The insurance company State Farm has agreed to pay hundreds of millions of dollars in additional money to Mississippi residents whose homes were damaged by Hurricane Katrina. The deal is an attempt to settle part of the huge backlog of legal cases pending from the storm. And Mississippi officials, who negotiated the settlement, hope other big insurance companies will also sign onto the deal.
Of the thousands of lawsuits against major insurance companies that followed in Katrina's wake, two have gone to trial and a third is getting under way. The federal judge hearing the cases, L.T. Senter, has urged the parties to try to reach some kind of global settlement.
Tuesday, after weeks of tough bargaining, a settlement was announced by Mississippi Attorney General Jim Hood.
"It's been like a death roll with an alligator for the last two months in these negotiations," Hood said. "I would have tried 10 capital murder cases, one after another, than to have to go through these difficult negotiations..."
Most of the disputes with policyholders involved the question of wind versus water. Insurers insisted that homes were destroyed by flooding, which wasn't covered under people's homeowners policies. Homeowners argued they were damaged by wind, which was covered.
Under the settlement, State Farm agreed to reopen residents' claims and review them using new engineers and adjusters.
The company also will hand over any documents used to deny coverage the first time around. If homeowners are still unhappy with the way their cases are resolved, they can go to binding arbitration.
In cases where homes were completely destroyed, leaving it difficult to determine what damaged them, State Farm will pay half the structural value of the building. The settlement won't resolve all sides of disputes, but it will provide an alternative way to clear up some of these cases. It could also end what has become a major embarassment for the insurers.
State Farm spokesman Phil Supple said he believes the agreement meets Judge Senter's stated goal for a "speedy and efficient" settlement.
"It's good for policyholders, it's good for the rebuilding of the coast and it's good for State Farm," Supple said.
The company declined to speculate about what the settlement might cost it. But Attorney General Hood said State Farm could end up paying at least half a billion dollars. And Hood said he hoped other big companies will use this settlement as a template.