AG Lynn Fitch settled Katrina insurance cases for pennies on the dollar compared to others

by Bobby Harrison and Geoff Pender, Mississippi Today
October 3, 2022

Attorney General Lynn Fitch has quietly settled Mississippi's claims against insurance companies over Katrina damages for pennies on the dollar compared to a similar federal case and those settled by her predecessor.

In 2015, former Attorney General Jim Hood and outside attorneys filed a lawsuit to recoup state funds that were awarded to homeowners when the insurance companies did not meet what Hood argued was their legal obligation. After Hurricane Katrina pummeled the Gulf Coast in 2005, insurance companies refused to pay or paid only limited amounts on many claims of homeowners, saying their damage was caused by water not wind and their policies did not cover flood damage.

The state created the Homeowner Assistance Program to help make those homeowners “whole.” Through that program, the state paid $2.03 billion to homeowners for damages. But, according to the lawsuits, many of those damages should have been covered by insurance companies that denied paying damages or limited payouts, citing water damage when in reality the damage was caused by wind. That could have saved the state tens of millions in public funds to be spent on recovery efforts or elsewhere.

In a similar federal case, where the federal flood insurance program accused State Farm of failing to pay for wind damage and instead foisting it off on the National Flood Insurance Program, State Farm agreed to pay the federal government $100 million. But Fitch settled the state's wind vs. water case with State Farm — which held the most policies of any insurer on the Coast in Katrina — for $12 million.

Before leaving office as attorney general in 2020, Hood settled three of the lawsuits – against insurers Metropolitan, American Security and Balboa. The three lawsuits, covering 652 policyholders, were settled for a total of $6.78 million, or $10,410 per policyholder. Since then, Fitch has settled five of the lawsuits, including the largest against State Farm and Allstate, for a cumulative $21.9 million, or $1,441 per policyholder.

When asked about the settlement discrepancies, Michelle Williams, Fitch's chief of staff, said in a statement: “I cannot answer some of your questions because we still have pending litigation and your questions involve litigation strategy. But, I will note that the Federal/NFIP (National Flood Insurance Program) case involves different issues, different facts, and different laws from our state case even though the underlying event of Hurricane Katrina is the same.”

One case, against PRIME Insurance, is still pending finalization.

Mississippi Insurance Commissioner Mike Chaney said he supported the settlement of the lawsuits to bring stability to the insurance market in the state.

“I am glad they got settled,” he said. “I have a stable market unlike what is happening in Florida, Louisiana and Texas” with their insurance markets.

Despite Williams' and Chaney's defense, some question whether Fitch should have gotten better settlements for the state.

“Because she is a Republican, Attorney General Fitch is probably cozier with the insurance companies than were her two predecessors,” said David Baria, a Bay St. Louis attorney and former Democratic state lawmaker who last week won $10 million in punitive damages against USAA insurance company in a similar case where the insurance company was accused of using deceptive practices to avoid or delay paying a claim.

While the Jackson County jury awarded the estate of Sylvia Minor $10 million in punitive damages and $1.5 million in compensatory damages, Fitch settled the state case involving hundreds of other homeowners with the same USAA for $1.4 million.

Private attorneys contracted with Hood to assist on the case, who receive a percentage of any settlement but nothing if they do not prevail, declined comment on the settlements.

But Baria, who was not involved in the state cases, said a person could compare what the jury awarded in his case and what was awarded in a similar federal case ($100 million) “and “reach your own conclusion” about whether the Fitch settlements were too low.

Chip Merlin is founder of the Merlin Law Group, one of the largest national firms representing policyholders in disputes with insurance companies. His firm handled hundreds of Katrina policyholder claims, including many in Mississippi, all of which have been resolved. Like many others across the country, Merlin was keeping tabs on pending cases, including the state of Mississippi's lawsuits over the Homeowner Assistance Program.

Merlin said, “I was as surprised as anybody else,” when he learned from recent news reports that most of the outstanding state litigation had been quietly settled starting more than a year ago, with the Mississippi AG's office issuing no press statements or releases or posting on its website. Merlin said this shows a great lack of transparency for cases brought on behalf of the public.

“I almost fell out of my chair,” Merlin said. “How come we didn't know about it? That's a public lawsuit … That impacts the public treasury and there should be some explanation why elected officials thought this was in the best interest of Mississippi.”

Merlin said he can't opine whether the $12 million settlement with State Farm and other settlements were fair for taxpayers because “we don't know enough about it — that's the problem.”

