Insurance Company Very Slow to Pay Policyholder in Need

Nineteen months and thousands of disputed claims later, the first Hurricane Rita homeowner's insurance trial begins today in Jefferson County, and insurance experts say a Beaumont couple's suit against State Farm could influence hundreds of still unsettled claims.

Because most Rita damage claims differ substantially from disputes between insurance companies and policyholders in Hurricane Katrina litigation, the trial's result could offer new settlement parameters.

Hugh and Sharon Stovall filed their lawsuit just over a year ago, alleging State Farm refused to pay for damages covered in their policy and undervalued other damage Rita caused to their West End home.

The Stovalls returned from evacuation to find a tree on their house and, thanks to water and wind damage, a compromised roof and foundation, according to court papers.

Bob Wortham, 58th Judicial District judge, last week barred attorneys from discussing the case with media, and Houston plaintiff's attorney Steve Mostyn has asked the same of the Stovalls. But earlier interviews indicate the couple spent seven months with three adjustors before deciding to seek relief in the courts.

Precedent

In January, a Mississippi federal jury awarded $2.5 million in punitive damages against State Farm for denying a Hurricane Katrina claim.

The judge later reduced the punitive award to $1 million, but the decision spurred hundreds of pending lawsuits to settlement.

"When you have a lot of similar claims, a strong ruling one way or the other can have a big impact," said J. Robert Hunter, former Texas insurance commissioner and director of insurance for the Consumer Federation of America. Like many Hurricane Katrina lawsuits, the Mississippi verdict stemmed from a "water versus wind" dispute in which insurers alleged damages were caused not by wind, but by storm-surge flooding not covered by homeowner's policies.

Most disputed Southeast Texas claims deal simply with questions of damage valuation and whether a type of damage is covered.

One expert said this distinction will mitigate the Stovall case's potential influence, despite fallout from the Mississippi verdict.

"Trial lawyers will still try to draw parallels, but the cases are different, and each case is unique and still should and will be evaluated individually," said Robert Hartwig, president and chief economist of the industry-sponsored Insurance Information Institute.

Beaumont lawyer John Morgan, who has filed dozens of Rita lawsuits against State Farm, Allstate and other insurers, said he is hopeful a strong verdict for the Stovalls could move insurance companies to settle before facing a jury.

"And what will really affect verdicts are experiences of people with their insurance companies," Morgan said, referring to the local jury pools. "Very many were bad experiences, but some of the companies did really step up and do the right thing."

Future

Although homeowners continue to file lawsuits -- six were filed with the Jefferson County clerk this past week -- the vast majority have settled out of court.

"Eighteen months after Katrina, 98 percent of the 1.1 million homeowners claims were settled, and the ratio is at least as good if not better with Rita," Hartwig said.

And while those still seeking settlements have now waited a very long time, Hartwig warns large awards could mean increased costs for all policy holders.

"Ultimately, decisions where plaintiffs are awarded significant sums would be dangerous to homeowners in Texas because the cost is borne by policyholders in the state," Hartwig, who testified this month before Congress about Katrina's impact on Gulf Coast policyholders, said in recently in a phone interview.

The Stovall trial, expected to last about two weeks, begins at 9 a.m. today.

rcmyers@beaumontenterprise.com (409) 880-0736

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Copyright (c) 2007, The Beaumont Enterprise, Texas

Distributed by McClatchy-Tribune Business News.

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