Pascagoula Attorney Richard Scruggs is ready to challenge two insurance companies over the "hurricane deductible. Monday, Scruggs filed court papers to initiate a "class action" lawsuit against Allstate and State Farm insurance companies for adding the hurricane deductible in 1998 right before hurricane season.
Scruggs alleges State Farm and Allstate changed the rules for policy holders just before Hurricane Georges and avoided paying millions of dollars in claims.
Eugene and Kim Arnold considered themselves lucky when Hurricane Georges did little damage to their home. They thought their insurance would pay for all the repairs, then they learned about their two percent hurricane deductible.
"We didn't even know what the two percent meant and it was explained to us as an either/or, a thousand dollar deductible or two percent of your total loss, whichever was greater. I didn't find out until almost a month later that it was the value of your house," Eugene Arnold said.
"Usually if there's something going on, they'll let you know, but we had no warning," Kim Arnold said.
Richard Scruggs says the Arnolds aren't alone. He says more than 13,000 policy holders with State Farm and Allstate Insurance received the same shock when they filed their claims.
"They toyed with the deductible in a very subtle and deceptive way, deceiving the homeowners into thinking that the damages to their homes would be covered in the traditional way, which was usually a fixed deductible," Scruggs said.
In March of 1998, people began learning about rate hikes and the hurricane deductible. Insurance commissioner George Dale told people that without the deductible, some companies would stop writing policies in Mississippi.
In the court papers, Scruggs alleges that threat by State Farm and Allstate was improper. He also says the companies conspired to get the two percent deductible approved.
"The insurance companies shifted the risk just before hurricane season, just a few weeks before the storm, back to the homeowner and avoided paying millions of dollars in justified claims," Scruggs said. "They slipped it by the homeowner just before the hurricane season so it wouldn't be noticed."
But Scruggs says people have noticed and this lawsuit is the only way to make Allstate and State Farm do the right thing - pay homeowners for the damage done by Hurricane Georges.
We called the insurance companies for their comment. In a statement Allstate said: "We are confident we fully complied with Mississippi law in the implementation of the hurricane deductible, and in the manner we notified customers about the policy change."
No one from State Farm has returned our calls.
We also have not received a comment from the state insurance commission about Scruggs allegation that the companies conspired and threatened to pull out of state if the insurance commission didn't grant a 15 percent rate hike and okay the hurricane deductible.
According to the insurance commission, Allstate paid out 10,000 claims from Hurricane Georges, a total of $15 million. State Farm had 23,500 claims, totaling $50 million. Those two companies paid almost 40 percent of all claims from Georges.
So, what does this mean if you had a claim from Hurricane Georges with either of these insurance companies? First the lawsuit must be certified in state court to move forward. If that happens, qualified policy holders would be notified through television and newspaper ads, or by the attorneys handling the lawsuit.