State Farm to settle Katrina suits

State Farm Fire & Casualty Co. agreed Tuesday to settle hundreds of lawsuits by policyholders and to reopen and pay thousands of other disputed claims, a deal potentially worth hundreds of millions of dollars for Mississippi homeowners devastated by Hurricane Katrina.

The settlement calls for State Farm to pay about $80 million to more than 600 policyholders who sued the company for refusing to cover damage from the Aug. 29, 2005, storm. State Farm also agreed to pay at least $50 million -- but possibly hundreds of millions more -- to thousands of Mississippi policyholders whose claims were denied but who didn’t sue the company.

State Farm’s agreement with Mississippi Atty. Gen. Jim Hood and lawyers for the more than 600 policyholders resolves a civil lawsuit that Hood filed against the company for refusing to cover damage from Katrina’s storm surge.

The accord also resolves Hood’s criminal probe of allegations that the Bloomington, Ill.-based insurer fraudulently denied claims after the storm.

“It’s been like a death roll with an alligator for the last two months in these negotiations,” Hood said Tuesday.

Mississippi’s mass settlement -- the first of its kind since Katrina spawned hundreds of suits against State Farm and other major insurers -- does not involve claims in other states.

The deal was expected to be presented to U.S. District Judge L. T. Senter Jr. in Gulfport, Miss., who must sign off on the settlement.

“The agreement greatly reduces the time, the risk and the expense of defending multiple claims in individual litigation,” State Farm spokesman Phil Supple said.

State Farm, Mississippi’s largest home insurer, says it already has paid roughly $1.1 billion for about 84,000 property claims in the state. State Farm and other insurers paid for Katrina’s wind damage, but Hood and hundreds of policyholders sued the companies over their refusal to pay for more than $2 billion in damage from the wind-driven storm surge.

The settlement resolves the lawsuits that high-profile attorney Richard “Dickie” Scruggs filed on behalf of 639 policyholders, including Sen. Trent Lott (R-Miss.). Each of these policyholders will receive an average of about $125,000.

A “class action” component of the deal requires State Farm to reopen and review claims filed by roughly 35,000 policyholders who live in Mississippi’s three coastal counties but didn’t file lawsuits against the company.

After reviewing those claims, State Farm will be required to make new offers. Disputes will be heard by an arbitrator whose decision would be binding.

Hood said State Farm would have to pay a minimum of $50 million to these policyholders after their claims were reviewed. However, depending on how many policyholders qualify, the company could end up paying hundreds of millions of dollars more because there isn’t a cap on the amount.