Gulf Watch: E-mails boost Katrina victims' case against State Farm

The company's ads boast, "Like a good neighbor, State Farm is there."®

But apparently the nation's largest insurer didn't want engineers who were actually neighbors of Hurricane Katrina victims to inspect storm-damaged properties, arguing that they were "too emotionally involved."

So we learn from e-mails sent by executives at a North Carolina engineering firm hired by State Farm to assess Katrina damage claims. Obtained by The Associated Press, the e-mails indicate that the insurer threatened to fire Raleigh-based Forensic Analysis & Engineering Corp. for reports that found wind rather than water damage, which the insurer does not cover. Reports the AP:

The e-mails between Forensic president and CEO Robert Kochan and Randy Down, the firm's vice president of engineering services, outline complaints about the firm's work from Alexis "Lecky" King, a State Farm manager in Mississippi.

In an e-mail dated Oct. 17, 2005, Kochan says the firm will continue working with State Farm, but discusses needing to "redo the wording" of a report after a discussion with King "such that the conclusions are better supported."

It also says King didn't want local engineers to inspect properties because they were "too emotionally involved" and were "working very hard to find justifications to call it wind damage when the facts only show water induced damage." She was also apparently upset that a report was based upon eyewitness accounts, the e-mail said.

In a reply dated Oct. 18, 2005, Down questioned the insurer's motivations and questioned if there was an ethical problem with State Farm telling the firm what to put in reports. He also suggested that on another occasion, State Farm asked the firm to remove information from a report because "they would then have to settle."

"I really question the ethics of someone who wants to fire us simply because our conclusions don't match hers," Down wrote in an e-mail dated Oct. 18, 2005.

"But what about the obvious fact that SF would love to see every report come through as water damage so that they can make the minimum settlement," he wrote.

Forensic eventually pulled out of Mississippi because the company was not getting enough work. A State Farm spokesman denied that the company did anything unethical.

In January, the insurer reached a settlement with the Scruggs Katrina Group of attorneys that required it to pay out millions to policyholders who had filed suits and were represented by the firm. The following month, State Farm announced that it would stop writing new homeowner and commercial policies in Mississippi, citing the "untenable" legal and political climate.

State Farm recently reported earning $5.3 billion in profits during 2006. That's up 65 percent from $3.2 billion in 2005, when storm-related pay-outs spiked.

The State Farm e-mail revelations came as the Senate Commerce Committee this morning held a hearing on oversight of the property and casualty insurance industry. Among the people who testified was Mississippi Attorney General Jim Hood, whose prepared statement charged the insurance industry with "running wild":

Much of this debate has centered on the sanctity of contracts. For example, State Farm has complained that their policies are "now being reinterpreted by the courts and certain elected officials." That would indeed be a problem, if it had actually occurred. What really happened is much different.

The Mississippi Attorney General's Office ... has learned that State Farm acted after Hurricane Katrina to create and implement three different tactics for denying coverage. These tactics are not set forth in the policies themselves. Homeowners could not agree to those conditions, because they were never made aware that requirements outside of their policies would be used to deny their coverage. On information and belief, these policies were not presented, for review, to our state's Insurance Commissioner. State Farm's policies on the Mississippi Gulf Coast are not being "reinterpreted" by the courts and elected officials -- they are being ignored altogether by the "good neighbors" who issued them.

Hood concluded by urging Congress to take action to keep homeowners from losing faith in the insurance industry altogether:

Consumers who faithfully pay their premiums should not have to wonder why, after nineteen months of inspections, mediations, phone calls and letters, they are no better off than those who did not buy insurance at all. If the industry wants to serve coastal areas, they must be held accountable, just as any other business would be.

Labels: Gulf Coast Reconstruction Watch