Lawsuit in Miss. stands in contrast to La.
Neighboring state goes after insurers
as posted at www.nola.com
Tuesday, January 30, 2007
By Rebecca Mowbray
Bernard Smith, who lost his Mandeville home to Hurricane Katrina, wasn't surprised to learn last week that State Farm had settled thousands of disputed Mississippi storm claims en masse.
In his own battles with State Farm, Smith says he's gotten no help from public officials in Louisiana. "I have tried from day one to get the commissioner of insurance and the attorney general to do something," Smith said. "Neither of them has done anything to assist the citizens of Louisiana."
But in Mississippi, public officials have gotten involved on citizens' behalf, Smith said.
And though a portion of last week's multimillion-dollar Mississippi settlement failed to win the endorsement of a judge, Smith and others are asking why no similar attempts at mass settlements have been made in Louisiana.
The answer, legal experts and consumer advocates say, can be traced to Mississippi's high-profile plaintiff pool and ample legal arsenal.
Mississippi suffered its greatest damage from Katrina in well-heeled sections of coastal communities where residents were most equipped to fight back. Sen. Trent Lott and Rep. Gene Taylor were among the plaintiffs in Mississippi, pushing Congress to repeal insurers' federal anti-trust exemption and investigate their post-storm claims practices before a national audience. Mississippi's legal system also allowed high-profile tobacco lawyer Dickie Scruggs, Sen. Trent Lott's brother-in-law, to threaten punitive damages, and allowed the state's attorney general, Jim Hood, to hire extra lawyers on contingency to press his criminal investigation.
The result was a well-coordinated assault in Mississippi, while homeowners were left to their own devices in Louisiana, advocates say.
"The insurers have a much bigger hammer over their heads in Mississippi," said Amy Bach, executive director of the California advocacy group United Policyholders, because Mississippi lawyers can threaten punitive damages and the attorney general can call for back-up with a criminal investigation.
"You don't have a Hood in Louisiana, you don't have a high-ranking enforcement official going after the insurance industry. They did in Mississippi. That's the difference."
In Mississippi, Hood opened a grand jury criminal investigation into insurers' claims handling practices just a few weeks after the storm. His probe focused on the wind-versus-flood debate, in which some property owners were denied homeowners insurance payouts because insurers chalked the damage up to flood, which is covered by a separate policy that often pays out less.
Hood's efforts were aided by Cori and Kerri Rigsby, two sisters from Ocean Springs, Miss., who worked for a State Farm contractor that managed teams of adjusters. The whistleblowers bolted with 150,000 pages of documents that they say shows that State Farm defrauded policyholders by manipulating engineering reports to deny claims. The Rigsbys turned them over to Scruggs, Hood and Dunn Lampton, the U.S. attorney in Mississippi. There has been no similar smoking gun in Louisiana.
Especially where many victims are poor, such as in New Orleans, the leadership of elected officials such as Hood really matters, said Bob Hunter, head of insurance at the Consumer Federation of America. Hunter grew up in New Orleans and has served as insurance commissioner in Texas and director of the National Flood Insurance Program.
"When I deal with low-income groups, you find a number of people who are afraid to take on the system and be their own advocate. It's unfortunate, but it's true. That's why it's important for the attorney general's office to get involved," Hunter said, adding that the progress in Mississippi should be an embarrassment to Louisiana Attorney General Charles Foti. "If I were an attorney general in a neighboring state that suffered damage, I might be in a rush to play catch-up."
Foti stays away
So far, Foti's only action against the insurance industry has involved filing a lawsuit to extend the deadline for making insurance claims. A bill passed by the state Legislature required him to file the suit.
In his defense, Foti has cracked down on price-gouging for lodging and for electrical repairs after the storm, investigated American Red Cross volunteers for theft, prosecuted a Donaldsonville woman for making fraudulent disaster sales-tax claims, and arrested three contractors on charges of fraud and theft, according to news releases.
Asked last spring if he would get involved in any of the disputes surrounding insurance claims or allocating wind damage and water damage, Foti spokeswoman Kris Wartelle said insurance was the purview of the insurance commissioner.
