Florida Again Dominates the Insurance Battle

There were two big announcements out of Florida this week, one involving Allstate and one involving State Farm. I'll tackle State Farm first since it is more complex and the most disingenuous.

Some background is in order for State Farm. When Florida created a state market for cheaper reinsurance it also mandated premium reductions for those who took advantage of the program. Two major insurers filed for rate increases after buying the state reinsurance, Allstate and State Farm. When Insurance Commissioner McCarty ordered rate hearings for the increases (rate hearings in Florida involve public sworn testimony including revealing the basis for the rate increases) State Farm backed down and instead reduced their homeowner premiums in accordance with the law. As is their custom in states where they do not get their way including here in Mississippi when we dared to litigate against them they announced they will no longer write new homeowner policies in Florida. I like Beatrice Garcia's reports on insurance news from Florida so today I've linked the Miami Herald story on this development.

In a move certain to deepen Florida's insurance crisis, State Farm Florida plans to stop writing new homeowners policies throughout the state starting Saturday.

The state's largest private insurer of homes also won't offer new renters or commercial policies in order to reduce its exposure to hurricane risk in Florida.

State Farm's current policyholders won't be affected by the move. The company will continue to renew the one million homeowners and renters policies it has in Florida.

The insurer also will continue to write new auto insurance in Florida, a far more lucrative line of insurance than property coverage. It insures more than two million vehicles.

State Farm will cease writing new homeowners policies just days before lawmakers return to Tallahassee to wrestle once again with proposals to make insurance coverage more affordable and available.

However unlike Mississippi which kowtows before these large insurance companies Florida's Office of Insurance Regulation has some arrows left in it's quiver. Contrast the Florida approach as outlined yesterday and my comment to yesterday's post of Mississippi's of letting insurers dump off coast consumers in the state wind pool:

Ed Domansky, an OIR spokesman, said that as a courtesy State Farm Florida told regulators of its plan to stop writing new homeowners policies. While OIR regulates insurance company activities in Florida, it has no authority to block State Farm's move.

Domansky said Insurance Commissioner Kevin McCarty was disappointed by State Farm's decision.

Both McCarty and OIR General Counsel Steve Parton will see if State Farm will be in compliance with a new law that requires companies to sell homeowners coverage in Florida if they sell other lines here and sell homeowners insurance elsewhere in the country.

Sen. Steve Geller, a Democrat from Cooper City, said he believes State Farm will stay within the bounds of the new law because the company will be renewing existing property insurance policies.

State Farm is trying to curtail its risk if a massive storm hits, particularly in densely populated areas such as South Florida and the Tampa-St. Petersburg area. But Geller wonders if State Farm's action could also be driven by another motive.

State Farm and Allstate are aggressive backers of a bill introduced in the Florida House of Representatives last week that would create a statewide windstorm program to write hurricane coverage throughout the state, not just along the coast.

Under that proposal, insurers could decide to write policies without hurricane coverage or still sell traditional multi-peril policies. These policies wouldn't be subject to surcharges to make up any deficits in the state-run Citizens Property Insurance, the state's largest insurer of homes and condos.

State Farm's new move ''could be a threat to get more favorable consideration'' of this bill, Geller said.

The bill faces resistance. Sen. Bill Posey, R-Rockledge and chairman of the Senate Banking and Insurance Committee, sees the bill as an "insurance industry relief bill. That's why it's a non-starter with me."

Isn't it strange that the insurance company PR departments and trade groups denounce the NFIP as a taxpayer subsidy (it is and was intended as one when it was enacted in 1969) yet expect the taxpayers to bail them out every time they hit a bump in the road? Senator Posey has it exactly right in my opinion and I hope the Florida legislature does not let these insurance companies offload their least desired risk exposures on the taxpayers while continuing to profit handsomely from other lines of business.

sop

Insurance News You Can Use

Welp folks this Cowboy don't know what to make of ole Chaney. One day he campaign promisin' to make the insurance commissioner appointed then after he wins he says he wasn't going to fight for that in the legislature since it was just his personal opinion. A couple weeks back he says rates is goin' up and now he says rates is goin' down. Maybe one of the others can make sense of this Sun Herald story for me.

Insurance Commissioner Mike Chaney told members of the Biloxi Businessmen's Club on Thursday he hopes to lower residential rates in the state wind pool by at least 10 percent.

