From an Undisclosed Location,
I won’t say where we are right now, but to give you a hint, ITP’s attorney, Buck, could not order a beer last night, Sunday, at the local Chili’s. War Eagle says he hasn’t looked better in years.

And to give you an idea of how widespread insurance disputes are down here, this Insurance Journal story says that State Farm is asking Judge L.T. Senter of the Southern District of Mississippi to recuse himself from hearing a motion on whether to certify a class action against the company because one of his clerks and a federal magistrate could be plaintiffs.

State Farm is also asking that a second clerk not be allowed to work on its case because that clerk is suing Allstate.

I will spare ITP readers that corny old joke about the definition of chutzpah. It’s on the site.

Private note to woman with the 615 area code who called about the public-service announcement: I lost your number. Call again: 646 226 1141.
Definition of chutzpah: the guy who murders his parents and asks for mercy because he’s an orphan.

Uncover’d Periles and Casualties of Uncertaine Liabilitie,

We’ll be brief today. ITP and War Eagle are checked into the Omni here in Le Vieux Carre’. Eagle has already eaten the smoked almonds out of the mini-bar.

This Insurance Journal story reports that insurers are applauding the recent U.S. Supreme Court decision in which the court, 5-4, found that a $79.5-million punitive award against Philip Morris USA unconstitutionally punished the company for alleged injuries to non-parties, people other than the plaintiffs. Oregon’s courts had previously upheld plaintiffs’ arguments that the company had spent 40 years denying the link between smoking and cancer even though it knew smoking was deadly. The defendant argued that the damages amounted to a back-door class action.

David Synder, assistant general counsel for the American Insurance Association, weighs in:

“It’s important to lay down clear rules,” Snyder stated. “The Supreme Court has turned back efforts to muddy that clarity. We think this decision maintains fairness, protects competitiveness and should help to hold down costs.”

I’ve asked ITP’s attorney, Buck, to review the Williams decision; he hasn’t returned ITP’s email.

However, I will use this occasion to announce yet another addition to the Key Documents section of the site: The 2001 Utah Supreme Court decision in Campbell vs. State Farm (find it under “Utah”), which led to the last big SCOTUS case restricting punitive damages.

Advanced ITP scholars will remember that in 2003 the U.S. Supreme Court overturned their Utah brothers and sisters at the bar, throwing out a $145-million punitive award against State Farm for “dishonest and illicit conduct over the course of many years” stemming from a State Farm claims-handling system known as “Performance, Planning & Review,” or PP&R.

The 2001 decision makes interesting reading because the not-particularly-liberal Utah court here sounds like Amy Bach(1).

The Utah high court noted that the trial court “made nearly twenty-eight pages of extensive findings concerning State Farm’s reprehensible conduct” and goes on to summarize “State Farm’s most egregious and malicious behavior.”

“First, State Farm repeatedly and deliberately deceived and cheated its customers via the PP&R scheme… For over two decades, State Farm set monthly payment caps and individually rewarded those insurance adjusters who paid less than the market value for claims…Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals.”

Again, this was company policy, not an accident, according to Utah. ITP likes this bit especially:

“For example, a State Farm official in the underlying lawsuit … instructed the claim adjuster to change the report in State Farm’s file by writing that Ospital (a driver not at fault in an accident) was “speeding to visit his pregnant girlfriend.” There was no evidence at all to support that assertion. Ospital was not speeding, nor did he have a pregnant girlfriend.“

Ospital died in the wreck.

The court continues:

“As the trial court found, State Farm’s fraudulent practices were consistently directed to persons–poor racial or ethnic minorities, women, and elderly individuals–who State Farm believed would be less likely to object or take legal action….”

