State Farm Sues Mississippi Attorney General over Criminal Probe

State Farm Insurance Cos. is suing Mississippi’s attorney general for allegedly violating an agreement to end a criminal investigation of the insurer’s handling of claims on the Gulf Coast after Hurricane Katrina, according to court papers unsealed last week.

State Farm’s lawsuit claims Jim Hood reopened a criminal probe of the Bloomington, Ill.-based company and its employees “for the purpose of harassment” and to coerce the insurer into settling civil litigation spawned by the Aug. 29, 2005, hurricane.

State Farm says Hood agreed in January to end his office’s criminal probe as part of a settlement agreement that called for the company to reopen and possibly pay thousands of policyholder claims. The company also says it paid Hood’s office $5 million to cover the costs of his investigation.

A state grand jury was hearing evidence when State Farm reached its agreement with Hood and attorneys for hundreds of State Farm policyholders. Hood has said he was probing allegations that State Farm and other insurers fraudulently denied claims.

That deal later fell apart after a federal judge refused to endorse it. However, State Farm later reached a separate agreement with Mississippi’s insurance commissioner to reopen and pay claims.

State Farm filed its lawsuit against Hood in September, less than five months after Hood sued the company for failing to honor the same January agreement for a mass settlement of claims.

In a written statement on Nov. 2, Hood accused State Farm of trying to “misuse the federal court to stop a state grand jury investigation.”

“It is unfortunate that they have publicly revealed the existence of this investigation for political gain,” he said. “I will continue doing my job in a professional manner and will allow the cases to be resolved by the courts.”

On Nov. 2, U.S. Magistrate Judge Michael Parker in Hattiesburg, Miss., granted State Farm’s request to unseal the complaint, over Hood’s objections.

In a three-page ruling, Parker said he is “unconvinced that there is anything filed in the record thus far that would reveal the specifics of any grand jury proceedings.”

The document was unsealed less than a week before Mississippi’s general election, in which Hood is seeking a second term.

Hood “seeks to chill State Farm’s First Amendment rights of free speech and association by pursuing a vindictive and retaliatory investigation of State Farm,” the suit claims.

A State Farm spokesman declined to comment on the suit.

Besides ending his criminal probe, Hood agreed in January to drop State Farm from a civil lawsuit his office filed against several insurance companies for refusing to cover damage to homes from Katrina’s storm surge.

When Hood sued State Farm a second time, in June, the attorney general didn’t rule out reopening his criminal investigation.

State Farm says it recently learned that, in a letter to federal authorities in Alabama dated July 16, Hood wrote that he is engaged in “an ongoing investigation into what (Hood) believes is State Farm’s fraudulent conduct, not only toward their own policyholders, but also against the National Flood Insurance Program as well. Our investigation continues.”

State Farm argues that letter is evidence of Hood’s bad faith.