GULFPORT, Miss. -- A federal judge Friday refused to sign off on a settlement between Mississippi Attorney General Jim Hood and State Farm Insurance Co., citing procedural concerns over the agreement which would affect nearly 35,000 policyholders who have not filed suit against the company.
U.S. District Judge L.T. Senter wrote in an opinion that he has not received necessary information on the number of class members who claim State Farm unfairly denied coverage after Hurricane Katrina. Also, Senter says commonality among the potential class members has not been established, so he can not certify the policyholders as a class.
"If you have a washing machine recall, then the class has something in common," said David Rossmiller, a partner at Dunn Carney in Portland, Ore., and managing editor of the Insurance Coverage Law Blog. "Everyone has a broken washing machine.
"Just because everyone has damages as a result of the same storm doesn't mean the damages are in any way alike or anyone's cause of action is exactly the same as anyone else."
The settlement did not provide a cap on the amount of damages State Farm would have had to pay, just that it must offer a minimum of 50 percent of the home's structural value, according to its policy, to each policyholder who filed a claim. At a press conference, Hood anticipated that State Farm would have to pay as much as $500 million.
Hood's office also would have been provided $5 million for investigative costs.
In addition to the procedural problems of which Senter complained, he said he is uneasy about the power State Farm has over claim-settling procedures. If a policyholder declines to accept the opening 50-percent-of-structural-value offer, the claim goes before an arbitrator.
"The proposed settlement agreement contemplates State Farm's participation in the selection of the Special Master, a choice that is exclusively within the prerogative of the Court," Senter wrote. "The proposed agreement also allows State Farm to train the arbitrators, control much of the administrative process and control the compensation of all those involved in the administration of claims.
"This arrangement has the potential of allowing State Farm to exert a substantial measure of control over the claims resolution process without oversight by an independent or neutral authority."
Hood, who still has four defendants left in the lawsuit he filed weeks after Hurricane Katrina that he is pushing to settle, said it is State Farm's duty to establish an administrative process to which Senter can agree.
"Although it was contemplated that the federal court as better prepared to handle this type of process, our office did not negotiate the terms of the proposed federal court class action," he said. "In fact, our office had reservations about some of the terms of the class agreed to by the plaintiffs and State Farm.
"Nevertheless, I knew Judge Senter would make sure that the class was a fair procedure for all."
It's not the first time Senter has been in the middle of Katrina lawsuit news. 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 instruction, it awarded the couple $2.5 million in punitive damages.
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