Still got some popcorn? Grab a chair and watch State Farm's training video – "Which Was It…Wind or Water?"

In Flores et al v State Farm, “The initial focus of the punitive liability of State Farm is on its adjuster Heather Keyt… One specific educational source that was identified by Ms. Keyt was an instructional video on “how to tell the difference” in causation questions over wind versus water”.

State Farm has not produced that video under an assertion of some proprietary argument. That video is not under seal, but was disclosed in the case of Watkins v. State Farm Fire & Casualty Co., #CJ- 2000-303, Grady County Court (Ok. 2007), and is entitled “Which Was It … Wind or Water?”

In…[Part 1 @ 7:05 of the three-part]…”video the instructor suggests as a general rule that to determine the cause as either wind or water, “go across the street, lean against your car look, at the building, and ask yourself, which was it wind or water?”

This general suggestion is consistent with the testimony of Ms. Keyt, and it forms the framework for the inspection that was conducted by State Farm’s adjuster.


The Flores’ plaintiffs “Response Brief in Opposition to [State Farm’s] Motion for Summary Judgment” is more than just pictures worth a thousand words.  The discussion of related Mississippi case law on Good Faith and Fair Dealing and the Summary Judgment Standard applied to Punitive and/or Extra-Contractual Damages is thorough:

State Farm has filed a motion for partial summary judgment attempting to dismiss the claim for extra-contractual damages, attorneys’ fees and punitive damages. Because there exist questions of fact precluding the granting of the motion, the motion should be denied as the issues presented are more properly resolved in a full trial by jury.


The relationship between an insurance company and its insured customer is one of a fiduciary obligation. Indeed, an insurer owes to his insured a duty of good faith and fair dealing. “Under Mississippi law, insurers have a duty ‘to perform a prompt and adequate investigation and make a reasonable, good faith decision based on that investigation’ and may be liable for punitive damages for denying a claim in bad faith.” Broussard v. State Farm Fire and Casualty Co., 523 F.3d 618, 627 (5th Cir. 2009), citing, Liberty Mut. Ins. Co. v. McKneely, 862 So.2d 530, 535 (Miss.2003); U.S. Fid. & Guar. Co. v. Wigginton, 964 F.2d 487, 492 (5th Cir.1992).


State Farm, as movant, must prove the pleadings, depositions, discovery and affidavits show a lack of genuine issue of any material fact and its entitlement to judgment as a matter of law. F.R.C. P. 56(c). A summary judgment motion may be granted only if, viewing the facts and inferences supportable therefrom in the light most favorable to the non-moving party, there is no genuine dispute as to any fact, which could affect the outcome. Daniels v. City of Arlington, Texas, 246 F.3d 500 (5th Cir. 2001). Furthermore, a defendant moving for summary judgment on the basis of an affirmative defense “must establish beyond peradventure all of the essential elements of the… defense to warrant judgment in his favor.” Chaplin v. National Credit Corp., 307 F.3d 368, 372 (5th Cir. 2002).


The record does not support judgment on the issues of punitive damages, extracontractual damages, and attorney fees. State Farm and its employees were predisposed to deny the homeowner’s wind claims, and concluded that, despite the direct loss, and the existence of an all-perils policy: more likely than not, that every single part of the property was unblemished by wind or wind-borne debris damage before the tidal surge reached levels that could totally destroy the remains of the property.

State Farm claims this Court can rule as a matter of law that punitive damages, as well as other extra contractual damages, are not recoverable in this case, based on the facts presented.  Stewart v. Gulf Guar. Life Ins. Co., 846 So.2d 192 (Miss. 2002). Significantly, State Farm has not provided this Court with any evidence to demonstrate it had an arguable basis for its delays, its failure to properly adjust the claim, its false conduct, or any other improper acts. In fact, as the evidence and testimony below will show, State Farm’s actions reveal a disturbing practice of collecting the data to adjust its claims. Additionally State Farm wrongly interprets the pertinent standard when State Farm alleges that its adjuster’s “observations of substantial evidence of storm surge flooding at plaintiff’s property” somehow, as a matter of law, allows them to conclude that the entire damage to the Flores home was caused by an excluded cause.

State Farm recites its preferred verbiage concerning the usual requirement of showing a lack of an arguable basis for denial of a claim in order to succeed on a bad faith claim. While this is the most common method of proving bad faith, Mississippi bad faith law is actually much broader than just the single lack of arguable basis for the denial of a significant claim. In Stewart v. Gulf Guar. Life Ins. Co., 846 So. 2d 192, (Miss. 2002), the Mississippi Supreme Court explained the broader nature of bad faith and that it is possible to make out a bad faith claim for punitive damages even in the presence of arguable basis for denial of a claim.

