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CNN PRESENTS

Encore Presentation: The Town That Fought Back

Aired November 19, 2006 - 20:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEWS BREAK)
(BEGIN VIDEOTAPE)

KATHLEEN KOCH, CNN CORRESPONDENT, CNN PRESENTS: It was the kind of town people never wanted to leave.

UNIDENTIFIED MALE: Bay St. Louis was a beautiful community.

KOCH: Everybody knew each other. You know, you meet up on Sunday at church.

UNIDENTIFIED MALE: Great place to raise a family.

KOCH: Then came Katrina, and what happened next hit this town as hard as the storm.

UNIDENTIFIED FEMALE: It was just a nightmare to find out that you weren't covered. They just said, you're denied.

UNIDENTIFIED MALE: It's the worst bad faith I've ever seen by any of the insurance companies that I've ever had to deal with.

UNIDENTIFIED FEMALE: This is a criminal act committed against us.

UNIDENTIFIED MALE: There ought to be a national registry of child molesters and insurance company executives because I hold them in the same very low esteem.

UNIDENTIFIED MALE: People don't want any more lip service. They want to know where they're going and when they're going to get there.

KOCH: This is Bay St. Louis, Mississippi, the town where I grew up. I've been returning here for the past year as it struggles to recover from hurricane Katrina. Bay St. Louis has come so far since that horrible day last August, but the town still has a long way to go. A year after Katrina, a quarter of the residents haven't returned. Half of the businesses are still closed. Here the difference between success and failure, rebuilding or not, is often an insurance check, a check that for so many has simply not come.

This is the Bay St. Louis that now only exists in my memories, a house where I grew up. The ice cream parlor my family ran, the high school where I was president of the senior class. It was, as the town motto says, "A place apart."

UNIDENTIFIED MALE: This is like a frickin' tsunami.

KOCH: On August 29th, Katrina's 34-foot storm surge and 125-mile- an-hour winds destroyed or inundated 95 percent of Bay St. Louis. People had to swim for their lives.

UNIDENTIFIED MALE: Just huge waves, just very large, and so I would grab a limb or tree or whatever I could, and then I got washed away.

KOCH: It was three days after Katrina when I made my way back to Bay St. Louis. This can't be Bay St. Louis. There were houses here. There were beautiful, big houses surrounded by these enormous old oaks. I searched for missing neighbors. Excuse me. Ya'll see any Kergsons (ph), Krutals (ph) or anyone named Van Schultz? Any Ogdens (ph) or Gosdagens (ph) from New Orleans? No? OK. The destroyed Bay Bridge was the only place cell phones worked, the only place to connect.

UNIDENTIFIED FEMALE: My son's alive.

UNIDENTIFIED MALE: I told you. I told you.

UNIDENTIFIED FEMALE: He climbed on top of a tree.

UNIDENTIFIED MALE: I told you. I told you.

UNIDENTIFIED FEMALE: I didn't know if he was alive. The last time I talked to him, he was taking on water.

KOCH: Finally behind the sunglasses, I recognized a familiar face from high school.

UNIDENTIFIED FEMALE: I said, I think that's Kathy Koch.

KOCH: Our homes are destroyed, but we're OK. We're alive. Like many in Bay St. Louis, my classmate Diane Edwards' house and life were in shambles.

DIANE EDWARDS: But it'll be a moment when I reach for something or want something, and I say, oh, well, I don't have that anymore, not even my address book.

Watch your step, Kathy. Our family is way more fortunate than most. We are. Look at those who had nothing to come back to. You know, you just -- we just thank god we have our lives. I was a fanatic about my floors.

KOCH: The few possessions not blown or washed away, unsalvageable. Is this our yearbook?

EDWARDS: That's a yearbook.

KOCH: I think that is opened to the page of my --

EDWARDS: That's '75.

KOCH: Yes, that's one of ours.

EDWARDS: Hey, there's Mr. Blanchett. Right there.

KOCH: See the dome. Oh, my god, it's a shelter. Our high school is a makeshift shelter.

