Broussard v. State Farm Fire and Casualty Co., 2007 WL 113942 (S.D. Miss. 2007)
Rick Silver, 3L, University of Mississippi School of Law
On January 17, 2007, U.S. District Court Judge L.T. Senter granted a directed verdict in favor of a couple who sued State Farm for refusing to pay for any damage to their home caused by Hurricane Katrina. The ruling captured much attention not only around the region, but also nationally because of the potential impact on the insurance industry.
Background
Like so many other families along the Gulf Coast, Biloxians Norman and Genevieve Broussard suffered the complete destruction of their home during Hurricane Katrina. After the storm, all that remained of their house was a concrete slab. Since then, the Broussards and others like them have been insisting that the damage caused by Katrina should be covered by their homeowner’s insurance policy.
However, under the terms of State Farm’s and other insurers’ homeowner policies, damage from wind is covered, but damage caused by water is not. The insurers argue that the policies exclude damages that could have been caused by a combination of both, even if the winds preceded the water.1
After having their claim refused by State Farm, the Broussards sued the insurer in federal court. In addition to the full insured value of their home ($211,222), the Broussards also sought $5 million in punitive damages against State Farm for unreasonably denying their claim.
The District Court’s Decision
U.S. District Court Judge L.T. Senter found that under the terms of the homeowner’s insurance policy, State Farm is liable for the full insured valued of the Broussards’ home, unless it can prove that some or all of the loss was caused by water damage.
Both parties stipulated that the Broussards’ home was completely destroyed by Hurricane Katrina. Judge Senter held that since it was clear that the Broussards’ home sustained wind damage during the hurricane, the burden of proof shifted to State Farm to establish, by a preponderance of the evidence, what portion of the loss was attributable to flood damage and therefore not covered by the policy.2
State Farm argued that 100% of the damage to the Broussards’ home was caused by rising water. However, State Farm’s own expert witness testified that it was more probable than not that the property incurred at least some wind damage to its roof prior to the arrival of the storm surge. The key issue the court had to determine was how much damage was caused by the wind before the storm surge arrived. It did not matter that the storm surge was powerful enough to destroy the property regardless of the preceding wind damage.
Under its homeowners policy, State Farm must establish, by a preponderance of the evidence, that portion of the loss that was attributed to water damage. State Farm is liable for all losses that it does not prove to have been caused by water.
At the conclusion of all the evidence presented by both sides, Judge L.T. Senter was asked by both parties for a judgment as a matter of law. Under Rule 50 of the Federal Rules of Civil Procedure, the court must grant a directed verdict “if the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable jurors could not arrive at a contrary verdict.”3 Granting a Rule 50 motion takes the decision out of the jury’s hands and assigns it to the judge.
Judge Senter granted the Broussards’ motion for a directed verdict. The court felt that State Farm failed to meet its burden of proof as to the extent of the damage caused by water and therefore was liable to the Broussards for the full insured value of their home. Judge Senter also found that under Mississippi law and the terms of the policy, State Farm should have made an unconditional offer to the Broussards for the wind damage that their own expert estimated. Mississippi law requires an insurer to act reasonably and in good faith when investigating and paying legitimate claims under its policies.4
Judge Senter found that State Farm was unreasonable in trying to shift its burden of proof to the Broussards, when even its own expert believed that their property sustained at least some wind damage. The court found that State Farm did not act in good faith and left the Broussards no choice but to file a lawsuit in order to recover their losses. For that reason the court held that punitive damages against State Farm were appropriate and submitted the issue to the jury.
The Afterward
The jury punished State Farm for refusing to pay the claim by awarding the Broussards $2.5 million in punitive damages.5 This award grabbed national attention and is the key part of the case. The punitive damages award was instrumental in encouraging State Farm to enter into settlement negotiations involving a class action suit brought by 640 policyholders in Mississippi whose claims have also been denied. The initial agreement called for State Farm to pay the 640 claimants $80 million. The agreement also called for State Farm to allocate at least $50 million to the settlement in order to reopen the claims of thousands of policyholders whose claims were denied but did not sue.
On January 26, 2007, Judge Senter rejected the initial settlement offer because he wanted more information from the parties before he would agree to a deal that could affect up to 35,000 policyholders. This settlement negotiation is still pending. However, by agreeing to settle, Jim Hood, Mississippi’s Attorney General, has agreed to drop a civil suit and a criminal probe related to allegations that State Farm fraudulently denied claims related to Hurricane Katrina. Because State Farm is the largest insurer in Mississippi, its decision to settle could encourage other insurers to do the same.
Conclusion
Having determined that State Farm did not meet its burden of proof with respect to the amount of damage caused by water, it is liable to the Broussards for the full value of their insured home. Also, because State Farm acted unreasonably in denying the plaintiffs’ claim and left them no choice but to file a lawsuit, punitive damage were appropriate.
.Endnotes
1. Gary Mitchell, State Farm Loses Katrina Claim Case, ABC News, January 12, 2007.
2. Broussard v. State Farm Fire and Casualty Co., 2007 WL 113942 (S.D. Miss. 2007).
3. Id.
4. Gregory v. Continental Insurance Co., 575 So.2d 534 (Miss. 1990).
5. Judge Senter later reduced the punitive damages from $2.5 million to $1 million because he felt that an award of four to five times the value of the Broussards’ home was more appropriate