GULFPORT, Miss. – State Farm Fire & Casualty Co. is negotiating a multimillion dollar settlement in Mississippi on thousands of lawsuits and other disputed policyholder claims from Hurricane Katrina, people with direct knowledge of the negotiations told The Associated Press on Monday.
State Farm lawyers met with Mississippi Attorney General Jim Hood as recently as Friday to discuss a possible settlement, which would resolve a civil lawsuit Hood filed against the company for refusing to cover damage from Katrina's storm surge almost 16 months ago.
A mass settlement would be the first of its kind to follow the wave of litigation spawned by Katrina. The Mississippi settlement would not involve any cases filed by State Farm policyholders in Louisiana or Alabama.
Hood, through a spokeswoman, declined to be interviewed Monday. But he issued a statement that said: "I am working day and night attempting to get our coastal residents a fair shake in the insurance litigation. It would not help our negotiations to disclose any details at this time."
Hood last month announced that he was trying to negotiate a settlement with several insurance companies, but didn't specify which ones.
State Farm spokesman Phil Supple said that while no settlement has been reached with Hood, "we continue to talk and search for ways to bring these events to a resolution."
State Farm, Mississippi's largest home insurer, says it already has paid roughly $1.1 billion for about 84,000 property claims in the state, not including flood insurance.
Many policyholders with damage contend, however, that they received nothing or only small payoffs from their homeowner policies because insurers blamed their losses on storm surge, which is not covered, rather than on the hurricane's winds.
A deal hasn't been completed, but the people with knowledge of the talks said both sides were nearing an agreement that could be worth hundreds of millions of dollars to tens of thousands of State Farm policyholders in Mississippi whose claims were denied after Katrina.
Bloomington, Ill.-based State Farm agreed "in principle" to pay an undisclosed amount of money to more than 600 policyholders, including Sen. Trent Lott, R-Miss., who sued State Farm after the August 2005 storm, according to these people. All are represented by a legal team led by high-profile attorney Richard "Dickie" Scruggs.
An agreement also could benefit thousands of other Mississippi State Farm policyholders who haven't sued State Farm.
A "class action resolution" component of the proposed deal calls for the company to review the claims filed by roughly 35,000 policyholders who live in Mississippi's three coastal counties but didn't file lawsuits against State Farm for refusing to cover storm damage.
After reviewing those claims, the company would be required to make new offers and any disputes would be heard by an arbitrator whose decision would be binding.
State Farm would pay a minimum of $50 million to these policyholders after their claims are reviewed, but the company could end up paying hundreds of millions of dollars more than that because there wouldn't be a cap on the amount, the people with knowledge of the talks said.
A deal would not only settle Hood's lawsuit against State Farm, but it also would resolve his criminal probe into whether State Farm fraudulently denied policyholders' claims.
The attorney general isn't the only one who has to sign off on a deal. A federal judge also must approve the terms of any settlement.
Lott, whose home in Pascagoula was destroyed by Katrina, is Scruggs' brother-in-law and one of his clients. He was an outspoken champion of setting limits on lawsuits before Katrina. But he sued State Farm after the company denied his claim.
Scruggs' roster of clients also includes U.S. Rep. Gene Taylor, D-Miss., who sued State Farm for denying a claim on his Bay St. Louis home.
Scruggs, a Gulf Coast native whose own home in Pascagoula was destroyed by Katrina, rose to national prominence when he helped negotiate a multibillion dollar settlement with tobacco companies in the mid-1990s.
After Katrina hit, his legal team filed lawsuits on behalf of hundreds of homeowners who are challenging their insurance companies for refusing to cover billions of dollars in damage from the hurricane's rising water.
Scruggs' firm also filed lawsuits against several other major insurers, including Nationwide Mutual Insurance Co., Allstate Corp.'s Allstate Insurance Co. (ALL), Metropolitan Property and Casualty Insurance Co. and United Services Automobile Association.
Besides State Farm, Hood also sued Allstate, Mississippi Farm Bureau Insurance Co., USAA and Nationwide.
Scruggs and other attorneys have accused State Farm of pressuring its engineers to alter reports and change their conclusions on whether Katrina's wind or water was responsible for damage to homes.
Hood has been investigating allegations that State Farm and other insurers have fraudulently denied claims after Katrina. State Farm attorneys also say a federal grand jury has been probing similar allegations.
But the civil cases against State Farm appeared to be weakened by a series of court rulings that favored the insurance industry, including a landmark decision this summer in the first trial for a Katrina insurance case.
U.S. District Court Judge L.T. Senter Jr., who presided over the first trial without a jury, ruled in August that Nationwide's homeowners policies cover damage from a hurricane's winds but not from its flood waters, including wind-driven storm surge.
Senter ordered dozens of policyholders who sued their insurers to participate in an experimental mediation program, and many have reached settlements. Hundreds of other homeowners who haven't filed lawsuits also have settled their disputes through a mediation program sponsored by Mississippi Insurance Commissioner George Dale.