State Farm Katrina Cases Hearing Today

Preview stories don’t really tell you much, they’re kind of like rowing just enough to stay in place against the current.  Here’s a preview story that’s better than most from Anita Lee of the Biloxi SunHerald about the hearings today in Mississippi.  In one hearing, Judge Senter will hear arguments for class certification of the Guice case — the proposed class is Mississippi policyholders whose homes, like that of Judy Guice, were completely wiped out by Hurricane Katrina.  In the second hearing, State Farm and policyholders will try to convince Judge Senter they have responded to his concerns about adequate compensation and procedural fairness that led him to shoot down the first settlement involving some 35,000 policyholders who have not sued.  Yes, you read that right, who have not sued. If this story is new to you, the second matter is Woullard v. State Farm and I’ve written a ton about it, just use my blog’s search feature. 

One thing, however, that stood out in this story like a paper Burger King cup floating in the fountain at the park was this paragraph:

State Farm maintains, because of the way its policies are worded, that the company owes no money to policyholders whose property might have been damaged by wind if Katrina’s storm surge was the predominant cause of the losses. For the first time after a catastrophe, State Farm relied on a "wind-water protocol," to deny slab claims when there was no discernible wind damage to separate portions of the property.

I admit that, back in the day, back in the old days of these Katrina cases, back in 2006, it briefly appeared to me that was State Farm’s position also.  However, State Farm has since made it clear that it is not their position that when wind damage is followed by destruction by flood that State Farm owes nothing.  State Farm admits its reading of the anti-concurrent cause language requires payment for wind damage that can be proven by the policyholder.  If you don’t believe me, read this order from Judge Senter in the Tuepker case.  Look at page two, the second full paragraph, which  begins "State Farm stresses that it has not taken the position that . . . ."

I know this is complicated stuff, and some very smart people have commented to me how confusing this all this. But there has to be some modicum of fairness and long-range perspective that appears to me lacking in this front-page editorial from the SunHerald.  A front-page editorial?  Smacks of  Charles Foster Kane doesn’t it? Plus the editorial says this about State Farm’s position on the anti-concurrent language:

But it is also wrong – tragically wrong – that State Farm used outcome-oriented engineering reports to invoke a clause in its policies that purports to say no wind coverage exists if storm surge ultimately caused the loss.

In light of what we just read from Judge Senter’s opinion, what is wrong, perhaps tragically wrong, is that statement in the editorial.  Now, here would be a good place for me to point out that I have no dog in this fight. I don’t work for State Farm, and I represent policyholders as frequently as or more frequently than I do insurance companies.  So, as far as I can be, I am free from ideology in this scrap, and I’m not rooting for any particular side or outcome in the cases.

I’ll close by asking the question I asked yesterday, and passing on a reader’s comment.  I asked why, if State Farm’s claims adjusting protocols were so corrupt, are we not hearing the outcry over them from Alabama and Louisiana? Did State Farm, for some strange reason, radically alter its claims adjustment practices when it came to the Mississippi state line as part of a decadent plot to do in the Magnolia state? No. So what is it? A reader suggested it is because Mississippi has consumer advocates and Louisiana does not.  Well, I suppose that’s getting closer to the answer, but there’s a long way still to trek. I ask again: were State Farm’s protocols different from state to state, or was it something different about the conduct of the litigation by policyholders and politicians in Mississippi?