UNIDENTIFIED FEMALE: There are people getting sick because they don't have food. I mean they're getting sick and vomiting and diarrhea, and they don't have any way to cook food.

KOCH: Our ice cream parlor is over here. Downtown, I'm so disoriented. See if I can get to this end. I walk over the rubble of my family's old ice cream parlor. This is the house on South Beach Boulevard where I lived. My family's old home was one of Bay St. Louis' many hurricane-proof houses. These are the poles that were supposed to keep this house together. We had owned it for 30 years. I don't know how I'm going to call my mom and my dad and my brother, my sisters, tell them that the house that they grew up in where we had so many wonderful years is gone. It's all gone. The town had lost so much; it's hard to believe what would come next.

UNIDENTIFIED MALE: Our insurance company is nationwide, and they're not on our side. We thought we were covered.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: You can see the war zone developing.

KOCH: Two weeks after Katrina.

UNIDENTIFIED MALE: This is at ground zero. Every one of them, there's nothing but rubble.

KOCH: Much of Bay St. Louis is flattened. Federal help virtually nonexistent, so people like lifelong resident Tommy Kidd are filling the gap.

UNIDENTIFIED MALE: Do you all need to talk right now?

UNIDENTIFIED MALE: No, we're fine.

UNIDENTIFIED MALE: If you do, I got some at the house.

UNIDENTIFIED MALE: In Jesus' name, amen.

KOCH: So are volunteers from around the country.

UNIDENTIFIED FEMALE: Thank you so much. Fellowship. This is wonderful. These guys, I mean they're doing it all for the lord, and they practically have done it all. They have gutted out my house for me.

KOCH: As weeks turn into months, people struggle for the basics.

UNIDENTIFIED FEMALE: I've contacted the governor's office, the mayor's office, and the representative's office, FEMA. Nobody's helping us.

KOCH: The Mayor, Eddie Favre, can't even help himself. Though his home was destroyed, he was denied a FEMA trailer, so the mayor sleeps on a mattress in the firehouse.

MAYOR EDDIE FAVRE: This is where we spend our nights right here.

KOCH: The days are spent working hard, no exceptions, high school football players gut buildings.

UNIDENTIFIED MALE: This is us every day, morning time till evening time, and then we go straight to football practice. That's it. This is our life until we go back to school.

UNIDENTIFIED FEMALE: Bay high school. Bay high school.

KOCH: The Bay High Tigers play with half a roster, donated uniforms. Still, they play their hearts out, a winning season, until tonight. The last home game, they lose, 33-20, a tough blow for a team and a town that has already lost so much.

UNIDENTIFIED MALE: We played hard, came up short. It hurts.

KOCH: What hurts more is that so many residents can't rebuild, can't get help. Their lives on hold. You see, many people here didn't have federal flood insurance. They were told they lived outside the flood plain and didn't need it and trusted their homeowners insurance would cover damage from the storm and the wind, but they were in for a shock.

UNIDENTIFIED MALE: I talked to people who haven't even seen an adjuster yet. I've talked to people who have been waiting for two or three months for some type of call, some type of answer. They can't get an answer.

UNIDENTIFIED MALE: This was the living area. This was our bedroom.

KOCH: Tommy Kidd thought his home's insurance claim had finally been settled until the phone rang.

KIDD: Hello. I don't understand this. I've not even been contacted by that person. I am getting more confused than I've ever been. Well, ya'll heard my side of the conversation. This is just unbelievable B.S. This was a sizable floor here.

KOCH: After five months Tommy Kidd's insurance company finally gives him some money to rebuild. Nikki and Patrick Cleveland haven't been so lucky. They lost their home and Nikki's parents to the hurricane. For their home at least, they thought they would be made whole.

NIKKI CLEVELAND: We had homeowners, we had flood, we had wind, storm and hail, and we had hurricane coverage. We bought everything we could get.

PATRICK CLEVELAND: I guess we could have had earthquake insurance, but other than that, we thought we were covered.

