Attorney General Jim Hood, who recently implored U.S. Attorney General Eric Holder to investigate auto insurers and steering practices, has filed suit against State Farm Fire and Casualty Company in the Circuit Court of Hinds County. The lawsuit seeks to recover damages for losses that the State of Mississippi suffered as a result of an alleged scheme by State Farm to mischaracterize wind damage as flood damage when adjusting the homeowner insurance claims of thousands of Mississippians in the wake of Hurricane Katrina.
Mississippi established the Homeowner Assistance Program (HAP) after Katrina to provide financial assistance to Mississippi homeowners whose insurance did not fully cover the massive damage caused by the storm. Attorney General Hood alleges in the lawsuit that State Farm systematically mischaracterized Katrina wind damage (which its policies covered) as flood damage (which its policies did not cover), improperly minimizing its own financial burden and forcing that burden instead on to HAP. In doing so, State Farm caused Mississippi to pay hundreds of millions of dollars that the state otherwise could have allotted to other recovery efforts. Because homeowners who received funds from HAP subrogated their equivalent insurance claims to Mississippi, any funds recovered as a result of the lawsuit will be returned to the state.
“The Mississippi Homeowner Assistance Program was set up to pay homeowners for Hurricane Katrina damage that was not covered by insurance,” said Attorney General Hood. “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. Remarkably, State Farm and other insurers walked away from Hurricane Katrina and experienced record profits in the years following, while Mississippi continues to suffer.”
The lawsuit highlights State Farm’s coercion of engineering firms to change their reports to conclude that (uninsured) flooding caused Hurricane Katrina damage. In a bellwether trial in 2013, a unanimous federal jury found that State Farm defrauded the U.S. government when it coerced an engineering firm to change a damage report in exactly this way (United States ex rel. Rigsby v. State Farm Fire & Cas. Co., No. 1:06-CV-433-HSO-RRH [S.D. Miss. Feb. 21, 2014], ECF No. 1129). Similar allegations involving improperly changed engineering reports have arisen in recent months in connection with the adjustment of insurance claims related to Hurricane Sandy.