In hurricane-prone areas, property insurers often breathe easier when they find most damage claims originate from flooding or storm surges—typically excluded from standard home insurance policies.
However, the fallout from Hurricane Katrina in 2005 sparked numerous lawsuits that challenged this assumption, notably a case involving a historic property in Ocean Springs, Mississippi.
This house, partially designed by the renowned architect Frank Lloyd Wright, was insured by USAA and became the center of a long legal battle due to its elevation, the contested height of storm surges, and the timing of the claim—filed nearly six months after the storm.
Mississippi Supreme Court Ruling
Recently, the Mississippi Supreme Court upheld a lower appellate court’s decision, ordering USAA to pay nearly $15 million in punitive damages and legal fees.
This landmark ruling is one of the largest financial awards linked to Hurricane Katrina’s insurance disputes.
The Court concluded that USAA acted in bad faith, failing to respect the rights of the Minor Estate and demonstrating conduct that warranted punitive damages.
This case stands out as one of the longest-lasting legal struggles arising from Katrina’s devastation and establishes important precedents for property insurers facing similar claims.
Justice David Ishee, writing for the majority, pointed out how USAA prioritized collecting insurance premiums while denying the Minor Estate the full benefits of their coverage, even as the company boasted a substantial net worth of $40 billion.
Background of the Case
In response, USAA, based in San Antonio, expressed disappointment with the Mississippi Supreme Court’s ruling.
The insurer contended that the evidence did not support the high punitive damages or attorney fees awarded.
They highlighted their efforts to assist multiple families in recovering from the aftermath of Hurricane Katrina and indicated that they were reviewing their legal options.
James Reeves Jr., the leading attorney for the homeowners, hailed the decision as a major win for policyholders, particularly considering that many Katrina victims opted for smaller settlements rather than engage in prolonged legal battles.
The historic property in question dates back to 1890 and was owned by the Minor family, including Paul Minor, a well-known Mississippi trial lawyer recognized for his successes against major corporations like Ford Motor Company.
Minor’s career faced turmoil when he was convicted in 2007 on bribery charges, a claim he has always denied.
This case also linked to the legal troubles of Mississippi Supreme Court justice Oliver Diaz Jr., who later joined the Minor family’s legal team.
Legal Proceedings and Outcomes
After Hurricane Katrina struck on August 29, 2005, USAA made an initial offer of around $200,000 to the Minor family to cover wind damage, a sum that fell short of the policy limits.
Evidence later suggested that USAA was potentially aware of far more extensive wind damage but acted improperly.
During the trial, an engineer tasked by USAA to investigate confirmed significant wind damage, although he suggested the home likely wouldn’t have survived a 10-foot storm surge.
This assertion was disputed by other experts, who believed the surge was closer to 21 feet.
Discrepancies in USAA’s negotiation tactics led to allegations of bad faith.
In 2008, the Minor family took legal action against USAA, and in 2013, a jury awarded them $1.5 million for breach of contract—a ruling that USAA did not contest.
However, the Minors continued to pursue their bad faith claims, resulting in another trial where the jury imposed a $10 million punitive damage award, along with over $457,000 in attorney fees.
USAA appealed this decision to the Mississippi Supreme Court, but their appeal was ultimately turned down.
The justices confirmed that the trial judge had properly allowed the jury to deliberate on punitive damages, affirming that the jury’s decision was constitutionally valid.
In addition to the punitive award, they allocated an extra $4 million for attorney fees, with a stipulated annual interest rate of 4% dating back to the judgment in 2022.
Justice James Maxwell partly agreed with the ruling but voiced dissent regarding the fee awards, a point reflected in the court’s comprehensive opinion.
This case symbolizes one of the last major lawsuits connected to the devastating effects of Hurricane Katrina, preceding substantial settlements by other insurers, including State Farm Fire and Casualty, which settled for $12 million with the Mississippi attorney general’s office and $100 million with the federal government regarding mishandled Katrina claims.
Source: Claimsjournal