KOCH: The Cleveland's had federal flood insurance, but that only covered half their loss. As to their insurance company, Nationwide --

P. CLEVELAND: To this day, we've been paid a thousand dollars for a tree root to be removed, and that's it.

KOCH: Like many people in the town, the Cleveland's found their insurance company refused to pay them anything for the damage to their home. It claims it was all caused by flooding, which the federal government covers rather than by wind, which insurance companies like Nationwide would have to pay.

P. CLEVELAND: Houses on both sides of us all got paid because they had wind damage. So apparently somewhere down there, because that's the direction the wind came, the wind parted and missed our house, it got both of theirs but didn't get ours, so just water got our house.

KOCH: Nationwide declined an on camera interview but gave CNN a statement. The company expressed sympathy for the Cleveland's and said, "While it is against nationwide policy to discuss specifics of any claim filed, we continue to stand by our assessment of this claim." So the holidays come and go with not much to celebrate. At the six-month anniversary, only a few destroyed homes have been rebuilt. Seventy percent of businesses still closed. It's Mardi Gras in Bay St. Louis, but many business owners say the parade has passed them by.

They can't start over without insurance money or loans from the SBA, the Small Business Administration, and half the business owners on the storm-ravaged Gulf coast have been denied loans. Nancy Moynan is one of them. The SBA doubts that she could pay back a loan.

NANCY MOYNAN: How do you intend on paying back this loan? I said, well if I could re-open my business, then I could -- would have an income.

KOCH: Money is only half the battle. Usable structures are just as scarce. This is salvageable? Pam Collins and Joy Parks paid $400,000 for this dilapidated building on Main Street so they could re-open their gift shop. You have been looking all around town to find a place to relocate your business and this is the best you can find.

UNIDENTIFIED FEMALE: For the location and the size it is definitely the best. I know it sounds absurd but location, location, location.

KOCH: The city is struggling. Sales and property tax income cut nearly in half. Bay St. Louis is deep in debt. The mayor says the federal government owes this Mississippi city over a million dollars in promised aid.

FAVRE: In some ways we'd be better off applying for foreign aid than we would for FEMA assistance. The folks that sat there and said that no city is ever going under from a natural disaster, well, they need to rethink that.

KOCH: There's something else that could make this town go under.

UNIDENTIFIED FEMALE: I have this dream where I'm sitting in the chair with one of my kids and it's just the water rushes in and we're ripped apart. I mean I just can't do this.

(COMMERCIAL BREAK)

KOCH: Since Katrina hit, there's been an abiding fear that Bay St. Louis would lose what makes it so special, its people.

UNIDENTIFIED FEMALE: So we're now residents of Charleston, South Carolina.

UNIDENTIFIED MALE: No, no, no, no. No, no, no. You are visitors to Charleston, South Carolina.

UNIDENTIFIED FEMALE: We're temporary.

UNIDENTIFIED MALE: In Christ the lord, amen.

KOCH: The Goodfellow family evacuated to Birmingham, Alabama.

DARLA GOODFELLOW: There are days I tell you right now when the alarm goes off at 6:10, we just kind of -- I'm not getting out of bed. You want to pull the covers up over your head and want to say, forget it, and you say, oh, no, I can't, I have four children. Do you need lunch money?

KOCH: Darla was a teacher. Keith an OB/GYN who delivered thousands of children in Bay St. Louis. For them and their four children a cramped three-bedroom apartment has become home.

D. GOODFELLOW: We knew it was coming. We just didn't realize how big it was.

KOCH: It took them months to get up the courage to go back to see what Katrina did to their beautiful waterfront home.

D. GOODFELLOW: When I turn this corner, my house will be at the end of the block where my house was. Oh, god. That's all that's left of the house. Oh, gosh. We had a big beautiful willow tree right here.

UNIDENTIFIED FEMALE: Hillary, I found something of yours.

D. GOODFELLOW: Do you want it, Hillary? No, Desiree, bring it back. Des'ree, Hillary said she does not want to take anything that's here, remember? Oh, her little picture frame. I think it's the picture.

