Insurance Coverage Blog

You may have heard about this.  State Farm, citing an oppressive legal climate in Mississippi fostered in large part by Attorney General Jim Hood, wants to hike rates in Mississippi by 13 percent and will drop coverage for homes within 1,000 feet of the coast.  Here is a good AP story on developments, with State Farm saying the political and legal climate in the state is "simply untenable."  Anita Lee of the Sun Herald also has a good story, with State Farm's letter to Insurance Commissioner Mike Chaney, whom I met when I was in Mississippi in April -- I got along with him a lot better than I'm sure I would have with the hand-picked Dickie Scruggs candidate for Insurance Commissioner. 

The AP story says Hood wants to review the letter before commenting.  What? That's not like Hood, where's that gunslinger mentality when you need it to juice up a post? Surely he won't be able to keep quiet about this -- maybe he will call State Farm "unprofessional," as he did Judge Acker, or perhaps he will borrow from the Trailer Lawyers and call them "Snake Farm."   Maybe a staffer will come up with a new term for Hood to spew, like "Sneak Farm," "Stink Farm" or "Spite Farm."

I guess they do have some legal concerns in MS. Poor things. That'll teach 'em to screw with Mississippi. By the way, I just can't understand why they don't want to cover wind on the Coast.

From Kerri's Deposition:

I was back at Lecky King's desk for another matter. And there was a stack of engineering reports on her desk, quite a large stack. And she said, look at all these engineer reports that I have to send back.

And I believe Lisa Wachter, a trainer that worked with Lecky, assisted Lecky, was standing there. And she said, all these engineers must be related to the policyholders because they all say there's wind damage down here, and we know there wasn't.

I don't understand why State Farm is dropping wind coverage for homes within 1,000 feet of the coast. Why, they assured me, and thousands of others, that there was no wind damage to anyone's home along the shore line. Go figure?

Courts can easily decide that the policy language doesn't really mean what it says. It's happened before. That could be "Snake Farm's" concern here regarding coastal properties.

That said, if the climate is "simply untenable" they should just pull out entirely. Obviously, it's "simply untenable"... unless they get a 13% rate hike and can drop the bit of coverage they're most worried about - then it's tenable again. Heh.

Dickie was not supporting Dale in the election, David.

"I don't understand why State Farm is dropping wind coverage for homes within 1,000 feet of the coast. Why, they assured me, and thousands of others, that there was no wind damage to anyone's home along the shore line. Go figure?"

I'm not sure you have thought through the decision, MDC. Why would an insurer choose to drop coverage? Isn't your insurance agent always trying to sell you higher limits and more coverage? More coverage = more premium. You'd think that the greedy executives at Snake Farm would try to collect as much premium as they can!

State Farm would love to provide wind coverage to these policyholders. The problem is that insurers can no longer accurately price wind coverage in these areas. Hurricane models can estimate wind damage to a fair degree of accuracy. However, hurricane models cannot estimate jury awards. The Mississippi trial bar and Attorney General Jim Hood have made it clear that they will file thousands of lawsuits when the next hurricane hits. Regardless of the actual wind damage sustained by policyholders, the insurance industry will be forced to pay millions in legal fees when the next storm hits. The only way to avoid litigating the wind versus water issue is by dropping wind coverage in coastal areas.

Belle, have you ever heard of Gary Anderson? He was the Scruggs candidate and ran against Chaney. Dale wasn't running against Chaney, he was ousted in the primary, and Dale wasn't backed by Scruggs by any means. Why is it I have to tell you, a resident of Mississippi, about state politics?

I just moved back to Mississippi after having been gone about 30 years. Thanks for the clarification, though.

Belle--go home.

David--hahahahahaha. You should know by now her MO is to blast incorrect info by the truckloads to see if any, uh,--stuff-- will stick to the wall.

Factuary---good point. "The Mississippi trial bar and Attorney General Jim Hood have made it clear that they will file thousands of lawsuits when the next hurricane hits. Regardless of the actual wind damage sustained by policyholders, the insurance industry will be forced to pay millions in legal fees when the next storm hits. The only way to avoid litigating the wind versus water issue is by dropping wind coverage in coastal areas."

Bellesouth, if that is true then it proves you are not Dickie Scruggs, Courtney Schloemer or Jim Hood himself, as many people have suspected. If you don't follow Mississippi politics, how is it you became so attached to Hood? (My money is still on a bet that you are really Jim Hood or one of his staff).

