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

3 Responses to Why Did State Farm Negotiate A Global Mississippi Settlement?

  1. “Looking Under the Hood” of the State Farm Katrina Settlement

    Via Rossmiller, Randy Maniloff has a lengthy article on Judge Senter’s rejection of the Katrina settlement (Jan. 27; see also Jan. 23 and earlier Katrina coverage). Highlights plus my comments:The settlement leaves open 200 non-Scruggs Mississippi clai…

  2. Michael

    Re: Why Did State Farm Negotiate A Global Mississippi Settlement?
    Not only potential damage to the brand but also this: will State Farm become more agressive & less likely to pay legitimate homeowners & auto claims in other states to make up for the financial impact of the Katrina claims? Being a State Farm customer since 1993(homeowners & auto), I’m concerned & may look to switch to another carrier.

  3. Marla

    As one of the 35,000 State Farm Katrina customers noted by the judge, I’m finding your observations and analysis very helpful. I fought with 7 successive State Farm adjusters for every penny I was able to get. They still owe me much more, and I have now contacted my State Farm agent asking to have my case reopened. Thanks for your insite. Please keep up the good work.