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Hood, State Farm Insurance settle breach of contract lawsuit

Mississippi Attorney General Jim Hood has settled the breach of contract lawsuit his office filed against State Farm Insurance, which was filed after Hood said State Farm did not adhere to the terms of a separate settlement reached last year in Hinds County Chancery Court as it related to the payment of policies on the Mississippi Gulf Coast after Hurricane Katrina.

The settlement required that the insurance company establish an administrative procedure to re-evaluate claims of policyholders in Jackson, Harrison and Hancock counties. The procedure had to be approved by a federal court.

The new terms of the latest settlement stipulate that State Farm will issue new notices to the remaining 148 policyholders whose property Katrina reduced to its foundation who have not yet sued the company, settled with the company or already participated in a separate re-evaluation process. In total, State Farm will pay an additional $74 million to Coast policyholders and will make new offers for no less than 50% of Coverage A limits to slab or pier only claims, which are subject to policy limits and prior payments.

After the 2007 settlement, State Farm administered its settlement agreement through the Mississippi Department of Insurance. Hood took issue with that, saying that proper court oversight could not be a part of a settlement administration between the Department of Insurance and State Farm.

But State Farm spokesman Fraser Ingerman said the company was left with no choice but to partner with the state agency after Richard “Dickie” Scruggs pulled out of the settlement agreement. State Farm reached the original agreement with Scruggs’ Katrina Group. Scruggs pleaded guilty to conspiracy to bribe a judge who was presiding over Katrina litigation. Scruggs began serving a five-year federal prison stretch August 4.

“So when he pulled out, we were left with an agreement but basically no one to agree with,” Ingerman said. “That’s why we approached (former insurance commissioner George) Dale.”

Hood said he filed the breach of contract lawsuit last August because he said State Farm had refused to comply with the original settlement, the terms of which were laid out in a court order. The latest settlement seems to refute that claim, because it leaves the original re-evaluation of polices to the State Farm and the Department of Insurance.

“After the Attorney General’s Office reviewed a sampling of the settlements reached in this program, it appears that State Farm has complied with making the minimum 50% offers,” Hood said in the statement. “Under the terms of the original settlement, which required supervision of the federal district court, a lot more money would have been paid out, because the panel of arbiters would have been chosen evenly by the plaintiffs and State Farm. Under the Mississippi Insurance Department reevaluation program, there were no arbiters. When we entered into the original agreement, our Office estimated that the arbiters would make State Farm pay between the minimum of $50 million and $400 million. Nevertheless, the additional $74 million paid by State Farm pursuant to the Mississippi Department of Insurance reevaluation program apparently meets the minimum payments required under our original state court settlement agreement.”

That left State Farm officials scratching their heads.

“That’s why we are so perplexed as to why he is taking credit for this program within the Department of Insurance because that was what he had the problem with in the first place,” Ingerman said.

Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .

About Clay Chandler

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