New York Times: Tejedor v. State Farm Might Have Settled For $1 Million

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.


Filed under First Party Insurance

2 Responses to New York Times: Tejedor v. State Farm Might Have Settled For $1 Million

  1. daughter for Justice

    Mr. Rossmiller, I’m not an attorney but have been following your opinions on the Broussard’s case very closely as my family was victimized by State Farm after Katrina in a very similar way. (So I admit I’m somewhat bias) I understand that legal minds are analyzing this case as a matter of law (as they should be) but I would like to express my feelings as someone without all the legal expertise and bring it down to what the people who are parties to this injustice feel. I cannot understand why they would do such a thing?
    We know that State Farm had a contractual obligation to investigate and differentiate the damage of the insured property. Instead State farm conspired to write new language not in the policy AFTER one of the worst natural disasters to hit these United States. While most executives of large corporations were sitting around their boardrooms trying to figure out how to get aid to the victims of Hurricane Katrina, State Farm executives were sitting around their boardroom drafting a New Wind-water protocol, so they could deny legitimate claims. (As testimony in the Broussard case proved) It’s hard to believe, but unfortunately it is true. So I ask you to please help me understand why would they do such a thing? Insurance companies made a profit of $46 billion dollars last year, Yes, Billion. That is an 18% increase in profit over the most catastrophic year in history 2004 with four hurricanes in Florida. As testimony reveled in the Broussard’s case State Farm had listed on their balance sheet a category titled miscellaneous and unspecified the total was 3.7 Billion. It would have taken only a small percent of that total to pay those legitimate claims. Why would they do such a thing? Would their executives not have made their year-end bonuses? Why?
    I feel the legal minds are missing a key point to this entire issue. State farm with their new wind water protocol veered from their usual conduct of handling claims. After the fact they decided to switch the burden of proving wind damage to the insured. Wasn’t the Broussard’s policy an all risk policy and State farm by law owed them the limits of the policy unless State Farm could prove 100% of the water exclusion applied? As State Farm testified in this case they required the insured to have discernible evidence of wind. (Which is not in the policy) Mr. Blalock admitted during trial that State Farm’s definition of discernible evidence would have to be an eye witness. While at the same time they did not hold themselves to the same standard of proof.

  2. I appreciate your sentiments. Certainly everyone’s heart goes out to those who lost a home or possessions because of Katrina. What I try to do with this blog is examine developments as objectively as I am able. Although I frequently represent insurance companies, I also represent policyholders when this does not produce a conflict of interest with existing clients. I have no ideology per se, but rather I am merely trying to examine which legal rules will provide for the greatest longterm gain for the greatest number of people.
    No one will fault you for your views, but remember, insurance coverage law is one of the great workshops of the common law in this country: despite tons of insurance litigation going on in every state every day, it is astounding how many legal questions do not have a settled answer. That is what litigation is for, to determine the meaning of policy language and to decide how the facts fit within that language.
    I’ve commented extensively about my views on placing the burden of proof on the insured to prove wind damage, so I won’t repeat it, but I will say this: I don’t read State Farm’s trial brief in the Broussard case as saying much different than Judge Senter himself said in earlier cases like Tuepker and Leonard.
    In any event, thank you for taking the time to write a thoughtful comment and thank you for reading.