Diogenes, I am flattered. But you lost your money on that bet. And Mississippian, I am home. I was born and raised here in Mississippi.

Not a State Farm fan by any means but people choosing to live in areas that are known to flood and have wind damage should be willing to pay the price for coverage. I am not saying don't live there but know there are costs associated with the choice.

Belle, I'm not so sure Diogenes meant it as a compliment.

I had about decided Southern Bull was the Little General as well....guess maybe they have such similar writing styles and all. Opening their mouths when they oughta just close their eyes and grit their teeth. Could it be the Little General's sister?

Why would State Farm drop wind coverage on the coast when they said there was no wind damage, you ask? Let's say I agreed to pick up the dog poop in your yard for a fair price and dispose of it. One day a herd of buffalo runs through your yard and leaves truckloads of pooh. They've trampled your yard to the point where no one can differentiate between dog and buffalo poop. You insist it's all dog poop and I am contractually obligated to de-poop your yard. I say I'll try to pick up the dog poop, but I'm not paying to dispose of two tons of poop. You sue me, try to get me charged with a crime and say you're a confidential informant of the police chief, who will arrest me for fraud if I don't pick up all your dog poop. I'm required to hire criminal lawyer and a civil lawyer to defend myself at an exhorbitant fee OR I agree to jut pick up your damn poop and never, ever agree to such a stupid contract again. Would you blame me?

Interested, I could not agree more. Having seen a homeowners insurance premium increase of $3200 as a result of moving from inland Mississippi to the Coast, it was my choice and is my risk to bear. The middle and northern counties simply do not have the same risk and should pay much lower premiums.

But there wasn't any wind damage on the Coast y'all! State Farm told me so. Those insurance companies are ripping you off!

I would be interested to see what sort of legal environment State Farm would find acceptable. Would it be one in which the policyholder says "thank you sir for that zero payment for my slab claim, can I have another denial please?" Would it be an environment where civil lawsuits were abolished entirely? We already have a state Supreme Court among the most conservative in the nation, a conservative group of federal judges, and the Fifth Circuit waiting if you get past all of that. I submit that it would be hard to find a more congenial legal environment. Jim Hood's lawsuit after Katrina was hung up in federal court for months after removal. Scruggs' lawsuits were really just run of the mill wind vs water cases at bottom. The only thing that makes Mississippi now seem untenable is that State Farm panicked and paid Scruggs and his clients something like 110 million. If they had held out, the legal climate here, which is quite conservative in actuality, would have done its work. What State Farm wants is a completely pliable group of policyholders who will be grateful to get that $2,500 payment for the backyard fence when the house has been destroyed. Mississippi will never be anything other than untenable in State Farm's view.

The legal environment here in California is definitely not all that friendly and was even less so when Garamendi was the Insurance Commissioner. Not much of a pliable group of policyholders here. Yet State Farm stays around and makes a ton of money. So it's not a matter of "friendly" IC's, "pliable" policyholders, etc. The legal environment in Mississippi is pathetic. And to think, I use to believe California was the most sue-happy state in the Union.

Xerac,
I don't understand your point. State Farm stays in Mississippi,too, and presumably makes a profit here. They just tend to trot out this canard about the horrible legal atmosphere whenever a rate increase is demanded or tort reform legislation is on the table in the legislature. There is nothing unreasonable about a policyholder demanding payment consistent with the terms of the insurance contract, and there is nothing unreasonable about demanding that insurance adjusters do their job properly. This type of thing is required under the law of every state. In Mississippi, State Farm now has a situation where Scruggs and others are going to jail, Barrett and Nutt are disqualified, the attorney general is discredited, tort reform legislation is in full effect, and the court system is receptive to insurance positions. My question is how much better does State Farm want it? You can't expect nirvana in Mississippi.

Rogerwilco, your statement about the Scruggs cases is simply wrong. You speak of "at bottom" however, to get to the bottom (which would really be the top of our legal system) that takes alot of time and money. There are still complaints being filed against insurers in Mississippi to invalidate the flood exclusion regardless of prior decisions of the courts (this was the case even before Katrina as the issue had been decided long before then). The money still has to be spent to have those claims thrown out, so that is the legal environment we are in, which is unfortunate for all policyholders ultimately.