Chaney said he would like to see a decrease of up to 40 percent in rates for the coverage offered by South Mississippi's wind insurance company of last resort, but doesn't know if that's possible. The wind pool is shopping for reinsurance, which would help cover its losses in case of a disaster. Chaney will be transferring $40 million to the pool between now and July to help pay for the coverage.

With reinsurance rates going down, the hope is wind pool rates also can be lowered.

Wind pool rates increased 90 percent for homeowners in October 2006 because of Hurricane Katrina. On the Coast, insurance companies also stopped offering new customers homeowner insurance that included wind coverage and in some cases cancelled policies at renewal time.

Chaney said the Coast is probably one of the "most profitable markets" for insurance companies that offer policies without wind coverage because the risk of ice storms and tornadoes, which their policies do cover, is relatively low.

A day earlier, Chaney had announced Aegis Security Insurance Co. would resume offering new policies in Mississippi, but it turns out the company will offer wind coverage only as far south as George, Stone and Pearl River counties.

In other news the leader of the Diamondhead Slingshot Group has finally settled out with them crooks at State Farm. It only took 30 months and bringin' in a lawyer to get them Gucci suit wearin' crooks to experience a come to Jesus moment and honor their obligations. Havin' to fight your insurance company tooth and nail is the new fangled way of doin' business. Besides them executives and their yearly bonuses the other folks I see benefitin' from the current system is the lawyers. Here is the Anita Lee story:

A Diamondhead homeowner who rallied policyholders to fight for payment of their Katrina claims has settled her lawsuit with State Farm Fire and Casualty Co.

Notice of the settlement was filed Friday in U.S. District Court in Gulfport. Terms were undisclosed.

Kenneth and Judy Dutruch sued State Farm in June 2007. They accused the company of breaching its contract to cover Katrina damage to the couple's vacation home and sought punitive damages for denial of their claim.

Judy Dutruch has told the Sun Herald in previous interviews State Farm refused to consider evidence of wind damage to the couple's South Diamondhead home off the Bay of St. Louis. State Farm sent experts to examine the property only after the Merlin Law Group filed the lawsuit on the Dutruchs' behalf.

Experts hired by the Dutruchs, including a forensic arborist, concluded their home suffered extensive wind damage - covered under their State Farm policy. State Farm concluded storm surge, excluded from coverage, destroyed the home.

As a result of widespread denials by State Farm and other major insurance companies, Judy Dutruch formed the Slingshot Gang in Diamondhead to unite waterfront homeowners. They pooled money to pay for expert reports, shared information and provided moral support to one another.

Many members of the group have settled their claims, but the Slingshots agreed not to disband until all claims were resolved.

As part of the settlement, both sides agreed not to disclose the terms. In fact, they could say little more than they were "pleased."

Judy Dutruch added, "We are certainly glad that it is all over and we can now start thinking about future plans of rebuilding."

A State Farm spokesman said, "We're pleased to have resolved our differences with Mrs. Dutruch."

Hello! Hello! Is this the party to whom I am speaking?

Saturday Night Live became Tuesday morning reality when State Farm attorney, the “honorable” Shelia L. Birnbaum, hit the wrong button and sent the media an email asking if Attorney General Jim Hood could be charged with Contempt of Court.

I bet you did Shelia – the panic button – when Hood’s office replied, “No, you can’t!

The case was dismissed because the allegations were false, according to Hood’s spokeswoman, Jan Schaefer.

Living in a travel trailer for two-and-a-half years can make folks crazy; but, it doesn’t make them dumb. No one’s ever called Shelia Birnbaum dumb either – most say she’s smart as a fox.

After yesterday, there’s no reason to doubt they’re right. Birnbaum looked at the clarification Hood’s office sent to the media and noted the General was about to take his coat off - his message to the media meant he was tugging at his tie.

Cowboy, you better saddle up – I do believe the State Farm’s fox is about to find out what Hood had waiting in the henhouse.

State Farm Cancels 50,000 Florida Policies

Here you go pardners, the private insurance industry doesn't want our coastal wind business and they don't want a federal solution 'cause it might cut into their profits from offshore reinsurance. So what do they do to keep the pressure on? They cancel you out like State Farm just did in Florida and New York. We got this from our friends in Florida at the Herald Tribune:

HURRICANE INSURANCE

State Farm dumps 50,000 statewide

Longtime State Farm customer John Spencer is not wanted any more.

