Commentary On State Farm’s Loss In Broussard v. State Farm

One measure of how surprised State Farm was by yesterday’s directed verdict by Judge Senter and, later, by the jury’s $2.5 million punitive damages award is this: the official docket for the case shows that on December 12, 2006 State Farm made an offer of judgment for $20,000.  Click here for a pdf of the offer.  An offer of judgment pursuant to Federal Rule of Civil Procedure 68 cuts off the right to attorney fees from that time forward if it is not accepted and the plaintiff does not beat the offer.  It is not a procedure you enter into lightly, because if accepted, judgment is entered and is on the books against your client, and you have to make your best guess as to the likely verdict or the offer is ineffective.  Senter’s directed verdict was for $232,000.

 In federal court, judges are required to issue written opinions on their decisions, and they are also required to issue findings of fact when they act as the trier of fact.  Although the clerk’s office in the Southern District of Mississippi said yesterday they were told to stand by to post the findings of fact on the court’s website, as of early this morning there is still nothing.  Nor does the official docket on the federal court PACER system (which my secretary finally made me learn how to use by myself so I’d stop bugging her) contain anything for yesterday but the judge’s minute order.  A minute order is a cursory record of the result.  So I haven’t been able to go through Judge Senter’s findings of fact, but I will say this: it’s an uncommon step for a judge to enter a directed verdict on a claim like this.  A directed verdict means the judge found that, as a matter of law, the evidence presented would not allow any reasonable juror to find for State Farm.  What he said in court, according to media accounts, was this: "I find the defendant did not have any legal or arguable reason for refusing to pay.”   

How can one reconcile this decision with Senter’s earlier rulings in other cases? This morning I read through the summary judgment briefing in this case and State Farm’s trial brief (I saw no record on PACER of a trial brief for the Broussards).  If you care to view them, here is State Farm’s summary judgment memo, here is the Broussards’ response, here is Judge Senter’s order denying summary judgment and here is the State Farm trial brief.  For the most part, these are short , to the point, and well-written.

Keep in mind that in other Katrina cases, where the insurance companies’ positions were largely upheld, the facts were somewhat different.  In Nationwide v. Leonard, for example, a Katrina case tried to Senter as the trier of fact last year, the insurer was able to reasonably pinpoint the amount of damage caused by covered wind and the amount caused by uncovered water.  (Click here for a pdf of the findings of fact in Leonard).  In Broussard, in contrast, the house was reduced to a slab.  The Broussards claimed hurricane winds or a tornado destroyed the house before flooding arrived, State Farm claimed the contrary.

However, this story contains these key paragraphs, indicating State Farm may have had some doubts about the cause:

"The wind forces in the entire region were not strong enough to destroy businesses and homes," said [State Farm’s expert] Gurley, who has studied 20 hurricanes. Gurley said evidence indicates there was a 75 percent likelihood that the wind damaged from 0 to 35 percent of the roof shingles.

"This is the best I can do," he said. If wind had breached the house and caused it to explode, as the Broussards maintain, he said, the decorative glass in the Broussards’ door would have broken. The Broussards found the door after the storm and set it up upright on their property with the glass still intact, photos showed.

However, Gurley also said he could not completely rule out a tornado.

After reading through the pleadings on file with the court, it seems that Senter did not buy State Farm’s position that it was up to the Broussards to prove what happened to obtain coverage.  Instead, he may have gone with the position the Broussards gave in their summary judgment briefing: State Farm was asserting a flood exclusion, and the burden of proof is on an insurer to prove an exclusion.  The Broussards also argued that State Farm’s protocols for determining the cause of damage amounted to a backdoor assertion of an interpretation of the policy’s anti-concurrent cause clause that had earlier been ruled invalid: that if wind destroyed a structure but it would have been destroyed by water anyway, there was no coverage. It appears that the admission by State Farm’s expert that destruction of the home by wind could not completely be ruled out may have been a big factor.

No matter what side of the fence you find yourself on with this case, however, you have to ask yourself these questions. Isn’t the insurer’s burden of proof for an exclusion merely a preponderance of the evidence, not an absolute certainty? Is saying some small possibility exists that at least some wind damage occurred tantamount to saying you won’t pay if a flood would have destroyed the property anyway?  You also have to remember Senter’s earlier statement in his opinion last year in Tuepker v. State Farm:  "To the extent plaintiffs can prove their allegations that the hurricane winds . . . proximately caused damage to their insured property, these losses will be covered under the policy [whether or not a flood subsequently would have destroyed the property]."  That is hard to square with yesterday’s decision, unless Senter felt the evidence presented by the Broussards’ expert — that the scatter pattern of debris clearly indicated destruction by wind — was overwhelming. 

Well, this post is long enough.  We’ll revisit this issue again, and we’ll be able to figure it out when we see the findings of fact.  As a parting gift, I leave you with this Chicago Tribune story, which is the best I’ve yet read on the decision.

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4 Responses to Commentary On State Farm’s Loss In Broussard v. State Farm

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  2. More on Broussard v. State Farm

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    State Farm loses big time in a Katrina homeowner lawsuit. State Farm says it is “surprised” and “disappointed” by the outcome and having to pony up $2.7 Million to the Mississippi homeowners. The Chicago Tribune provides the details.