January 24, 2007

State Farm is (finally) There

We read in the New York Times that State Farm has suddenly agreed to accept liability for many of the claims it had previously denied in Katrina-ravaged Mississippi. The giant insurer has set aside a minimum of $80 million to settle 640 lawsuits. They have also agreed to re-open 35,000 denied claims. In most cases, home owners will collect half of the policy value. In a few cases, they will cash out at full value.

This is a dramatic turnaround from the insurer's prior position: they based their initial denials on the premise that most, if not all, the damage from Katrina was caused by storm surge (flooding is not covered by conventional homeowner's insurance) and not by wind (wind damage would be compensable). In the final analysis, I doubt that they are backing away from the scientific premise of their denials. They still probably believe that they are on solid legal ground for denying the claims. No, in the end, State Farm has agreed to pay claims it really feels are not compensable for one simple reason. They are still in the insurance business. They still want to sell policies. And the negative fallout from their routine denial of Katrina claims threatened their core reputation, the brand name they have so carefully cultivated over the years.

The Times article quotes Randy Maniloff, a lawyer at White & Williams in Philadelphia who represents insurance companies. He said yesterday that it was clear that the bad publicity had been a big factor in State Farm’s decision to settle. “They spent 80 years building up a brand,” he said, “and the adverse publicity from these lawsuits has been clearly doing damage to the brand. It just flies in the face of their portrayal of themselves as good neighbors.”

When we first blogged this issue, we raised the irony of State Farm's "good neighbor" tag line. Real neighbors help out regardless of the circumstances. In contrast, corporate "good neighbors" might well use the small print of an insurance policy to serve stock holders and maximize profits. If that means boarding up entire communities, so be it. There is at least some legitimacy to State Farm's original position. The case can be made that this capitulation is wrong and sets a dangerous precedent for the industry. Other carriers now have to scramble to recalculate their earnings statements. In addition, all purveyers of home owners insurance are revising policies to clearly and explicitly exclude storm surges from future coverage. But they are all going to help pay for Katrina.

Business and The Public Good
The scale of this disaster was so great, it transcends the insurance industry itself. While insurers are extremely reluctant to compromise the sacred language of the policy, they are involved here in something much greater than corporate bottom lines. Entire communities have been wiped out. The scale of displacement caused by Katrina is unprecedented in American history. State Farm's settlement is a small part of a great public good. As a result of this agreement, desperately needed cash will begin flowing at long last into the devastated communities. The rebuilding will finally gather some momentum. At the same time, State Farm can credibly tout itself again as a "good neighbor." Not the most willing, perhaps, and not entirely convinced they want to be doing it. Nonetheless, for the people of Mississippi, State Farm, like a good neighbor, is finally there.

| 1 Comment

1 Comment

After everything that State Farm has put the victims of Katrina through, they now want to pull their business out of Mississippi...I say all Americans with State Farm policies should cancel them and send these criminals a message...it's not your choice, it's ours! If you don't do business honestly, then you won't do business in the United States at all!

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This page contains a single entry by Jon Coppelman published on January 24, 2007 10:46 AM.

News roundup: compensable harassment, Bush health-care, Iraq vets, new blogs, and more was the previous entry in this blog.

Comp in New York: Death Spiral Finally at an End? is the next entry in this blog.

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