He is getting dumped, one of 50,000 coastal Florida homeowners whose hurricane coverage will not be renewed by State Farm this year.

"It just irritates you that you get canceled, and it makes you nervous," said Spencer, whose policy on his Englewood home expires several weeks before the start of the 2008 hurricane season.

An estimated 7,500 customers in Sarasota, Manatee and Charlotte counties will be dropped by State Farm, Florida's largest private homeowners insurer.

Many will wind up with windstorm coverage at Citizens Property Insurance Corp., the state-run insurer that is one of the few options for insurance near the coast.

For some of them, there could be a silver lining.

State Farm is among the priciest insurers for coastal properties. Citizens, after rolling back one rate hike last year and freezing rates through 2008, could be a cheaper alternative.

Punta Gorda Isles homeowner Gerald Crowley expects to switch to Citizens when his State Farm policy expires in late March.

His premium will drop about $600 from the current $3,600. But he is still not happy about being dumped.

"It's the principle of the thing," he said. "I can afford what they wanted to charge."

Sarasota insurance agent Al Malins said some private companies are writing new policies along the coast and may accept customers from State Farm.

"People certainly have options," he said. "It pays to do some shopping around."

Norm Harte, also a Punta Gorda Isles homeowner, has been searching for new coverage since he got his cancellation notice last month.

"We've pursued Citizens and others, but the coverage they are offering is pretty awful," he said.

He may save a modest amount of money by going with Citizens, but it will come in part by reducing his insured value from $350,000 to $305,000 and eliminating such coverages as a pool cage.

Harte thinks the state should block insurers from "cherry picking," or getting rid of their riskiest customers.

"If State Farm or any insurance company doesn't want to do the whole game, pull their license and find somebody else to do it," he said.

Many property insurers have trimmed their Florida exposure since the 2004-2005 hurricane seasons, which caused $37 billion in insured damage.

Allstate, Nationwide, USAA and Tower Hill are among the major players that have pared down.

State Farm stopped writing new business in some coastal counties years ago, but this was the first time the company decided it needed to drop policies, said spokesman Chris Neal.

"We kind of managed it through attrition, but we came to the point where that just wasn't working for us anymore," he said.

The 50,000 nonrenewals represent about 5 percent of its 1 million homeowners policies in Florida.

State Farm began the policy cancellations last fall but was soon blocked by the Florida Office of Insurance Regulation. The original plan was to drop customers who lived within several miles of the coast or other bodies of water, while retaining any of those with other company policies, such as auto.

The insurance regulators objected to that practice. After reaching an agreement with OIR over who would be canceled -- along with promising a 9 percent rate cut -- State Farm began resending nonrenewal notices in January. That premium reduction followed an average 53 percent rate hike in 2006.

The company is now cutting all windstorm policyholders who live within one mile of the coast, regardless of any other coverage they have.

Those customers are getting at least 120 days of advance notice so they can find new coverage. Timing can be an issue -- some insurers, including Citizens, will not quote a new policy more than 30 days before it takes effect.

Pressure from the state to lower insurance rates is driving companies to reduce exposure, Neal said, as they balance their ability to pay claims when a hurricane hits.

"You've got two choices: raise rates or lessen your exposure," he said. "Our choice here was to lessen exposure. Being closer to the water presents the highest risk. By nonrenewing 50,000 homes closer to the water, it takes a significant amount of exposure away from the company."

Spencer, a State Farm customer in Florida and elsewhere for 30 years, hopes to find wind coverage from someone other than Citizens.

"They are just dumping us into the Citizens pool," he said. "It is not as good a coverage. If they are just dumping liability back to the government, why not just have government insurance?"

Malins said his agency tries to avoid putting customers into Citizens because they may later become "take-out" policies by other carriers.

Citizens was criticized for poor customer service after the 2004 hurricanes, but regulators and others say it has improved.

"You have to give them credit for trying to act more like an insurance company," Malins said.

Some homeowners with other State Farm lines, such as auto, are thinking about taking that business elsewhere.

Citizens does not offer auto insurance, and those homeowners could miss out on multi-line discounts they now enjoy.

State Farm, Florida's largest auto carrier, expects some of those customers will leave.

"It would be naive of us to think we won't lose some of our auto business because of the nonrenewals," Neal said.

Insurance Complexities: The Myth of State Farm's Financial Insolvency and Conflicts of Interests.

