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Legal winds still blowing from Katrina

June 12, 2008 — Hurricane season has arrived in the Atlantic, with predictions of a big storm year on the East Coast. But along the Gulf Coast, the winds of Katrina are still rattling the halls of government three years after the monster storm struck.

In Baton Rouge this week, the Louisiana House overwhelmingly passed and sent on to Senate a bill which would for the first time allow insurance companies to set different deductible rates for property insurances policies issued in different parts of the state, as the state continues to struggle with establishing a stable insurance after the devastating storms and flood of 2005. Over the objections of lawmakers from South Louisiana, the House rejected an amendment which would have required companies writing policies in the northern part of the state to write policies in the southern and more vulnerable part also.

Like most everything involving insurance for property in the potential path of a hurricane, the change is complicated. The state Department of Insurance would be tasked with dividing the state into zones with different deductible rates. And these rates would apply only to “named storm” damage, that is, from major storms that are given a name designation, like Katrina and her 2005 sister, Rita.

Next door in Mississippi, State Farm announced Wednesday that after the end of this year’s hurricane season, it’s cutting off homeowners coverage for 892 policy holders whose property is within 1,000 yards of the beach on the Mississippi Gulf Coast, and wind damage coverage for some 4,000 customers with homes between 1,000 and 2,500 feet of the Gulf.

This was a business decision, but State Farm made it clear in a letter to Mississippi Insurance Commissioner that it “continues to have serious concerns about the legal environment in Mississippi and its impact on the Mississippi property insurance market,” in the wake of the legal wrangles it has had since Katrina.

State Farm has accused Mississippi Attorney General Jim Hood of acting in concert with disgraced plaintiff’s attorney Dickie Scruggs in the wave of homeowners’ lawsuits against insurers after Katrina devastated the Mississippi coast. Scruggs is scheduled to be sentenced July 2 along with his son and former law partner in connection with the attempted bribery of a judge, in a side case involving a dispute over legal fees between two firms representing storm victims.

Last week, Federal Judge William Acker, who sits in Birmingham, Ala., cited Scruggs for civil contempt and ordered the lawyer and two insurance adjuster-whistleblowers to pay $65,000 in legal fees, stemming from Scruggs decision to turn over to Hood rather than Acker files collected by the whistleblowers (who worked for a firm which contracted with State Farm). At this stage that’s the least of worries for Scruggs, who’s expected to serve up to five years in prison for the bribery charge, to which he pled guilty.

But Acker saved some of his most scathing words for Hood, to whom Scruggs gave the files as a law enforcement official, but who was actually, the judge wrote, “a co-conspirator with, and an aider and abetter of, Scruggs” Hood has said he will file a motion calling on Acker to revise his “derogatory conclusion,” which he said violated the rules of judicial conduct.

The lesson, for states in the path of future storms: Don’t think things settle down when the wind dies. That’s just the beginning.