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Post-Katrina suits stir up storm

MOSS POINT, Miss. — He boards the smaller of his two jets — the Gulfstream stays parked in the hangar — then buckles up for his regular 35-minute commute between his firm's main office in Oxford and its satellite branch here, outside coastal Pascagoula, about 300 miles south.

Two pilots soon have lawyer Richard "Dickie" Scruggs streaming almost 30,000 feet above Mississippi, making what he calls another "milk run" in his efforts to sue insurance companies that have denied claims to thousands of policy holders with houses ruined by Hurricane Katrina's 30-foot storm surge. Scruggs' own million-dollar beachfront house was destroyed.

Insurers counter that storm surge is flooding that has been excluded from hurricane provisions in homeowners' policies for decades, and that it is covered by separate federal flood insurance. Some in the insurance industry have portrayed Scruggs's post-Katrina actions as money-grubbing opportunism.

"I don't need the money, I'll tell you that," said Scruggs, 59, whose firm earned nearly $1 billion in fees from tobacco settlements in the 1990s, and tens of millions more in asbestos suits before that. "This is the first time I'm involved in a suit that's affected me, my family, neighbors, people I've known all my life. It essentially wiped them out.

"It's got my emotional juices going into overdrive," added Scruggs, whose 95-year-old mother died in Pascagoula two days before Katrina landed. "Somebody's got to do this."

Is a surge not a flood?

Three months after Katrina splintered much of the region, thousands of Gulf Coast homeowners trying to recover remain outraged. While about $5 billion in claims have so far been paid out by insurers in Mississippi, according to the state's insurance office, only about 20,000 of the nearly 100,000 homeowners in the state's three coastal counties had flood insurance. Thousands of them have contacted Scruggs about filing suits.

Industry estimates of insured losses in Mississippi, Louisiana and Alabama are about $60 billion, the country's costliest natural disaster ever. If Scruggs and others suing insurers — including state Attorney General Jim Hood, who also argues that storm surge should not be classified as flooding — are successful, the industry says its costs will balloon to $75 billion.

Many legal observers handicap the odds for Scruggs' suits as long, yet few discount him because of past victories in seemingly lost causes. Big Tobacco had been unassailable for decades until he worked out a $250 billion settlement.

Scruggs is also leading a barrage of lawsuits nationally against nonprofit hospital systems, accusing them of overcharging people without health insurance and aggressively seeking payment. He became aware of the issue from a meeting with two Albany, Ga., health care whistleblowers who have criticized practices at Phoebe Putney Health System.

"He's one of the few people on the plaintiff's side who can be a counterweight to the resources and leverage big insurance companies can bring to bear for the defense," said Matthew Steffey, a professor at the Mississippi College School of Law. "He makes it more of a level playing field."

Scruggs' basic contention: The water damage that insurers classify as flooding and exclude from a homeowner policy's hurricane provision — including damage from tidal water and water carried by wind — is a different animal than storm surge. Storm surge, he argues, is how hurricanes wreak havoc on coastal areas.

"Nobody would take these policies if they thought it wasn't covered," he said.

Scruggs' strategy: file individual lawsuits against a half-dozen insurers in Mississippi, banking on a win to set a precedent for thousands more suits. Insurers could then be pressured to settle with policyholders. State Insurance Commissioner George Dale thinks the Scruggs suits, as well as Hood's, have already had an effect.

"The threat of suits has caused companies to be more generous," he said.

Firms call it a shakedown

So far, Scruggs has filed suits against Nationwide Mutual Insurance, State Farm, Met Life and USAA (United Services Automobile Association). The

homeowners include a Pascagoula police lieutenant, a retired Navy shipbuilding supervisor and a couple whose house sat behind Scruggs' beachfront house. The houses range in worth from the low six figures to over a million dollars. Some of those suing had flood insurance, some did not. The suits currently sit in federal court. A status conference on the first suit is scheduled for Dec. 8.

As he did with the tobacco suits, Scruggs has recruited other law firms to help his own four-lawyer firm with various aspects of the suits.

"I'm doing this like a sniper," he said. "This is the legal equivalent of guerrilla warfare."

To the insurance industry, Scruggs' "milk runs" are little more than high-tech updates on ambulance chasing. Insurers say Scruggs is trying to break contracts whose wording is clear, and if he's successful, insurance companies not bankrupted by the suits will flee the state.

"He's one of the wealthiest trial lawyers in the United States and here he sees a chance to become rich. Again," said Robert Hartwig, chief economist for the Insurance Information Institute, an industry trade group. "He's spreading false hope to desperate people."

Hartwig summed up the suits with a single word: "Rubbish."

Worse things have been said about Scruggs, a gentlemanly but free-spending Mississippi native who is a major Democratic contributor and brother-in-law of Sen. Trent Lott (R-Miss.). Believed to be a model for John Grisham's legal novel "King of Torts," he has been labeled "the dartboard face of tort reform," the "Darth Vader of the tax-exempt hospital industry" and, by one insurance company chairman, "Mr. Sluggs." He was also called, by Newsweek, "the most influential man in America that you've never heard of."

Old foes change tune

Scruggs again is being portrayed as both savior and scourge, but with a twist: Many Republicans in this deep-red state who lost homes to Katrina now find themselves siding with Scruggs and other trial lawyers. Many fought hard in recent years for tort reform in a state notorious among businesses for juries eager to give plaintiffs huge awards.

"My neighborhood is full of doctors, and while we always got along, they didn't particularly like me," said Scott Taylor, a lawyer in Ocean Springs, Miss., who has met with Scruggs to discuss legal strategies. "Now, they're asking me questions about insurance, and they laugh a lot harder at my jokes."

Paul Benton, another coastal lawyer, said he attended a meeting of the board of aldermen in devastated Long Beach, Miss., where somebody said, "What we need is a trial lawyer."

"Let me tell you," Benton said, "it's been a long time since I heard anybody say that."

Even Lott, whose Pascagoula mansion was swept away by Katrina, said that while he views Scruggs' suits as "a last resort," he allowed, "If the insurance companies don't treat the people of Mississippi right, I might join the suit myself."

Fellow Republican Sen. Thad Cochran announced recently that he's working on a measure to allow federal grants to help families with damaged homes not covered by flood insurance. But he said the courts might be these homeowners' final stop.

Mississippi Gov. Haley Barbour, a Republican, and Insurance Commissioner Dale, a Democrat, met recently with congressional leaders in Washington. They got sympathy, but few promises.

"Conservative Republicans have sent a message to the president and Congress: Spending needs to be reined in," Dale said. "Just as everybody's gotten religion [on the budget], we go up there asking for $4 billion. People say, 'We want to help, but where we going to get the money?'

"We had the storm at the wrong time."

Expensive house ruined

To Scruggs, timing is everything. Flying back to Oxford from Moss Point the same afternoon, he acknowledged losses in other big cases — HMOs, the manufacturer of Ritalin — as well as his current suits' steep odds.

"But Babe Ruth struck out more times than he hit home runs," he added. "You have to be willing to do that."

That's why James Lisenby, 77, a retired Navy shipbuilding supervisor, hired Scruggs after his $1.2 million beachfront home was left uninhabitable by Katrina. He had federal flood insurance, which is capped at $250,000. Lisenby's insurer, USAA, citing damage from storm surge that it says is not covered in his policy, offered him a nominal reimbursement, he said.

"I thought I was protected from hurricanes," said Lisenby. "But in the face of a catastrophe, the sympathetic corporate America disappears and the boardroom profit-and-loss is what governs.

"That's not right."