State Farm to pay claims of some Katrina victims

In a move that is expected to jump-start rebuilding along the Mississippi Gulf Coast, State Farm Insurance said Tuesday that it had reached an agreement with state officials to pay hundreds of millions of dollars to owners of homes along the coast that were wrecked by Hurricane Katrina.

The agreement settles lawsuits filed by 640 homeowners and allows thousands of others to reopen damage claims that State Farm previously closed. Insurance executives said they expected the outlines of the deal to be adopted by other carriers.

The agreement does not apply to New Orleans, where the failure of the levees left much of the city underwater for days. Lawyers and insurers say no similar settlement talks are in progress there.

For State Farm, the nation's largest home insurer and the biggest in Mississippi, the settlement would also remove a major public relations headache. State Farm and other insurers have been perceived as insensitive and uncaring.

Under the settlement, 300 homeowners who lost everything will receive their full insurance coverage. Mississippi officials said 1,000 others would receive at least half, with the opportunity to negotiate for more.

The core of the dispute was whether the damage to the houses had been caused by high winds or surging floodwaters as Katrina swept across the coast on Aug. 29, 2005. The insurers said their policies only covered wind damage. But in many cases, they also refused to pay for damage caused by a combination of wind and water.

In the settlement talks, which began last fall, State Farm insisted that Mississippi Attorney General Jim Hood drop a criminal investigation of the company's handling of storm damage claims. It also demanded that he abandon a civil suit against it and other insurers. The final sticking point in the agreement had been over the framing of a few sentences that would end the criminal investigation.

The two sides reached agreement in a meeting in Jackson on Tuesday afternoon. Then lawyers flew to Gulfport to seek the endorsement of U.S. District Court Judge L.T. Senter Jr., who is overseeing most of the insurance disputes.

Under the agreement, State Farm will pay an initial $130 million and perhaps several hundred million more by the end of the year, depending on how many policyholders requested that their claims be reopened. About 35,000 home owners along Mississippi's 70-mile-long coast are eligible.