I occasionally run across “fans” of Nassim Taleb, a philosopher/visionary who is changing the way people view world events. His black swan concept, which is the name sake for his latest book, is understood and often repeated as the totality of his theory when in reality it is just a small part of his body of work. Russell and I share an interest in Taleb’s work, an interest that derives from actually reading his two books rather than simply embracing the pop culture lite version repeated in the popular media. This subject of insurance is akin to understanding Taleb and his theories; one can get a slight flavor for the concepts of subjects like wind claims dumping from the media but the nuance and complexities of the subject escape the vast majority of the popular reporting just as Taleb’s theories are revealed completely only by reading his books. Taleb’s Black Swan is an important concept but his central thesis is far more involved. Taleb’s website, named for his first book gives a better clue the larger theory he espouses.

Such is the case with the recently issued GAO report and the concepts surrounding the inherent conflicts of interest possessed by the Write-Your-Own insurer and the possible impacts of that conflict manifested in concepts like wind claims dumping following a multi peril flood event such as a Hurricane. David Rossmiller penned a particularly insightful piece on the GAO report tackling the conflicts of interest conclusions of the GAO head on.

“One, this "inherent conflict of interest" certainly exists, just as it exists whenever you file a first-party property claim. This is not very startling, because it has been said -- wait while my computer comes up with the final tally -- 3,456 kajillion times before in insurance literature. For many of you the following explanation will be something you know already, but many don't know it, so I am going to set it down in writing here. As you may or may not know, when someone makes a liability claim against you, say you ran into them with your car, your insurer owes you a fiduciary duty, assuming a duty to defend arises out of the allegations and the language of the insurance policy. A fiduciary duty is the highest duty imposed by law, and requires one to treat another's interests like one's own, resolving all conflicts of interest in favor or the insured. These type of liability claims are called third-party claims. In contrast, claims you file with your own insurer for damage to your house or other property are called first-party claims. An adversary relationship is assumed to exist between the insurer and insured from the time the claim is filed, and generally speaking, no fiduciary duty arises on the part of the insurer.”

Mr. Rossmiller gave his readers a great lesson in the law but also his post implied a great lesson in dealing with an insurer. When a consumer files a first party insurance claim and the adjuster is sent, the insurance company knows a great bit of information in advance of the first visit, including a good idea how the insurance company plans on adjusting the claim. The unsuspecting consumer, who was promised good hands treatment by a good neighbor, has no clue their friendly claims adjuster is actually an adversary, a wolf in sheep’s clothing.

As I pointed out in a post on the concepts of economic transparency and insurance in December this condition is known as Information Asymmetry, “A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge.”

There are public policy implications in these conflicts of interests, both those noted by the GAO and those that are an accepted part of insurance law as explained by Mr Rossmiller. These public policy battles are being played out real time in places like Olympia Washington and Washington DC by people, including politicians who have the ability to see past the law to a greater collective good.

Is State Farm Overextended?

I have read remarks like this one several times in the blogosphere and am again reminded of Taleb and his theories:

(My independent insurance agent) “talked me out of using State Farm (who had the lowest quote), because he said that the opinion of a lot of insurance brokers was that State Farm had overextended itself, and might not be able to pay all of their claims in a widespread disaster. He directed me to a company that was about 20 per cent Higher than State Farm.”

The luck involved with that scenario is stunning. Though I don’t think it is possible to buy State Farm insurance from an independent insurance agent lets assume this statement is true. What were the motivations of that independent agent? To maximize their own commission a la commissioned retail stock brokers? Assuming this poster had combination wind-water damage and their WYO insurer paid them under both wind and flood there is also a large element of luck that the damage was distinguishable as appears the case with McIntosh.

As a group we do not recognize the influence of pure chance at work in our daily lives as we are far more suited to pat ourselves on the back and stroke our egos than see true reality. A central part of Taleb’s observations that deal with how we humans make sense of events was best summed up by Taleb himself when he wrote:

“It is high time to recognize that we humans are far better at doing than understanding, and better at tinkering than inventing. But we don't know it. We truly live under the illusion of order believing that planning and forecasting are possible…..

(we) are too bathed in enlightenment-style (notion of) cause-and-effect and cannot accept that skills and payoffs may have nothing to do with one another.”

