Monthly Archives: February 2007

I just watched the live, streaming testimony from the U.S. House Financial Services Committee, which is conducting hearings about Hurricane Katrina and insurance practices.  Mississippi Attorney General Jim Hood was among those who testified, and included in his remarks was the statement: "It’s the wind, stupid." My feed was a little slow with the video image, so it’s not clear to me if he was talking to himself or someone else. 

One thing is clear from Hood’s testimony, however: Hood is mixing up the anti-concurrent cause clause in State Farm policies with a subsection of the clause, which is a simple flood exclusion, and he is also mixing that up with a different concept entirely — what is the burden of allocation of proof  between insurer and insured.  You can check out the language of a State Farm policy yourself here in this pdf (see page 4). He appears to be saying that State Farm’s position is that it owes no money for wind damage if a flood subsequently destroys the house.  That is incorrect, as I keep pointing out.  State Farm is not saying that.  These are tough concepts, but wouldn’t you think someone who filed suit against insurers within two weeks after Katrina and conducted a criminal investigation into claims practices would have that straight by now?  You can’t cover this stuff up by uttering slogans like "it’s not about the water, it’s about the wind," which is another thing Hood said during his testimony.

He also said that "taxpayers got dumped on" by the insurance companies.  Hood apparently was referring to the fact that the National Flood Insurance Program paid out a great deal of money on homes with flood insurance, because Hood also said insurers owe money to the federal flood insurance program. Huh? I thought it was the wind, stupid. Now it’s about the water? How can insurance companies owe money to the flood insurance program when flood insurance covers floods, and homeowners insurance covers wind but not floods. Does that make any sense? Of course it doesn’t.  

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?

Here is a story by Michael Kunzelman of the Associated Press about an investigation by the Louisiana Department of Insurance into Allstate’s claims adjusting practices.  The investigation stemmed from hundreds of complaints, and Allstate apparently led the pack among insurers although State Farm is a bigger presence in the state.  Officials, to the surprise of the insurance commissioner, found Allstate performed as it should have.  The commissioner is also ordering a review of the claims handling of St. Paul Travelers.  For a perspective of the people who complained, here is a story from Rebecca Mowbray of the New Orleans Times-Picayune about some of the folks upset by Allstate’s cancellation of their homeowner policies.

Now, one question that arises out of this: an investigation into State Farm is not mentioned in this story, and I’m inferring that there hasn’t been one.  State Farm is Louisiana’s biggest insurer, and presuming State Farm’s claims handling protocols were much the same if not exactly the same in Louisiana and Mississippi, why are we not hearing the loud chorus in Louisiana about State Farm’s conduct that we hear from Mississippi?  I think the real, unwritten story behind all of these Katrina cases is the answer to that question. 

This story is getting to be somewhat of a graybeard, and has been hanging around as a draft post in my blog’s admin file for a week — I got busy with other things and kept pushing it off — but you might not have heard about impending settlements in a number of Louisiana Katrina cases.  Here’s the text of a story from Dow Jones Newswires, for which reporter Lavonne Kuykendall interviewed me.  Also, here’s a story from Kathy Chu in USA Today. 

Tick, tick, tick.  State Farm’s 30-day deadline to file an appeal started Thursday with the entry of this judgment in the Broussard case.  But first, we’ll have to wait for those post-judgment motions State Farm promised.

This didn’t take long.  Judge L.T. Senter Jr. on Friday denied motions by State Farm to disqualify one of his law clerks, Jerry Read.  State Farm made the motions in two cases, Broussard v. State Farm and Guice v. State Farm. Here is a pdf for the first, and here is one for the second. (They are the same except for a different caption).

If you take a look at these very short documents, and please, if you care to, refer back to my posts here and here last week to look at State Farm’s briefing, you will notice one thing.  The briefing was pretty good, it made some specific allegations of fact, it cited some law, it did a good job of analyzing the law.  Then when you look at Judge Senter’s opinions, all he says is he is satisfied there is no appearance of impropriety because Read was segregated from cases involving his own insurer, Allstate, which he was suing.  Read, said Senter, worked only cases from other insurers like State Farm and Nationwide, while Senter’s other law clerk worked on Allstate cases. 

