With several thousand class-action claims and individual lawsuits originating from an alleged lack of coverage after Hurricane Katrina left to settle, State Farm Insurance Company at least has step one out of the way.
"You can be settling with them and still have the monkey on your back of an attorney general," said David Rossmiller, a partner at Dunn Carney in Portland, Ore., and managing editor of the Insurance Coverage Law Blog.
"That's not a desirable thing. If you have to pay the attorney general to get his blessing for the global settling of everything, then you do that without even thinking."
State Farm paid Mississippi Attorney General Jim Hood's office $5 million in the settlement, which Hood estimates can go as high as $500 million.
That $5 million payment to Hood is categorized as reimbursement for investigative and legal costs. The settlement to which Hood and State Farm agreed provides that the insurance company will offer to policyholders who choose to become part of the class 50 percent of the value of a damaged structure.
Hood's lawsuit, filed just weeks after Hurricane Katrina hit the southern coast, still has four defendants who haven't reached settlements -- Allstate, Nationwide, Farm Bureau and USAA.
Louisiana, hardest hit by the hurricane, did not file a similar lawsuit. After reading State Farm's pleadings in the cases against it, Rossmiller said the company seemed to be standing on sturdy legal ground.
"State Farm had a really good case in any of the cases I saw," he said. "I have read the pleadings in many of these cases and I can't say that State Farm's position was out there or they weren't in a good position.
"I think the interpretation of their policies was very mainstream and their interpretation of the facts would not strike one as out of line, or that they would be headed for an obvious disaster.
"For an attorney general's investigation, in my opinion, you have to question if it was even necessary."
Hood thought it was, claiming State Farm's actions could have even warranted a criminal investigation, and said Tuesday that the settlement will provide "a quick flow of capital at a critical time."
During negotiations, Hood publicly mentioned Mississippi's Congressmen making a push for national insurance reform in Washington, D.C., and urged policyholders to call their companies and ask for a settlement.
"Attorney General Hood came out pretty well. He came out looking like somebody who stepped in and said he was going to do something and got it done, and that's a politician's dream," Rossmiller said.
More than a week ago, U.S. District Judge L.T. Senter 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
Hood's public relations spin had more of an effect on State Farm's decision to settle than Congress or that ruling, Rossmiller believes.
"They did a magnificent job of creating an atmosphere where it was very, very difficult for their opponent to operate. Dickie Scruggs (who represents Sen. Trent Lott in his personal lawsuit against State Farm) and the rest of the plaintiffs lawyers created a public relations firestorm against the insurance companies down there.
"State Farm, in agreeing to the settlement, is agreeing to cut their losses," he added. "The first rule when you're digging a hole is when you're in a hole, you need to stop digging. That's what they did."