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Transcript: Insurance Attorneys Dissect the Decision in Mississippi's Broussard Case
[January 30, 2007]

Transcript: Insurance Attorneys Dissect the Decision in Mississippi's Broussard Case

(BestWire Services Via Thomson Dialog NewsEdge)
News continues to pour out of the Gulf States as insurers, regulators, lawyers and attorneys general square off over large-scale settlements in the mountain of coverage-related litigation that followed the devastation wrought by Hurricane Katrina. The pace quickened earlier this month after State Farm was surprised by a court ruling that it should pay $2.5 in punitive damages in the case known as Broussard vs. State Farm. A.M. Best's newest audio program, The Insurance Law Podcast, examines developing issues with the help of leading insurance attorneys. An audio file of this interview is available at

LEE McDONALD: Welcome to the premier edition of the Insurance Law Podcast, the broadcast about timely issues affecting the insurance industry. Im Lee McDonald, vice president of communications with the A.M. Best Co. Were joined by phone today by two leading attorneys with extensive experience in insurance matters. Weve got Kelly Simpkins of Wells Marble & Hurst of Jackson, Miss., which by the way is the state well be talking about today. We also have David Rossmiller of Dunn Carney Allen Higgins & Tongue of Portland, Ore. Kellys firm is one of the largest and most sophisticated firms practicing in this area in Mississippi and many know David from his regular commentary at So welcome, Kelly and David.


DAVID ROSSMILLER: Glad to be here.

LEE McDONALD: Great. And in the studio we have John Czuba. Hes editor of Best's Directory of Recommended Attorneys, and by Brendan Noonan of our communications team. Today were exploring the impact of a high-profile court decision out of Mississippi. Its the recently decided case known as Broussard vs. State Farm. In that case a federal judge ordered State Farm Fire & Casualty to pay a Biloxi, Miss. couple $2.5 million for refusing to cover damage to their home caused by Hurricane Katrina. The Broussard case is the first federal jury trial to decide how much insurers should pay for Katrina damage. There are hundreds of similar lawsuits pending against State Farm, Allstate, Nationwide and other insurers. Ill turn it over to John Czuba for our first question.

JOHN CZUBA: Kelly, what do people need to understand about this case and decision, and are there any misperceptions weve seen in follow-up reports?

KELLY SIMPKINS: Well, I think there are probably three main things that people need to understand about the case. One, it is a very fact-specific case. Its specific in that its a slab case. Another specific thing about the case is that the punitive damages were based on a failure to tender unconditionally an amount that State Farms own expert said was owed to the plaintiffs. So that turned a potential pocketbook case, in the judges eyes, into a bad faith case. So even if the judge had apportioned between wind and storm surge, he apparently would have allowed punitives to go to the jury anyway because of the failure to tender that amount. And then another fact-specific issue is that in this judges eyes the scintilla of evidence necessary to prove exclusion is a high burden. I think the other thing that you need to understand, maybe a fourth thing, is that if youre an insurer, dont throw in the towel just yet because the defendants effort was qualified and he offered arguments worthy of jury consideration and so the case is an appealable case.

JOHN CZUBA: David, whats your opinion on this?

DAVID ROSSMILLER: I agree with what Kelly said. It is true that this is a fact-specific case. There are hundreds of cases out there and not every one of them is a slab case. That was something that was very important in this case. And the reason is because in other cases where the houses have been standing and theres damage that can be verified, we didnt have this question that nobody could really tell for sure what happened. That as far as I can see is why State Farm didnt tender anything because the model they put together with their experts indicated that the damage was most likely or most certainly caused by flooding, by waves and by tidal surge and thats what destroyed the house. Thats why they didnt tender anything for wind damage at all. But in other cases where we dont have a destroyed home, companies have offered and have tendered amounts for wind damage. So we dont have the same situation that led to the punitive damages in this case.

BRENDAN NOONAN: With 600 other cases still pending, including 200 by Judge Senter alone, what are the implications as to how this might impact other insurers, agents, brokers, consumers?

KELLY SIMPKINS: Well, one thing Id point out is 600 barely scratches the surface. I think everyones familiar with trial lawyer Richard Scruggs. Theres a group thats formed, the Scruggs Katrina Group, and thats comprised of six personal injury firms and their estimated inventory of cases is approximately 3,000. Now, they havent all been filed of course. So I think one of the implications is that if you have a slab case you need to review your expert reports and if your expert is saying that there was some wind damage before the storm surge took it, then you need to pay now unconditionally the amount that your expert says was fairly attributable to the wind loss. Im not sure that this case impacts agents and brokers. There are many cases pending where theres a separate and independent tort thats been alleged against the agent for failing to procure the proper coverage or making misrepresentations about coverage. Even though Judge Senter has ruled in one case, the Leonard case, that -- and favorably toward the agent and found no misrepresentation -- he has remanded other cases on the grounds that the plaintiffs had stated a viable cause of action against the agent. Theres

something that doesnt necessarily rise out of this case that I would point out, which is a new regulation that the insurance commissioner has put forth requiring insurers and their agents to inform policyholders of flood and earthquake exclusions in homeowners and windstorm residential policies. That may ultimately have an implication for agents. They may need to obtain a statement or a signed form from the insured indicating that theyre aware of this provision, something thats done in other lines of insurance.

