benefits their employers.  Facts are abundant such as in Florida to justify good arguments for many kinds of CatClaim Coverage Premiums.  Let any and all Premium Hikes be submitted in the open -- and if they are not, let them continue to be amended until they are submitted based on publicly available facts.

   Until that day, Happy Holidays to All!

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.