NEW ORLEANS (AP)--State Farm Fire and Casualty Co. asked a U.S. federal appeals court Wednesday to throw out a $1 million punitive damage award to a Mississippi couple who sued the insurer for refusing to cover Hurricane Katrina damage to their home.

A three-judge panel from the 5th U.S. Circuit Court of Appeals heard arguments from lawyers on both sides of the case, which was the first among hundreds of Katrina insurance lawsuits to be tried by a jury in Mississippi. The court didn't immediately rule on State Farm's appeal.

At the conclusion of January's trial, U.S. District Judge L.T. Senter Jr. took part of the case out of jurors' hands and ruled that State Farm was liable for $223,292 in wind damage to the Biloxi home of Norman and Genevieve Broussard.

The jury subsequently awarded $2.5 million in punitive damages to the Broussards, but Senter later reduced that amount to $1 million. Bloomington, Ill.-based State Farm appealed the jury's verdict and several of the judge's rulings.

State Farm's experts concluded that Katrina's storm surge was responsible for most, if not all, of the damage to the Broussards' home. The company says its policies cover damage from a hurricane's wind but not its rising water, including wind-driven surge.

State Farm attorney Clarke Holland said Senter made "numerous errors" in evaluating evidence in the case and shouldn't have allowed jurors to weigh punitive damages.

"There was clearly an arguable basis for State Farm's position regarding coverage," Holland told Judges Edith Jones, Jacques Wiener Jr. and Edith Brown Clement.

William Walker, a lawyer for the Broussards, defended Senter's rulings.

"He viewed this in a very rational and careful way," Walker said.

Senter concluded State Farm acted in a "grossly negligent way" by denying the Broussards' claim. The judge also said the company denied policyholders' Katrina claims based on a new "wind-water" protocol that is "at odds with other express terms of the insurance contract."

State Farm claims Senter erred when he ruled the company had to prove that the Broussards' home didn't sustain any wind damage or that it had to segregate wind and water damage to the residence.

Jones, the 5th Circuit's chief judge, questioned why Senter didn't let a jury decide whether Katrina's wind or water was responsible for destroying the Broussards' home.

"All (State Farm) had to prove is that storm surge was a cause, and then a jury had to prove how much was storm surge and how much was wind," Jones said while questioning Walker.

The exchange between Jones and Walker grew testy, as the judge accused the lawyer of "playing with words."

When Walker punctuated one of his points by saying, "I don't mean to be flip," Jones responded by saying, "Most of your argument has been flip."

"Thank you, ma'am," Walker said. "I hope it was sincere."

"It was sincere," the judge said.

State Farm also argues that Senter shouldn't have allowed jurors to consider punitive damages and that he abused his discretion in refusing to transfer the case from Gulfport, Miss., to northern Mississippi.

State Farm's lawyers say the company couldn't get a fair and impartial jury on the Gulf Coast due to "pervasive and extreme negative publicity regarding Katrina insurance claims."

State Farm is asking the 5th Circuit to throw out the verdict and either rule in the company's favor or order a new trial, preferably in north Mississippi.

The Broussards' lawyers, Walker and Jack Denton, argue State Farm set up a scheme to use its "wind-water protocol" to deny "slab" claims, where nothing but a home's foundation is left standing.

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Source: Dow Jones Newswires

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