SAMANTHA GOODFELLOW: The things I found, things I would never in a million years have brought with me even if I knew the entire house would be gone, I took those because those are -- it's like the only proof that the last -- the past 11 years of my life were real and that I wasn't just some dream.

KOCH: The Goodfellows have suffered an emotional and financial loss. Their flood insurance covered just a fraction of the damage, and their insurance company won't pay the rest.

D. GOODFELLOW: It's OK. To add insult to injury, here you've lost your home; you've lost your business. Never in 19 years put in a claim, never in 19 years.

They say our home was not destroyed by wind at all, that strictly water got it.

KOCH: The Goodfellows won't be returning to the town they loved so much.

D. GOODFELLOW: Almost every single night I dream that I walk through my house, and I touch, you know, everything that's gone, and to think to have to do this again, you know, I mean, I have this dream where I'm sitting in the chair with one of my kids, and it's just -- the water rushes in, and we're ripped apart. I mean I just can't do this.

KEITH GOODFELLOW: I dream about going out at night and looking up at the stars in my backyard. I dream about getting up in the morning, seeing the sun rising over the Bay of St. Louis. I dream about going up -- sitting on my dock, bringing my kids out there.

D. GOODFELLOW: The Mississippi Gulf coast will come back, and I'm sorry to say that we won't be a part of it. It's just too painful.

KOCH: Bay St. Louis was also a paradise for Tanya Reid.

TANYA REID: I'll keep paying for the rest of my life because I got the $25 -- but I'm paying.

KOCH: Tanya is an economic exile. She and her two children can't afford to go home. Their rented house was gutted by the hurricane. After Katrina, housing is so scarce in Bay St. Louis that prices for the few intact rental properties have skyrocketed. So Tanya is shut out of the market and stuck near Atlanta. Do you want to stay here?

REID: No, ma'am. I can't get on the right foot in Atlanta, and it's so big, I can't grasp on to nothing. I just can't get it right with the schools, with the housing people, with nobody.

KOCH: Tanya's son, Junior, has made few friends. He spends his time playing football video games but wishing he was playing for real. Junior was wide receiver for the bay high Tigers.

JUNIOR REID: I miss them a lot because I wanted to be there and help them out with their season and stuff.

UNIDENTIFIED MALE: Tigers, first and ten.

J. REID: I felt like I'm going to leave my own town when I'm down.

KOCH: Before Katrina there were more than 20,000 low-income residents like Tanya on Mississippi's Gulf coast. No one knows how many can never come home, exiled by the cost of housing.

UNIDENTIFIED FEMALE: Where did you get them from?

KOCH: Tanya and ten other stranded relatives gather each night at her momma's apartment. She plans to take her mother Betty back with her to Bay St. Louis, but Betty isn't so sure.

BETTY: There's nothing there no more. All my memories of Bay St. Louis are not there. Everybody has gone different ways. I have no friends, no schools just about, no nothing.

T. REID: I have to go back and help them because that's where I'm from, and I feel that I need to go back and help.

KOCH: For Tanya not even public housing is an option. The one complex still standing hasn't yet been repaired. Two others had to be bulldozed after the storm. Across coastal Mississippi, 2500 public housing units were damaged by Katrina, and 80 percent of rental housing is unlivable. Affordable housing is nearly impossible to find.

T. REID: I'll take a trailer because I want to go home.

KOCH: So despite what you've heard about life in a FEMA trailer with a couple teenagers, you're willing to do that?

T. REID: Yes, ma'am.

KOCH: Those are small.

T. REID: It'd be home for me.

KOCH: There's no place like home.

T. REID: No, ma'am. No place like home.

KOCH: But it's dawning on many residents that home may never exist if they don't get an insurance check. One angry neighborhood is taking its fight to the streets.

(COMMERCIAL BREAK)

(NEWS BREAK)

(COMMERCIAL BREAK)

KOCH: By spring, these are signs of the times. Bay St. Louis residents fed up with their insurance companies. Companies still insisting the hurricane damage to their homes isn't covered.