As an ethnic minority himself, this makes War Eagle angry, but nothing so much as this:

“Second, State Farm engaged in deliberate concealment and destruction of all documents related to this profit scheme…State Farm’s own witnesses testified that documents were routinely destroyed so as to avoid their potential disclosure through discovery requests… Additionally, State Farm, as a matter of policy, keeps no corporate records related to lawsuits against it, thus shielding itself from having to disclose information related to the number and scope of bad faith actions in which it has been involved.”

State Farm keeps no corporate records of lawsuits against it? War Eagle says: “dat’s reedickerus!”

“Third, State Farm has systematically harassed and intimidated opposing claimants, witnesses, and attorneys,” etc., etc.

You get the gist. The Utah high court however made the important points that State Farm “corrupted” its own employees by forcing them to “engage in deceptive practices or lose their jobs” and, more importantly, “distorted” the insurance market by forcing other insurers to “adopt similar fraudulent tactics” or go out of business.”

The Utah high court – get this – reinstated the $145 million punitive damages awarded by the jury after the trial judge had reduced it to $25 million. If you’re wondering, Utah is not on the list of “judicial hellholes” published by the American Tort Reform Association. I don’t think they even allow the word “hell” in Utah.

In its 2003 Campbell decision, the U.S. Supreme Court reversed Utah and said punitive damages greater than 10 times the actual damages were probably unconstitutional. The ratio strikes some of us as arbitrary, but we’re not legal scholars.

Personally, I think State Farm should get credit for harassing attorneys.

A big foot business columnist called ITP yesterday and asked if I felt State Farm was deliberately doing the wrong thing after Katrina or was the company itself getting screwed. I told him there’s not enough data to know yet, but the Broussard case points toward the former and the Campbell and the recent Oklahoma decisions provide important context. Go to the site and search under “Broussard” and “Oklahoma.”

Ok, War Eagle and I are heading out for some beignets. Tonight, we’re going to Coop’s for some fried chick…some jambalaya!

(1) Amy Bach, executive director of United Policyholders, who still hasn’t met ITP’s sister in S.F.

InsPals,

ITP is looking forward to its Gulf Coast excursion this Thursday. War Eagle is packing his special LSU “go” cup.

A couple quick things:

One, It is fair to say that State Farm has lost the Gulfport/Biloxi Sun Herald’s editorial board, which in an editorial that dominated yesterday’s front page, uses language not often found in what I used to call, The Press:

“According to a press release, State Farm ‘is concerned that provisions in its insurance policies are being reinterpreted after the fact to provide for coverages that were not contemplated when the policies were written.’

Bull.

State Farm is not being prudent, it is being punitive.

It is using fear to scare up a better settlement in federal court. But it is not the state’s legal environment that is becoming untenable for the insurance giant, it is State Farm’s insane contention that hurricane-force winds did not damage the property of its policyholders.”

Also yesterday, the Sun Herald ran an Anita Lee story that begins to connect the dots between State Farm’s conduct post-Katrina and after other recent disasters and about the role played by consulting giant McKinsey & Co. in the personal-lines industry’s cultural shift on claims since Hurricane Andrew in 1992. Don’t miss that one.

And since it’s my blog, I’ll point out one more thing: An AP story from a week ago about health insurers’ rating doctors according to their quality, and “not-high-quality” doctors’ attempts to push back with libel suits.

“NEW YORK (AP) — A less confident physician might have been humbled by the letters Dr. Mike Kelly received last year from two insurers.

Regence BlueShield and UnitedHealthcare informed Kelly that he failed to qualify for their respective designations as a high-quality doctor. Health insurers are increasingly rating doctors and often charge patients a lower co-payment to see those they deem exceptional providers.

‘I did doubt myself initially when I got the letters,’ said Kelly, a family physician in practice outside Tacoma, Wash., who is now suing Regence over its program. ‘But eventually I realized I didn’t do anything wrong and I felt, “how dare they do this?” I think it is all about money. They just want networks of doctors that don’t spend a lot of money.’
And insurers respond:

“That’s false, insist insurers such as UnitedHealth Group Inc., Cigna Corp., Aetna Inc. and WellPoint Inc. which all either started or expanded their physician quality ranking programs this year. They said the programs are an attempt to help employers struggling with ever-rising health care costs to ensure that their money is well spent.

