Attorney: State Farm settlement possibly "can't be fixed"

By John O'Brien | Mar 13, 2007


GULFPORT, Miss. - A team of lawyers led by nationally known plaintiffs attorney Richard Scruggs has withdrawn its request for approval of a multi-million-dollar settlement reached with State Farm Insurance Co.

On Monday, Scruggs apparently decided that he and State Farm could not make a settlement reached in January and worth an estimated $500 million comply with concerns voiced by U.S. District Judge L.T. Senter, who is presiding over the case.

The affected group of people fall under Mississippi Attorney General Jim Hood's class action lawsuit against five insurance companies that was filed a few weeks after Hurricane Katrina over an alleged lack of coverage.

Scruggs wrote in his motion that the Court has shown a "reluctance" to approve the settlement.

"The plaintiffs withdraw the motion with the hope that a new one can be filed once the Court's concerns are more fully understood, and which will provide a process better than eternal litigation with limited time and resources of the class and litigants," Scruggs wrote.

David Rossmiller, an insurance attorney and partner at Dunn Carney in Portland, Ore., who has been analyzing the Gulf Coast's insurance situation for LegalNewsline, said a couple of things stood out from the motion.

He said it is possible that Scruggs "is confused about what exactly will satisfy Senter's concerns. I can see the point, it's better to hear what a judge will approve than keep trying to come up with something by trial and error."

Hood's settlement was basically broken into two groups -- 640 policyholders who sued their insurance company and 35,000 who hadn't but could.

The latter part of the settlement was rejected by Senter, who worried that State Farm had too much control of the arbitration process in which policyholders and State Farm would participate if the policyholder rejected State Farm's initial offering, an automatic 50 percent of the structure's value according to the policy.

Senter's rejection of the settlement did not stop the 640 of those who had already attached their names to the suit from being given their money by State Farm -- approximately $80 million.

But the second group was more problematic to Senter. He did not feel it could be certified as a class because policyholders' homes were affected in different ways by the hurricane.

Scruggs was hired out by then-Attorney General Mike Moore and helped negotiate the Tobacco Master Settlement Agreement in the 1990s. His firm will collect $1.4 billion in attorneys fees as a result of the tobacco settlement.

He represented all 640 of the first group in the Katrina settlement. A report from The Associated Press says his firm received $26 million from it, and that he stood to collect another $20 million if the other part of the settlement had been approved.

Since the settlement was initially rejected, State Farm has decided to stop writing new homeowners and commercial policies in the state, saying the legal and political climates have become too unstable. Hood responded by threatening to reopen his criminal investigation into the company's post-Katrina practices, and is urging national insurance reform in Congress.

In Monday's motion, Rossmiller said that Scruggs took aim at State Farm.

"The second thing you have to ask is why the notice of withdrawal seems to take a shot at State Farm," Rossmiller said, citing the line, "It is unclear to the undersigned (Scruggs) whether or not State Farm is genuinely amendable further to address even its own interpretations of the Court's actions."

"By itself, this statement makes no sense whatsoever," Rossmiller said. "But the next sentence seems to be some kind of threat that if these 35,000 policyholders don't get taken care of in a settlement Scruggs may mine them for more lawsuits against State Farm."

The next sentence says, "Given this stalemate, counsel must now direct even more focus on the hundreds of individual cases against State Farm and insurer defendants."

Rossmiller, whose blog can be found here, said that State Farm is probably just as eager to find a settlement that works as Scruggs is.

"(I'm) not sure what exactly State Farm is supposed to do about this, they obviously wanted the settlement too and you can't pin it on them that it failed," he said.

"The possibility has to be considered that no one can do anything about this, and that a settlement like Scruggs and State Farm wanted does not comply with the Federal Rules, and it is broken and can't be fixed."

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