Appeals Court Tosses $35M Louisiana Citizens Settlement

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The 4th Circuit Court of Appeals tossed out the $35 million settlement of two class action lawsuits against Louisiana Citizens Property Insurance Corp., saying the deal was not fair to some policyholders.

The ruling could prove costly to Citizens, which faces three class-action lawsuits because of delays in adjusting and settling claims from hurricanes Katrina and Rita. The settlement voided by the 4th Circuit covered Citizens’ failure to offer to settle claims within 30 days of being notified of losses.

Citizens’ board approved paying up to $35 million to settle the class action lawsuit in 2008. The suit had around 30,000 claimants.

Insurance Commissioner Jim Donelon had testified that property owners would benefit from the settlement, because the small payout would prevent Citizens from having to raise insurance rates.

The court said that fact was not a consideration in this class action settlement.

Citizens had to borrow around $1 billion to pay Katrina claims. It is paying off the debt by charging a fee to property insurers, who pass the fee along to their policyholders. The fee is now around 5 percent a year.

Citizens Chief Executive Officer John Wortman said the 4th Circuit ruling was disappointing. “We’re kind of looking at our options at this time, but we’ll most likely appeal,” he said.

The court said the settlement created a conflict among the class members. The people whose claims were not adjusted in a timely fashion are potentially entitled to a $5,000 payment, the court said. The people whose claims were not paid in a timely fashion are potentially entitled to a $1,000 payment. However, under the settlement, the most anyone could get was $1,000, the court said.

The court faulted the settlement for not explaining that if policyholders opted out of the agreement, their claims in another class-action lawsuit would never make it to court and the policyholders might lose thousands of dollars.

In another lawsuit against Citizens, a Jefferson Parish district court last year ruled that Citizens must pay around $150 million in penalties. Citizens has appealed that ruling.