So while we try to make sense of how State Farm adjusted their multi peril claims here after Katrina in terms of misguided notions like “they had to commit fraud or they would have gone bankrupt”, it would help to arm ourselves with some facts including basic financial facts such as after paying almost $4 billion dollars in claims, State Farm’s Property and Casualty Subsidiary still had over $3.5 billion dollars of “unassigned surplus” while posting over $2 billion dollars of profits in the two years ended December 31, 2006. That’s right, State Farm actually made money despite paying those Katrina related claims.

For those interested in State Farm’s financial condition the last audit of their P&C subsidiary can be found here.

Next up: Differing views on the problems with NFIP and some suggested solutions.

sop

Breaking News: Hood Fires Back

Jim Hood has made the news today with his Friday court filings in response to State Farm trying to prevent a new grand jury from looking into alleged wrong doings on their part in how Katria claims were adjusted here on the coast. I write this post with a heavy heart as we have just learned of Jody Compretta's untimely passing in a parade accident last night in New Orleans. Our thoughts and prayers are with JP and his family.

The AP story:

A lawsuit filed by State Farm Fire and Casualty Co. that accuses Attorney General Jim Hood of using the threat of criminal charges to force settlements in civil lawsuits is based on "lies, speculation, and innuendo," Hood said in court papers.

State Farm sued Hood in September, claiming he violated his part of a January 2007 settlement in which the attorney general's office agreed to end its criminal investigation over the company's handling of Hurricane Katrina claims. A judge ordered Hood to temporarily shut down the probe.

The accusations in court documents have intensified over the past week as both sides prepare for a hearing on Wednesday.

"Before allowing State Farm to use this court as a three ring circus to parade its inflammatory evidentiary rhetoric of innuendo, guilt by association, and smears, there should be some factual basis alleged to support a conclusion of retaliation and/or harassment," Hood said in papers filed Friday in U.S. District Court in Jackson.

Jonathan Freed, a State Farm spokesman told The Associated Press on Friday, that the insurer is ready to "proceed with our case and we're looking forward to airing these issues in court."

Hood asked the court to dissolve the restraining order and allow him to resume his investigation. Hood's 19-page filing came just days after State Farm used some of the strongest language yet in accusing the second-term attorney general of wrongdoing.

The company claimed Hood and wealthy plaintiffs attorney Richard "Dickie" Scruggs, who is facing corruption and contempt charges in other cases, participated in an "extortion conspiracy" by trying to force the company to settle civil litigation with private attorneys.

The court battle heated up when State Farm began urging a judge to allow the company to question Scruggs under oath. Hood has called Scruggs his "confidential informant" and has said Scruggs provided allegedly incriminating information about State Farm."

General Hood is clearly concerned that his co-conspirator will either tell the truth or invoke the Fifth Amendment on specific questions related to their extortion conspiracy," State Farm said in a motion filed Wednesday.

U.S. District Judge Michael P. Mills on Friday ordered Scruggs to submit to the questioning by 5 p.m. Monday. Scruggs will likely invoke his Fifth Amendment protection against self-incrimination when questioned because of the pending charges against him.

Scruggs, one of the most influential plaintiffs lawyers in the country, is facing federal charges that he conspired with several associates to bribe a judge in an unrelated dispute over $26.5 million in fees from a mass settlement of Katrina claims. He's facing contempt charges in Alabama for allegedly violating a federal judge's order by giving leaked Katrina assessment documents to Hood rather than returning them to the company from which they were taken.

Scruggs has denied wrongdoing in either case. Scruggs is not a party to the lawsuit State Farm filed against Hood, but the company claims he worked in collusion with Hood.

The January 2007 agreement that State Farm claims Hood violated by resuming a criminal investigation was part of a broader settlement that called for State Farm to reopen and possibly pay thousands of policyholder claims. However, a federal judge refused to sign off the terms of deal and State Farm later entered into another agreement with George Dale, who was then Mississippi's Insurance Commissioner.

In August 2007, State Farm received a new subpoena for records from a grand jury. Less than a month later, the company sued Hood in an effort to stop the grand jury's investigation.Hood claims he wasn't reopening the same investigation, rather he was probing new claims.Hood has argued that he never provided "blanket immunity" from future investigations.

A Different State Farm Battle

State Farm has another battle on its hands and this one has morphed into a constitutional battle. This battle is with a whole group of State Attorney Generals and State Banking Officials of the twelve states that regulate mortgage brokers.

The case started with State Farm trying to finagle its way around some requirements in the State of Ohio, that were put in place to reign in some of the worst excesses of the current lending mess.

