Monthly Archives: January 2007

Judge Senter Reduces Broussard v. State Farm Punitive Damages From $2.5 Million To $1 Million

It’s not exactly confetti-throwing time for State Farm today, but the insurer had the pain eased somewhat in the recent Broussard case as Judge Senter reduced the jury’s punitive damage award from $2.5 to $1 million.  Here is a pdf of Judge Senter’s opinion today, and here is a story by Associated Press writer Michael Kunzelman on Judge Senter’s opinion.   

Senter said he remains firmly convinced that State Farm improperly denied payment to the Broussards by refusing to pay any amount for wind damages, and by attempting to place the allocation of wind v. water damages on the jury, when evidence was presented at trial that at least some wind damage occurred.  At least that amount should have been paid by State Farm, he said. However, he said, the amount of the punitive damage award is roughly 12 times the amount of the $211,000 compensatory damages awarded.  Although there is no bright-line test for the constitutionality of the size of punitive damage awards, the U.S. Supreme Court has said that, except in extraordinary circumstances, punitive damages will seldom comport with due process unless they are no greater than nine times the amount of the main damages.  Senter knocked the punitives back from 12 times to between 4 and 5 times the compensatory damages.


Filed under First Party Insurance

‘Our Insurance Disaster’

This piece by Jim Stratton and Scott Powers of the Orlando Sentinel is one of the best newspaper stories I have read in a long time on Florida’s homeowners insurance problems.  The origin of these problems is stated concisely in these two paragraphs from the story:

Just how bad have the past few years been? Of the 10 most expensive disasters in U.S. history, six were hurricanes that struck Florida in 2004 and 2005.

‘Florida,’ said state Insurance Commissioner Kevin McCarty, ‘is unique in its concentration of catastrophic risk.’

The manifestation of this unique concentration of higher risk is that insurers are raising rates for homeowners insurance to reflect it.  Naturally, people who see their premiums doubled or tripled are upset, but the reporters did an excellent job of telling the stories of individual homeowners without losing focus on explaining the overall picture of how insurance works.  About the only assertion in the story I would challenge is this one:

In short, a basic tenet of American homeownership — the idea that you should be able to sink most of your wealth into a house and insure it against loss at an affordable price — is suddenly drifting out of reach for more and more Floridians.

This tenet — that you should be able to get cheap insurance despite whatever risks are presented by you — might more accurately be described as an expectation in certain homeowners insurance markets fueled by faulty insurance company models of the risk presented from catastrophes, and by competition based on risk assumptions flowing from the faulty models.  Now that insurers have been repeatedly slapped across the face by multi-billion-dollar losses driven by hurricane force winds, keeping rates low despite rapidly rising property values and continued construction in the riskiest areas would makes no economic sense, because it would lose insurance companies money and involve massive subsidies that would merely make the problem worse by encouraging more construction in risky areas. 

You also may be interested in this story, on Florida’s governor placing a 90-day freeze on insurance premium rate hikes, which strikes me as more of an odd gesture than a solution, kind of like when, in 1933, William "Wild Bill" Langer, the governor of my home state, NoDak, tried to raise prices for farmers by declaring a moratorium on the shipment of wheat.  (He also sent out National Guard troops to stop federal authorities from carrying out farm foreclosures).   Stories about Wild Bill’s embargo always point out that the price of wheat rose 23 cents following it.  Whether a cause and effect can be proved, I’m not sure, but how long do you think the price stayed up after the embargo ended and all that NoDak wheat flooded the market?   


Filed under First Party Insurance

Another Katrina Podcast

This A.M. Best podcast on Katrina issues, which features Best reporter R.J. Lehmann, was recorded before Friday’s decision by Judge Senter to reject part of the State Farm settlement, so it kind of got dated in a hurry.  But it’s still a really good listen, with some good details and insight on various issues, including the anti-concurrent cause clause in homeowners policies.  

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Filed under First Party Insurance

Why Did State Farm Negotiate A Global Mississippi Settlement?

Here is a pdf of a great recent analysis of State Farm’s recent Katrina settlement efforts.  It appeared yesterday in National Underwriter’s FC&S Online, and the author is coverage lawyer Randy Maniloff, of White & Williams, in Philadelphia.  This is an outstanding analysis that took a lot of time and attention to detail, and was undoubtedly made harder by Judge Senter’s ruling on Friday rejecting part of the settlement that would have paid at least $50 million to 35,000 Mississippi homeowners whose claims have been closed by prior payment or otherwise. (Senter could reject that part of the settlement because it required that the policyholders’ interests be certified in a class action, which requires judicial approval, as does settlement of a class action).  

Randy makes a good point that the rejected part of the settlement contained no cap on State Farm’s ultimate liability.  Some sources sprayed potential maximum liability figures around like Silly String at a kid’s birthday party.  As Randy said, numbers like $500 million or $2 billion in media accounts are just guesses. 

However, I find myself speculating about internal conversations and numbers crunching at State Farm, don’t you?  Since, in the rejected settlement agreement, State Farm was going to more or less control the process, my guess is State Farm was able to produce a range of probable liability that started around $50 million and fell far to the south of $500 million.  One factor that would have tended to limit liability within known parameters: the final decision with any given claim was going to be subject to a sort of legal speed dating — a two-hour binding arbitration with no appeal and no punitive damages. Remember also that these were closed (and in many cases, paid) claims, and with a great many of them, probably no additional payments would be forthcoming.  Just my own guesses.

Randy makes a point about the harm the continued Mississippi controversy is doing to the State Farm brand, and how ending it along with Attorney General Hood’s investigations, even without an assured upper liability limit, might become increasingly attractive after being pummeled about the head, neck and shoulders for months. I wonder what State Farm’s brand research had disclosed to it about harm suffered as a result of the Katrina litigation publicity.  For a colossal, sophisticated, risk-neutral entity, amortizing several hundred million dollars over the life of its brand is like you or me losing a cupful of nickels at the slots in a truckstop casino in Bozeman, Montana.  You just stand up, shrug and head on down the highway.  



