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After helping bring down asbestos manufacturers and forcing Big Tobacco to pay billions, it was no surprise that Oxford, Miss., plaintiffs lawyer Richard Scruggs took on property insurers on behalf of homeowners who came away empty-handed after Hurricane Katrina. In part it was business, in part personal: Scruggs lost a summer home in Pascagoula to the 30-foot-high wall of water that swept through the coastal town. For insurers, the stakes are enormous. Of the Mississippi homes destroyed in the storm, eight in 10 lacked federal flood insurance. If private companies are forced to make good on the damage, estimates of anticipated claims run into the tens of billions of dollars. But a year after the first wave of suits were filed, Scruggs and other plaintiffs lawyers have been rebuffed in head-on challenges of the standard flood exclusion clause, which insurers have routinely applied to deny coverage post-Katrina. In Mississippi, the issue is whether the term “flood” applies to the storm surge that wiped out 65,000 homes south of I-10. In Louisiana, it is whether the flooding that destroyed 200,000 homes in New Orleans — a levee break caused by human error — is covered, and who is liable. In both states, plaintiffs lawyers have failed thus far to convince judges to certify any class actions in the handful of insurance suits in pretrial stages. Only one individual suit has come to a verdict in federal court in Mississippi, and none in Louisiana, where litigation has moved at a snail’s pace. The main action now is in Mississippi, in the chambers of U.S. District Judge L.T. Senter Jr., in Gulfport. When viewed alongside his earlier similar rulings on summary judgment motions in two other cases, his first verdict, issued August 15, has boosted the confidence of the Gulf’s three major insurers, State Farm Mutual Automobile Insurance Co., Allstate Corp., and Nationwide Mutual Insurance Co. In each of these suits, Senter has chosen to hew close to the narrow set of facts surrounding each claim. All involve the so-called wind-versus-water claims, where insurance companies have denied claims even where policyholders assert that some of the damage to their homes was caused by wind that in some places reached 145 miles per hour for sustained periods. “From the insurance industry’s perspective, [Senter] is just playing this right down the middle of the fairway,” says Ann Spragens, general counsel of the Property Casualty Insurers Association of America. “He maintained the flood exclusion, but he’s looking at the individual facts of each case.” Richard “Flip” Phillips of Smith Phillips Mitchell & Scott in Batesville, Miss., who filed a class action in federal court in Mississippi against State Farm, says that the judge has been put in a difficult position by insurance companies that have denied water damage claims across the board. “Judge Senter is trying to find an equitable way to apply the law without it being impossible as a practical matter in thousands of individual claims,” he says. SURGE OF CASES Scruggs has filed three mass actions and individual suits collectively involving nearly 2,000 policyholders. In his first two individual cases to reach substantive pretrial rulings, Senter ruled that although the term “storm surge” was not specifically listed as excluded in the policies, insurers could validly exclude it as flood damage. But he ruled that wind-related damage was covered, even if the home was subsequently damaged by water, giving some encouragement to plaintiffs. In the first individual suit to go to bench trial, Leonard v. Nationwide Mutual Insurance Co., another Scruggs case, Senter again backed the insurer’s right to deny coverage of damage caused by floodwater. Nationwide was exempted from paying for flood coverage, even if the policy’s many references to hurricanes led customers to believe that any damage, whether from wind or water, would be covered. With the Leonard verdict, the greatest threat to insurers — that policies where the long-accepted exclusion of flood damage would be reinterpreted by judges — has been substantially reduced, lawyers on both sides agree. “I think the answer to the question of whether courts are going to rewrite policies is �no’ at this point,” says Robert Redfearn Jr., an insurance defense partner at New Orleans’ Simon, Peragine, Smith & Redfearn. But there was some good news for the homeowners buried in the ruling. The judge invalidated a clause, common to many policies since Hurricane Camille in 1969, that insurers have used to deny coverage of damage caused by a combination of covered and uncovered forces — in this case, wind damage combined with water damage. Wind damage, Senter ruled, should be covered, even if it occurred at the same time or in sequence with the water damage. “That’s