6 Comments

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6 Responses to State Farm Katrina Cases Hearing Today

  1. Layne

    This is a very good question.
    I’ll add to it. Why is State Farm the only company (excluding the state-run insurer in Louisana) offering to settle these lawsuites, and even re-open 35,000 closed claims for folks who haven’t sued?
    You could argue that State Farm knows it screwed up, and is trying to rectify the situation. . .Well, that is a good thing for a company to do if true. What else are they to do? When I screw up, I try to fix it. Correct me if I’m wrong David, but isn’t this type of settlement pretty unprecedented?
    You could also argue that State Farm handled its claims according to the contract, it has been extorted by the state of Mississippi, and coerced into doing this.
    A third line of reasoning, (which I can’t figure out) is the prevailing media story: State Farm is a money-grubbing, robber-baron company, who is trying to take advantage of Mississippi, and ignores any good that they have done with this settlement.
    If State Farm were really a big, bad corporate wolf, or Robber Baron that they are portrayed, I don’t see them taking the course of action that they have. It doesn’t add up.
    I wonder what will happen when the State Farm cloud passes, and the other companies are in Hood’s spot-light? How will they handle their very similar situations? It seems to me that some of these companies have been getting a free-pass under cover from State Farm. I am curious to see if anyone else agrees to not only open up thousands of closed claims, but also, pretty much guarantee an additional payment to all of these policy-holders, who have already settled, and have not sued. So far, no-one else is even whispering settlement.

  2. These are solid points.
    First, as to the media line, I am struck by reading media accounts how difficult it is to get things right when you are in a hurry and especially when a topic is outside your area of expertise. I’ve seen some pretty fine journalists make mistaken assertions of fact in stories and columns on these State Farm stories, and I say this as a former journalist who often made the same kind of mistakes. People go with the story line that is being created — in the hullaballoo of daily deadlines, often there is not much time to do anything but repeat and react. It is difficult to bypass the noise machine and look for underlying causes, and it might come as a surprise to media readers and viewers, but there often is very little enthusiasm among editors and publishers for stories that run counter to the prevailing wisdom. These folks sell a product, and the currency is being topical. You step outside the accepted paradigm, and you have an unproven product that editors worry will not sell. When I was a journalist, I did not admire editors as a class. I had some fine editors, but many were orthodox, even reactionary. Many had the creativity and intellectual drive of a box of corn flakes.
    Second, State Farm’s actions are unprecedented, at least as far as any examples I can think of in recent insurance history, and on this scale. I credit that to the beating State Farm was taking in public relations and perception, which is not necessarily the same as fact. Protecting a brand name is very important. It is not altruistic, it is risk neutral behavior. As a friend who is a claims adjuster with a major insurer, whom I once opposed in a coverage case, said to me: the right answer isn’t always the best answer. Lots of times, insurers have settled with me because my position was strong and unsettling even though they were arguably right. This is why I say there are three elements to litigation: facts, law and psychology. The Scruggs Katrina Group did a masterful job of using psychology and the media to increase its leverage beyond where one would have thought based on the range of “right answers” on the facts and the law. From my viewpoint, State Farm was completely unprepared for what Scruggs threw at them. Love him or hate him, Dickie Scruggs is an effective, zealous advocate.
    Third, if it hadn’t been State Farm, it would have been somebody else. State Farm is the biggest in that area. They had more cases, so they took on the brunt of the initial attack. The thinking is this: you want to take down a street gang, you get in a fight with the leader and whip him. I don’t think State Farm believes it screwed up. I keep seeing this stuff repeated about their claims protocols and how they changed reports, but this to me is all propaganda, not sound analysis. State Farm has made good, mainstream legal arguments which could be found to be correct or incorrect. That being said, anyone from a broker to a policyholder lawyer to policyholders themselves can relate many stories about how an insurance company will push tactical advantages to gain a superior strategic position. In my state, Oregon, we have no first-party bad faith cause of action. The only remedy, usually, is breach of contract, plus attorney fees under a state statute. But as a person of ordinary means, try to find a lawyer willing to front the cost of litigation and go on a contingency fee, even with the attorney fee statute. Those that you can find will seldom be of the top caliber of coverage lawyers in this region. Those people command top hourly fees, and taking the risk of a contingency for a relatively small claim is not in the cards for their business model. It only makes sense if you have many, many claims like Scruggs, and even then, as a lawyer you need a line of credit that is pretty broad along with the willingness to use it. Knowing this, certain insurance companies, which I will not name, have a reputation for messing with policyholders as far as they can go. Often, I suspect, it is less an issue of corporate theory or dictates, and more one of lack of training. It is dangerous as an insurer or insurance coverage lawyer to fall into the mindset of looking for any ground to deny a claim. The object is not to deny claims, but to read the contract in good faith and pay whatever is dictated by the language of the policy.
    Fourth, the fact that the same conditions that exist in Mississippi do not exist in other states should be taken as empirical evidence that it is less State Farm’s legal and claims position than it is the array of forces against State Farm in Mississippi. I’m not saying that this is conclusive, merely that it is empirical evidence that can be challenged by other empirical evidence.
    Good comment.