UNIDENTIFIED FEMALE: This is an engineer report from State Farm. They said the wind was only blowing 46 miles-per-hour.

KOCH: Their target, State Farm, the largest insurer in Mississippi. Back in their neighborhood, Jordan River Estates, nearly all of the 168 homes were destroyed.

UNIDENTIFIED FEMALE: These are the only two homes that have any structure left at all.

KOCH (on camera): So that's one of the best-looking houses in the neighborhood?

UNIDENTIFIED FEMALE: Yes, that is the best-looking house in the neighborhood.

KOCH (voice-over): Residents started tracking whose wind damage claims were being paid and whose weren't.

(on camera): And I see here someone got 10 percent.

UNIDENTIFIED MALE: Ten percent.

KOCH: This is full wind paid over here.

UNIDENTIFIED MALE: Paid, full flood.

KOCH: AAA. So AAA Fidelity paid full, the Wind Pool paid full...

UNIDENTIFIED MALE: Well, here's another one.

KOCH: But not a single State Farm. All denied.

UNIDENTIFIED MALE: Not one. All denied.

Koch (voice-over): Every single home covered by State Farm denied as of March.

UNIDENTIFIED MALE: I look forward to seeing a lot of homes back in this area...

KOCH: So homeowners of Jordan River Estates hired a lawyer amassed eyewitness accounts and meteorological proof that tornadoes struck their neighborhood. By August State Farm says it had paid 20 percent of residents here some kind of settlement. The others haven't been paid a dime.

UNIDENTIFIED MALE: I suspect most everybody will be filing suit. I can assure you, I will. We won't go quietly.

UNIDENTIFIED FEMALE: No, not this group.

BOB WINGATE, BAY ST. LOUIS RESIDENT: You almost feel like you could turn around and walk up the stairs again.

KAY WINGATE, BAY ST. LOUIS RESIDENT: UNIDENTIFIED MALE: Right.

KOCH: Bob and Kay Wingate's home was one of the strongest in the neighborhood.

K. WINGATE: We had built the house up higher than anything on the street. Being an ex-home builder, he knew the higher you went, the lower your flood insurance would be. He built it super strong because it was going to be our home forever.

KOCH: It couldn't stand up to Katrina, but homes just across the water did.

B. WINGATE: The same water came right here as it came over there, and none of those are destroyed.

KOCH: Proof, the Wingates, say that wind was to blame, and since their policy covered wind damage, they were confident.

B. WINGATE: When we first met with State Farm about three days or four days after the storm, they told us this was going to be a combination of wind and flood.

KOCH: Which sounds reasonable.

B. WINGATE: Which sounds reasonable.

KOCH: Because it was. Hurricanes come with wind and flood.

B. WINGATE: And I heard rumors, though, that State Farm was going to make it -- claim that it was flood only.

KOCH: And it did. State Farm denied the Wingates' claim telling them there was no wind damage and they'd get nothing. The Wingates have been State Farm policy holders for 40 years.

K. WINGATE: When you need them, you didn't have anything, and they just said, you're denied.

KOCH: When I first started hearing these complaints six months ago, State Farm declined our request for an on camera interview, but by the summer with anger and lawsuits mounting, the company agreed to sit down and talk.

KOCH (on camera): If you've seen any of the signs that these folks have held at the protests when they're marching up and down Highway 90, I'll quote a few, "State Farm is a catastrophe." "Like a grim reaper, State Farm is there." Those don't sound like satisfied customers.

WAYNE DRINKWATER, STATE FARM ATTORNEY: Kathleen, we had over 295,000 claims made by property owners as a result of Hurricane Katrina. This was the worst disaster ever to hit this country. People's houses were destroyed, their livelihoods are destroyed. Nobody is satisfied. Nobody is happy with how anything is turning out, and it certainly doesn't surprise me that many homeowners are not satisfied.

KOCH: What do you say to these homeowners who feel like they've been ripped off?

