U.S. District Judge L.T. Senter in Gulfport, Mississippi, said the language of a proposed class-action settlement didn't spell out how payments would be determined or who would get them. State Farm, Mississippi's largest property insurer, agreed Jan. 23 to pay a minimum of $50 million to as many as 35,000 families whose homes were damaged or destroyed in the August 2005 storm.
``I am struck by the lack of any guaranteed payment to any class members other than policyholders left only with a slab or pilings,'' Senter wrote in an order today. ``I am unable to say, even preliminarily, that the proposed settlement established a procedure that is fair, just, balanced, or reasonable.''
State Farm and Richard Scruggs, a homeowners' attorney involved in negotiating the settlement, said they would fix the agreement. The judge said his rejection was ``without prejudice'' and a new proposal could be submitted.
Katrina's devastation to the U.S. Gulf Coast left room for widespread disputes because insurance policies cover wind-related damage, not flooding. Scruggs, who helped win $206 billion from the tobacco industry in 1998, lost his own house in Pascagoula.
``It is our hope that the Judge's concerns can be quickly addressed,'' Scruggs' firm said in a joint statement with other attorneys working with him. ``Our efforts and attentions will be placed on satisfying his questions and requirements. The prospect of multi-year case-by-case litigation is in no one's best interest.''
Hood
State Farm ``looks forward to addressing Judge Senter's concerns,'' said Fraser Engerman, a spokesman for the Bloomington, Illinois-based insurer. He declined to comment further, and Scruggs didn't return a phone call.
Mississippi Attorney General Jim Hood dropped his own state court suit after State Farm agreed to reconsider claims this week. Under his agreement, State Farm had to promise to offer at least half of its policy coverage limit in about 1,000 ``slab'' claims where a home was reduced to its foundation. He left much of the process for distributing other funds to Scruggs and State Farm, he said in an interview today.
``We had 60 days to alert the judge to our own objections to those details, and we were going to point out a few things to him,'' said Hood, who estimated earlier this week that State Farm may pay as much as $500 million in the end. ``The judge caught those things.''
Carl Tobias, a law professor at the University of Richmond, said the issues Senter raised in his eight-page order were ``fairly complex, but it doesn't mean they can't be satisfied.''
Second Settlement
Senter said the lay person may not understand the claims procedure and questioned the $10 million to $20 million in attorney's fees included in the settlement. He also said the notices that would be mailed to policyholders didn't make it easy to opt out of the agreement.
``I have no evidence of any kind in the record which would allow me to determine what work class counsel has performed to earn even the substantial minimum fee set out in the proposed settlement agreement,'' Senter said in the order.
This week Scruggs negotiated a separate settlement of other State Farm policyholders who had already sued. The insurer agreed to pay $80 million to $89 million to settle with about 640 Scruggs clients and cover their legal fees, John Jones, a lawyer who worked with Scruggs on the accord, said Jan. 23.
``It is the intention of the Scruggs Katrina Group to go forward next week with the initial disbursement of settlement payments to the hundreds of families we represent apart from the proposed class,'' the S