‘We believe consumers should have information and access to all their doctors but we want to (give them incentives) to go to high quality providers,’ said Dr. Jeffrey Kang, senior vice president and chief medical officer at Cigna. Such products can lower health care costs by 3 percent to 5 percent, he said.”

Frankly, I’m for ratings for everyone except news reporters. But, if we’re going to rate doctors on such a delicate topic as “quality,” we have to begin to rate insurers on such a basic issue as claims performance.

Et voila! Another argument, another victory for the ITP! War Eagle, let’s go for a latte.

I-Friends,

ITP is going to push its privileges today by pursuing briefly a business-story analogy that’s been on War Eagle’s mind.

First, ITP HQ’s switchboards lit up yesterday with the news that State Farm would pull out of Mississippi:

“We came to this decision reluctantly,” Robert L. Trippel, a senior claims officer with parent company State Farm Mutual Automobile Insurance, said in a statement Wednesday. “But it is no longer prudent for us to take on additional risk in a legal and business environment that is becoming more unpredictable. When there’s more certainty, we will reassess the situation.”
Senator Lott isn’t pleased:

“They continue to exhibit a degree of arrogance that causes me a great deal of concern. I had hoped they had come to terms with doing the right thing, based on the settlement they agreed to.”
And Attorney General Jim Hood is steaming:

“Hood likened the situation to “being in a death roll with an alligator” and said he hopes it leads to federal indictments and “true national insurance reform.”

Meanwhile, Commissioner Dale exhibits a passivity that will appear trance-like to those unfamiliar with insurance regulation.

“Dale, who recently announced he will run for reelection, said he is hopeful that State Farm will reverse its decision ’some time in the future.’ “
Now, another big insurer seeks to distance itself from State Farm

Allstate is now the second big insurer to break ranks with our fellow Illini from Bloomington.

Remember, State Farm, Allstate (and Nationwide) were the companies accused by Rep. Gene Taylor in his Jan. 6 letter to Barney Frank (read it on: Key Documents) as having met in the early days of Katrina and improperly agreed to deny claims:

“I have long suspected that State Farm, Allstate, Nationwide, and a few other insurers agreed to aggressively denied Katrina wind claims as they had never done before. One company would not have been able to get away with blanket denials if the others had been paying claims. The manipulated assessments by firms such as Haag Engineering and E.A. Renfro suggest a much broader conspiracy to default consumers and taxpayers.”
Meanwhile, back in Washington, Majority Leader Reid has signed onto the Lott/Taylor anti-antitrust exemption bill.

And just to make a point about the disconnect and inefficiency that I think will hurt the industry in the long run, Krugman today points that consulting giant McKinsey & Associates — not exactly United Policyholders in orientation — pegs at $98 billion the excess administrative costs in the health insurance system. That’s more than the property-casualty industry earned in its best-ever year — 2006 — and more than it would cost to health-insure the entire country, according to McKinsey: $77 billion.

Ok, now I point up a 1997 WSJ story by the great Alix Freedman summarizing how the tobacco industry was transformed. It’s up on
Key Documents.

Leaders of the Pact: How Seven Individuals With Diverse Motives Halted Tobacco’s Wars

Here’s the first sentence:

“Flash back to 1990 and try to imagine Big Tobacco, which was then flicking away opponents like so many ashes, ultimately agreeing to a settlement costing it more than $360 billion. What a difference seven years, and seven individuals, would make.”

As an intellectual exercise, substitute “Jim Hood” for then-Mississippi AG Michael Moore, “Richard Scruggs” of Oxford, Miss., for trial lawyer Michael Lewis of Clarksdale, Miss., (or for Scruggs himself), “Rigsby sisters” for Brown & Williamson whistleblower Jeffrey Wigan and — who? — for Bennett LeBow, the Liggett Group chief who undermined the industry’s solid front and moved to settle. Is it a stretch to compare State Farm to the ultra-tough R.J. Reynolds?