Filed under First Party Insurance

More On Senter’s Rejection Of State Farm Class Action Settlement; Lawyers Stand To Collect $46 Million

This story by Anita Lee of the Biloxi Sun Herald and this story by Joseph Treaster of the New York Times are the best I’ve seen on Friday’s ruling by Judge Senter: chock full of facts and details.  If you want my take, look up my post from Friday, where I have a link to the eight-page opinion.  

And, in other news, Dickie Scruggs and other members of his legal team stand to pocket some $46 million as part of State Farm’s settlement of 600-plus filed cases, and the class action settlement Senter rejected Friday.  The story I linked to, by Michael Kunzelman, of the Associated Press, quotes Scruggs as saying: "It was never about the money for me, this litigation."  For some reason I can’t quite put my finger on, that quote reminds me of a friend I had some time back who,  every time he heard the line "it’s not about the money," would say, "right, it’s about what the money can buy." 


Filed under First Party Insurance

Judge Senter Rejects State Farm Settlement With Mississippi Attorney General

SECOND UPDATE: I read through the opinion, which was fairly brutal and basically said there is no way anything like the proposed settlement will get by Judge Senter.  Remember, this is not the settlement that was recently announced of a large number of the Mississippi lawsuits that have been filed — a judge has no right to approve or reject those, that is a matter solely between the parties, and those are not affected by Judge Senter’s ruling.  Instead, this settlement is of claims that have not been brought, by people who have not sued, and in essence was done to satisfy Mississippi Attorney General Jim Hood and get him and his investigations off State Farm’s back. (I’ve bumped the pdf of the opinion up from below to here).

Judge Senter was being asked to certify a class action, with the class consisting of Mississippi residents of several counties where Hurricane Katrina struck, and then instantly approve a settlement of the class action.  A judge’s approval is required for class action settlements, unlike regular lawsuits, so that the interests of the unnamed members of the class are protected relative to the named class members. 

Senter found that the class action elements were not satisfied here: there was insufficient evidence of how many people are in the class, whether their potential claims are sufficiently alike, whether the named plaintiffs are typical of the class and adequate to represent it. 

He also threw large barrels of cold water on the structure of the settlement, which included an adjustment process ostensibly under supervision of Senter but, he feared, in reality run by State Farm that culminated, if a disagreement ensued, in a two-hour arbitration session with no right of appeal.  Senter also appeared to dislike it that class counsel pictured no further involvement with this process after being paid attorney fees.  He felt the entire process was possibly unfair and improperly failed to respect his earlier orders.

Senter denied the motions for class certification and approval of the settlement without prejudice, meaning they can be renewed if State Farm and the AG can fix the deficiencies.  Doing that will be a tall order.   

UPDATE: Here’s the pdf of Judge Senter’s opinion, which I am going through right now.

Thanks to my secretary for clueing me in about this story.  Not a lot of details at present, but remember the distinction between the settlement with Attorney General Hood and the insurer’s settlement with hundreds of policyholders who sued.  Judge Senter’s action only deals with the AG portion of the settlement, involving people who didn’t sue.  I have an idea of what is going on, but I’ll hold off on further comment until I know for sure.  


Filed under First Party Insurance

Broussard v. State Farm Podcast

Here is a link to a podcast on Katrina litigation issues for which I was interviewed recently by A.M. Best, along with coverage lawyer Kelly Simpkins of Wells Marble & Hurst, of Jackson, Mississippi.  A thoroughly enjoyable experience and an outstanding job by the A.M. Best podcast team. 

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Insurance Litigation And The Attorney-Client Privilege

Today is the end of a week where I’ve been working so hard colleagues are telling me to put a sleeping bag in my office.  Fortunately, on days like this, I can still provide value by pointing out the work of two fine insurance bloggers and free ride on them.  Here is Steve Rosenberg’s post on the tripartite relationship and attorney-client privilege, and here is a masterwork by Marc Mayerson on policyholders’ privileged communications.  Fantastic stuff, guys.

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Filed under Miscellaneous

More On State Farm’s Settlement Of Hundreds Of Mississippi Katrina Cases

Yesterday I said I’d link to this story by when it came out, and here it is.  It’s an analysis of the process connected with State Farm’s recent settlement of hundreds of Katrina cases, for which reporter John O’Brien interviewed me.  LegalNewsline focuses on stories about state attorneys general, state supreme courts and the U.S. Supreme Court, so much of the thrust of the story is about Mississippi Attorney General Jim Hood’s involvement. 

I spent eight years as a reporter for a metro daily in Phoenix, Arizona, so I know how it is to be on the other side of the interview.  For my money, it’s easier to be the interviewer than the interviewee.    

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And Now For Something Completely Different

I admit it, I get bored with too much heavy, serious stuff.  So here is a video shot by a Portland resident during our snowstorm last week of cars careening out of control on the slippery streets.  This first appeared on local TV in Portland and has since gone to YouTube, which will soon have every video ever created.  Fortunately, it appears no one was hurt by the car crashes shown in the video.  In addition, here’s a small story from the Oregonian about who pays the bills for all this.

The Oregonian story surprised me by saying that some might interpret these crashes as "weather events" without any driver fault (Oregon is a fault-based state), meaning a car owner who had his vehicle hit several times would be responsible for his own damage through his own insurance and have to pay a fresh deductible for each collision.  Can that be right? As between someone who slides out of control and hits your car, and you, who are just sitting lawfully in a vehicle that is not obstructing traffic, who is more at fault? 

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Filed under Miscellaneous