  3. Daughter for justice

    David, What I know about State Farms claims handling is that in my parents case they were left with a slab and denied 100% of claim due to their flood exclusion. State Farm refused to accept or review any evidence of wind we presented to them. We were also denied an engineer to investigate their loss and when asked for records of how State Farm came to the conclusion of 100% loss due to surge we were told they were not at liberty to provide it to us. This was happening at the same time State Farm was claiming in the news that they would look at any discernable evidence. Talk about frustrating. I later found out (Blalocks testimony in Broussard) that State Farm definition of discernable was an eyewitness. Many others that we know had the same thing happen to them with insurance companies other than State Farm. Here is the ticket. State Farm is only insurance company that I know of who did not go back rethink their claim handling process. No matter what State Farm claims their position is, the Slabbers that have State Farm know this is wrong. Is there any situation other than the anti-concurrent clause that could explain the way they handled these slab cases? I think that is why you hear so much from Mississippi and not Louisiana. Thanks again for your Katrina coverage.

  4. Daughter for Justice (I love the internet pseudonyms, it kind of reminds me of the pamphleteer days in the 1700s with folks like Alexander Hamilton calling themselves Publius and such, the internet is a wonderful thing), you are a valuable contributor to this blog and I look forward to your comments and perspective.
    I understand your point about the anti-concurrent language, but the reason I tend to discount that as the reason is that I have never understood the anti-concurrent cause language to work in the radical way that would exclude covered damage that happens before uncovered damage. I’m willing to accept that I initially misunderstood State Farm’s position on the anti-concurrent, which if you look back at some old posts, you will see I called such a position “extreme” or some such. I guess for me the simpler and better explanation is that State Farm’s understanding of the burden of showing covered damage is at odds with the position advocated by policyholders, and held by Judge Senter. I pay a lot of attention to this issue, because I encounter it frequently in my practice. For example, should not a policyholder have to provide proof of the covered loss? I think we all say yes to that. What degree of proof is sufficient to constitute proof of loss, and more than that, of the amount of the proof of loss? That I see as the crux of the matter, not the anti-concurrent language, which I think falls far behind in importance in these cases. Just speaking as someone who deals with this issue — and that doesn’t mean I think my opinion is anything special, merely that I think about it a lot — State Farm’s position doesn’t strike me as crazy. Arguably it might be wrong, but I could see myself taking the same position, and in fact I have.
    As a human being, I certainly feel for you and your parents and all those who suffered loss from Katrina. Our homes are not only where we reside, but where we live, where we share joy and sadness with our husbands or wives or significant others, where our children sleep and play. Our home is the place we go when we have nowhere else to go, the place we will fight to defend. I understand all that, and I admire those who fight for what they believe in.
    Also, both as a lawyer and a private citizen, I have had a number of frustrating experiences with insurance companies, so I am not saying there are not obtuse or sometimes even malicious people in the industry. But mostly they are not at all like that, they are simply folks just like you and me who act in good faith and try to get through the day doing what they should be doing. Whether a house was damaged or destroyed by wind is a fact issue, and it may be that the State Farm protocols were not the best to review all the facts. Or maybe they were, I don’t know. I have yet to see an unbiased look at these claims protocols and how they comport with industry standards, if no one else does it sooner or later I’m going to have to do it myself. You raise an interesting point, which I do not know the answer to: how did the investigation and settlment of State Farm slab cases differ from those of, say, Allstate or Nationwide? If you can point me to some study or newspaper story that addresses that question empirically, I would be grateful.

