State Farm strikes out at Fifth Circuit with the bases loaded

Now I understand all the confusion resulting from the Fifth Circuit’s decision to hear Dickerson and Kodrin together.  The consolidated Opinion in Harrington v State Farm reverses and remands three similar cases to District court for rehearing:  Harrington v State Farm, Benit v State Farm, and Arceneaux v State Farm.

Plaintiffs-Appellants (“Appellants”) in these consolidated cases sought recovery under their respective homeowner’s policies for damage to their homes from Hurricane Katrina. The district courts read Appellants’ complaints as seeking damage caused only by flood and dismissed the complaints under FED. R. CIV. P. 12(b)(6). We disagree with the district courts’ interpretation of the complaints and conclude that Appellants also sought recovery for unpaid wind damage. We therefore reverse and remand for further proceedings.

If you read this and don’t wonder how many other Plaintiffs in the Katrina Canal Breaches Litigation were screwed by this State Farm “slight of hand” strategy, you probably are eagerly awaiting the Easter Bunny.  Same goes for anyone who thinks State Farm was unaware legitimate wind claims were clearly stated and unresolved when they filed the 12(b) (6) Motions.

…All three suits sought to recover from Defendant-Appellee State Farm Fire & Casualty Company (“State Farm”) under each plaintiff’s homeowner’s policy for damage to each plaintiff’s home sustained in Hurricane Katrina. The complaints, amended complaints, and motions in all three cases are identical in all relevant respects. Harrington and Benit share nearly identical procedural histories, while Arceneaux differs slightly.

Each suit was first filed in state court and later removed to the federal district court. In each of the cases, Appellants filed identical complaints, which attributed their property damage to “wind, wind driven rain, storm surge, overflowing of canals and breaches of levees.” Appellants alleged that State Farm was responsible for the damage and that, instead of paying the full policy limits, “Defendant made only partial payment based upon wind and wind driven rain alone.”

At the time they filed their complaints, this Court had ruled, a few weeks earlier, that standard homeowner insurance policies, like the policies at issue here, did not cover flood damage from Hurricane Katrina. In re Katrina Canal Breaches Litig., 495 F.3d 191, 214 (5th Cir. 2007). Relying on this case, State Farm filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6) in each of the suits for failure to state a claim upon which relief can be granted, arguing that this ruling foreclosed Appellants’ only theory of recovery. After filing its motion but before Appellants responded, State Farm filed an answer in each of the cases on January 3, 2008.

The district court eventually granted State Farm’s Rule 12(b)(6) motion in each case, finding that the original complaint did not seek unpaid wind damage; that the complaint in effect conceded that State Farm had discharged its obligation to pay for wind damage when it stated “Defendant made only partial payment based upon wind and wind driven rain alone”; and that Appellants had never properly amended the complaint to state an additional claim. Therefore, the district court concluded that appellants’ claims were based solely upon flood damage under Louisiana’s Valued Policy Statute, LA. REV. STAT. ANN. § 22:695 (2005). The above discussion explains generally what transpired in the district courts in all three suits.

The discussion that follows does not lend to editing; but, the Court summarizes it well as these quotes from the Opinion evidence.

Appellants in all three cases argue first that they sufficiently pled a claim for State Farm’s failure to pay for unpaid wind damage (hereinafter “wind claim”) in their original complaint, and the district courts erred in granting the Rule 12(b)(6) motions. Appellants also argue that the district courts erred in refusing to consider their amended complaint clarifying their claim for wind damage and in refusing to vacate the judgments under Rule 60…

Appellants argue that they filed timely appeals from the district courts’ judgments and we have de novo review of those judgments. Appellees argue that at most we have authority to review the denial of Appellants’ post-judgment motions under Rule 59 or Rule 60.

The Court obviously disagreed with State Farm’s argument limiting their authority.  More need to as State Farm frequently applies this “tell, don’t ask” strategy, particularly at the Magistrate level.

…[W]e conclude that the notices of appeal inHarrington and Benit are timely under the district court’s order granting an extension of time, and Appellants in Arceneaux timely filed their notice of appeal after denial of a timely filed Rule 59 motion. We therefore have full appellate review over all underlying judgments and the post-judgment motions.

We cannot agree with the district courts’ interpretation of the complaint. Construing the complaint “‘in the light most favorable to [Appellants] and with every doubt resolved in [their] behalf,’” Gregson, 322 F.3d at 885 (quoting 5CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357, at 601 (1969)), we find that the original complaint states a claim for unpaid wind damage. Though the complaint focuses more heavily on the flood claim, it also plainly seeks recovery for damage caused by wind and wind-driven rain. After two paragraphs discussing damage caused by flooding, wind, and wind-driven rain, the complaint states that State Farm failed to pay the policy limits as required “[a]s a result of the aforesaid events.” The quoted phrase is not limited to the flood damage.  Under the Rule 12(b)(6) standard, the complaint did not concede that State Farm paid the wind claim in full when it stated, “Defendant made only partial payment based upon wind and wind driven rain alone.” The meaning we draw  from that statement is that State Farm’s prior payment did not include any payment for flood damage.

