The Revenge of the Insurers

A wise man once wrote this concerning the insurance situation and subsequent litigation in Mississippi following Hurricane Katrina:

The real risk when this is all said and done is that if companies are forced to pay for damage resulting from causes of loss that they specifically excluded and for which they did not receive premium payments, those companies, should they be able to remain in business, will likely flee the state leaving homeowners with few if any insurance options.

That was written by moi back in December of 2005. My crystal ball was working pretty well that day:

State Farm Insurance Cos. is suspending sales of any new commercial or homeowner policies in Mississippi starting Friday, citing in part a wave of litigation it has faced since Hurricane Katrina, a company official said Wednesday.

Mike Fernandez, vice president of public affairs for State Farm, said Mississippi's "current legal and political environment is simply untenable. We're just not in a position to accept any additional risk in this homeowners' market."

Fernandez said the decision does not affect existing policies but the company is still assessing how many of the current policies in Mississippi will be renewed this year. (My prediction - not many.)

Fernandez said the action was not a direct response to any specific development in the litigation. That litigation has included a recent federal jury's $2.5 million punitive damage award to a couple who sued State Farm for refusing to cover the 2005 hurricane's storm surge damage to their Biloxi home.

State Farm has more than 30% of the homeowner's business in Mississippi. With that much capacity going out of the market, there will be a scramble for new policies from the remaining carriers and things will start getting pretty exciting down there.

The trial lawyers in Mississippi probably thought they could keep beating up State Farm and they'd just sit back and take it. Looks like they may have created a lot more trouble for the State than they planned.