In yet another setback for insureds in regard to coverage for property damage claims resulting from Hurricane Katrina, the Fifth Circuit rejected an insured’s attempt to evade the settlement of a homeowner’s insurance policy claim pursuant to the Mississippi Department of Insurance (“MDI”) Hurricane Katrina Mediation Program. Wiley v. State Farm Fire & Cas. Co., 2009 WL 3233528 (5th Cir. 2009).

As the court aptly observes, “[t]he facts of this case are sadly familiar.” On August 29, 2005, Hurricane Katrina destroyed Christopher Wiley’s Biloxi, Mississippi home, leaving only its concrete slab. Wiley had insured his home pursuant to a homeowner’s insurance policy issued by State Farm. The policy provided coverage limits of $444,000, excluded water damage, and included an anti-concurrent cause provision. State Farm denied Wiley’s wind damage claim. 

In October 2006, Wiley and State Farm entered the MDI’s Hurricane Katrina mediation program. Wiley alleged that in the course of mediation, the State Farm representative informed him that Mississippi law entitled State Farm to deny his entire claim because his home had been destroyed by the storm surge, an excluded peril under his policy. The State farm representative based his assertion on the policy’s anti-concurrent cause provision, which he reportedly informed Wiley entitled State Farm to deny the claim in its entirety [and which, as we know from our October 12 post, is not a correct statement of Mississippi law]. 

Based on these representations, Wiley entered into a settlement with State Farm who agreed to pay him $80,235. The settlement agreement provided that “If the insured discovers additional insured damage that was not known to the parties prior to this mediation, the insured(s) may file a supplemental Katrina claim, which shall be treated as a new claim.”

In 2007, the State of Mississippi and State Farm reached agreement on a re-evaluation of Katrina-related claims. Thereafter, State Farm sent Wiley a letter which explained that “pursuant to the agreement reached between State Farm and the Mississippi Department of Insurance,” State Farm had re-evaluated Wiley’s claim and was prepared to offer him an additional $26,798.13. This offer was conditioned upon Wiley’s agreement to sign a release, releasing and discharging State Farm from all claims relating to damage or loss from Hurricane Katrina. 

Wiley rejected the 2007 settlement offer and brought suit against State Farm. He contended that between the time of his 2006 settlement and the 2007 letter, he had learned from his neighbor, a civil engineer, that wind, rather than storm surge, had caused part of the damage to his property.

State Farm moved for summary judgment on the ground of the doctrine of settlement and release, interposing the 2006 settlement agreement. The district court granted State Farm summary judgment. The Fifth Circuit affirmed.

The court had little difficulty in rejecting Wiley’s claim:

There could be no serious argument that the 2006 Settlement unambiguously represented the ‘full, complete, and a total final payment’ for all insured damages that were known to Wiley at the time of the settlement. It is equally unambiguous that Wiley, in exchange for the payment of $80,323 released State Farm from ’any and all Katrina claims of any kind whatsoever’.

What is more, the court rejected Wiley’s contention that the “additional damage” reservation in the 2006 settlement agreement extended to the subsequent discovery of an additional or different cause of previously known damage. In the court’s view, Wiley’s argument contravenes the plain meaning of the phrase “additional insured damage.” 

Finally, the court rejected Wiley’s contention that the 2007 letter in some manner modified or waived the 2006 settlement agreement. “The 2007 Letter expressly stated that the additional settlement offer ‘is not an admission by State Farm that the claim was not correctly evaluated’ nor ‘a concession.’” The court concluded that “this language indisputably preserved the status quo established by the 2006 Settlement, and cannot reasonably be interpreted as evincing ‘an intention permanently to surrender the right alleged to have been waived.’”