DRINKWATER: Kathleen, what we're trying to do is to go case by case to compare again the damage that I know they've suffered with our insurance policies to make sure that the damage they claim is something that we've promised to pay for, and if we find that we have promised to pay for it, we pay for it.

NIKKI CLEVELAND, BAY ST. LOUIS RESIDENT: This is unbelievable.

KOCH (voice-over): Nikki and Patrick Cleveland are still arguing with their insurance company, Nationwide, over what it will pay.

N. CLEVELAND: I really never expected that we would still be standing here fighting with the insurance company eight months later. I would never have imagined this.

KOCH: Their home untouched is still a wreck, and they're still living in a FEMA trailer, Nikki now 29 weeks pregnant.

N. CLEVELAND: I'm bumping into everything.

KOCH: Determined to get the money to rebuild, they've spent the last few months documenting evidence. They're going to mediation with their insurance company hoping to avoid going to court.

PATRICK CLEVELAND, BAY ST. LOUIS RESIDENT: I don't think they're going to pay us till a judge drops a gavel and says you must pay, I don't -- because tomorrow nobody's going to force them to pay. It's a negotiation. It's an offer, and I think they'll offer us nothing -- is my prediction.

KOCH: Still, they showed up ready to make their case.

P. CLEVELAND: We got this chart that shows the eye of the storm. We averaged 143 miles-per-hour, and I can tell you from experience that the storm was terrible.

KOCH: They would know. Patrick and Nikki were in her parents' beach home when Katrina ripped it apart. Patrick and Nikki nearly drowned, her parents died. It took an hour for the Cleveland's to make their case to Nationwide and a mediator.

(on camera): How did it go?

N. CLEVELAND: Not well.

P. CLEVELAND: It's -- we agreed it was confidential, but let's just say we did not reach an agreement.

KOCH: Was this a waste of time?

P. CLEVELAND: Completely.

N. CLEVELAND: Yes.

KOCH: Their only choice now is to sue.

N. CLEVELAND: Move on.

KOCH: They're not alone. Gene Taylor is already suing. His claim was denied by State Farm.

REP. GENE TAYLOR (D), BAY ST. LOUIS RESIDENT: That was a part of my tin roof. Now, over here where the orange is as high as the water got.

KOCH (on camera): Up there.

TAYLOR: So tin does not float. That piece of tin flew up there.

KOCH: That's right, that piece of tin is over the water line.

TAYLOR: And for the insurance company to come here and say I had no wind damage is just absurd. So, we'll go to court, and hopefully the right thing will happen.

KOCH (voice-over): You might think State Farm would have settled with Taylor. He doesn't just live in Bay St. Louis, he also represents the town, and all of Mississippi's Gulf Coast in Congress. When we first talked to the congressman in January, he didn't mince words.

TAYLOR: There ought to be a national registry of child molesters and insurance company executives because I hold them in the same very low esteem.

UNIDENTIFIED FEMALE: What about our children, State Farm?

KOCH: It's become a rallying cry here where anger is growing, hope in short supply.

UNIDENTIFIED MALE: Child molesters and insurance executives.

UNIDENTIFIED MALE: This is not the way honorable people do business.

KOCH: The fight over insurance in Bay St. Louis is about to take a nasty turn.

(COMMERCIAL BREAK)

DANIELLE STRONG, BAY ST. LOUIS RESIDENT: Get up. Don't go back to bed. Get up.

KOCH: June in bay St. Louis. As people here try to get back on their feet, try to rebuild, there's a gnawing fear. It's hurricane season again.

STRONG: It's just scary. It's scary all around. You hate to get back to this point and then find out that you should have sold your house or you should have left.

UNIDENTIFIED FEMALE: If it happens again, look for us somewhere else. I don't think I can do it again.

KOCH: Despite the uncertainty, the risk of losing everything again, it's still home.

TANYA REID, BAY ST. LOUIS RESIDENT: The apartment's right here.

KOCH: And Tanya Reid is trying to come back.

REID: They want $900 maybe for a two-bedroom apartment.