Before punitive damages may be recovered from an insurer, the insured must prove by a preponderance of evidence that the insurer acted with (1) malice, or (2) gross negligence or reckless disregard for the rights of others. If the insurer had a legitimate or arguable reason to deny payment of the claim, then the trial judge, after reviewing all the evidence, should refuse to grant a punitive damage instruction. “Arguably-based denials are generally defined as those which were rendered upon dealing with the disputed claim fairly in good faith.” These principles, however, are not ironclad. … . the issue of punitive damages may be submitted, notwithstanding the presence of an arguable basis, where there is a question that the mishandling of a claim or the breach of an implied covenant of good faith and fair dealing may have reached the level of an independent tort. Id., at 200-201.

The question … is whether Gulf Guaranty breached its contract with Stewart in such a way as to amount to an intentional wrong, or in doing so whether its conduct was so grossly negligent that the breach constituted an independent tort.. … Because there is no dispute that Stewart’s condition existed at the time the policy became effective, Gulf Guaranty contends that it was entitled to rely on the [pre-existing condition] exclusion. Id.

Furthermore, there was evidence presented which would support a conclusion by the jury that Gulf Guaranty attempted to engage in post-claims underwriting in dealing with Stewart’s claim. Post-claim underwriting occurs when an insured pays premiums and operates under the assumption he is insured against a specified risk, only to learn after he submits a claim that he is not insured…Clearly, no effort was made by Gulf Guaranty to determine whether Stewart was in insurable health at the time the policy was issued. Id., at 203-204.

This Court has held that the denial of a claim without proper investigation may give rise to punitive damages. “Proper investigation … means obtaining all available medical information relevant to the claim, and make a reasonable effort to secure all medical records relevant to the claim. Methvin admits that she did not investigation before denying Stewart’s claim. In fact, Methvin, in her letter, attempted to place the burden of submitting information regarding the claim on Stewart. … This evidence suggests that there exist questions of fact regarding the adequacy of Gulf Guaranty’s investigation of Stewart’s claim and that the jury could have properly concluded that such a failure evidenced bad faith and gross negligence, entitling Stewart to an award of punitive damages.

… the trial court erred in granting Gulf Guaranty’s motion for judgment notwithstanding the verdict as to the punitive damages. Though the preexisting condition exclusion constituted an arguable basis for Gulf Guaranty’s denial of Stewart’s claim, the evidence at trial demonstrated a breach of the implied covenant of good faith and fair dealing which the jury may well have concluded reached a level of an independent tort. The jury had before it evidence from which it could reasonable conclude that Gulf Guaranty’s conduct was grossly negligent. Id., at 205.

A delay or denial in payment under provisions clearly providing coverage, when motivated by economic gain, will also support a bad faith claim particularly where the insurer has knowledge of the economic hardship caused by the delay in payment. This is true even where there is a legitimate dispute and an ongoing investigation as to other coverage under the same policy. Travelers Indemnity Co. v. Wetherbee, 368 So. 2d 829 (Miss. 1979).

Under Mississippi law, insurers have a duty to perform a reasonable, prompt and adequate investigation of all relevant facts and make a reasonable, good faith decision based on that investigation,” Broussard, 523 F.3d at 627-28. Broussard relying on Sobley v. S. Natural Gas Co., 302 F.3d 325, 335-36 (5th Cir. 2002) in holding that to “Qualify for punitive damages for such claim investigation, ‘the level of negligence in conducting the investigation must be such that a proper investigation by the insurer would easily adduce evidence showing its defenses to be without merit.’” Id. This definition of negligent claims investigation, however, is the equivalent of saying that the insured must prove the lack of an arguable basis for denying the claims, and completely overlooks the Stewart holding that punitive damages can be awarded on the basis of gross negligence in claims handling despite the existence of an arguable basis for denying the claim and even despite the undisputed evidence that the pre-existing condition the insurer used as a basis of the denial existed at the time of the insurance application making the insured uninsurable.

Mississippi case law decided after Sobley makes it clear an insurer can mishandle a claim so badly that punitive damages are appropriate despite having an arguable basis for denying the claim and the absence of proof that a proper investigation would easily have adduced evidence showing the proffered defense lacked merit. Stewart decided two days after Sobley is just such a case. As the Stewart court made clear, no amount of investigation would have proved a lack of merit to the pre-existing condition exclusion defense because it was undisputed that the insured had the condition when the policy was issued and was uninsurable because of it at that time.

If a jury could find bad faith and award punitive damages where an insurer denied coverage under a valid pre-existing condition exclusion where it was undisputed that the insured did in fact have the pre-existing condition because of gross negligence, gross inadequacy, or reckless disregard for the rights of the insured in handling the claim, it is clearly reasonable to have a bad faith claim based in the egregious mishandling of a claim, even if the evidence does eventually provide some support for the insurer’s decision that the loss was caused primarily by the excluded cause of flood. The claims handling in each case must be addressed on its own facts considering only what evidence the insurer had to support this particular denial at the time of the denial and whether the insurer did in fact provide this insured with proper individualized claims processing or handled the claim in a grossly negligent or inadequate manner or with reckless disregard for this insured’s rights.

In regard to what constitutes an arguable basis for a denial, recent Mississippi case law decided after Sobley and some of the other cases cited in Broussard contains some very tough language about thorough investigations of claims prior to denial, which must be read together with Broussard’s sparse language on Mississippi’s punitive damages law in considering on a case-to-case basis whether the facts warrant a punitive damages instruction based on claims handling.

