By MICHAEL KUNZELMAN, Associated Press Writer Michael Kunzelman, Associated Press Writer – Thu Mar 12 2008, 3:36 pm ET
NEW ORLEANS – Jurors shouldn't have awarded money to a south Louisiana couple for their allegation that an insurance company acted in bad faith when it denied their homeowner claim after Hurricane Katrina, a federal appeals court has ruled.
Wednesday's ruling by the 5th U.S. Circuit Court of Appeals vacates a portion of a November 2007 judgment against State Farm Fire and Casualty Co. that awarded Michael and Judy Kodrin roughly $356,000 in damages and penalties, plus attorney fees. Their trial was the first in Louisiana against State Farm over damage from the August 2005 hurricane.
A three-judge panel from the 5th Circuit said the Kodrins weren't entitled to bad-faith penalties, damages or attorney fees because the couple failed to prove State Farm had no justification for denying their claim. The panel instructed U.S. District Judge Carl Barbier to recalculate the award based on its ruling.
"We felt all along our claim handling was in good faith, and the 5th Circuit's ruling has affirmed that," State Farm spokesman Jeff McCollum said in a statement.
State Farm says its homeowner policies cover damage from a hurricane's wind but not its rising water, and the Bloomington, Ill.-based insurer concluded that Katrina's flood waters demolished the couple's Port Sulphur home.
The appeals court upheld a jury's decision that State Farm owed the couple about $200,000 for Katrina's wind damage.
But the 5th Circuit said the only evidence of bad faith presented by the Kodrins was State Farm's denial and their expert's testimony that wind caused the damage.
"This is evidence that State Farm was wrong about the cause of damage, but without more, it is not evidence of bad faith," the judges wrote.
The Kodrins, they continued, "essentially ask this court to find bad faith any time an insurer denies coverage and a jury disagrees. This would unduly pressure insurers to pay out claims that they have reason to believe lie outside the scope of coverage, solely to avoid penalties later."
John Redmann, a lawyer for the Kodrins, said the ruling could cost his clients up to about $250,000 that jurors and Barbier had awarded for penalties, mental anguish and attorneys' fees.
"Felt like I got punched in my stomach. So did my clients," he said.
Redmann said he is weighing his clients' legal options, including asking the 5th Circuit to rehear the case.
"We just believe the court has taken a big step backward in the rights of insurance victims," he added.
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