KOCH (on camera): Nine hundred 900 a month? And what would you normally pay for that, say before the hurricane?

REID: Six sixty-five.

KOCH: Is that a difference you can afford?

REID: I can't afford it.

KOCH (voice-over): Tanya has been living in Atlanta since Katrina hit. She's been searching for an apartment in Bay St. Louis for weeks.

(ON CAMERA): So, here's the apartments, Pelican Pointe.

REID: Pelican Pointe.

KOCH: Let's see what they have for you, if anything. Is there a waiting list?

REID: She said we have about 400 people.

KOCH (voice-over): Once this town had hundreds of low-income residents like Tanya, but now there's no place for them to live, little housing they can afford and no plans to build any. But in Bay St. Louis even those who own their homes and had insurance are beginning to feel the deck is stacked against them.

K. WINGATE: Oh, yeah, those look nice.

B. WINGATE: We can't deal with State Farm as a layman.

K. WINGATE: Right.

B. WINGATE: They're too big and strong.

KOCH: The Wingates, State Farm policy holders for 40 years, are not the first to feel abandoned by their insurance company. State Farm has a history.

UNIDENTIFIED MALE: That's moving right at us. We got to get out of here.

KOCH: In 1999, tornadoes flattened homes in Oklahoma City. State Farm was sued by customers who claimed it knowingly short- changed them by using a company, Hague Engineering, that intentionally undervalued damage.

JEFF MARR, ATTORNEY: State Farm used Hague to pay less on claims than what it should have knowing that Hague had a bias in State Farm's favor and against the policy holder.

KOCH: And the jury agreed. It found State Farm acted recklessly and maliciously deliberately underpaying homeowners for their property damage from the tornadoes. Hague denies being biased against homeowners and State Farm is appealing the decision.

But residents in Bay St. Louis are beginning to suspect the same thing is happening to them. Attorney and Katrina victim, Dickie Scruggs says he has evidence damage reports are being altered to favor the insurance companies.

DICKEY SCRUGGS, ATTORNEY: We have seen countless engineering reports that have been changed a week or two after the fact where the engineer went out and found it was all wind damage and then got the signal from the insurer that was the wrong answer.

KOCH: Scruggs showed us reports like this one. After one engineering company told State Farm twice that "wind was the predominant cause of the damage," State Farm commissioned a third opinion from a different engineering firm. That report found the damage "due to storm tide." State Farm says they can't explain why the additional reports were ordered, but that it's not their normal process. Scruggs isn't so sure.

SCRUGGS: If you don't give the insurance company the answer they want, you don't get any more work.

I'm sorry. We can't talk about it.

KOCH: Scruggs made a name for himself in 1997 when he sued the tobacco companies for billions. Now he's setting his sights on insurance companies including State Farm. Among his clients, Senator Trent Lott...

SEN. TRENT LOTT (R), MISSISSIPPI: There's going to be hell to pay.

KOCH: And Bay St. Louis Congressman Gene Taylor.

TAYLOR: People are gun shy to invest a lot in their next home when they haven't even settled with their insurance company on their last home.

SCRUGGS: We filed right at 2,000 lawsuits, separate lawsuits for families from one end of the Mississippi coast to the other.

KOCH: State Farm, the largest homeowners insurance company in Mississippi, says that they've paid out more than $1 billion in claims and that just one half of one percent of its customers are suing.

(on camera): Do you really think it's fair to judge by the percentage of people suing you when these are people that have lost everything that they owned, they're living in FEMA trailers, they have no jobs? How can these people afford to go to court? Do you really think that's a fair gauge of satisfaction?

DRINKWATER: Sure I do. I do and I've lived and practiced law in Mississippi for many years, and I can tell you that Mississippi is not a litigation deprived environment. You don't have to look far in Mississippi to be able to find a lawyer, and Mississippians know how to get into court if they have a beef with somebody.

KOCH (voice-over): State farm is also taking action. For the moment it's stopped using Hague Engineering.