Two things. First, State Farm said the appearance of impropriety arose out of the common issues between Read’s Allstate case and the Broussard and Guice cases against State Farm, and that it could be perceived that Read has a self-interest in viewing the law a particular way in one case, because it would help him in another.  A plausible allegation.  State Farm did not say the appearance of impropriety arose out of Read’s work on Allstate cases. 

Second, as a litigator this drives you crazy, when you do a good job of raising a substantive issue and brief it well, maybe stay up pretty late to do it, and then the judge just, in effect, walks by like he doesn’t recognize you, especially when the other side turns in some opposition brief that took about six minutes to write.  The least you expect is for the judge to engage your factual and legal arguments. Doesn’t mean the judge will agree with you, but you at least want the respect of having someone say why they think you’re wrong.

This is a pretty good story by Melissa Nelson of the Associated Press: in Pensacola Beach, Florida, only 5 of 354 residential properties on the market in January sold.  Some anecdotal evidence exists that high insurance rates are a factor.  However, a couple other things jumped out at me from the story and point to how this insurance mess in Florida can get much, much worse.  Here’s one: 

Sen. Mike Fasano, R-New Port Richey, points to a spike in the number of residential loan foreclosures in his Tampa Bay-area district as proof of the dire need for insurance reforms.

"People can no longer afford their mortgage payments because of their insurance premiums," said Fasano, who has authored legislation that would provide grants to help low- and middle-income homeowners with insurance rate hikes.

That is correct.  You read that a state senator is proposing direct taxpayer subsidies of folks with high insurance premiums. 

Here’s another thing that jumped out at me:

Fasano is also pushing legislation that would require the state-created Citizens Property Insurance, Florida’s largest insurer, to refund the cost of private appraisals for homeowners whose insurance rates are later lowered.

Citizens customers can challenge rate increases by seeking a private appraisal. Fasano said the private appraisals sometimes show that Citizens’ rates are based on inflated property values.

That is correct. You read that a state senator wants to put further pressure on the state-run insurance company to charge artificially low rates not only by subjecting it to an appeals process but by making it pay the cost of residential appraisals when the homeowner finds a lower appraisal.  Subsidies are like caffeine, once you get accustomed to them, you can’t start your day without them.

I have been thinking about the issues of allocation of proof between the insured and the insurer since the day I read Judge Senter’s opinion in Broussard v. State Farm, and a couple things have troubled me:

1.  Everyone knows that an insurer has the burden of proving an exclusion.  But does that mean that, upon the introduction of any bit of evidence by the insured that a loss may be covered, even if the evidence is speculative, way out there or in the "Abracadabra" category, the insurer must then nail the damages down to the penny or face a directed verdict that it hasn’t proven the exclusion? Senter has said in other cases that the insured’s responsibility is to show that covered damage occurred and how much of it there was.

2.  Why couldn’t a reasonable jury weigh the evidence as to what kind of damage happened and decide? Why did Senter believe he had to direct the verdict? For example, couldn’t the jury have decided that several thousand dollars in shingle damage occurred, but that a couple hundred thousand dollars of damage was caused by a surge of water that flattened the Broussards’ home?     

In case you don’t have it handy, here is a pdf of Senter’s opinion.

I was reading an article my friend Randy Maniloff wrote for National Underwriter’s FC&S publication on Broussard.  It came out yesterday, and here is a pdf of the article.  It’s very good and written with the usual attention to detail and skill you expect from Randy.  In the article, Randy says the Broussard opinion is a lot of hat and very little cattle when it comes to the law.  I have to agree.  As Randy has pointed out before, Senter’s opinion relied on one case, Lunday v. Lintz, which is not an especially strong case or an intellectual discourse on the allocation issue. Randy also brought up the State Farm appellate briefing on allocation in the Tuepker v. State Farm case, another Katrina case in Senter’s court.  That briefing relied on some stuff about burdens shifting back and forth, and I found myself swaying in my chair, I didn’t really like it.  I don’t think there are any shifting burdens. It’s simpler to say it the way I said it in the questions above.  This issue of the insurer having to prove exclusions gets distorted, and people lose sight of the fact that the insured has to establish damages in the first place, they can’t just dance in with a smile and a happy tune, they have to show something real.  

