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State Farm tries to reach accord on Katrina claims

Jan 9, 2007 | AP

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 Atty. Gen. 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.

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.

A spokeswoman for Hood declined to comment. 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."

Bloomington, Ill.-based 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.

However, many policyholders with damage contend 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 has not 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.

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.

An agreement also could benefit thousands of other State Farm policyholders in Mississippi who have not 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 who did not 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 would not be a cap on the amount, the people with knowledge of the talks said.

A deal not only would settle Hood's lawsuit against State Farm but also would resolve his criminal probe into whether State Farm fraudulently denied policyholders' claims.

The attorney general is not the only one who has to sign off on a deal. A federal judge also must approve the terms of any settlement.

Besides State Farm, Hood also sued Allstate, Mississippi Farm Bureau Insurance Cos., USAA and Nationwide.

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.

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