You could argue that insurance and tobacco are different, and they are.  But asserting in thousands of cases that Katrina did zero wind damage, that the current private-public wind/water patchwork is efficient, as the Property Casualty Insurance Association did, or that the industry “lost money on its core operations” in 2004 and 2005 and 25 of the past 27 years, as Marc Racicot did recently, or that state regulation and markets make sense in 2007 — all this loses fair-minded eagles, who only have enhanced industry efficiency in mind, and invites a potentially irreversible political response.

ITP has got to stop blogging so much and get that book proposal done.

IPods,

This Rebecca Mowbray Times-Picayune story from a couple of weeks ago is about a debate over whether the Louisiana Insurance Rating Commission, the last such price-setting panel in the country, will be abolished as part of post-Katrina insurance reforms. The commission’s opponents include Insurance Commissioner Jim Donelon and business groups, who believe abolishing the panel:

“…would send a powerful signal to insurers that Louisiana is modernizing…and would dissolve an unnecessary bureaucracy that allows insurance rates to be suppressed for political reasons — making insurers loathe to enter the market and making it harder for Louisiana residents to find affordable insurance coverage choices.”

As it turns out, commissioner members — there are five, all appointed by the governor — aren’t happy either:

“While the rating commission may be in charge of rates, some members have expressed growing frustration that they have no power over the deductibles and underwriting guidelines that are key to understanding how much coverage consumers are getting for their money. They’re also frustrated that they’ve been awarding the rate increases that insurance companies said they need to do business in Louisiana, but insurance companies don’t respond by starting to write policies again. Indeed, some rate increases have been followed by the insurance company cutting coverage in Louisiana. ‘We have no enforcement capability. All we do is set rates,’ said Steven ‘Rock’ Ruiz, the commission’s longest-serving and most vociferous member.”

ITP sympathizes with Rock here, if only because it favors nicknames.

But I’d only like quickly to point out the Scholastic quality of the Louisiana insurance debate — this is deck-chair-arrangement level — that mirrors the general gridlock that has left New Orleans and the state on what my pals down there tell me is the brink of despair. ITP will be heading to N.O. Feb. 22 to March 2 to see for itself. We are performing final checks on the ITP/Dodge Charger SRT8 with the 6.1 Liter, 435 hp HEMI(r) right now.

In Mississippi, by contrast, State Farm has already raised the white flag and some policyholders are already getting paid — and not improperly for flood, but properly for wind, just like the policy says, despite the best efforts of Sheila Birnbaum and our nation’s top legal minds at Skadden, Arps, Slate, Meagher & Flom. Next time ITP feels sorry for those first-year associates working until 2 a.m., remind it not to bother.

Listen, this Rating Commission debate is of a piece with what I call the Louisiana Model or the PowerPoint approach, a reference to Governor Blanco and Commissioner Donelon’s dogged efforts to sell the market on the state’s efforts to make itself more attractive by reinforcing levees, stiffening building codes, dropping regulation, allowing price hikes, and what have you.

This is in contrast to the Florida Model, which has the state taking over the wind market, and the Mississippi Model, which incorporates legal sticks, such as mass litigation from Richard Scruggs and other trial specialists and especially, Attorney General Jim Hood, who focussed State Farm’s attention by raising the specter of criminal prosecution of its executives.

(I know many of my insurer pals question the fairness of using criminal process to force civil settlements. For what it’s worth, I’m with you in some respects, but that’s another blurb.)

We don’t know know how well the Louisiana Model will work.

But ITP is still waiting for the argument in favor of keeping insurance risks segregated arbitrarily by state boundaries in first place, while profits Insurance Profits — ‘91 -Q106 (please see CAUTION below) are spread efficiently throughout the country. And how come we don’t know how much insurers pay per policy?