  5. bobby_b

    Dave:
    A question, as I’m unclear about one point:
    You ask “should not a policyholder have to provide proof of the covered loss” in regard to the “how much was wind, how much was flood” question. The answer, of course, is “certainly they do”, but that point constitutes only Part A of the inquiry. For Part B, the burden generally shifts to the insurer, which must prove the applicability of exclusions, one of which is that pesky anti-concurrent causation exclusion.
    So, upon tender of a claim like the slab cases, with no direct evidence available concerning which peril caused what damage, but in the (fairly) certain knowledge that both perils were present and each was sufficient, individually and alone, to have caused the damage, doesn’t the burden to show the uncovered portion fall to the insurer?
    My (uninformed) fear is that State Farm’s position was that the Part A proof of loss somehow subsumed the Part B burden – that “proof of covered loss” means, proving not only the loss itself, but proving that one of the two causes was responsible for some discrete and verifiable portion of the entire loss. And that seems an impermissible shifting of burdens to me.
    (P.S. Had to add: great blog, and, from what people tell me, this opinion is shared by all of us coverage geeks.)

  6. Bobby, you make a fine point that to be perfectly honest, I’m going to have a different answer for depending on whether I’m representing a policyholder or an insurer and what the circumstances are. However, that applies to the nuances. Just speaking objectively as an analyst, the evidence of wind damage I think has to be more than that there was a lot of wind. Let’s look at a different example that is less-emotionally charged: construction defect. In these cases, the homeowner makes a claim for breach of contract or, in some places, in tort, for rain infiltration damage to the house because of defective construction. How far would the case go if they came in and said, “you know, we looked at your workers and they look like a sloppy bunch, and someone told me there was damage to my house.” Now remember, the contractor is insured under a CGL, and before the insurer will pay any indemnity for the contractor, it has to know that collateral damage occurred (consisting of something other than the cost to repair the insured’s own negligent work) and what amount. There is no debate about that. In that context, I can say with 100 percent confidence that no insurer will pay a dime on behalf of the insured contractor without extensive proof of what the liability is.
    Now you may say, yes, but that’s 3rd party liability, not 1st party, and a CGL is not all risk policy like a homeowners policy. And I say, perhaps, but the rule that exclusions must be proven by insurers and damages by the insured cuts across all types of policies and all jurisdictions.
    To return to Katrina cases, in the Broussard case, I consider that the insureds put forth sufficient proof for a jury to find the home was either damaged extensively or destroyed by a tornado, through their expert, Tim Slider. In other words, the best evidence they could furnish was that 100 percent of the damage was due to wind. State Farm’s expert said there was a certain percentage chance that some of the roof had been damaged by wind, but it was certain the entire home was destroyed by flood. Again, a jury could find that $2,000 worth of damage was owing for wind, because the insurer had failed its burden of proving the entire damage was excluded by flood, or they could find no wind damage.
    What I think is that we put too much emphasis on this maxim about insurers having to prove exclusions, which masks the practicial realities of litigation. I don’t care which side I’m on, when I write and argue a motion, I fix it so the burden is on the other side. In other words, I don’t concern myself whether the insured or insurer technically has the burden, much less with these foolish notions about burdens shifting back and forth. In reality, it’s all about who has the better proof and who makes the better argument. I try to work it so no matter what, I put the onus on the other party and make their arguments and evidence look as weak as possible. I regard talk of burdens and allocation somewhat like placing false hope for protection from a wall made of sheetrock — it’s not going to stop someone who is determined from just breaking right through. I hope that makes some sense, I can go on and on about this subject, and I guess I already have. Thanks for the great comment and thanks for reading.