DRINKWATER: We have confidence in Hague. We think that the result in the Oklahoma case was a result of mistakes by the trial court and not because of anything that Hague did bad, but until it's reversed, until we can get it up on appeal, we just made the judgment internally that we're not going to make any additional assignments to Hague.

KOCH: As to the charge reports are being altered...

DRINKWATER: At this point it's a matter in litigation that'll work itself out, but I can promise you that's not State Farm's policy to do any of the things you're talking about. We do not put pressure on engineering firms to try to change reports or lie or cheat policy holders. We try to take these things as they come and try to deal with policy holders as fairly as we can.

B. WINGATE: I have been an advocate for State Farm insurance all of my life, and so I don't know how many people told buy from State Farm, they will do you right, and I always thought they would, and I have never been so wrong in my life.

(COMMERCIAL BREAK)

KOCH: August 29, one year later.

UNIDENTIFIED FEMALE: Joanna Dagnell, Ralph Dagnell.

KOCH: A year after the nightmare of Katrina, death, destruction and loss, Bay St. Louis comes together to remember.

Nothing has been easy this year. Every step forward, a struggle with FEMA, the SBA and the insurance companies.

Exhausted, some are handing the fight to the professionals, lawyers.

K. WINGATE: We felt we had no other route to go but to go ahead and get somebody to take it off our shoulders and...

B. WINGATE: Give us a rest.

K. WINGATE: Give us a rest. You know, we're tired.

B. WINGATE: We are worn out, physically, mentally.

B. WINGATE: We're tired.

KOCH: But a day in court for most on the Gulf Coast will likely be a long time coming.

SCRUGGS: With all of the thousands of cases, they can't be tried one by one and give justice to people because justice delayed is, indeed, justice denied.

KOCH: Currently, just one federal judge in Mississippi is available to hear the thousands of insurance lawsuits, although more judges may be added.

SCRUGGS: If you're an illegal alien or a criminal, you'll get a day in court within seven or eight months. If you're a family that's got wiped out by wind alone in Katrina, you're not likely to see a day in court any time in your lifetime or that of your grandchildren even.

KOCH: So, some people who've lost everything have settled, many for just pennies on the dollar. But for others, the fight and the wait go on.

UNIDENTIFIED MALE: We went to mediation, and they offered us 11 cents on the dollar. We are going to stick in there for the duration. If they come up at the -- on the steps of the courthouse and say, we want to close, if they do not give us that -- what we want, we're still going in that courtroom.

KOCH: Bay St. Louis today is a study in contrast. The worst hit areas near the water are empty and lifeless. But some homes and businesses with less damage are being repaired. Many families have returned, and the town has a resilience that just won't die. After the storm, only a third of students had returned. But by graduation, all but seven were back to collect their diplomas.

In a small town fighting for its life, each resident's decision makes a difference.

Nikki and Patrick Cleveland are going to court. Their baby Emma was born in July. They hope one day she'll grow up by the water where they want to rebuild their home, but so far they've received nothing from their insurance company.

There are others who won't be coming back to Bay St. Louis. The Goodfellows have moved out of their cramped Birmingham apartment to a house in Northern Mississippi still too traumatized by Katrina to return to the Gulf Coast they love.

And Tanya Reid, she couldn't find an affordable apartment in Bay St. Louis. She and her children are living with a friend 30 miles away.

Congressman Gene Taylor is pushing for a federal investigation into the way insurance companies treated their customers in the aftermath of Katrina.

Mayor Eddie Favre, like many in Bay St. Louis, is still living in a trailer, one he had to buy himself.

MAYOR EDDIE FAVRE, BAY ST. LOUIS: We lost our houses, but we still have our home, and we lost everything else, but we still have each other, and that's the goal, that's the challenge is together with the folks that are here to bring it back to what it needs to be.

KOCH: As for the insurance companies, the hit from Katrina doesn't seem to have made a dent in their profits. They were up 11 percent last year. In the year Bay St. Louis fought to come back, the insurance industry made a record $43 billion.

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