Thanks again to Ida and to Mississippi Heavy Hitter for sending material. Please keep it coming.

CAUTION: the Q106 figure is for a single quarter. Ensure eyeballs are firmly secure in head before clicking; must be over 45 years old and provide proof of health insurance. Also available in streaming video.

P.S. For insurance hard cases, here’s the Insurance Information Institute’s argument on why it’s better to measure return-on-equity than “simple dollar amounts.”
Profits vs. Profitability: An Example

The following example illustrates the advantage of measuring profitability using ROE rather than simple dollar amounts. Assume that there are two companies, both of which earned $1 million in profits last year. The companies are identical in every respect except that Company A had an average net worth of $10 million during the year while Company B had $20 million. The ROE for Company A is 10 percent ($1 million profit divided by $10 million net worth), but for Company B it is just 5 percent ($1 million profit divided by $20 million net worth). The two companies earned exactly the same amount in profit, but Company A was twice as profitable because it earned the same amount in profits with half as much capital (net worth). Company A provided a superior return on investor capital (as measured by ROE) than Company B, even though both companies earned the same profit in when measured in dollar terms.

Very opinionated item today.  But, heck, I feel better. I’ll be writing less in the coming weeks.

Multiple Perils,

Rep. Gene Taylor’s new bill is in the key documents section (See: “Taylor’s Multiple Perils Act of 2007 — HR 920″). It would create a federal wind pool as part of the national flood program, but collect enough premiums to make it sound. I would only say a federal wind-flood pool certainly beats a state wind-only pool anytime. It eliminates the lame wind-water debate and creates a bigger pool. More on that later. ITP is curious as to how the industry reacts.
Ok, I pass along this cri from Mississippi not only for its anguished tone, but because it illustrates the Gulf’s increasing insurance sophistication, one of the few positives that came from Katrina.

The whole letter is on the site:

It was passed along from a trusted source. I don’t know who the author is, I’m afraid. She wants to remain anonymous because she’s afraid publicity would harm her lawsuit. But then secrecy is a hallmark of insurance litigation — just as it would, apparently, be a main feature of the erstwhile settlement between State Farm and Mississippi policyholders and the state. ITP has gotten used to the secrecy — the sealed records, the scared plaintiffs, the pitiful performance disclosure — and is resigned to relaxing (ok, “lowering”) some journalism standards, once in a while.

So here are excerpts with bold face added by me. Her house was apparently on high ground, but was denied wind coverage.

“Now unless Moses came and parted the bay in front our home…how could water have taken down a house (hers) that was on the highest point and no one else, even lower houses had any surge water?”

ITP comment: That can’t be good for the Jews.

“…they told her (a friend) that she didn’t read the policy changes, because August 1st prior to Katrina They had Deleted ‘roofs’ from wind damage!”…

ITP says: ITP has no brain and just reports what it’s told.

…”NOW if wind doesn’t cover roofs, and it doesn’t cover trees ( another friend’s case)… can anyone tell me what wind does cover?”…

ITP: Frogs? And here’s an obligatory (and fair) shot at my business:

“The media does not focus on middle class, working people who were responsible and paid out the ‘wha zoo’ for a bunch of worthless papers!”

ITP: So that’s how you spell that.

And here’s an interesting point:

“Why should the taxpayers have to pay for all of us when the majority of us HAD insurance!?”

From a storytelling point of view, most of us understand that these anecdotal tales are not enough, and unproven anonymous ones are even worse. Even if true, each case individually can be reasonably discounted as a mistake or an outlier. Aren’t 98% of all Katrina claims settled? Isn’t that pretty good? A reasonable reader could reasonably want to drill down into the facts of each case — was she really paying her premiums? Did flood do 53% of the damage or 36%. Why does she live so close to the coast? What does her policy say? Did she even read it?

