Mediation
State Farm Insurance Company has agreed to pay approximately $80 million to more than 600 policyholders who sued the company for refusing to cover storm damage resulting from the Katrina natural disaster (and an additional $50 million on previously closed claims). Settlement follows an adverse jury verdict in the initial lawsuit to go to trial regarding these claims.
It is noteworthy that the Judge who has assumed jurisdiction for these claims has ordered dozens of policyholders to participate in an experimental mediation program. Hundreds of other homeowners who have not filed lawsuits already have settled their disputes in a mediation program sponsored by the Mississippi Insurance Commissioner George Dale. The interplay between civil litigation and alternative dispute resolution may help bring a measure of certainty and economic efficiency to both insurance companies and claimants in this disaster scenario.
Eric adds™ -- Granting the point that this development could auger well for bringing some measure of certainty to disaster scenarios, this story could suggest just that the bold experiment is not particularly favored by the folks who carry the risks:
State Farm Insurance Cos. is suspending sales of any new commercial or homeowner policies in Mississippi starting Friday, citing in part a wave of litigation it has faced since Hurricane Katrina, a company official said Wednesday.
State Farm writes, err, make that, did write, 30% of all such policies in Mississippi. If, amid increased demand, 30% of the supply is suddenly eliminated, what happens to price? As the man once said, nothing comes for free . . .
Of other note: Class action maven Dickie Scruggs of tobacco litigation fame will strut away from this settlement with up to $46 million in legal fees, $26 million of which is already guaranteed. Katrina a disaster? Not for Dickie!
