Appeals Court to Review Insurance Claim Verdict in Miss. Katrina Suit

State Farm Fire and Casualty Co. is asking a federal appeals court to throw out a landmark $1 million punitive damage award to a Mississippi couple who sued the insurer for refusing to cover Hurricane Katrina damage to their home.

A three-judge panel from the 5th U.S. Circuit Court of Appeals is scheduled to hear arguments Wednesday from lawyers on both sides of the case, which was the first among hundreds of Katrina insurance lawsuits to be tried by a jury in Mississippi.

At the conclusion of January’s trial, U.S. District Judge L.T. Senter Jr. took part of the case out of jurors’ hands and ruled that State Farm was liable for $223,292 in wind damage to the Biloxi home of Norman and Genevieve Broussard.

The jury subsequently awarded $2.5 million in punitive damages to the Broussards, but Senter later reduced that amount to $1 million. Bloomington, Ill.-based State Farm appealed the jury’s verdict and several of the judge’s rulings.

State Farm’s experts concluded that Katrina’s storm surge was responsible for most, if not all, of the damage to the Broussards’ home. The company says its policies cover damage from a hurricane’s wind but not its rising water, including wind-driven surge.

Senter concluded State Farm acted in a “grossly negligent way” by denying the Broussards’ claim. The judge also said the company denied policyholders’ Katrina claims based on a new “wind-water” protocol that is “at odds with other express terms of the insurance contract.”

State Farm claims Senter erred when he ruled the company had to prove that the Broussards’ home didn’t sustain any wind damage or that it had to segregate wind and water damage to the residence.

“State Farm had an arguable basis for denying (the couple’s) claim,” company attorneys wrote in court papers. “Nor is there clear and convincing evidence to support a finding that State Farm acted with gross negligence or in reckless disregard of (the couple’s) rights.”

The insurer also argues that Senter shouldn’t have allowed jurors to consider punitive damages and that he abused his discretion in refusing to transfer the case from Gulfport, Miss., to northern Mississippi.

State Farm’s lawyers say the company couldn’t get a fair and impartial jury on the Gulf Coast due to “pervasive and extreme negative publicity regarding Katrina insurance claims.”

State Farm is asking the 5th Circuit to throw out the verdict and either rule in the company’s favor or order a new trial, preferably in north Mississippi.

“For Mississippians and for the future of the state’s insurance market, it’s important court rulings are consistent with evidence presented at trial and there’s accurate interpretation of both the insurance policy and Mississippi law,” State Farm spokesman Phil Supple said.

The Broussards’ lawyers, William Walker and Jack Denton, argue State Farm set up a scheme to use its “wind-water protocol” to deny “slab” claims, where nothing but a home’s foundation is left standing.

“That scheme did not follow the policy; indeed, it utilized language that was not in the policy at all,” the Broussards’ lawyers wrote.

The couple’s attorneys say State Farm was contractually obligated to pay for all the damage to the home because the company “could not prove by a preponderance of the evidence that no damage at all would have occurred ‘in the absence of’ storm surge.”