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State Farm Convinces Some Weary Policyholders to Settle Hurricane Katrina Lawsuits

May 13, 2008 | Parker Waichman LLP

State Farm Insurance has settled with more than a dozen policyholders who were suing the nation's largest insurer over Hurricane Katrina damage claims.  The settlements were reached with plaintiffs who only last month learned that their lawyers had been barred from representing them because of ethics violations.  

State Farm was one of the largest insurers on the Gulf Coast when Katrina made landfall there in 2005. Thousands of homes were reduced to rubble by wind and the massive storm surge created by the hurricane. Normal home owners policies do not cover damages from flooding, only wind. But in the case of Katrina claims, many home owners accused State Farm and other insurance companies of attributing damage to flooding, when in reality it was caused by wind, as a way to avoid paying the full value of claims. Some insurance companies initially made offers to settle claims for only pennies on the dollar, sparking thousands of lawsuits along the Gulf Coast.

Last month, U.S. District Judge L.T. Senter barred attorneys working with Ricky Scruggs, the well-known lawyer who pled guilty in March to conspiring to bribe a judge, from representing Hurricane Katrina victims in Mississippi.  Judge Senter made the ruling because of what he deemed to be “improper payments” made to Cori and Kerri Rigsby.  The two sisters were employed by E.A. Renfroe & Co., an Alabama-based firm that State Farm contracted.  The sisters supplied Scruggs with piles of documents they had secretly copied while employed by Renfroe.  Scruggs touted the sisters as whistleblowers, but hired them as consultants and agreed to pay them $150,000 each.  Payments to non-expert witnesses are limited by law, Senter said. “The payments Scruggs made to the Rigsby sisters bears no reasonable connection to any work they performed or to any expenses they incurred in testifying,” the judge wrote. “These payments were clearly improper.”  The plaintiffs in the cases against State Farm were given a mere 45 days to find new counsel.

State Farm, which faces more than 200 Katrina-related lawsuits in Mississippi, quickly took advantage of Judge Senter's ruling, and  made settlement overtures in letters it sent to policyholders.  According to a court filing last Thursday, at least 13 homeowners were representing themselves, without an attorney, when they agreed to settle their suits for undisclosed terms.  At least one lawyer representing former Scruggs clients told The Houston Chronicle that any settlement overture made by State Farm should be at least reviewed by an attorney.  But it is understandable that, three years after Katrina, some policyholders would want to get their claims resolved. Clearly, State Farm is taking advantage of that sentiment.

Meanwhile, hundreds of others who haven't yet accepted State Farm's offer of a negotiated settlement may want to wait a bit longer.  That's because Mississippi state insurance regulators are wrapping up a long-awaited report on State Farm's handling of policyholder claims after Katrina. According to The Houston Chronicle, the 18-month study should be completed by the end of May. Hopefully, the report will shed some more light on State Farm's conduct in the wake of Hurricane Katrina.  The imminent release of the report could also be a factor behind State Farm's rush to settle Hurricane Katrina lawsuits.


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