And Isabel Wingerter, director of the public protection unit in the Louisiana attorney general's office, said Monday that the unfair trade practices allegation Hood used in going after insurance companies in Mississippi cannot even be applied to insurers in Louisiana.
"Our law exempts anything regulated by the commissioner of insurance from the Unfair Trade Practices Act," Wingerter said.
The attorney general is meeting with State Farm and with attorneys handling class action lawsuits but is limited by law in what he can do, she said.
"We are trying to find out what we can do to help out," Wingerter said. "We are involved in meetings with insurers and attorneys involved in class actions."
Still, some prominent Louisiana attorneys in the consolidated litigation over the levee breaches say that's not enough, and they plan to try to change Foti's mind.
"The lawyers in the Chehardy (levee breach) litigation are going to see the attorney general. We're asking our attorney general to come on board and take a look at these people and their practices," lawyer Joe Bruno said.
No resources
Allan Kanner, head of the insurance section at the Louisiana Association for Justice, formerly the Louisiana Trial Lawyers Association, says it's not fair to blame Foti.
In Mississippi, Hood was allowed to hire dozens of attorneys on contingency to help build the criminal investigation. But Louisiana is one of only two states in the nation, Kanner said, in which the attorney general can't hire outside help without the approval of the Legislature. Foti went to the Legislature last year for permission to hire contingent attorneys -- though it's not known what it was for -- but was denied. That means he's restricted to battles he has the resources to fight, Kanner said.
Other attorneys say the lack of punitive damages in Louisiana makes it much harder to force an insurance company to the settlement table. "The thing we don't have here is punitive damage. Punitive damage is a big incentive toward resolution," said Calvin Fayard, another New Orleans attorney working on the levee breach cases.
Fayard also notes that legal proceedings in Louisiana were slow to take shape because the standing water in New Orleans slowed initial claims adjustments.
Randy Maniloff, a lawyer with White and Williams in Philadelphia, Pa., a firm that represents insurance companies, said those are all significant factors. While the parties to cases in Louisiana continue to bicker and delay, Mississippi Judge L.T. Senter, who handled the State Farm case, has sent a clear signal that the parties needed to come to the table.
Tulane Law School Professor Ed Sherman noted that unlike in Mississippi, there's been no test case in Louisiana that's found insurance companies unreasonable in their claims handling and put pressure on them to settle.
"Louisiana people were too taken up with the overall problem of the disaster that trying to pursue an insurance class action suit was not as high on the agenda as in Mississippi," Sherman said.
But Kanner said that while the Mississippi State Farm decision may make it seem like litigation is moving slowly in Louisiana, homeowner suits are indeed progressing.
Last week, U.S. District Court Judge Martin Feldman held a meeting with State Farm, Allstate and the lawyers who oppose them to try to draft ground rules to make the cases go faster. One idea up for consideration, Kanner said, is to make both sides freely share information -- including adjustment reports. Other federal judges in New Orleans are holding similar meetings to set ground rules, Kanner said.
And what is believed to be the first individual Katrina homeowner claims suit against an insurer is set for trial in U.S. District Court in New Orleans on Feb. 12 in Feldman's courtroom. The Marrero case, Tomlinson et al. v. Allstate Indemnity Co., alleges arbitrary, capricious and bad-faith claims handling.
Anger at Donelon
Others reserve their venom for Insurance Commissioner Jim Donelon.
Kanner doesn't think the Mississippi State Farm settlement is a great deal -- and notes that a Cameron Parish attorney with a bunch of State Farm cases balked at a similar offer. He also thinks the Mississippi deal may be useful only in forcing settlements in Louisiana "slab cases," where the houses were wiped off of their foundations, but would be of limited use to policyholders left with remnants of damaged homes.
Many of the settlements in Mississippi involved homes in which only the slab was left, and the judge held that State Farm had not done a valid examination of the damage. In Louisiana, the claims disputes have more often involved flooding due to levee breaches.
