Insurers have expressed disappointment in the January 11 ruling against State Farm in the United States District Court for the Southern District of Mississippi. The case, Broussard v. State Farm Fire and Casualty Company, concerned a Hurricane Katrina water vs. wind claim, and The National Association of Mutual Insurance Companies (NAMIC) has stated that Senior Judge L. T. Senter, Jr.s decision could ultimately mean higher rates for consumers.

In the case, Senter said that the plaintiffs had established that their dwelling sustained at least some wind damage during Katrina, and that the dwelling was later destroyed by flood. Senter declared that the burden was on State Farm to establish what portion of the total loss is attributable to flood damage, and is therefore outside the policy coverage.

He explained, Since State Farm has offered no evidence which would allow the finder of fact to make a reasonable determination of the amount of the total loss that is attributable exclusively to water damage, I find that State Farm has failed to meet its burden of proof as to the extent of the damage caused by water, and since the Broussards have established by stipulation that they sustained a total loss of their dwelling and its contents as a result of Hurricane Katrina, a covered windstorm peril, I find that State Farm is liable to the plaintiffs for the limits of coverage under the policy, the sum of $211,222.

Additionally, Senter submitted the action to the jury on the issue of punitive damages, in which it was decided that State Farm must pay $2.5 million.

Insurers Respond

State Farm said it was surprised and concerned by the ruling. Kim Brunner, executive vice president, secretary, and general counsel for the company said, We did not expect this decision. Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind.

Brunner also questioned Senters judgment that the Broussards only needed to prove a direct physical loss. We believe that the ruling is inconsistent with the insurance contract and Mississippi law.

The company also said it was disappointed with the jurys $2.5 million punitive damage award, and that it will likely appeal the decision.

Robert Detlefsen, NAMICs vice president of public policy, equated the decision to a re-writing of State Farms policy. He said, Insurers need to be able to rely on their contract language to determine appropriate rates.

Detlefsen added, Changing the terms of a policy after the fact is extremely costly, since insurers have not collected premiums for the additional losses. If this practice were allowed to become routine, insurers would have to cover the unexpected costs through higher rates on policyholders.