Like a Good Neighbor, State Farm is Fined

Insurer slapped with $2.5 million penalty in post-Katrina jury decision

If a house falls in the Gulf Coast region and no insurer is there to hear it, does it make a sound? Heck yes -- in this case, a $2.7 million boom that's ricocheting around the country. Yesterday, a federal jury ordered insurance company State Farm to compensate a Biloxi, Miss., couple whose home was destroyed by Hurricane Katrina. The award includes not only the roughly $233,000 policy value, but a $2.5 million penalty for refusing to pay the policy in the first place. At issue is whether the house was destroyed by flooding -- which homeowner policies don't generally cover -- or by the storm's wicked winds. The judge said State Farm, now considering an appeal, hadn't proved the damage was from flooding. With thousands of other similar cases pending, insurance companies are watching carefully. Insurance economist Robert Hartwig said the case "sets a horrendous precedent," warning that it could mean higher rates in all coastal (read: flood-prone) areas. If you need us, we'll be in Iowa.