LEE McDONALD: Were seeing a lot of changes in disclosure. David, just to move toward what might be the next stage in this case in particular; Ive seen you do some writing on this, would you expect State Farm to appeal?

DAVID ROSSMILLER: That's right. I think that if I were advising State Farm and Im not, not involved in this coverage litigation in any of the Katrina cases, but just looking at it as an outsider who keeps close tabs on these things and one who represents insurance companies as well as policyholders, in looking at the issues, I just wrote about this today, I would highly recommend that State Farm appeal this. One of the things that is difficult to get from the press reports because reporters arent lawyers and we shouldnt expect them to be and they want to hit the high points, theres a distinction that needs to be explored thats very important for why State Farm would take this forward. Unlike the Leonard case that Kelly spoke of which was a bench trial, that in other words the issues were tried to Judge Senter himself and he made the findings of fact, in this case his verdict -- there was a jury empanelled, and the questions were going to go to the jury. But Judge Senter said that he found that no reasonable juror could find for State Farm. That under the standards as Judge Senter believed them to be, that the insurer, State Farm, had not sufficiently proven the amount of

damage that was excluded by the flood exclusion. Its true under Mississippi law that -- and the law of every other state -- that an insurer has the burden of proving an exclusion. Judge Senter said that in his mind that means that State Farm has to prove the exact amount. And because as Kelly alluded to, the State Farm expert said that there was some doubt about the amount that could be caused from wind and they admitted there was a possibility, in fact a probability, that at least some small amount was caused by wind, that State Farm hadnt proven its burden, had not borne its burden of proof and that under that standard, Judge Senter said that no reasonable juror could find for State Farm.

Im somewhat skeptical about that analysis by Judge Senter because if you look at the burden of proof, accepting what he said about the insurer having to prove the flood exclusion, its still I think one could say that a reasonable person could weigh the evidence on the claims put forth by the Broussards' expert that the house was destroyed by a tornado, as well as the information furnished by the State Farm expert, a juror could weigh that and come out on either side.

I think theres a serious question that no reasonable person could find, could weigh the evidence and find for State Farm. Since this issue is I think one thats highly debatable, State Farm should take it forward and appeal to the Fifth Circuit, especially as, say in the Leonard Case, if someone had appealed those findings of fact, the standard for review on this is clear error, which is a very tough standard to overturn a trial judge on and an appeals court does not want to do that. The trial judge was there. The trial judge was serving as the trier of fact. He was weighing the credibility of the witnesses and nobody wants to try and put themselves in the place of the person who was actually there and listening to the witnesses.

But the directed verdict that Judge Senter gave, that on the other hand, is a question of law. Its a legal finding that he made, which on appeal is entitled to no deference at all. In other words the appeals court judges will look at that conclusion, and they can put themselves in the place of Judge Senter and say 'we disagree,' and thats enough for them to reverse the directed verdict.

LEE McDONALD: Kelly, and Ill come back to you on the same question, David, this is one case. Its got some big headlines. Does it say much about the state of Katrina-related litigation or is it too early to tell and is this too unique to tell from?

KELLY SIMPKINS: Well, I think it does tell us some things about the state of Katrina litigation. The passion is high down on the Coast and the environment to litigate these claims for an insurance company is already difficult at best. You have to think about the fact that the jurors and the judge and all of the court staff, when they drive to the courthouse to try this case, staring them in the face is the catastrophic losses. And you add to the fact that most jurors and judges have either claims or friends or family who have been affected by this. So I think it does indicate that this is going to be, as everyone expected, a tough hill to climb for an insurer to defend these claims.

McDONALD: OK, and David, same question. Where does this fit in telling us about the bigger picture?

DAVID ROSSMILLER: Well, I think its a very tough blow for State Farm. I think that it was unexpected. I think it was disappointing to them. In reading, Ive read over all the materials that both parties have filed as I could obtain them on the federal court electronic docket. So Im familiar with the arguments that the parties made as they went along. State Farm filed a trial brief on the question of who would have to bear the burden of proving what in the case. It was a pretty good brief. They had the citations and they apparently believed they had a very good chance that Judge Senter was going to find that it was the plaintiffs burden to establish a specific amount of wind damage. Thats not unreasonable that State Farm believed that because in several other rulings in other cases, including the Leonard case, Judge Senter has said exactly that, that the amount of damage that the plaintiffs are able to show is attributable to wind must be paid under his interpretation of the policies and the flood exclusion. So its a tough blow in this case. It doesnt necessarily mean that other cases where there are other facts, that its going to necessarily say that State Farm is going to

lose all those cases. But State Farm has taken a tremendous, tremendous beating in the public relations avenue and if you, just sheerly looking from a standpoint of who has won the public relations war, you have to say objectively that lawyers like Dickie Scruggs and others have done a magnificent job of portraying the insurance companies as heartless, cold, calculating and possibly devious and fraudulent.

At the very best of times, when youre representing an insurance company you are nervous walking into court. Because you figure you have to have 70% of the things go your way. The jury has a bias against insurance companies. Ambiguities in the policy will be interpreted against the insurer and you have an uphill fight. In the instance of these Katrina cases, its an even bigger hill to climb.

LEE McDONALD: Well, thank you, Kelly Simpkins and thank you, David Rossmiller. That was quite interesting and thank you for joining us for the Insurance Law Podcast.

(By: Lee McDonald:

Copyright 2007 A.M. Best Company, Inc.

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