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Judge rejects State Farm settlement of Katrina claims

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Judge rejects State Farm settlement of Katrina claims

GULFPORT, Miss.—A federal judge last week rejected State Farm Fire & Casualty Co.'s broad Hurricane Katrina settlement with Mississippi Attorney General Jim Hood, just three days after the insurer agreed to reopen claims from thousands of policyholders and pay at least $50 million toward their property damages.

The settlement resolved a civil suit filed by Mr. Hood that sought to compel Bloomington, Ill.-based State Farm to cover Katrina-related storm surge damage and a criminal investigation into the insurer's claims handling practices.

Among other settlement provisions, State Farm had agreed to re-evaluate Katrina-related claims for about 35,000 policyholders in three coastal counties and to pay a minimum of $50 million, with no cap on the total payout.

"In the absence of substantially more information than I now have before me, I am unable to say, even preliminarily, that the proposed settlement establishes a procedure that is fair, just, balanced or reasonable," Judge L.T. Senter Jr. said in his order denying approval.

In particular, he noted that that although State Farm has made a commitment to pay at least $50 million, he could not ascertain how that sum compares with the total claims of the members of the proposed class. "Nor can I fairly estimate, with even a minimum degree of accuracy, how thinly this large sum may be spread among the class members."

Judge Senter also said that for it to be a "true global settlement," any proposed deal should take into consideration all State Farm claims, including those that are currently in litigation.

It was unclear what impact the judge's eight-page order would have on a separate proposed class action lawsuit involving 640 policyholders who sued State Farm, alleging their Katrina-related claims were not adequately resolved. State Farm will pay about $80 million to that class of policyholders as part of the settlement reached last Tuesday, according to a source close to the matter.

"I am confident that Judge Senter will make the plaintiffs and State Farm fix the problems he has raised in his order," Mr. Hood said in a statement.

A spokesman for State Farm said in a statement: "We look forward to addressing Judge Senter's concerns. We believe, given the opportunity, he will come to view the proposed settlement as fair, just, balanced and reasonable."

The settlement with Mr. Hood comes on the heels of State Farm being ordered to pay $2.5 million in punitive damages to a Biloxi, Miss., couple in connection with a Katrina-related homeowners claim it denied, citing storm surge exclusions.

State Farm, which is appealing the verdict, also was ordered to pay the couple's full $233,292 claim (BI, Jan. 15).