Judge Reduces State Farm’s Punitive Damages in Miss. Katrina Case

January 31, 2007

The federal judge overseeing the Katrina claims cases in Mississippi has reduced a recent $2.5 million jury award of punitive damages against State Farm to $1 million.

U.S. District Judge L.T. Senter ruled that a punitive damage award that is four to five times the compensatory damages of $211,212 in the case was more appropriate than the figure 12 times that amount decided by the jury.

The case involved State Farm’s handling of wind and water claims at the home of the Broussard family. State Farm denied the family’s claim. But Judge Senter ruled that State Farm failed to meet its burden of proving that all damage to the Broussard’s house was caused by water and therefore excluded from coverage. He ordered the insurer to pay the $212,000 policy limits. He then handed the case to the jury, which returned with the $2.5 million in punitive damages.

But Senter has now decided that is too high.

He said that “few awards exceeding a single-digit ratio between punitive and compensatory damages” will satisfy due process.

Judge Senter wrote:

“The devastation caused by Hurricane Katrina created substantial financial vulnerability to Mississippi policyholders insured by the defendant, especially those whose homes were totally destroyed, of which there are a large number. The philosophy or attitude or position adopted by the defendant that lasted throughout the consideration of plaintiffs’ claim is reprehensible enough to warrant deterrence. What effect it may have remains to be seen, but substantial harm resulted from defendant’s conduct, which was neither isolated nor mere accident.

“The amount of punitive damages assessed by the jury in the instant case is almost 12 times the amount of compensatory damages. Fortunately, plaintiffs only suffered an economic injury. It is my determination that a more appropriate punitive assessment against defendant is the sum of $1,000,000.00, which is between 4 and 5 times the contractual/ compensatory damages of $211,222.00. A remittitur to this amount will be incorporated ultimately in a final judgment.”

Days after the $2.5 million was awarded, State Farm settled another Katrina case in Mississippi out of court.

Then about a week ago the giant insurer agreed to pay a minimum of $50 million to settle a class action involving more than 35,000 policyholders who did not sue the company and also agreed to pay $80 million to settle 640 lawsuits.

The class action settlement has been delayed by Senter, who has demanded more information before signing off on it.

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