What’s interesting here, though, is that this letter contains not just the problem, but the seeds of a solution. That’s here in the post-script:

“PS There should be a roster of those companies ‘ made public’ who paid without a hitch and another list that shows who didn’t pay!

And we ALL know why that list has not been put together, don’t we?

Why everyone in this country would run out and cancel the bastards that didn’t pay and run into the arms of those who did!”

Has she been ripping off Insurance Notes!(TM) and the ITP(c)(r)? And she thinks insurance companies are trouble? Why, I oughtta….

Thanks to MissBizJourno.

(Here’s the full text. I don’t know what article she’s referring to:)

“I couldn’t finish the whole article, because I just don’t believe it addresses the biggest problem of

all..the majority of insurance companies are ” Rip Offs!”

We need all out REFORM!

Here’s an example…my home and 10 others surrounding it had zero surge or ‘flood’ in our houses. I am in the middle of 11 structures still standing. The others only had wind borne roof damage..Now unless Moses came and parted the bay in front our home…how could water have taken down a house that was on the highest point and no one else, even lower houses had any surge water?

My company also denied friends of mine who have had the same company for 36 years and all they wanted was $3000 for a new roof. When my friend called to see why an adjustor wouldn’t come out they told her

that she didn’t read the policy changes, because August 1st prior to Katrina They had Deleted ‘roofs’ from wind damage!

This same company wouldn’t give wind coverage to a tree that blew a another policy holder’ s house…WITHOUT MAKING THEM PAY DOUBLE THE DEDUCTIBLE!

(And this was in Nashville )

NOW if wind doesn’t cover roofs, and it doesn’t cover trees…can anyone tell me what wind does cover?

The language in the policies should be precise. One shouldn’t have to hire a law firm to read what your coverage is.

If we had an ‘ALL PERILS” policy…there would be no questions asked!

I tell people where ever I go that the tragedy of KATRINA is NOT what happened, but what hasn’t happened!

The media does not focus on middle class, working people who were responsible and paid out the ‘wha zoo’ for a bunch of worthless papers!

I also blame the majority of mortgage companies who haven’t lifted a finger to assist people in fighting one of the most powerful entities in this country!. Their the ones who require the insurance, and they are powerful enough to help ‘their’ customers

by coming down on these ruthless, scam artists who ought to be thrown in jail for swindling the majority of us!

Everyone needs to call all congressmen and senators and tell them ‘we’ve had enough”!

Call Nancy Pelosi. She saw with her own eyes what’s happened to us and I believe she truly cares!

When i am out of litigation, I plan to take this cause on the road!

Americans had better wake up because a disaster could happen any time, any where…and it won’t be the disaster that puts you and your family in a hole, but rather the almighty, insurance companies!

PS There should be a roster of those companies” made public” who paid without a hitch and another list that shows who didn’t pay!

And we ALL know why that list has not been put together, don’t we?

Why everyone in this country would run out and cancel the bastards that didn’t pay and run into the arms of those who did!

And why does no one ‘beat the drum” REGARDING how the insurance companies got together, I believe it was in Baton Rouge, AND ” ALL l agreed to say in one fell swoop …’IT WAS FLOOD!”

Why should the taxpayers have to pay for all of us when the majority of us HAD insurance!?

Unwrapped Annuities and Other Captive Carriers,

Now on the site, last week’s WSJ editorial on the Mississippi’s settlement with State Farm.

ITP remembers the day when one of its greatest morning pleasures was turning to the WSJ’s edit page for a bare-knuckles fight about something. At least, you didn’t always know what they were going to say.

But in this case, I’m afraid, my old friends at 200 Liberty Street blow an opportunity to move beyond the “did-not, did-so” discourse that is deadening the insurance debate in the Gulf and elsewhere. Maybe they need to bring back Angel and the coffee cart(1).