Roger, you say State Farm will only do business in Mississippi if a certain legal and policyholder envrionment exists. I'm showing that is not the case.

MCD, while you may have been wrongfully denied that doesn't mean everyone else was. Also, thousands of policyholders, from what I understand and from what I have read, were properly paid for wind damage. However, many of those still tried to get more than what they paid for and successfully got more because the environment made it so it wasn't worth trying to fight them. However, you and all other policyholders pay the price for the greed of others with higher premiums and less coverage. Yes, that's right, State Farm is not always wrong, quite often (much more often than the anti-State Farm people will admit to) it's policyholders messing things up. So now State Farm is saying that the many who are greedy will no longer have a loophole. It works both ways.

Who is filing cases seeking to invalidate the flood exclusion? I haven't seen any. People are filing cases disputing the amount of money they were paid, and disputing other issues, but I don't think the validity of the flood exclusion is currently in play. On the issue of what's bad for policyholders, I think a muddled adjustment process where you have to go back several years later and pay 90 million through the insurance commissioner's office is pretty bad for policyholders.

BFTL, how disingenuous of you! State Farm was denying wind claims on the coast and only filing flood claims which the NFIP paid. When they got an engineer report saying there was wind and water, they sent it back to be re-written to say it was all flood. That was an idiotic thing to do because as you can see they couldn't do that miles and miles from the coast throughout the state where they had to pay on thousands of wind claims, but oh, no, there wasn't any wind on the Coast, uh uh. Don't blame the policyholders or Mississippi for the idiotic acts of State Farm. If State Farm doesn't want to take the risk, they shouldn't be in the insurance industry.

Xerac,
No, what I'm saying is that I'm tired of hearing State Farm justify every rate increase with an insult to Mississippi's court system, which is not bad as court systems go. Have you ever tried a case here, or been a part of a case, or do you get your views of our system from the Wall Street Journal? We have some rogue lawyers and judges, yes, but all things considered our court system and judges are as good as any you'll find.

Bellesouth said: "When they got an engineer report saying there was wind and water, they sent it back to be re-written to say it was all flood."

You've just got to love Belle's twisting of the truth and her relentless penchant for doing so.

The original reports claimed it was all wind damage, not wind and water, and after they were re-written they reflected wind and water damage, not just water.

Could you be any more wrong if you tried?

Here's a link to the engineering reports in the McIntosh caase since they've obviously been forgotten:

http://www.clarionledger.com/assets/pdf/D069388410.PDF

Scroll down and you can read both reports, before and after they were asked to re-write them.

It's pretty obvious that the first report did not include "wind and water" as cause of the loss, and that the second report after being re-written does include flood and wind instead of only flood as Belle claims.

Well Underdog, about that contract for dog poop disposal... I guess that's why we have courts. Let's say we were neighbors, and smart, so we wrote a contract "I'll pay you $10 a week and you'll pick up all the dog poop from my yard."

Time goes by, everything is fine, until... the buffalo herd. You look at the mess and say I'm not picking that up. I say you have to discern which is dog and which is buffalo to honor your end of the deal. You say no, I'm not picking up anything. Well, you're in breach, see you in court.

Or, You're a giant disposal company and have a monopoly on picking up dog poop in my neighborhood. You give me a ten page take-it-or-leave-it contract with the same terms and pages of boiler plate. Then comes the herd. You say, "I didn't consider this, so I'm not picking it up." Ah, but since this is a "contract of adhesion" (look it up) you're on the hook, unless of course you've included a "force majeure" clause, then you have an out.

See, that's why some things end up in court.

Or, as I once told a colleague who wanted an attorney's opinion. "Every attorney has an opinion, that's why we have courts."

Roger, my info about Mississippi's legal environment is based upon several sources across the spetrum. I don't necessarily have to try a case or be part of a case in Mississippi to have a legitimate opinion. After all, a sample size of one, which is what your saying I need in order to form an opinion, is hardly a basis for a legitimate opinion. However, reading from several sources across the spectrum does give me a better idea.

To further show how apparently provincial and defensive your thinking is in this regards I've been involved in a total of 3 cases here in California, 2 of which went my way. However, the legal environment in California is still very messed up when it comes to civil suits and I know this because I've researched it, not because of negative experiences on my part.

