Opening statements given in Katrina lawsuit as insurer, state negotiate settlement

GULFPORT, Miss. -- A jury heard opening statements Tuesday in one of hundreds of insurance lawsuits filed by policyholders of State Farm Fire & Casualty Co. after Hurricane Katrina, even as the attorney general negotiated a separate potential settlement with the insurer.

A lawyer for State Farm policyholders Norman and Genevieve Broussard, whose case is not directly related to the settlement talks, told jurors that the company invented a new "protocol" after the August 2005 storm to deny the couple's claim and many others like it.

State Farm and other major insurers maintain that their policies don't cover damage that could have been caused by a combination of wind and flood waters, even if hurricane-force winds preceded a storm's rising water.

William Walker, the Broussards' attorney, said the company invoked that provision to refuse to pay for any damage to homes that Katrina reduced to slabs, including his clients' residence in Biloxi.

"They denied [the couple[']s claim] based on this wind/water protocol, this thing that's not in the policy," Walker told jurors. "This is a case in which State Farm promised to do something. This is a case in which State Farm decided not to follow those promises."

The Broussards claim a tornado destroyed their home before any flooding, but State Farm concluded that all the damage was caused by Katrina's monster storm surge and isn't covered by their policy.

'Destructive mechanism'

State Farm attorney Scott Corlew told jurors: "We think after you've reviewed all the evidence that you will agree with us that water was the destructive mechanism at the Broussard home."

In seating a jury of four men and four women Monday, U.S. District Judge L.T. Senter Jr. rejected the insurer's bid to move the proceedings to Oxford, Miss., more than 300 miles north of the Gulf Coast.

Senter warned the jurors to ignore media reports about this case -- only the second trial for a Katrina insurance lawsuit -- as well as coverage of recent settlement talks between State Farm, Mississippi Attorney General Jim Hood and other lawyers.

State Farm, Mississippi's largest home insurer, is negotiating a multimillion dollar settlement in the state to resolve thousands of lawsuits and other disputed policyholder claims related to Katrina, people with direct knowledge of the negotiations said Monday.

Lawyers for Bloomington, Ill.-based State Farm met with Hood as recently as Friday to discuss a possible settlement, which would resolve a civil lawsuit Hood filed against the company for refusing to cover damage from Katrina's storm surge 16 months ago.

A mass settlement would be the first of its kind to follow the wave of litigation spawned by Katrina.

'A fair shake'

Hood, through a spokeswoman, declined to be interviewed Monday. But he issued a statement that said: "I am working day and night attempting to get our coastal residents a fair shake in the insurance litigation. It would not help our negotiations to disclose any details at this time."

Hood last month announced that he was trying to negotiate a settlement with several insurance companies, but he didn't specify which ones.

State Farm spokesman Phil Supple said that while no settlement has been reached with Hood, "we continue to talk and search for ways to bring these events to a resolution."

State Farm says it already has paid roughly $1.1 billion for about 84,000 property claims in the state, not including flood insurance.

Many policyholders with damage, including those who had coverage from companies other than State Farm, contend that they received nothing or only small payoffs from their homeowner policies because insurers blamed their losses on storm surge, which is not covered, rather than on the hurricane's winds.

Hundreds of Mississippi homeowners have sued their insurance companies for refusing to cover billions of dollars in damage from Katrina's storm surge. The Broussards' case is only the second to be tried since the storm destroyed or severely damaged tens of

thousands of homes.

People with knowledge of the state settlement talks said both sides were nearing an agreement that could be worth hundreds of millions of dollars to tens of thousands of State Farm policyholders in Mississippi. The Mississippi settlement would not involve any claims filed by State Farm policyholders in Louisiana or Alabama.

State Farm agreed "in principle" to pay an undisclosed amount of money to more than 600 policyholders, including Sen. Trent Lott, R-Miss., who sued State Farm after the storm, according to the people with knowledge of the negotiations. All the policyholders are represented by a legal team led by high-profile attorney Richard "Dickie" Scruggs, Lott's brother-in-law.

An agreement also could benefit thousands of other Mississippi State Farm policyholders who haven't sued State Farm.

A "class action resolution" component of the proposed deal calls for the company to review the claims filed by roughly 35,000 policyholders who live in Mississippi's three coastal counties but didn't file lawsuits against State Farm for refusing to cover storm damage.

After reviewing those claims, the company would be required to make new offers, and any disputes would be heard by an arbitrator whose decision would be binding.

State Farm would pay a minimum of $50 million to these policyholders after their claims are reviewed, but the company could end up paying hundreds of millions of dollars more than that because there wouldn't be a cap on the amount, the people with knowledge of the talks said.