You see, State Farm has a bank. A thrift to be exact. And it likes to offer loans, and other banking products to its insurance customers. But the people that they do this through are not employees of State Farm. They are the various independent agents (as State Farm likes to call them) that run State Farm offices.

Ohio's Bank Supervisor said “If they are independent, then they are brokers. And if they are brokers, they must license as mortgage brokers and follow our laws.” We would like to know who the are and that they have a clue what they are doing. State Farm did what any business that wants to avoid regulation in this day and age does: they went to their friendly do-nothing federal regulator and got a letter from the Chief Counsel of the Office of Thrift Supervision (OTS) saying that State Farm independent agents were exempt from state regulation.

Now it should be understood that FEDERAL courts do not normally pull back the reigns on FEDERAL agencies. But the Federal District Judge Edmund A. Sargus had a very hard time understanding the methodology of State Farm and the OTS. In his opinion and order he noted that a letter from the chief agency's attorney hardly complies with the Administrative Procedures Act as set out by congress. He goes on to note that at no time prior had the OTS had any interest in the area of regulating mortgage brokers and that for the State of Ohio to hear about it for the first time when State Farm hands it a letter from the OTS is a little bit unusual.

So the Judge ruled against State Farm in their request for a declaratory judgment. State Farm has taken the case to the 6th Circuit Court of Appeals. We are currently at the point where various parties are submitting their amicus briefs. The OTC has already filed one for State Farm, and it is expected that various State Attorney General Offices, and some group from the Conference of State Banking Supervisors will submit one for the State of Ohio.

While we wait for the dust to settle, I am curious as to one point: I understand why The Federal Reserve Bank (The Fed), the Office of the Comptroller of the Currency (OCC), and OTC have done nothing to reign in the current mortgage mess. But why do only twelve States regulate mortgage brokers?

In case the link above doesn't work here is the url: http://www.goodwinprocter.com/Files/CFSA/07/rm_07_10_9_Ohio.pdf

Breaking News: Hood Opens New Criminal Investigation of State Farm

Well wouldn't you know it if good ole Jim Hood ain't steppin' in to do Dunn Lampton's job and bring them crooks at State Farm to justice for dumpin' their wind obligations on the us taxpayers via the flood program. This Cowboy did a post on the topic and Sop did one with pictures to show how them crooks did it and stole from Uncle Sam hisself.

Jim Hood has been listenin' folks and has heard our cries for justice. If George Bush and his political band of big business boot lickers at the US Justice Department in DC won't brings these crooks to justice thank God we got Jim Hood!


Hood, Moore moving into action against State Farm

By ANITA LEEcalee@sunherald.com

Mississippi's current and former attorneys general are back on the offensive against State Farm insurance companies.

Attorney General Jim Hood is asking a federal judge to dissolve a court order that prevents him from continuing a criminal investigation involving State Farm. Hood says the investigation is not related to a 2006 criminal probe by his office into State Farm's handling of policyholders' Hurricane Katrina claims.

The suspended investigation is secret, but court records indicate State Farm sued to stop it after Hood tried to subpoena company records.

Meanwhile, former Attorney General Mike Moore said in a sworn statement that he and Hood did not use the threat of criminal prosecution in late 2006 to coerce State Farm into settlement of policyholders' Hurricane Katrina claims, as State Farm alleges.

Instead, Moore's statement said, State Farm insisted Hood agree to drop his prosecution of the company before it would sign on to a proposed global settlement of policyholders' claims reached in early January 2007.

Hood did agree to end his 2006 investigation of State Farm, but he says that promise hinged federal court approval for a global settlement of policyholder claims.

The proposed settlement failed to win court approval. State Farm contends it has honored its agreement by re-evaluating claims through the Mississippi Department of Insurance. However, Hood says the company failed to live up to standards set out in the original settlement proposal.

The legal dispute has been clouded by the indictment of policyholders' attorneys from the Scruggs Law Firm, which withdrew from the legal partnership then renamed the Katrina Litigation Group. While the indictment was not directly related to policyholders' lawsuits against State Farm, the company has accused Scruggs of ethical and legal violations in the lawsuits and questioned his relationship to Hood and his criminal proceedings.

Scruggs reached a settlement of 640 policyholder claims with State Farm in November 2006, according to a State Farm letter. The global settlement of other Coast claims, reached in January 2007, was rejected by U.S. District Court Judge L.T. Senter Jr.