State Farm Fire & Casualty Co. argued in federal court Wednesday that the company should not have to pay policyholders $174,811.80 for Katrina damage attributed to wind because an umpire and two appraisers who set the amount strayed into determining the cause of loss.

State Farm policies give policyholders the option of appraisal when "the amount of the loss" is in dispute. Under Mississippi law, U.S. District Court Judge L.T. Senter Jr. has already ruled, appraisal is not meant to decide liability. State Farm polices cover wind damage, but loss from water is covered by federal flood insurance.

However, attorneys for policyholders Henry and June Kuehn of Ocean Springs presented evidence that only wind damage was considered during the appraisal process.

As provided under the policy, each side selected an appraiser and an umpire was appointed to resolve any disputes.

State Farm's appraiser, John Minor, testified that only those damages above the water line were included in the appraisal award. The water line reached 2 feet onto the second floor of the Kuehn home.

Minor said a State Farm attorney who had offered confusing advice during the appraisal process was not happy with the result.

"I got chewed out," Minor said.

He said he handled the Kuehn appraisal in the same way he did others for State Farm, but the attorney, Lawrence J. "Lucky" Tucker Jr., seemed to want the Kuehn appraisal handled differently.


The Kuehns tried to avoid a lawsuit by opting for appraisal. When State Farm refused to participate, the couple filed suit in Chancery Court to force the insurer to the table. State Farm removed the case to federal court in July 2006, but Senter returned it to Chancery Court in January 2007. A Chancery Court judge granted the appraisal request in April 2007.

The appraisers and umpire concluded the appraisal in February 2008, but State Farm did not pay the award. The Kuehns filed the current federal case on Katrina's third anniversary, the deadline for lawsuits.

Senter will determine whether the appraisal award should be upheld. If it is, he must then decide whether the Kuehns could be entitled to punitive damages. If Senter decides the appraisal was not valid, the case could proceed to trial as a wind vs. water dispute.

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