A federal judge on Friday rejected a landmark settlement that calls for State Farm Fire & Casualty Co. to reopen and possibly pay thousands of policyholder claims that the company denied in Mississippi after Hurricane Katrina.
U.S. District Judge L.T. Senter Jr. refused to endorse Tuesday's deal between State Farm and Mississippi Attorney General Jim Hood, who had agreed to drop the company from a civil lawsuit and end his office's criminal investigation of State Farm's claims practices after Katrina.
In exchange, State Farm had agreed to pay at least $50 million — but possibly hundreds of millions more — to thousands of Mississippi policyholders whose claims were denied but didn't sue the company.
Senter refused to give his preliminary approval to the deal.
"In the absence of substantially more information than I now have before me, I am unable to say, even preliminarily, that the proposed settlement establishes a procedure that is fair, just, balanced or reasonable," he wrote.
Senter rejected the settlement "without prejudice," allowing lawyers to present a new agreement that satisfies his concerns.
The Bloomington, Ill.-based insurer also has agreed to pay about $80 million to more than 600 policyholders who sued the company for refusing to cover damage from the Aug. 29, 2005, storm. Senter hasn't been asked to sign off on that part of the deal, however.
Mississippi's mass settlement agreement didn't involve any claims in other states.
Lawyers involved in the agreement presented the "class action" portion of the deal to Senter on Tuesday afternoon.
That part of the agreement would require State Farm to reopen and review claims filed by roughly 35,000 policyholders who live in Mississippi's three coastal counties but didn't file lawsuits against State Farm.
After reviewing those claims, the company would be required to make new offers. Any disputes would be heard by an arbitrator whose decision would be binding.
The accord came less than two weeks after a federal jury in Gulfport awarded $2.5 million in punitive damages to a couple who sued State Farm for denying their claim after Katrina. Senter took part of that case out of jurors' hands, ruling that State Farm is liable for $223,292 in storm damage to the Biloxi home of Norman and Genevieve Broussard.
Senter is the only federal judge in Mississippi who has been presiding over the hundreds of lawsuits that policyholders filed against State Farm and other insurers.
In the first trial for a Katrina insurance case, Senter ruled in August that Nationwide Mutual Insurance Co.'s homeowner policies cover damage from wind but not storm surge. He also has ordered dozens of policyholders who sued their insurers to participate in an experimental mediation program.
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