“It's just very weird the state would settle a year before and nobody know,” Merlin said. “… It calls for the attorney general to say something. I've never heard of a settlement involving a public entity being secret … It's supposed to be on behalf of everybody for the state. If it wasn't favorable to the state, then the matter should continue on. If it was favorable, you would think elected officials would explain why.”

In terms of transparency, Merlin said it is also unusual that there is a strict non-disclosure clause in the state settlements since the agreements involved public/state funds. Similar language was not in the contracts negotiated by Hood.

Citing pending litigation, Fitch's office refused to comment on the need for the non-disclosure clause. The attorney general's office required Mississippi Today and the Sun Herald, which first reported on the State Farm settlement, to submit public records requests to ascertain the settlement amounts. Normally, the AG's office sends out news releases when settling or winning lawsuits.

As to some companies who settled before Fitch took over for more money per policy, Merlin said: “If similar conduct was going on, then the issue is why did you get so much more against the other companies and less against State Farm?

“I do have to applaud the former attorney general for bringing the litigation in the first place,” Merlin said. “Many times attorneys general don't bring these actions. It might be difficult, suing big insurance companies.”

Merlin also commented on Mississippi's Homeowner Assistance Program, which he said was well run and helped thousands of families.

“Mississippi did a great job of getting the money out and taking care of citizens,” Merlin said, “especially compared to Louisiana … I've been around to a lot of storms and a lot of states, and nobody ever says the good things, but Mississippi officials did a fantastic job with that.”

State Farm recently agreed to pay the federal government $100 million to settle long-running litigation in federal court, involving two former employee “whistleblowers.” A jury in the case had found that State Farm defrauded the National Flood Insurance Program by charging it for flood damage to a policyholder's home when the destruction was caused by wind. State Farm's policies covered wind damage but not flood, which is covered by NFIP. The whistleblowers claimed the company shifted wind damages it should have covered to the federal flood program.

After Katrina, Mississippi received billions in federal block grant funds for Katrina recovery. The state created the Homeowners Assistance Program to provide homeowners grants for flood damage. Thousands of homeowners, who had long been told they did not need federal flood insurance, saw destruction or major damage to their homes by Katrina's unprecedented flooding.

Mississippi, with its litigation, claimed insurers let the state Homeowner Assistance Program pay people for wind damages that should have been covered by their private insurance policies. The state was suing for damages and money collected from the litigation would go into state coffers.

Hood claimed insurance companies caused Mississippi to pay millions of dollars the state could have otherwise used for other recovery efforts.

“State Farm took advantage of our program by causing HAP to pay for wind losses that State Farm should have covered under its homeowner policies,” Hood said at the time. “Remarkably, State Farm and other insurers walked away from Hurricane Katrina and experienced record profits in the years following, while Mississippi continues to suffer.”

State Farm spokesman Roszell Gadson had little comment when asked about the company's $12 million settlement with Mississippi. The company has denied wrongdoing in any of its Katrina litigation.

“While State Farm is pleased to have reached a settlement in this matter, the settlement is not an admission that State Farm did anything wrong,” Gadson said. “That is all we have to share.”

According to the lawsuit originally filed by Hood, the state paid State Farm policyholders through HAP $522.1 million, or on average $76,673 per policyholder. By comparison, State Farm paid $98.7 million or on average $14,494 per policyholder.

The largest case settled by Hood before he left office was with Metropolitan Property. Hood settled that case for $4.75 million. Metropolitan paid 429 customers, on average, $8,796. HAP paid $39.2 million, or on average $90,488. Hood settled American Security for $1.35 million. HAP paid 115 American Security policyholders $71 million or $57,070 per customer. By comparison American Security paid $1.2 million or $5,491 per policyholder.

Chaney said the settlement amounts Hood garnered were higher because at least one of the companies wanted to settle quickly so that the lawsuit would not hinder its efforts to merge with another company.

Chaney said all of the settlements were negotiated by Maison Heidelberg, a Jackson attorney who was one of the attorneys hired by Hood to work on the case. Chaney said the methodology used by Hood in filing the original lawsuits were flawed. He said the lawsuits filed by Hood claimed that the insurance companies were not providing proper payouts for 70% of the claimants when in reality it might have been only 700 or 800.

“Then you had people getting $150,000 grants … (through HAP) and coming back and trying to double dip and get money from the insurance companies,” he said.

Heidelberg, along with other private attorneys involved in the cases, declined comment.

This article first appeared on Mississippi Today and is republished here under a Creative Commons license.