Kanner is angry that before Donelon knew any details of the Mississippi settlement, he said he'd press State Farm to offer the same consideration to Louisiana residents.
"I think Donelon is being grossly irresponsible," Kanner said. "This is a guy who's had like 17 months to get it right, and he hasn't. The moment somebody else does something -- the attorney general in Mississippi -- he says, 'Me, too.' "
"It's part of his capitulate-to-the-insurance-industry mentality," Kanner added.
Donelon disputes the notion that he hasn't done anything for consumers.
Immediately after the storm, he set up a toll-free complaint hotline and brought insurance company representatives into the department so they could immediately solve problems. He analyzed the 6,500 formal complaints that were filed and ranked the insurance companies with highest number of complaints per market share.
Donelon also notes that he launched an insurance education outreach program and set up Louisiana's mediation program, which has served 10,000 policyholders and solved 75 percent of the cases.
"I'm the regulator. I'm not the judiciary," Donelon said. "We're there to see that there's fair and balanced regulation of this very complex and very important part of the economy."
Still, Smith, the Mandeville homeowner, thinks Donelon could have signaled a firmer regulatory hand from the beginning. He criticizes him for not setting deadlines for the insurance companies on when they needed to complete inspections and when they had to pay, and for not limiting their ability to re-inspect properties.
Donelon said he did provide Smith a letter to help with his case when he was asked to do so, but has not seen the need to intervene on the consumer level on a wider basis. Donelon also notes that Hood was the only attorney general in the five states affected by Katrina, Rita and the 2004 hurricanes to initiate legal action. Foti didn't, and Florida Gov. Charlie Crist didn't when he was attorney general.
"I accept it as a difference of opinion in what role I should play in the process," Donelon said. "I understand why those on the plaintiffs' side would want them to do as Attorney General Hood did. I think that Gov. Crist and Attorney General Foti did the right thing in letting private litigation work this out."
Donelon also finds a defender in Hunter, the consumer advocate, who says that he thinks Donelon has done more for the people of Louisiana than Insurance Commissioner George Dale has done for Mississippi.
Miss. deal questioned
Meanwhile, questions are growing over whether the proposed State Farm settlement in Mississippi is a good deal, because while Lott's group could come out whole, other people in a second class could get very little.
The settlement covered 35,000 State Farm policyholders who now have the option of accepting the settlement or rejecting the offer to pursue their own lawsuits. Under the settlement offer worked out by the Scruggs legal team, homeowners with only a slab or pilings left will get at least 35 percent of the value of their policy for structural damage, but those who have homes left standing but who sustained more than 60 percent damage will receive only 11 percent on their structure. Percentages decline from there.
The firm also represented 639 State Farm policyholders who settled individually and whose agreements are being held confidential according to the terms of the suits. Congressmen Taylor and Lott are in this group.
On Friday, Judge Senter refused to endorse part of the settlement, saying there was no evidence that State Farm would evaluate class members' claims differently than they had been in the past, and there was not enough information to know if policyholders' rights were being protected. Senter's rejection was "without prejudice," meaning that attorneys can address his concerns.
But Bach is encouraged by the fact that Reps. Taylor and Bennie Thompson have requested Hood's documents and plan to continue his investigations in Congress. "I don't think any door is closing on State Farm being held accountable here," she said.
While so far, insurance companies in both Louisiana and Mississippi say that the State Farm decision has no influence on their thoughts on settlement, Maniloff, the Philadelphia insurance lawyer, thinks otherwise. "I think in the back room they have to be at least giving some consideration to whether this is something they want to do," Maniloff said.
But regardless of what happens with the State Farm settlement in Mississippi, Hunter said the moral of the story is that public officials such as Mississippi's Hood are folk heroes, and that elected officials should work to protect their constituents when crisis hits.
"The big message that I think should come out of these things is that politicians who are able to take on the industry a bit rather than shy away from them come out well," Hunter said.
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Rebecca Mowbray can be reached at rmowbray@timespicayune.com or (504) 826-3417. Mary Judice can be reached at mjudice@timespicayune.com or (504) 826-3496.
United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.
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