I was interested to read that an insurer is now suing Mississippi AG Hood. While Katrina homeowners suffered terrible losses, some of the tactics used against insurers post Katrina just were not right. I am curious to see how this suit ends.
I see reports concerning the prosecution against Scruggs at almost the same moment that I read about homeowners being surprised by the extent to which insurers have withdrawn from areas that might be affected by hurricanes or floods. It's not a coincidence. Insurers may be able to accept the financial toll of natural disasters, but with the unscrupulous tactics that artificially inflate the toll of natural disasters, the natural disasters present an unacceptable risk
Managing the risk of hurricanes and other natural disasters is a very difficult problem, but New York State’s proposed special hurricane fund appears to be the wrong solution. The proposal being considered would force insurers to set aside a portion of their premiums for hurricanes, but insurers would not be able to deduct this expense until it is actually spent on a hurricane. This proposal is discussed in Joe Treaster’s article in this morning’s New York Times. Special Fund Proposed for Hurricane Insurance, 10/9/07, at C4. Insurers would be setting aside money now, paying taxes now, and receiving deductions later. Rather than solving the hurricane burden, this proposal seems to exacerbate that burden. This program would quickly become another illustration of how New York is a tough place to do business.
The Minneapolis bridge catastrophe and reports of past evaluations of the bridge suggest that insurers will need to turn their attention to standards of structural integrity. A recent Washington appellate decision includes an interesting discussion of this issue. Bedford, LLC v. Safeco Ins. Co., 2007 Wash. App. LEXIS 2675 (paras. 18-20). The interesting question in future claims will be whether long-term deterioration will be considered an occurrence causing property damage. I hope that such claims will be resisted.
I was glad to see that the House voted to expand and extend terrorism risk insurance. The White House had said that the best source of this insurance is the private sector. But the truth is that the private sector can only write risks that can be meaningfully assessed. Terrorism, like war risks, is impossible to assess. Consequently, the private sector cannot write terrorism coverage, just as it cannot write war risks.
I was glad to see the Eleventh Circuit affirm the District Court's order requiring two former adjusters, now employed by Dickie Scruggs, to return documents to their former employer, E. A. Renfroe & Co. The Eleventh Circuit reviewed the district court's order only for an abuse of discretion. The court found that the trial court appropriately applied the four factors controlling whether to issue a preliminary injunction. I really look forward to commentary concerning the tactic that was employed to obtain the documents: taking custody of relevant evidence by becoming the attorney and then employer of individuals working for a party with adverse interests. If lawyers will be permitted to follow this strategy, no company will be able to protect the confidentiality of its information.
As Michael Kunzelman noted in Forbes, this week the statute of limitations will run on suits against insurers for Katrina-related claims. It will be interesting to see these remaining suits. Of course, anything is possible, and policyholder lawyers will claim that their clients are victims of egregious misconduct. But, the reality is that policyholder lawyers (like the rest of us) are guided by the law of low-hanging fruit: the strongest cases are the first cases "picked." I will be very surprised if this last group of cases is very strong.
If you are not yet convinced that insurers face extraordinarily unfair tactics, read last Friday's (6/15/07) federal court decision concerning whether attorney Richard Scruggs should be held in contempt, E.A Renfroe v. Cori Rigbsby Moran.
Plaintiffs lawyer Richard Scruggs obtained claims documents from independent adjusters and then, hired the adjusters to work as "consultants" on his Katrina team for $150,000 per year. The adjusters now appear in television ads for the Scruggs law firm.
The "retention" and "hiring" is simply a vehicle to buy an adversary's internal documents. Allowing purchases of adversaries' records undermines our legal system.
But, that's not the worst part. After Scruggs was ordered to return the documents, he instead gave the documents to Mississippi A.G. Jim Hood.
The judge was not amused. He ordered that an attorney for the government prosecute Scruggs for criminal contempt.
The June 13, 2007 NY Times reported that Attorney General Jim Hood sued State Farm and he is not ruling out reopening a criminal investigation against State Farm. Mississippi Attorney General Sues State Farm Over Katrina Claims.
Is it appropriate for Mr. Hood to threaten criminal proceedings? Many states expressly bar attorneys from threatening a criminal investigation to gain an advantage in a civil suit. The Mississippi Rules of Professional Conduct state, in the preamble, state that the law's procedures should not be used to harass or intimidate others.
I want to give full disclosure: some of my partners represent State Farm (though I do not handle any matters for State Farm).
That said, the threat of criminal proceedings here is just wrong.
It’s interesting—though not surprising—to read the 6/7/07 Wall Street Journal report that insurers are leaving the coastal states. HURRICANE WARNINGS As Insurers Flee Coast, States Face New Threat.
It is difficult to over-emphasize any one of the factors that led to this exodus. Most of the factors have been beyond control. Recent storms have been severe. Climate change theories suggest that past loss experience may understate future losses. But one factor was well within human control, Mississippi Attorney General Jim Hood’s insurance initiative.
Following Katrina, Mr. Hood pursued insurers very aggressively. He argued that flood exclusions should be ignored. Mr. Hood’s expansive interpretation of coverage was supposedly justified by public policy.
But since insurers are now leaving the coastal states, I wonder whether Mr. Hood’s public policy arguments really served the public?
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