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A federal judge tossed Mississippi Attorney General Jim Hood's lawsuit seeking to compel insurers to cover storm surge damage back to a state court, preceding Mr. Hood's announcement last week that he would like the insurers to settle.
The move from federal to state court is significant because federal courts have already denied similar claims made in other suits. Even more significant, however, is Mr. Hood's invitation to settle the case, industry observers say.
Robert Hartwig, president of the New York-based Insurance Information Institute, said the Mississippi attorney general is probably shifting to settle out of court because that federal court precedent could trickle down to the state court system.
"The precedent has been set and (Hood) knows this," Mr. Hartwig said. "What Hood is trying to do is spin gold out of hay."
A spokesman for the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America said the industry is confident that the state court will reach the same conclusion as federal courts.
In an interview Dec. 29, Mr. Hood told Business Insurance that his proposal to settle out of court has nothing to do with the federal court precedents, but took into account what could be a lengthy trial and appeals process.
"I am comfortable in my position," Mr. Hood said. "Now's the time if we are ever going to resolve this. There's an opportunity for (insurers) to settle without having to admit problems with their clauses. I think the public will appreciate the industry stepping up and doing the right thing."
Shortly after Hurricane Katrina struck the Gulf Coast of Louisiana and Mississippi in August 2005, Mr. Hood sued five property insurers, claiming that wind, not flooding, caused the storm surge that devastated many homes and properties in the region.
Most insurance policies specifically exclude coverage for flooding, and insurers after Katrina denied coverage for storm surge damage.
Mr. Hood's suit argued that insurers are responsible for surge claims from the homeowners and businesses they insured. The companies named in the suit include: Mississippi Farm Bureau Insurance Co., State Farm Fire & Casualty Co., Allstate Property & Casualty Insurance Co., United Services Automobile Assn. and Nationwide Mutual Insurance Co.