That statement does not establish, however, that the partial payment constituted payment in full for the wind claim.This is consistent with another district judge’s reading of this identical language:

As noted by the Court, a close reading of the albeit inartfully drafted original complaint sets forth in clear terms that the plaintiffs experienced both flood and wind damage. The problem with the original complaint is the sentence in Paragraph 6 which states “Defendant made only partial payment based upon wind and wind driven rain alone.” Having heard the argument of counsel for both plaintiffs and State Farm, the Court found that the true thrust of  these claims is underpayment for the wind damage—thus the “partial” payment noted was not intended to mean that the payment was satisfactory for all alleged wind damage, just that there had been some payment made for wind damage. In re Katrina Canal Breaches Consolidated Litigation, 2008 WL 3819835, (E.D. La. 8/11/2008).

In sum, we disagree with the district courts’ interpretation of the complaints as asserting a claim for flood damage only. We read the complaint as also asserting a claim for unpaid wind damage. We therefore cannot say that Appellants have failed to state a claim upon which relief can be granted. This disposition of the case makes it unnecessary for us to address the post-judgment motions.


A game changing strike-out with the bases loaded and nothing but bad faith in the dugout – and Harrington, Benit and Arceneaux coming up to bat.

8 thoughts on “State Farm strikes out at Fifth Circuit with the bases loaded”

  1. Sop, I was thinking about cases here that have been gutted at the magistrate level. IMO a lot of that has been due to the same kind of “slight of hand” found it the cases reversed and remanded in this 5th Circuit opinion.

  2. I don’t think any of the rulings in these 3 cases would have been made by magistrate judges unless all parties had agreed in writing via a 636(c) “Consent to Proceed Before United States Magistrate.” Considering the minimal procedural history, this is highly unlkely in any of these 3 cases. I know that at least one of these 12(b) motions was granted by Judge Porteous.

    What ever happened to “notice pleading” in Fed. Ct.? It seems like the 5th Cir. is trying to send a message, particularly to the judges of the Eastern District of La.: that claims and entire cases should not be tossed out so non-chalantly.

  3. I agree with you, Rick, on the Fifth’s message. I’m hopeful the message will trickle down – as I explained in my reply to Sop’s comment, I see State Farm pressing hard and IMO misrepresenting things at that level. The often result is a case gutted and settled – and sealed.

  4. Rick is correct. In the Eastern District, its not the magistrates making those rulings– its the district judges.

    Chauvin, a Valued Policy Law case, was another State Farm 12b6 motion case as it turned out, State Farm knew about the VPL and ADVISED its adjusters that La. was a VPL state and the VPL applied to hurricane losses and to “consult the team manager in cases involving total losses.”

    Finally, I can name 4 occasions where State Farm represented one thing during litigation while knowing that they were instructing their adjusters to do the opposite in the aftermath of Katrina.

    First, was the VPL. I found it odd that instead of piping up and telling the court what SF knew, counsel just sat silent.

    Second, involved a MSJ SF obtained against a poor, elderly person who simply wanted her freezer covered. SF argued that while the food inside the freezer was covered, the freezer itself was not. SF won the msj and the elderly plaintiff appealed only to have the 5th Cir. affirm. Meanwhile, SF’s Adjuster Orientation Materials given out immediately after Katrina explained that the freezer was in fact covered.

    Third, in another, SF filed a MSJ on mold coverage where opposition attached the SF Operations Guide with 30 plus pages of guidelines stating that if the mold is the result of a covered loss, then its covered. SF in turn withdrew the Motion and Judge Barbier warned them to not do it again.

    Fourth, deals with actual cash value versus replacement cost. Every SF insured had an endorsement that required SF to pay replacement cost. SF via its Katrina Adjuster Orientation Materials, instructed its adjusters to “pay replacement cost on all Coverage A damage up front.” Yet, SF has tried to get over on unsuspecting plaintiffs’ lawyers in La. by trying to limits insureds to acv.

    When it comes to Katrina litigation, it seems the insurance companies, namely SF, can do anything and not get sanctioned.

    Its really a shame.

  5. Arceneaux settled Holly, most likely for big bucks. Maybe Nowdy can do a quick PACER sweep and find out about the other 2.


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