State Farm Agrees to Settle With Angry Katrina Policyholders

Mississippi homeowners are claiming a "huge legal victory" over the country's biggest insurance company, which they say tried to cheat and defraud them over claims submitted in the wake of Hurricane Katrina.

Under a settlement, State Farm Insurance has agreed to pay out $80 million to settle the lawsuits of over 600 State Farm policyholders, including three homeowners profiled by ABC News, Minh Nguyen, Thomas McIntosh and Dr. Wesley McFarland. 

Dr. McFarland, whose community was devastated by Hurricane Katrina, called the settlement "excellent news," and said the money will help "people's spirits considerably."

In addition, State Farm says it will reconsider the disputed claims of tens of thousands of other homeowners who had not filed suit, another potential payout of at least $50 million. 

The proposed settlement must now be approved by the U.S. district judge hearing the case.  Zach Scruggs of the Scruggs Law Firm, which filed the suits on behalf of policyholders, said plaintiffs could expect to see their money "within weeks."

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According to Scruggs, settlement talks with State Farm had begun last September, but an agreement had been held up because of a criminal probe of the company by Mississippi Attorney General Jim Hood.  State Farm had wanted an end to the state investigation, and Hood finally agreed to the terms this week. 

As first reported on "The Blotter," at the heart of the lawsuits were claims by independent adjustors Cori and Kerri Rigsby that State Farm supervisors had defrauded policyholders by demanding that engineering damage reports on homes be buried, replaced or changed in order to favor the company. 

In an exclusive interview with ABC News, the Rigsby sisters detailed how outside engineers were pressured to prepare reports concluding that damage caused by Katrina was due to water, which was not covered by State Farm.  Cori Rigsby said she recalled a senior coordinator saying, "Tell them if they don't change their report, we're not paying their invoice."

The Rigsbys, who had worked exclusively for State Farm for eight years, say they made copies of thousands of internal State Farm documents and turned them over to federal and state investigators and to the Scruggs Law Firm.  While the proposed settlement will end the state criminal probe, a federal grand jury continues to investigate charges against State Farm.

According to Jeffrey W. Jackson, State Farm's general counsel, "Our goal has been to resolve these matters quickly, fairly and efficiently."  Jackson said, "This settlement offers policyholders who resided in the areas most impacted by the unprecedented storm an opportunity to have their claims reviewed, share any additional information and, if they choose, have their cases resolved through binding arbitration."

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