Here’s the story by Joe Treaster of the Times. Here’s the story’s lede:
On the eve of trial, State Farm agreed yesterday to pay an estimated $1 million to settle a lawsuit by a Mississippi Gulf Coast resident whose house was destroyed by Hurricane Katrina. The settlement came a week after a jury ordered the insurer to pay $2.5 million in punitive damage to a homeowner with a similar case.
That similar case, of course, was the Broussard case decided earlier this month. The $1 million estimate comes from guesses by attorneys that the plaintiff, Richard Tejedor, might have demanded his full uncompensated damages of $96,000 plus a multiplier of roughly 10 times that to represent the punitive damages a jury might have awarded, or more than $1 million total.
Quoted in the story are Dickie Scruggs, the well-known plaintiff lawyer who is involved in many Katrina cases but not this one, and my friend Randy Maniloff. Randy’s quote was of two minds: on the one hand, why settle if you are paying out the maximum, and on the other hand, the $1 million figure could be accurate if State Farm’s primary concern was avoiding more bad publicity and a possible huge verdict that would make settlement of other cases more difficult and expensive. Of course, with the publication of the Times story, if accurate, the secrecy is gone, and even if the Times hadn’t written the story, lawyers and others make their own calculations about what happened.
For myself, I’m inclined to give credit to some figure on the upper end of the scale and not down near the lower end of the $96,000 in compensatory damages, even though State Farm appeared to be in a better position in Tejedor than in Broussard. One advantage State Farm had in Tejedor was that it had actually paid nearly $14,000 for covered wind damage, where it had paid nothing in Broussard. The zero payment apparently led the jury to find bad faith, in that State Farm violated a duty to pay that continued even after a lawsuit was filed, a proposition that some Mississippi lawyers will tell you is highly debatable under state law. However, in Tejedor, despite its payment, State Farm apparently still was in danger under the same theory because the jury could have believed it owed more than $14,000 and had wrongly refused to pay. State Farm also could have faced the same problem as in Broussard: what if its own expert testimony left open the possibility that more wind damage occurred than State Farm had paid for? Then State Farm could have been said, again, to have failed to fulfill its evidentiary burden to show a precise apportionment between covered wind and uncovered water damage.
Also going for State Farm in this case was the fact that Tejedor had accepted a $280,000 payment from a flood insurance policy: $200,000 for the structure, which was completely destroyed, and $80,000 for contents. The fact that one accepts a flood insurance check for the vast majority of your damages tends to belie a later contention that the damage was caused by wind. However, even that might not make a difference if a jury is loaded for bear. At the best of times, when you represent an insurer at trial, you know you are facing an uphill battle: at best, people tolerate insurance companies, but no one ever loves them. In a case like this, with the extremely hostile atmosphere insurers face in Mississippi, I can easily see an insurer believing it’s better to settle for much more than the evaluated worth of the case. The $1 million in the story kind of sets a baseline for other guesses, but if I hadn’t seen the story, knowing no inside information whosoever, my own guess would have been around $600,000.
UPDATE: I made a change in the 4th paragraph to make it clear that Dickie Scruggs was not Tejedor’s attorney. In re-reading the post, I thought someone might misinterpret and jump to the erroneous conclusion that Scruggs was involved in this case and was talking about it, despite the fact the settlement terms are apparently confidential. If anyone got this impression, it is not correct.