The Fifth Circuit recently reversed a January 2007 federal district court decision, Broussard v. State Farm, in which Mississippi policyholders, whose home was destroyed by Hurricane Katrina, had been awarded their policy limits and $ 1 million in punitive damages against State Farm. The appellate court held that the lower court was wrong in directing a verdict in favor of the policyholders because the lower court incorrectly determined that there was no basis for the insurer to conclude that home was destroyed by Katrina’s water, which was excluded under the policy. The Fifth Circuit also held that State Farm did not act wrongfully in denying the claim because it had a reasonable basis for its denial of coverage.
Last January, before the case went to the jury, Judge L.T. Senter Jr. of the federal court in the Southern District of Mississippi, held that State Farm failed to meet its burden of demonstrating the extent of the damage caused by water, to the Broussards’ home, and that as a matter of law, a jury would be unable to determine that their home was destroyed by water damage. On that basis, Judge Senter awarded the Broussards the limits of their policy, $221,222. The Fifth Circuit disagreed, holding that State Farm’s expert witnesses provided sufficient evidence that a reasonable jury could conclude that the Broussards’ home and property were destroyed by water. On this issue, the Fifth Circuit remanded for a new trial.
The Fifth Circuit also rejected State Farm’s argument that once it produced evidence that the loss was caused by the excluded peril of water, the burden shifted back to the policyholders to convince the jury that wind, a covered peril, was the cause of the damage. The court held that the causation issue was a question for the jury, and thus summary judgment was inappropriate and the case was remanded for trial.
In addition, the Fifth Circuit determined that State Farm had an arguable basis for denying the Broussards’ claim based on its adjuster’s report which stated that at least a portion of the damage was caused by water. It also held that the jury instruction by which the jury was asked to calculate a punitive damages award was unwarranted because State Farm had an arguable basis to deny coverage. The Fifth Circuit also held that State Farm did not act with sufficient “malice or gross negligence” to merit punitive damages since it had made a $2000 advance payment, which State Farm argued was adequate to cover the amount of wind damage its adjuster said occurred.
While it remains to be seen how the jury will decide the Broussard case on remand, it is clear that the award will not be as pro-insured as the January 2007 decision was.
Click here to read the Fifth Circuit’s decision.
Click here to read more about the January 2007 decision and other initial Katrina-related coverage developments.
Click here to read more about the January 2007 decision and other initial Katrina-related coverage developments.
Click here to read about other Katrina-related developments on InsureReinsure.com.
We will continue to provide updates on this and other Katrina-related issues on InsureReinsure.com.
