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Judge rules State Farm liable in Katrina case

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Judge rules State Farm liable in Katrina case

GULFPORT, Miss.—State Farm Fire & Casualty Co. plans to appeal the more than $2.7 million verdict awarded against it last week in a homeowners coverage dispute related to Hurricane Katrina damages, a spokesman for the insurer said.

A federal jury on Jan. 11 awarded $2.5 million in punitive damages to a Biloxi, Miss., couple who sued State Farm for the Katrina-related destruction of their home. That award came just hours after a federal judge ruled that the insurer had to pay their $233,292 claim.

The Bloomington, Ill.-based insurer originally rejected the couple's claim, arguing that the damage was caused by storm surge, which State Farm said was excluded in their policy. Meanwhile, the couple claimed that a tornado resulting from the storm had destroyed their home, thus making the claim valid.

U.S. District Judge L.T. Senter ruled that State Farm did not present enough evidence to distinguish what damage was caused by wind and what was caused by water, according to a statement by State Farm.

The couple's attorney did not return phone calls for comment.

Robert Hartwig, president of the New York-based Insurance Information Institute, said the verdict is not good for the insurance industry, which has refused to pay millions of dollars in Katrina claims that insurers contend are excluded under their policies.

"This is an indication that courts are going to hold insurers liable for water damage, which has been excluded," he said.

"It's an extremely unfortunate decision, not only for State Farm but for potentially other insurers as well, and ultimately for the people of Mississippi, (because the verdict) will negatively impact availability and affordability of insurance," Mr. Hartwig said.

Because insurers do not collect premiums on water damage, the decision could force insurers to up future pricing on insurance or deny coverage in hurricane-prone areas, Mr. Hartwig said. "This injects a massive amount of uncertainty in a market that is very fragile."

In other Katrina litigation-related developments:

  • The spokesman for State Farm confirmed the insurer is in settlement talks with an undisclosed number of policyholders who have also sued the company for failing to pay Katrina-related claims. The spokesman declined to comment further on the negotiations.

  • Judge Senter on Jan. 10 ordered into mediation 83 lawsuits filed by policyholders against insurance companies, according to his office. The judge has already ordered droves of lawsuits into mediation. His office is reporting that 28 of the 55 that have been through mediation have resulted in settlements.