really the focal point of the litigation,” Scruggs says. “That’s the clause that insurance companies have been hiding behind.” Insurers will now have to fight it out in jury trials, rather than having claims summarily dismissed. The biggest obstacle facing policyholders now is time. The judge’s denial of class certification has dashed their hopes for speedy redress. In August, Senter denied a motion for class certification in a proposed thousand-plus-member class, Guice v. State Farm Fire & Casualty Co., in which policyholders claimed that State Farm’s actions after Katrina violated the policy contract. The plaintiffs allege that State Farm changed its policies after the hurricane, instructing its agents to deny coverage in thousands of so-called slab claims, where nothing remained but the concrete foundation. In late August, Senter announced that he would try the case individually, setting a Dec. 11 trial date. DOWN IN LOUISIANA In Louisiana, meanwhile, policyholders have largely chosen state venues over federal courts, but with the state parish court system still struggling to recover from widespread hurricane damage, cases are moving even more slowly than in Mississippi. On the federal side, some plaintiffs reportedly have dropped out of the several pending class actions, which are bogged down in jurisdictional issues. Plaintiffs’ lawyers in Chauvin v. State Farm, one of the Louisiana federal cases in the pretrial stage, have been unable to get anywhere in their argument that a state measure, the “Valued Policy Law,” permits policyholders to recover the full policy value if at least some of the damage was caused by a covered peril, such as wind. “So far, they’re out the door,” says Judy Barrasso, of New Orleans’ Barrasso Usdin Kupperman Freeman & Sarver, who represents Allstate along with Metropolitan Property & Casualty Insurance Co. and Liberty Mutual Holding Co. in related suits. About 37 individual suits and seven class actions have been consolidated in the docket of U.S. District Judge Sarah Vance in New Orleans, who wrote in an August 2 initial ruling that a total payout was not required unless all the damage was caused by the covered peril. Also in New Orleans, U.S. District Judge Stanwood Duval is handling a large class action related to the levee breach and two individual insurance coverage suits. In the class action, homeowners are trying to get the flood exclusions thrown out because the damage resulted from a breach in the levees, not an act of God. The big question now is what will happen when the first claims go to jury trial. Senter and federal judges in Louisiana may be unwilling to tamper with long-established contractual law precedent, but in the wave of individual suits just around the corner, juries may see things differently, particularly where evidence has been washed away. None of the slab claims have yet been tried. In cases like those, juries will be faced with dueling engineering experts, and the quality of courtroom lawyering could be determinant. Scruggs may have the advantage there. Some of those suits also involve prominent and powerfully connected Mississippians, including two judges, Sen. Trent Lott (Scruggs’s brother-in-law), and Rep. Gene Taylor. “Factually, if there’s any way to find in favor of the homeowner, jurors most likely will do so,” says Redfearn. “There’s still a lot of [insurance industry] exposure there.” In the meantime, policyholders are struggling just to get to the starting gate. In August, Senter asked about 180 attorneys involved in the insurance claims litigation to propose methods for managing the caseload in order to adjudicate them all within 12 months, Scruggs says. But pending a decision on whether or how to join the cases, Senter has set trial dates for each week beginning January 29 for the first six individual trials, all slab claims, two against each of the three major insurers. Phillips says the judge is investigating how to condense that caseload, perhaps by first resolving the issue of State Farm’s liability because of an alleged move to change its policies regarding claims of policyholders with no home left standing after the hurricane. If Senter continues to handle cases one by one, many homeowners and their lawyers may turn to state mediation efforts, which Scruggs and Phillips call a joke. Both say that the cost of individual trials may prove prohibitively expensive for homeowners, driving some to seek quick settlement. Scruggs has said he is committed to spending some of his personal fortune to press forward with individual suits. “But at this rate,” Phillips says, “it would take Dick Scruggs 60 years to litigate all of his cases.”
Julie Triedman is a reporter for The American Lawyer , the ALM publication in which this article first appeared.

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