MDC,
That is a pretty darn good analogy. However what was closer to the issue would be to say that Underdog had the contract to pick up the dog poop, couldnt see any dog poop because it was mingled into the buffalo poop so there was no way to prove a dog had actually pooped before the buffalo. If you say you cant prove which of this is dog then you have to pick it all up is just as extreme a position as Underdog saying he doesnt have to pick up any of it because you cant prove what was caused by a dog. Then the attorney general steps in because it is close to an election year and says he is going to invalidate the "we wont pick up any other poop but dog poop" clause of your contract with Underdog even though it has been in your neighborhoods contract with them for say 20 or more years. He will make those greedy dog poop picker uppers pay pay and pay to take care of you poor buffalo herd victims (and his "family member" attorney who you hired to sue the company for not picking up all the poo.) You, the AG, his attorney friends, your neighbors, and the company all wade around in the mess trying to determine how to "keep the contract" but in the end, all just end up covered in poo.

Insurance is ultimately all about spreading risks among all policy holders. Everyone pays premiums but everyone doesn't have a loss (hurricane auto whatever type). When Premiums exceeds claims insurance makes a profit and insurance industry make HUGE profits. $5.6 billion in 2006, YEAR AFTER KATRINA — UP FROM $3.2 billion in 2005. State Farm’s CEO received a $5.26 million dollar pay raise last year and is now earning $11.66 million. the insurance industry reported profits of $73 billion dollars, up nearly 50 percent from 2005

The State Insur Comm. should ok State Farm you don't want to take the one risk of Hurricanes then don't write/sell ANY insurance of any type home, auto, business, etc in Mississippi at all. Believe me another insurance co(s) will take that the business including Wind. As long as State Farm can pick and choose only the good risks and not the bad or less profitable why shouldn't they, that's business. They will continue to make huge profits with little loss and the people will get screwed. WE need insurance reform not tort deform.

Bellesouth said: "When they got an engineer report saying there was wind and water, they sent it back to be re-written to say it was all flood."

Belle? Is this "disinformation"?

Are you seeing what you want to see instead of seeing the facts? Just like Hood who saw "Do not pay Claim" when the yellow sticky actually said "Do not pay bill".

Ironic, huh?

Tim, although you heart may be in the right place, I think your "all or none" example is off the mark. Each piece of property needs to be priced according to the risk it brings. That's how to build a fair and sustainable insurance market.

Everyone pays according to the risk they bring to the pool.

Ironic

Tim, what make insurance industry profits excessive? Profitability in the insurance industry cannot be evaluated by comparing simple dollar amounts. Return on equity (ROE), which reflects profits generated relative to the capital investors put at risk, is the best way track performance across companies and over time. While the 2006 profitability was the best since 1987, industry margins still fell short of those realized by the Fortune 500 group of companies.

And by the way... you're talking about countrywide profits for all lines of business. Do you really think that profits from Medical Malpractice in Idaho should subsidize Mississippi Homeowners?

COAST BOY: Excellent response! What I failed to address in my post was...a settlement. That's what usually results in a dispute such as this one, right? Since courts are seeking "equity," they're not looking for a winner take all. Likely result of the poo poser is Underdog and I split the cost, then rewrite the contract, or Underdog may say, "there's just too much risk in this so I'm out of the dog poop business."

And Coast Boy, five bucks says you're an attorney... you don't like paragraphs.

BelleSouth is actually good for the insurance business. Based on her postings here, goodness knows her employer will forever need E&O coverage.

And retention of Johnny Keker would be a wise move for Belle's employer, also. There is clearly no conflict.

Not totally important but the word you wanted to use in your title was "Chutzpah" a Yiddish term meaning unmitigated gall. True Chutzpah is when a person is convicted of murdering his parents and seeks the mercy of the court because he is an orphan.

Barry, true, but "Hoodzpah" is my trademarked name for posts about AG Jim Hood. Readers can judge for themselves whether your definition of the word fits for Hood.

David, I really appreciated your play on the Yiddish word "Chutzpah". Since I can speak and read Yiddish, although my speaking ability is a bit rusty, I immediately caught on to what you were driving at. Hood indeed gives his own twist on the word and as such deserves his own "Yinglish" word.

Mr. Rossmiller, I am a Southern Baptist Mississippian and your play on the word Chutzpah was great. If anyone on here misunderstood your "Hoodzpah", then I doubt they have understood anything about the whole Scruggs situation. Please hurry and write your book.