JACKSON, Miss. - Mississippi Attorney General Jim Hood announced Tuesday that his office has reached a settlement with State Farm Insurance Company over damage done to homes by Hurricane Katrina.
After the agreement is signed in Chancery Court of Hinds County, the administrative process will be carried out in a class action settlement in U.S. District Court for the Southern District of Mississippi under the supervision of Judge L.T. Senter, the judge who determined five insurance companies that Hood sued were not protected by federal flood insurance.
He also took the case of Norman and Genevieve Broussard out of a jury's hands by ruling himself that State Farm was liable for $223,292 in damage caused by the storm. Once he gave the jury a bad faith ruling, it award the couple $2.5 million in punitive damages.
Tuesday's settlement does not provide a cap on the amount of damages State Farm must pay, just that it must offer a minimum of 50 percent of the home's structural value according to its policy. At a press conference, Hood anticipated that State Farm will have to pay as much as $500 million.
"We believe that the overall value of this is a quick flow of capital at a critical time," Hood said.
It will also provide a flow of capital to Hood's office, which will receive $5 million for "investigative and legal expenses incurred."
"Anything over and above costs will go to the state's general fund," Hood added.
Hood, who made headlines when he gave private attorneys $14 million of a $100 million settlement with MCI in 2005, did not appoint any private attorneys as special assistant attorneys general for negotiations with State Farm.
Hood said he believes the Democratic takeover of Congress during November's general election helped steer State Farm toward the settlement. Three Mississippi Congressmen, led by Sen. Trent Lott, are pushing for national insurance reform.
"I hope that this will create a template for other companies to come forward and participate in this program," he said.
Any criminal investigation of State Farm's claims handling practices are over, too.
"Although their activities warranted criminal investigation, our career prosecutors found that the matter would be better handled in civil court and in the United States Congress," he said.
In addition to Congress and criminal charges, Hood also urged citizens to call their insurance companies and demand a settlement to the case, which is also filed against four other companies yet to settle (Allstate, Nationwide, Farm Bureau and USAA).
The suit was filed only a few weeks after Hurricane Katrina hit the area. Some criticized Hood for a "sue-first, ask-questions-later" mentality.
Louisiana and Alabama have not filed similar lawsuits. Hood added that any affected potential class member who wants to pursue his or her own lawsuit does not need to sign up for the settlement.
State Farm will sent out a notice of the class, an opt-out form and a table showing the percentage of policy coverage limits a policyholder may receive based on damage done to the structure.
The policyholders may opt out and not lose their right to file their own lawsuit. If a policyholder stays in the class but denies State Farm's 50-percent offer, the case will go before an arbiter.