In United Am. Ins. Co. v. Merrill, 978 So. 2d 613 (Miss 2007), the Mississippi Supreme Court reinforced its standards for determining whether an insurer can avoid punitive damages by relying on its investigation and cling to an arguable basis for denying a claim. The Court made it clear that insurers must have substantiating evidence to support the basis asserted for a denial in its files prior to issuing a denial. An insurance company must present an arguable, good-faith basis for denial of a claim. See State Farm Inc. Co. v. Grimes, 722 So. 2d 637 (Miss. 1998); Standard Life Ins. Co. v. Veal, 354 So. 2d 239 (Miss. 1977)

The Merrill holding demonstrates that State Farm cannot go behind its claims file as it existed on the date it denied the plaintiff’s claim, then subsequently build its evidence to support its basis for denial after the fact of denial. While subsequent evidence may be relevant to the contractual issue of actual cause and coverage, the independent tort of bad faith claims handling is focused on the act of denial and the process of claims handling that resulted in the denial. Intentionally shifting the burden of investigating the cause of the loss to the insured and forcing the insured to prove the extent of the covered loss avoiding the insurer’s obligation to substantiate that all the damages were caused by excludable causes or true concurrent causes creates a separate line of tort damages independent from the damages issues on coverage.

Reading Stewart and Merrill in conjunction with Broussard and Sobley, it is clear that a denial of a claim prior to the development of actual evidence in the claim file, specific to the particular insured and supported by substantiating evidence supporting the reason stated by the insurer in its denial letter, constitutes gross negligence or reckless disregard for the insured in claims handling sufficient to support punitive damages under Mississippi law. It is also clear that under Mississippi law, the insurer must actually investigate the cause of the specific insured’s loss and may not assume the loss was caused by an excluded cause based on unverified information and the general condition of an area and shift the burden to the insured to prove the amount of his losses falling within a covered cause.

Contrary to State Farm’s position, Broussard does not stand for the proposition that an insurer has an arguable basis for denial of a homeowners claim based in the water exclusion as a matter of law solely because the house was located in an area known to have been subjected to extremely high storm surge, nearby houses in the storm surge area had also been completely destroyed while the houses beyond the storm surge survived the hurricane, most with no damage or minor damage and many trees and shrubs in the neighborhood retained their branches and foliage.

The language from Broussard finding an arguable basis for denial makes it clear that an adjuster visited the Broussard property and looked at the actual evidence on that lot, considered the damage to the trees on the Broussard lot and determined that the damage to the trees on that lot was more consistent with flooding than tornadic activity. He then concluded that the totality of the evidence specific to that lot demonstrated that the home was destroyed by flood waters prior to issuing the denial. In comparison to the Broussard facts, the general wind conditions were substantially less severe than they are in the case of at bar.

Hurricane Katrina, like other hurricanes, had severe winds and eventually storm surge. After every hurricane properties near the coast will have substantial evidence of storm surge flooding. There will also be substantial evidence of high wind and accompanying wind-borne debris that accompanies every major hurricane. An insurance company must do more than conclude, conveniently, that the excluded event caused all the damage. They must in fact, do the opposite. They must assume the direct accidental loss is a covered event their adjustment of claim reasonably indicates that, more likely than not, individual portion of the damaged by excluded events. The facts and handling of this case in direct conflict with legal obligations imposed on State Farm. (all emphasis added)

The next feature will be begin after intermission – keep popping!

4 thoughts on “Still got some popcorn? Grab a chair and watch State Farm's training video – "Which Was It…Wind or Water?"”

  1. You are absolutely fabulous. As I written before, you have got me hooked on this insurance stuff, and the more you blog the more I see (yea, it’s a pun). Thanx again for the engrossing “movies”. LOL…

  2. Nowdy, I’m only asking because Pelican wants to know, is the guy who directed this wind and water thing, the same guy who directed the morality shorts in the fifties about the do’s and don’ts concerning teenage sex in the fifties ? I know, we had too much Rebel Yell, but we’re popping more popcorn and watching this over and over again. This is great !!!!!!!!!!!!!!!!

  3. You mean those goofy ideas like “you can’t get pregnant if you keep your panties on”? May well be – who else could so convincingly train adjusters to think you’re not really [email protected]#&!%$ policyholders if you pay them policy limits for flood?

  4. Having seen the entire 23 minute video I’ll add the pictures of wind or water damage patterns shown by Dr Fox should certainly help the Rigsby sisters in their case.

    The lean back on your car statement in the video was beyond dumb IMHO.

    There are lots of other goodies that came from the Watkin’s case, especially the State Farm litigation statistics which showed they prefered to litigate claims in states like Mississippi and Texas that had very weak consumer protection laws.

    When Phil Bryant and Buck Clarke kill consumer protection bills in our state Senate they help a corporate predator f*ck their own people.

    I am looking forward to the coming race for Gov.


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