Federal Appeals Court in New Orleans Hears Katrina Case

 

By Michael Kunzelman
September 7, 2007

insurance company invoked to deny Gulf Coast homeowners' claims after Hurricane Katrina is at the center of a case that was scheduled for a hearing Sept. 6 in a federal appeals court in New Orleans.

State Farm Fire & Casualty Co. says its policies cover damage from hurricane-force winds, but not from rising water, and has refused to pay for any damage from Katrina's monster storm surge.

The Bloomington, Ill.-based insurer also says damage from a combination of wind and rising water is excluded from coverage. Last year, however, a federal judge in Gulfport, Miss., ruled that this "anti-concurrent cause'' policy language is ambiguous and therefore can't be enforced.

In the same ruling, Judge L.T. Senter Jr. refused to throw out a lawsuit filed by John and Claire Tuepker, State Farm policyholders whose home in Long Beach, Miss., was reduced to a concrete slab by the Aug. 29, 2005, storm.

State Farm appealed Senter's ruling to the 5th U.S. Circuit Court of Appeals in New Orleans. A three-judge panel was scheduled to hear arguments Sept. 6 from attorneys on both sides of the case.

In court papers, the Tuepkers' attorneys suggest that State Farm's policies are "craftily ambiguous'' and are "woven so as to not give away their true intent.''

"Indeed, since Katrina, it has become painfully obvious that, in anticipating the risk posed by a powerful hurricane, State Farm intended all along to exclude damage ostensibly caused by a combination of water and water, the one-two punch without which a meteorological event is something other than a 'hurricane,''' the couple's attorneys wrote.

In a different case, however, the Mississippi Court of Appeals found that State Farm's anti-concurrent cause language is "clear'' and unambiguous, the company's attorneys say.

"Courts in many other jurisdictions have likewise upheld the validity of this same language,'' State Farm attorneys wrote in court papers.

The Tuepkers are among thousands of homeowners in Mississippi and Louisiana who have sued their insurers after the Aug. 29, 2005, storm. The couple is represented by attorney Richard "Dickie'' Scruggs, who helped negotiate a multibillion dollar settlement with tobacco companies in the mid-1990s.

Last month, Scruggs appeared before a different three-judge panel of the 5th Circuit to challenge similar language in policies written by Nationwide Mutual Insurance Co. But the judges sided with Nationwide, ruling Aug. 30 that the Columbus, Ohio-based insurer's policy language isn't ambiguous.

David Rossmiller, a Portland, Ore.-based lawyer who closely follows Katrina insurance litigation, said policyholders shouldn't expect a different result in the State Farm case even though its policy language is different from Nationwide's.

"The handwriting is on the wall,'' he said. "It would be shocking to me if the result was substantially different.''

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed

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Judge Throws Out All Federal Antitrust Charges Against Insurers, Brokers

 

September 6, 2007

Finding the charges lack any factual support, a federal judge has dismissed a big antitrust conspiracy case that was lodged against large commercial insurance brokers and insurers back in 2004 when bid rigging and account steering probes were in full sway.

In dismissing the antitrust complaint for the second time, Chief Judge Garrett E. Brown Jr. of the U.S. District Court for New Jersey said the plaintiffs had no proof that there was any sort of conspiracy among insurers and brokers to secretly allocate accounts, refrain from competing, or pay incentive bonuses on certain commercial accounts.

The plaintiffs alleged that the defendants had engaged in both a global conspiracy and so-called "hub and spoke" conspiracies in which brokers acted as hubs to coordinate illegal distribution of commercial insurance accounts among insurers (the spokes).

Defendants in the suit that have now been cleared of federal antitrust charges are some of the largest insurance companies and brokerages including American International Group, The Hartford, Fireman's, Liberty Mutual, American Re, Travelers, Chubb, Marsh, Willis, Aon and Hilb Rogal & Hobb.

The case was a consolidation of suits from around the country brought under federal antitrust statutes. It developed in the wake of investigations by state attorneys general including New York's Eliot Spitzer over alleged bid rigging, account steering and improper contingent commission payments.

These consolidated lawsuits took those charges to another level—claiming that they were part of a conspiracy among certain large insurers and insurance brokers and accusing the players of antitrust violations and racketeering.

This week, Brown put the antitrust conspiracy charges to rest in granting the defendants' motions to dismiss. He had also agreed with defendants in April but gave plaintiffs one last chance to amend their complaint.

But Brown found the amended complaint was even less convincing than the earlier one. In completely dismissing the conspiracy allegations, Brown wrote:

"While this Court previously held that the conspiracy allegations were faulty because they failed to show some sort of recognizable allocation of the market (a way for the insurers to understand what they were actually agreeing to divide), it appears that the allegations as presently drafted suffer from a more serious defect. This hub and spoke conspiracy is devoid of a factual basis for this Court to infer that an agreement existed among the competitors - in this case, the Insurer Defendants. Plaintiffs want this Court to view the specific facts regarding the 'incumbency protection racket' through their lens - which colors each demand from a broker to an insurer as being part of an agreement to restrain competition that already exists. However, when stepping back and viewing these facts in the aggregate, there is nothing in this record to suggest that there was any sort of express agreement among the insurers. While it is not necessary for the agreement to be explicit, the facts are simply too tenuous to intimate an implied agreement - a rim to this hub and spoke conspiracy. The brokers demanded certain behavior of the insurers, but that does not constitute a horizontal agreement among insurers to collude."

Brown found no evidence to support the charges of a global conspiracy among brokers to keep secret their contingent commissions and not tell clients about them. Plaintiffs had argued that the defendants' membership in the same trade group, the Council of Insurance Agents and Brokers, was proof. But for Brown, "membership in various trade groups and the sharing of information are insufficient to support an inference of actual concert of action."

He wrote that since plaintiffs failed to prove that the insurer defendants colluded among themselves in the broker-centered conspiracies, "it is improbable that they colluded to further this global agreement as well."

While this dismissal affects the antitrust complaint brought against the defendants, charges of violating federal racketeering laws are being judged separately and remain before the court.

Some insurers and brokers have settled similar antitrust complaints with officials in New York, Connecticut and other states, although they have not admitted doing anything illegal. Among those that have settled are insurance broker Arthur J. Gallagher & Co. and Zurich American Insurance Co.

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