It took three years for Mississippi resident, Scott Gordon, to resolve the dispute that Hurricane Katrina spawned with his insurance company. Anything resembling a full recovery from the storm will take much longer.
“There are some scars that will probably never heal,” said Gordon, who recently settled the lawsuit he filed against State Farm Fire and Casualty Co. after the company refused to pay for all of the damage to his home in Long Beach, Miss.
Even as they watch the progress of Tropical Storm Gustav, thousands of southern Mississippi homeowners remain bitter after battles over insurance companies’ refusal to pay for much of the damage from Katrina, which hit Aug. 29, 2005.
Mass settlements of homeowners’ lawsuits and a series of favorable court rulings have helped the insurance industry come close to closing the books on Katrina by the storm’s third anniversary. Satisfaction for many policyholders has been more elusive.
A criminal investigation of handling of Katrina claims fizzled. A federal appeals court tossed out a punitive damages award to a Biloxi couple who sued State Farm. The same court also upheld policy language that State Farm used to deny hundreds of claims.
Wind-versus-water disputes are at the heart of the conflict. While much of the flooding in southeast Louisiana resulted from levee breaches, Katrina’s wind-driven storm surge caused much of the damage on Mississippi’s coast.
Insurers paid for billions of dollars in damage from Katrina’s wind, but the companies say their policies do not cover damage from a hurricane’s rising water. Many Mississippi homeowners challenged the industry’s refusal to pay for damage from Katrina’s storm surge, but the courts have consistently upheld the flood-exclusion language in homeowner policies.
Because of that, many policyholders have quietly settled their lawsuits for undisclosed terms.
“We’ve had some tough losses. I can’t sugarcoat that,” said Amy Bach, executive director of the United Policyholders advocacy group.
One of the most devastating setbacks was the bribery case against high-profile lawyer Richard “Dickie” Scruggs, whose firm filed hundreds of Katrina damage cases against insurers.
Scruggs withdrew from dozens of Katrina insurance cases, including Gordon’s, after he was indicted on charges he tried to bribe a judge for a favorable ruling in a dispute with other lawyers over fees from a mass settlement of Katrina cases. A judge later barred Scruggs’ former associates from taking over those cases.
Gordon hired a new lawyer, Ben Galloway, to broker a settlement. While he’s relieved the case is behind him, Gordon wishes he could have had his day in court.
“There are a lot of things I wanted to say,” said Gordon, a 51-year-old father of three.
William “Chip” Merlin, a lawyer who has represented more than 300 Mississippi homeowners with cases against insurers, said Scruggs’ downfall gave policyholders and their lawyers a “huge black eye.”
“I think it emboldened many of the insurance companies — not just State Farm. All policyholders have lost some leverage as a result of this,” said Merlin, whose firm now represents several former Scruggs clients.
Bloomington, Ill.-based State Farm says it has paid nearly $1.3 billion to resolve 84,500 claims in Mississippi. The company also has resolved all but 170 of the lawsuits filed on behalf of roughly 1,100 policyholders after Katrina, including a January 2007 settlement with more than 600 policyholders represented by Scruggs.
That deal didn’t end its feud with Scruggs, who had vowed to prove State Farm defrauded policyholders. State Farm spokesman Phil Supple said Scruggs, who is serving a five-year prison sentence, unfairly cast suspicion over company employees who “put their lives on hold, worked for months in horribly bad conditions and did an admirable job.”
“It was not fair to them to also have to face a daily onslaught from politicians and trial lawyers attempting to cast them as criminals,” Supple said in a statement. “What document ever produced anything incriminating (about) State Farm’s claims practices? None.”
Many plaintiffs lawyers are scrambling to file a final batch of Katrina insurance cases by the Aug. 29 anniversary because it’s unclear precisely when the state’s three-year statute of limitations expires. Most cases spawned by Katrina already have been resolved.
More than 1,300 lawsuits have been filed in federal court in Gulfport on behalf of roughly 2,500 policyholders. Of those, 263 cases remained open as of Aug. 22, according to the court.
The vast majority of cases have been settled without a trial, many as a result of court-ordered mediation. Of 450 cases ordered into mediation, 235 were settled either before or during mediation.
Only seven federal cases have been tried before a judge or jury in Gulfport. The first jury trial ended in January 2007 with a $2.5 million punitive damages award to Norman and Genevieve Broussard, Biloxi retirees who sued State Farm for denying their claim.
The stunning verdict didn’t hold up for long. A judge reduced punitive damages to $1 million before an appeals court in New Orleans threw it out altogether and ordered a new trial, saying the jury shouldn’t have been allowed to consider punitive damages.
The Broussards, who settled with State Farm rather than press for a new trial, aren’t angry about their reversal of fortune. They recently moved into a new home in Biloxi, near their grandchildren.
Norman Broussard, 78, said strangers often approach and thank him for giving other policyholders hope after the storm.
“We helped a lot of people,” he said. “That was a good thing.”
A confidentiality agreement prevents Gordon from discussing terms of his settlement last month with State Farm Fire and Casualty Co., but he says money couldn’t replace everything Katrina destroyed.
He and his wife, Vickey, bought a new home in Long Beach. A mailbox is all that’s left of their old house.
“I can’t hardly even drive past there anymore,” he said. “We lost the neighborhood.”
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