GULFPORT, Miss. – A jury on Thursday awarded $2.5 million in punitive damages to a couple who sued State Farm Fire & Casualty Co. for denying their claim after Hurricane Katrina, a decision that could benefit hundreds of other homeowners challenging insurers for refusing to cover billion of dollars in storm damage.
A federal judge only hours earlier had taken part of the case out of jurors' hands before they awarded punitive damages to State Farm policyholders Norman and Genevieve Broussard.
U.S. District Judge L.T. Senter Jr. ruled Thursday morning that State Farm is liable for $223,292 in damage caused by Hurricane Katrina to a Biloxi couple's home left it to a jury to decide whether to award punitive damages.
Senter's decision to make a directed verdict rather than let the jury decide the entire case appeared to surprise everyone in the courtroom. After he explained his ruling, Senter ordered a recess to give attorneys time "to get over the shock."
Some of Senter's earlier rulings in other Katrina cases have favored the insurance industry, but his decision Thursday calls into question the companies' refusal to cover billions of dollars in damage from Katrina's storm surge.
The Broussards sued State Farm for refusing to pay for any damage to their home, which Katrina reduced to a slab. The couple, who wanted State Farm to pay for the full insured value of their home plus $5 million in punitive damages, claimed that a tornado during the hurricane destroyed their home. State Farm blamed all the damage on Katrina's storm surge.
State Farm and other insurers say their homeowner policies cover damage from wind but not from water, and that the policies exclude damage that could have been caused by a combination of both, even if hurricane-force winds preceded a storm's rising water.
Senter, however, ruled that State Farm couldn't prove that Katrina's storm surge was responsible for all of the damage to the Broussards' home. The judge also said the testimony failed to establish how much damage was caused by wind and how much resulted from storm surge.
"We are surprised and disappointed by the court's ruling," said State Farm spokesman Phil Supple. "The expert testimony supported a different result. After the conclusion of this case, we will evaluate our next steps in this lawsuit."
In his closing argument Thursday, one of the Broussards' attorneys, William Walker, said State Farm had breached their contract "in a bad way" by denying their claim. State Farm "acted like a chiseler," he said, adding, "The pocketbook is what they listen to."
State Farm attorney John Banahan urged jurors to "use your head and your heart" in deciding on punitive damages and to reject an attempt by the Broussards' attorney to demonize the company as an "evil empire."
Robert Hartwig, chief economist for the Insurance Information Institute in New York, said before the jury announced its decision that a punitive damage award would be "distressing" for insurers.
"It adds even more cost and more uncertainty to the other problems that already exist in the Mississippi homeowners insurance market," he said.
The Broussards' case isn't directly involved in recent settlement talks between State Farm Fire & Casualty Co., Mississippi Attorney General Jim Hood and policyholders' lawyers.
People with direct knowledge of the settlement talks told The Associated Press this week that State Farm, Mississippi's largest home insurer, is considering paying hundreds of millions of dollars to settle more than 600 lawsuits and resolve thousands of other disputed claims.
Richard "Dickie" Scruggs, an attorney who represents 639 State Farm policyholders in the settlement talks, said he doesn't know how the judge's ruling on Thursday will affect the negotiations.
Randy Maniloff, a Philadelphia-based lawyer who represents insurers and has closely followed the Katrina litigation, said Senter's ruling is a "huge verdict" for homeowners even if the jury didn't award punitive damages.
"That settlement is looking awfully good for State Farm now," he added.