“Mr. Hood,” of course, is Jim Hood, the Mississippi attorney general:
“Mr. Hood has been on a campaign to loot insurers from the first days after Katrina. His complaint is that it is “unconscionable” that insurers have refused to pay for flood damage. Never mind that their contracts specifically contain flood exclusions even as they pay tens of millions for wind damages. This water exclusion been well known among homeowners and state regulators for years, which is why the federal government offers flood insurance. Mr. Hood nonetheless filed a civil suit and began a criminal probe.”

I don’t know what Mr. Hood said was unconscionable, but the main issue in Broussard and other cases is that insurers aren’t paying for wind damage, and that State Farm, in particular, denied claims outright in slab cases, where you couldn’t tell what did the damage. State Farm’s position was that hours of winds did zero damage or that it was up to policyholders to prove that it did.

Now, it might well be that the burden should be on policyholders — though War Eagle doubts that sincerely — but that’s different from saying policyholders are asking insurers to cover floods or rewrite contracts on humanitarian grounds.

One more paragraph and we’re done:

“The insurance industry has won a few of these legal skirmishes. But that changed last month when a judge told State Farm to pay a Mississippi couple a $232,000 claim and a jury awarded $2.5 million in punitive damages (since reduced by a judge to $1 million). State Farm is the nation’s largest home insurer and has already paid $1.1 billion in Katrina claims in Mississippi alone. But the company looked at hundreds of other pending suits, did the math, and threw itself on the mercy of Mr. Hood. State Farm agreed to re-open $35,000 claims it had already settled and to pay at least $50 million more. The insurer also agree to hand over $80 million to some 640 households represented by tort kingpin Dickie Scruggs.”

They’re talking about Broussard. But, dagnabit, the decision is right there on ITP’s Key Documents section. Why the world does not avail itself of this insurance treasure trove is another great mystery to ITP:

Judge Senter says:

“5. The evidence establishes, conclusively, that the plaintiffs’ dwelling sustained wind damage during Hurricane Katrina and that ultimately the dwelling was a total loss.

6. Once the plaintiffs’ established this prima facie case(2)…the burden shifted to State Farm to prove the merits of its affirmative defense based on the water damage exclusion in the policy….The burden of proof requires State Farm to established, by a preponderance of the evidence, what portion of the total loss is attributable to flood damage and is therefore outside the policy coverage….”

And:

“All of State Farm’s evidence was directed to proving that 100% of the damage to the insureds property was caused by rising water, yet State Farm’s own expert witness, Dr. Gurley, testified that it was more probable than not that the Broussards’ dwelling sustained at least some wind damage to its roof.”

And one more for emphasis:

“The key issue is how much damage had occurred as a result of wind before the storm surge arrived.”

…In these circumstances, it is the allocation of the burden of proof that is critical” etc. etc.

Insurer pals, the WSJ does you no favors here, trust me. What you want is more understanding of the fine points, not less. If you get into name-calling and misrepresenting both the facts on the Gulf and the legal arguments, no one is helped. What you get is Florida.

And here’s a challenge to my gentle onetime and hopefully future hosts, the Insurance Information Institute, and my toughest customer, its president, Bob Hartwig: Sure, it’s backed by the industry, but the III prides itself on getting it right and should help lead this bogus “wind-water” debate to clarity.
State Farm is paying $125,000 per policy — up from about $10,000 — at least in part because legal — not PR — arguments were against it, and, frankly, so are the common-sense ones.
Anyone walking around down there knows that to suggest that Katrina’s winds did zero damage to coastal houses is preposterous. And, I’m sorry, most of — in fact, all of — the policyholders I spoke to were only looking for some acknowledgment of the obvious. You don’t need to be Haag Engineering(3) or Sheila Birnbaum(4) to figure this out.

Oh, and I have another opinion, actually two more.

1. Solidarity among insurers is a bad idea. Lexington and State Farm are two very different companies. There’s no reason the market shouldn’t know that, especially if you are Lexington.

