Louisiana Citizens Owes More than $100M to Policyholders, High Court Says

Louisiana’s highest court has reinstated a nearly $100 million judgment against the state’s property insurer of last resort in a class action lawsuit stemming from Hurricane Katrina in 2005.

The Louisiana Supreme Court on Dec. 16, 2011, reinstated a $92,685,000 judgment, plus an estimated $11,007,046 in interest, against Louisiana Citizens Property Insurance Corp. in Oubre vs. Louisiana Citizens.

The lawsuit’s main issues concern delayed adjustment of homeowners insurance claims after Hurricane Katrina, breach of faith and a $5,000 penalty for each compensable claim.

In a 4-3 ruling, the Supreme Court justices found that a lower court had ruled correctly in 2009 in finding that Louisiana Citizens had failed to begin adjusting more than 18,000 claims in a timely fashion after Hurricane Katrina. Louisiana statutes allow for a 30-day adjustment period.

The lawsuit was filed in November 2005 by plaintiffs Geraldine Oubre and Linda Gentry, according to the Court’s written opinion. It was later ruled a class action.

Writing the majority opinion, Justice Knoll described the two main issues: Whether an insurer is subject to penalties for the untimely initiation of loss adjustment in the absence of a showing of bad faith and whether those penalties are capped at $5,000 when damages are not proven.

The class action sought to impose penalties on Citizens for each compensable claim it failed to adjust in a timely manner. The district court found in the plaintiffs’ favor and awarded a $5,000 penalty for each compensable claim — a total of $92,865,000 — plus interest. An appeals court later found, however, that “a factual determination of whether the insurer breached its duty of good faith was required before assessing penalties.”

With its decision, the Louisiana Supreme Court reversed the appeals court and reinstated the ruling of 24th Judicial District Court Judge Henry Sullivan. Justice Knoll wrote that the majority found that a showing of bad faith by the insurer is not required under state statute. The law “simply requires proof of notice and inaction for over thirty days.” Additionally, the Court said the statute caps “the penalties for such inaction at five thousand dollars when damages are not proven.”

Louisiana Insurance Commissioner Jim Donelon took issue with the decision, saying that “all property insurance policyholders in Louisiana will bear the cost of these class action lawsuits if Citizens has to implement an assessment to pay them or not.”

A release issued by the Louisiana Department of Insurance explained that the penalties are not for underpayment, but for “not initiating claim adjustment within 30 days from the most horrific storm to strike the state.”

Unable to adjust all Katrina claims within 30 days, Citizens had sent out advance additional living expense checks to policyholders within 30 days to help them offset the expenses of evacuation, or finding other living accommodations, Donelon said.

The Court found that was not enough. The applicable state statute [La. Rev. Stat. § 22:658(A)(3)] “does not allow for any exceptions to liability, even in so-called ‘super catastrophes,’ nor does it necessitate or allow for a showing of bad faith or justification,” Justice Knoll wrote. “Under its mandatory directives, either the insurer timely initiates loss adjustment, or the insurer is subject to penalties.”

Justices Weimer, Guidry and Victory dissented from the Louisiana Supreme Court majority opinion in Oubre vs. Louisiana Citizens.

Other similar class action lawsuits against Citizens are pending, including Orrill vs. Louisiana Citizens.

Louisiana Citizens Property Insurance Corp.

According to the Louisiana Department of Insurance:

• Citizens has $140 million cash on hand. It also has $70 million in excess assessments that can be used to offset the 2005 plan year deficit if approved by the board and access to a $50 million line of credit that was negotiated to fill any cash shortfalls from a major storm.
• Expenses in Citizens’ 2012 budget include $70 million in reinsurance premiums, $20 million in operating expenses and $6.5 million in service provider fees.
• Citizens is domiciled in Louisiana

Topics Lawsuits Louisiana