Saying that the parties have a lot more explaining to do, Judge L. T. Senter Jr. of the Federal District Court in Gulfport, Mississippi issued an order temporarily rejecting a settlement by State Farm Insurance that would provide several hundred million dollars to policyholders whose homes were destroyed by Hurricane Katrina.

“In the absence of substantially more information than I now have before me, I am unable to say, even preliminarily, that the proposed settlement establishes a procedure that is fair, just, balanced, or reasonable,” wrote Judge Senter, who denied a motion to approve it “without prejudice.” State Farm said it expected the agreement to be approved and was happy to address the judge’s concerns. Richard Scruggs, the lead plaintiffs’ lawyer in the case, and Mississippi officials also said they expected approval.

Senter’s wide-ranging criticism of the class action settlement raised concerns about everything from the plaintiff class and the monies involved to the blanket immunity granted the insurer, its agents and adjusters and the scope of the settlement. He also criticized the plan as not being a truly global settlement because it does not do enough to include the claims of those who are currently engaged in litigation who may wish to opt-in to this settlement. He also suggested that the entire claims procedure contemplated in the plan gives State Farm too much control. For one, the insurer is granted participation in the selection of the Special Master, a choice which Senter makes clear is “exclusively within the prerogative of the Court.”

The proposed agreement also allows State Farm to train the arbitrators, control much of the administrative process, and control the compensation of all those involved in the administration of claims — all of which, Senter wrote, “has the potential of allowing State Farm to exert a substantial measure of control over the claims resolution process without oversight by any independent or neutral authority.”

The judge also questioned whether attorneys for the plaintiffs would be paid too much under the settlement. He said he had not been shown any evidence to determine plaintiffs attorneys involved in the proposed settlement had done enough work to justify getting a minimum of $10 million in fees, or any basis for calculating how they should receive up to $20 million.

Federal Judge Puts Part of Katrina Settlement on Hold (Insurance Journal 1/27/07)

Judge Nixes Settlement With Fat Attorneys Fees (National Underwriter 1/28/07)
 
Judge Senter’s Order – Full Text (PDF file, 1/26/07)

January 30, 2007