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Mississippi’s Attorney General, Jim Hood, has said that he is moving forward with a new criminal investigation into State Farm’s handling of Hurricane Katrina claims. Although Hood’s office was to stop investigating State Farm for ‘crimes against policyholders’ pursuant to a January 2007 agreement, Hood maintains that the new investigation is based on different grounds. State Farm maintains that it is not.

Previous investigation

Mississippi’s previous investigation into State Farm’s handling of Hurricane Katrina claims has been extremely controversial. The state had investigated the insurer for ‘crimes against policyholders’ and maintained that State Farm denied valid claims by saying that damage to homes was caused by rising water and not by wind. Wind damage is covered under most homeowners’ policies; however, water damage generally isn’t. Homeowners must have separate flood insurance which can be obtained through the Federal Emergency Management Agency (FEMA).

Many policyholders sued State Farm for bad faith claiming that documents that initially showed damage due to wind were altered to show that water damage was the main cause of damage – which generally relieved the insurer of paying policyholders’ claims.

The investigation was wrought with additional controversy when Dickie Scruggs, a well-known plaintiffs’ attorney was accused of conspiring with others to bribe a judge in an unrelated Katrina settlement to collect over $26 million in attorneys’ fees. Scruggs is also reportedly facing contempt charges (disobeying court orders) in Alabama for allegedly providing Hood with other Katrina documents relating to State Farm insurance practices. Scruggs has denied all of these charges.

As if that wasn’t enough, State Farm sued Hood in September of 2007 for allegedly using the criminal investigation for ‘crimes against policyholders’ in an attempt to coerce the company to settle lawsuits with private attorneys – of whom Scruggs was likely included.

Current investigation

Hood’s current investigation involves State Farm’s handling of National Flood Insurance Program claims, which he believes are not subject to the January 2007 agreement. However, State Farm disagrees and has fought Hood’s subpoenas for additional documents tooth and nail. A U.S. District Court will soon decide whether or not to lift a ban that is currently in place that prohibits Hood from continuing his investigation.