2. And, two, ITP has likened insurance in the 2000s to tobacco in the 1980s. Holding fast to untenable positions in the face of clear and mounting evidence is a poor longterm strategy. You heard it here first. Tillinghast would have charged you a bundle for that.

(1) Nice, twice-daily service eliminated during budget cuts.
(2) Latin for “At first glance,” evidence good and sufficient on its face.
(3) Houston-based engineering firm suspended by State Farm.
(4) Of Skadden Arps, State Farm’s lead negotiator.

Casualty Risks and Underreserved Liabilities,

Courtesy of the Marr Law firm in Oklahoma City, the 128-page deposition from last September of State Farm CEO Rust is now up on the ITP Key Documents section. But save yourself some time, and go straight to the Marr site for many important documents from that 1999 tornado case in which a jury in May found State Farm “intentionally and with malice” denied claims by employing Haag Engineering Co. of Houston, which, the jury said, was “predetermined” to disagree with policyholders.

ITP is not going to give Mr. Rust a hard time for having trouble coming up with the name “Haag,” even though the deposition comes five months after the $13 million bad-faith verdict and after State Farm had issued post-verdict “moratorium” on Haag investigating Katrina claims. Every ITP reader knows that name by now.
“A: I believe the engineering firm was Haag
Engineering. That may not be the exact name, but I believe it is Haag Engineering.”

A couple bits of information emerge. One is that State Farm is also investigating the role played by E.A. Renfroe & Co., a closely held Birmingham adjusting firm, whose use by State Farm, the Oklahoma jury also found, also constituted a malicious and intentional breach of trust.

It was from Renfroe, I-Fans will recall, that two post-Katrina Mississippi whistleblowers printed out 15,000 internal documents and carried them to the Mississippi Attorney General, Jim Hood, and tort king Richard Scruggs, not in that order. The allegation, of course, is that Renfroe was used to improperly lowball or deny claims.

The “Susan” is Susan Hood, State Farm’s claims chief.
“Q: Have you seen any documentary evidence put
before you that there is any investigation into
State Farm’s relationship with E.A. Renfroe &
Company following the Watkins verdict?
A: No. I have not seen anything. But I
believe in conversations with Susan, I am aware of
an investigation.”

Another scrap: that Haag had been under review well before the Watkins case following another adverse verdict in an unidentified Texas case. This is a example of a defense witness volunteering too much information.

A: There may have been a decision in Texas a
number of years ago, but I am not familiar with the
specifics of that case.
Q: Okay. Well, you brought it up. What is
your understanding of this case in Texas a number of
years ago?
A: There apparently had been a question on
the — whether or not there was a bias in Haag’s
opinion that they had rendered. And I have no
further information in terms of, you know, what
transpired after that decision….”

There is also an interesting section on the impact of another bad-faith verdict from Utah that ended up as a landmark U.S. Supreme Court case from 2003, “State Farm Mutual Auto Insurance Co. v. Campbell.” More on Campbell later. That’s up on the Key Documents section, too.

The Rust deposition mostly is a reminder of how much insurance has changed in the last two decades. The use of third-party adjusting firms on this scale is new. ITP is working on a theory that a watershed moment was 1992’s Hurricane Andrew, an unexpectedly costly, and to the industry, I think, traumatic, event. More later.

No Notes! tomorrow.

Thanks again to Ida.

NatCats and MMDs(1),

A quick one today to highlight a press release in which USAA, the Automobile Association, seeks to distinguish itself from State Farm.

“In response to a recent pending settlement involving State Farm Insurance, certain victims of Hurricane Katrina and the State of Mississippi, USAA or United Services Automobile Association, came forward to define what it says is a difference between it and State Farm.”

What’s the difference?

“According to USAA, when it adjusts claims in which there is both wind and flood damage, it pays for damage that was caused by wind.”

Uh. Hmm. Just a minute while War Eagle adjusts his reading glasses.