Randy also points out that Senter has never cited what Mississippi caselaw supports the imposition of punitive damages on State Farm. This is true, and it is potentially a troubling development to hold an insurer liable for bad faith for its failure to pay a claim after a lawsuit is filed against it.  As I understand Senter’s opinion, he said the lawsuit does not toll the insurer’s duty to pay, but instead the clock is ticking the whole time.  But isn’t that what a lawsuit is for, to determine whether the prior denial was in bad faith? 

With a hearing scheduled for February 28 in Judge Senter’s court in the Southern District of Mississippi on the proposed class certification of State Farm policyholders who have not yet sued the insurance carrier, this is a good time to pass on to you three things filed in the case, which is known as Woullard v. State Farm. 

Here is a pdf of State Farm’s brief in support of the proposed class action.  Remember, both State Farm and plaintiffs’ attorneys, the Scruggs Law Group, wanted to certify a class and immediately settle the class action pursuant to a plan they had worked out to review policyholders’ Hurricane Katrina claims.  In this brief, State Farm has attempted detailed breakdowns of who will be in the class, what their issues are and what the process will be like that considers their claims. Senter shot down the last attempt, saying he had strong doubts about the procedural fairness and whether class requirements under the Federal Rules had been met.

Here is a pdf of a motion Mississippi Attorney General Jim Hood filed to intervene in the case.  If you’ve been following Hood the last year, you know he likes to intervene in things.  He’s up for reelection this year in Mississippi.

Here is a pdf of the legal memorandum supporting AG Hood’s motion.

Come February 28, we shall see how this all shakes out.

UPDATE: I should also mention this story from earlier this month by Laurence Viele Davidson of Bloomberg, which says that after the class action certification and settlement was shot down, 11 more policyholders sued State Farm. 

State Farm on Feburary 22 filed a motion asking Judge L.T. Senter Jr. to recuse himself from the Guice v. State Farm case. Here is a pdf of the motion. On the docket, I did not see an accompanying legal memorandum.  Plaintiff lawyers are trying to get the Guice case certified as a class action, with Judy Guice being the lead plaintiff for all Mississippi residents whose homes were totally destroyed by Hurricane Katrina, and the recusal motion says Senter should pull out for appearance’s sake because a federal magistrate judge and the law clerk for another district court judge are members of the putative class. 

A few comments: one, this proposed class seems to make sense to me, unlike some of the other attempts to certify class actions in these Katrina cases.  Folks who have had homes destroyed have legal issues in common, as opposed to being mixed in with other kinds of damage. Two, if you have time, read the motion and see if you agree with me: it has that aura of being written by someone who expects to lose, kind of going through the motions.  Three,  if Senter can’t do it, who can? Answer: no one.  He’s the last Article III judge left in the Southern District of Mississippi who isn’t conflicted out.   So this is almost like a transfer of venue motion, which State Farm has not been successful with in other cases.  I could be wrong — it happens frequently, just ask my kids — but I don’t expect Senter to recuse himself. 

In the Guice case, State Farm also filed a motion to disqualify the judge’s law clerk.  It is much the same as a motion State Farm filed in the Broussard case the day before.  For more on what the motion means in that case, see this earlier post.   

Here is a pdf of the memorandum filed by State Farm regarding disqualification of the clerk.  Here is a pdf of the motion.  This stuff reads a lot more persuasively than the motion for Senter to recuse, kind of like the person who wrote it really believes it.  Again, see my earlier post for more details.

Sidenote: You know, last Friday at his press conference, Mississippi Attorney General Jim Hood accused State Farm of trying to "intimidate a federal judge" by withdrawing from underwriting new homeowners and commercial insurance in the state.  Good thing his press conference wasn’t held today: he might interpret State Farm’s motion for Judge Senter to recuse himself as equivalent to a visit from several members of the Tony Soprano crew.