GULFPORT, Miss.—A Mississippi jury on Thursday ordered State Farm Fire and Casualty Co. to a pay $2.5 million in punitive damages to a couple whose home was destroyed during Hurricane Katrina.
The decision could signal a trend for hundreds of Gulf Coast homeowners suing insurers.
Experts called Thursday's award to a Biloxi, Miss., couple potentially momentous but cautioned it was not clear whether the language in the couple's insurance policy varied greatly from other homeowners suing insurance companies.
The decision came as State Farm, the nation's largest insurer of homes and cars, discussed settlement of a suit brought by Mississippi Attorney General Jim Hood that alleges State Farm and others wrongly denied claims by attributing most damage to flooding, without proper investigation. Flood damage isn't covered under standard homeowners' insurance policies.
State Farm faces more than 200 lawsuits in Mississippi, where it's paid out more than $1 billion in claims following the devastating hurricane. And there are at least 1,000 cases pending before a federal court against insurers.
"It's a great day," Norman Broussard said after learning of the jury award. It followed a ruling earlier in the day by U.S. District Judge L.T. Senter Jr. that State Farm failed to prove it was a storm surge and not wind damage that destroyed the Broussards' home. In prior cases, Senter had largely ruled for insurers.
The couple sought from State Farm compensation of almost $224,000 for damage to their home and contents and $5 million in punitive damages for failing to compensate under the policy's terms.
"We did not expect this decision," Kim Brunner, State Farm's general counsel, said in a statement. "Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind."
The distinction is important. Most insurance policies state clearly that flood damage is not covered and a separate federally administered flood policy is available for those who want it. The ruling suggested State Farm didn't sufficiently prove damage came from flooding.
If Senter's ruling is not overturned by appellate courts—State Farm said it would "likely appeal"—it could change the way insurers do business. Already across the nation, many insurers have begun sharply raising the cost of homeowners insurance for coastal properties or stopped writing policies in areas prone to flooding.
Others involved in Katrina-related lawsuits took Thursday's action as a precedent.
"This a great day for the people of the Mississippi Coast. When all else fails, the people have the court system to protect them," said Judy Guice, an attorney from Ocean Springs, Miss., who has her own lawsuit pending against State Farm and broke into tears upon hearing Judge Senter's ruling.
Experts weren't sure whether the Broussard case would in fact set precedent but said it had enormous potential.
"It's huge. . . . If it's the pilot test case and there's a ruling against State Farm, then all the other insurance companies are in a similar situation if they have the same basic policy language," said Clinton Miller, an insurance consultant in San Jose, Calif., and author of the book, "How Insurance Companies Settle Cases." "The insurance industry has a huge stake in this test case, and knowing State Farm they will go up on appeal."
Industry experts thought the decision appeared case-specific.
"This ruling was focused on the facts of this particular case. Our initial interpretation doesn't mean that State Farm has to go back and examine every single claim, closed or not, based on this ruling," said Joseph Annotti, spokesman for the Chicago-based Property Casualty Insurers Association of America.
But the ruling is likely to send insurance industry attorneys scurrying to review the details of their own policy standards based on the judge's interpretation of the Broussards' policy with State Farm.
"I guess there wasn't sufficient proof that it could be undoubtedly caused by the surge," said Annotti. That could "spur a lot of companies to take a very, very close look at the language of their policies to make sure it's crystal clear," he said.
State Farm's own expert said Wednesday there was a 75 percent chance that wind had caused up to 35 percent of the damage to the Broussards' roof. That distinction allowed the couple's attorney, Bill Walker, to argue successfully that State Farm wasn't in good faith distinguishing between wind and water damage.
"I have to give (Walker) credit. He plowed to the issue of the all-risk policy and got it to the judge," said William Weatherly, an attorney following the case. "He just took a rifle shot and his instincts were right."
When Mississippi's attorney general brought suit against insurers in 2005, the state's insurance commissioner, George Dale, told McClatchy Newspapers it set a bad precedent since flood damage is only covered under a special policy offered by the federal government.
On Thursday, he issued a statement warning the insurance industry against overreacting to the judge's ruling.
"I am concerned that some companies may use today's ruling as a reason to limit or exclude their writings on the Coast," he said. "My office and I will continue doing everything in our power to make sure that does not occur."
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(Lee reported from Gulfport, Hall from Washington.)
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(c) 2007, McClatchy-Tribune Information Services.
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