U.S. District Court Judge L.T. Senter Jr. threw a monkey wrench into the controversial State Farm settlement of Hurricane Katrina claims on Friday. Among his many complaints was that plaintiff attorneys hit the jackpot with as much as $20 million in fees. But while this is a setback, I don't think either side wants the deal to collapse altogether, and expect a modified program to be agreed upon fairly quickly, if only because going back to court is not an alternative for the embattled carrier.
Indeed, as reported by our own Dan Hays in today's NU Daily e-newsletter, all the parties involved seem eager to address any objections raised by the judge and get the settlement back on track.
I am no fan of this deal, but I can appreciate the pressure State Farm is under to make it happen. After all, not only did the carrier get hit with a $2.5 million punitive damage award on the first of many water-related claims against it, but Mississippi Attorney General Jim Hood had convened a grand jury to pursue possible criminal charges against the carrier. That's an awfully big hammer to ignore.
Mr. Hood has made it clear that other insurers should follow State Farm's lead, and I have no doubt they will. What impact that has with the market is another story. Such litigation certainly won't help convince carriers to rush back into the Gulf Coast states.
Nationally, Katrina continues to reverberate as well, with a scoop from our Washington Editor, Dave Postal, that legislation might be introduced shortly modifying the industry's cherished antitrust exemption under McCarran-Ferguson. Dave reports that the bill would exempt the insurance industry from federal antitrust laws only to the extent each state had specifically established policies providing such an exemption. That would leave troubled states such as Florida and Mississippi free to toss insurers to the wolves in Washington when it suits them, or at least use such a threat as leverage to bend carriers to their will.
Rather than clarifying the industry's regulatory structure, such a move would only further complicate insurance oversight. I do not support federal regulation–even on an “optional” basis–at this point, but if Uncle Sam is going to grab insurance oversight from the states, then do it already! Don't pass a half-hearted bill such as this.
In any case, insurer lobbyists are going to have their hands full in D.C. this year.
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