Allstate Says It Paid Katrina Claims of Type State Farm Denied

Giant insurer Allstate Corp. doesn’t have much to fear from a Mississippi class-action lawsuit that seeks to have insurers in the state reopen closed Hurricane Katrina claims, according to the company’s chief executive.

Rival State Farm Mutual Automobile Insurance Co.’s proposed settlement in the state will have it reopen claims and agree to pay more to customers whose homes were destroyed by a combination of wind and water.

“The difference between us and State Farm, in a case where a house was totally wiped out” was that Northbrook, Ill.-based Allstate “did not deny those types of claims,” said Thomas Wilson, Allstate’s president and chief executive at an insurance conference sponsored by Merrill Lynch that was Webcast.

State Farm is based in Bloomington, Ill.

Wilson said that it was related to the principle of “proximate cause” that holds that if a non-covered event, such as flooding, destroyed a house, the claim would be denied, even if a covered event such as wind played a part.

But Allstate didn’t go that route, Wilson said. In such cases, the insurer sought to determine how much of the house had been destroyed by wind before the flood wiped away the rest. “It is not easy,” Wilson said. “You have to hire engineers, look at surrounding trees and neighbors’ houses. If we made a mistake, we will fix it,” but he said he doesn’t believe the company is vulnerable to having many of the claims reopened.

Allstate has not escaped without challenges of its hurricane coverage. Testimony in the first federal trial against the company over Katrina started Monday, with a Louisiana homeowner claiming the company failed to properly or promptly pay his claim.