February 14, 2007 / 6:13 PM / 11 years ago

State Farm halts new homeowners insurance in Miss

NEW YORK (Reuters) - State Farm Mutual Automobile Insurance Co. said it will stop writing new policies for homeowners and businesses in Mississippi following a legal battle over damage claims there from 2005’s Hurricane Katrina.

“It is no longer prudent for us to take on additional risk in a legal and business environment that is becoming more unpredictable,” Bob Trippel, senior vice president of the largest home insurer in the United States, said in a statement on Wednesday.

State Farm joins other insurers -- including Allstate Corp., its biggest national competitor -- which are cutting back in coastal areas. Among them are American International Group Inc., the world’s largest insurer, and Nationwide Mutual, the parent company of Nationwide Financial Services Inc..

One industry expert said the avalanche of legal claims State Farm faced following a controversy over whether homes were devastated by floods, for which they weren’t insured, or wind, for which they were, may have been the deciding factor.

“Hurricanes can be insured against, but litigation can‘t,” said Robert Hartwig, head of the Insurance Information Institute, which provides insurance statistics. “Those costs are extremely high.”

State Farm currently insures more than 30 percent of the homeowners in Mississippi. It said it would continue to serve current policyholders and write new auto insurance business.

“Current legal and business environments ... are becoming untenable,” said Trippel.

“When there is more certainty, we will reassess the situation,” he said.

State Farm is facing hundreds of suits by Mississippi Gulf Coast homeowners whose homes were damaged or destroyed by Hurricane Katrina, which at $38 billion was the most costly storm in U.S. history.

WIND OR WATER

Led by plaintiffs’ attorney Richard Scruggs and Mississippi Attorney General Jim Hood, the homeowners argue that when it is not clear whether wind or flood caused the destruction, insurers should pay the claims.

State Farm and other carriers say they only insure against wind damage, while water damage is covered under a federal flood insurance program.

In January, U.S. District Court Judge L.T. Senter agreed with a homeowner in one case. State Farm then settled with a thousand other Mississippi homeowners.

But Judge Senter turned down the settlement, creating further uncertainty for State Farm, which has more than 74 million policies in North America.

Judge Senter said both sides had failed to provide him with enough information to resolve important issues.

The class action settlement could have cost the insurer up to $500 million.

Scruggs, who represents many of the Mississippi plaintiffs, said it was “unfortunate” that Judge Senter had blocked the settlement, but also criticized State Farm’s decision not to write new business as “extreme.”

“Hopefully cooler heads will prevail and everyone will make a responsible decision,” Scruggs said.

Attorney General Hood said on a teleconference on Wednesday he planned to testify before the U.S. Congress and keep the pressure on insurers.

State Farm said it already had handled more than 84,000 non-auto property claims in Mississippi that resulted from Katrina, and already paid in excess of $1 billion in damages there. It said fewer than 2 percent of its Katrina claims remain unsettled.

Allstate has been the most aggressive in getting out of coastal areas. It has declined to renew homeowners as far north as New York and to take on new business in Connecticut.

Florida, a state also hard hit by hurricanes, has passed legislation and regulations prohibiting insurers from leaving the state and increasing the size of its own state-run insurance company.

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