Posted On: January 29, 2009, 3:28 pm CST

Posted By: LISA TELL ALL YOUR FRIEND

Saturday, Jan. 10, 2009

Louisiana lawsuit penalizes insurer
By ANITA LEE - calee@sunherald.com

tool goes here The 5th U.S. Circuit Court of Appeals handed a victory to Louisiana policyholders this week in a Katrina insurance case, but the ruling won't benefit Mississippians because the state lacks a law requiring timely payment of claims.

In the Louisiana case of Grilletta v. Lexington Insurance Co., a trial judge levied a penalty equal to 25 percent of the undisputed amount paid for wind damage because the company failed to act on the claim within 30 days of receiving proof of the loss. In fact, the appellate ruling said, "Lexington arbitrarily sat on the claim for over two months" after an adjuster concluded wind had destroyed the house. Lexington then hired an engineering firm that blamed the loss on storm surge, excluded from coverage. The April 2006 report also noted wind damage.

In June 2006, Lexington sent the policyholder a $311,055.38 check for the wind damage.

A trial judge levied a 25 percent penalty on that amount for the arbitrary late payment. The judge rejected penalties for the additional amount awarded at trial, $248,325.42, reasoning there was a legitimate coverage dispute.

The appellate court ordered the judge to assess the 25 percent penalty on coverage awarded at trial, saying failure to make timely payment on a covered claim exposes the insurer to penalties on the entire claim.

Mississippians, hundreds of whom waited more than two years for Katrina payments, lack similar protection and are unlikely to get it from the current Legislature, say policyholder attorneys and state Sen. David Baria. Baria is sponsoring a bill that mandates timely payment of claims.

"I believe that would get the insurance companies' attention as far as treating policyholders more fairly," said attorney Ben Galloway of Owen Galloway & Myers in Gulfport. "Right now, the deck is stacked against the policyholder. We've seen it over and over in Katrina litigation.

"There's really not much incentive for insurance companies to be fair with insureds on a claim."

Baria's bill sets time frames for processing and paying claims, with extensions for insurance companies in catastrophes. Failure to make timely payment subjects companies to 18 percent annual interest and attorney's fees. The policyholder bill of rights includes other consumer protections.

"It encourages the insurance companies to do the right thing in a timely manner," said Baria, D-Bay St. Louis. "The insurance company obviously benefits from not paying in a timely manner, whereas the insured's condition worsens over time. Then the policyholder settles the case for far less than they are entitled to because they're under duress. That's what this type provision is designed to prevent."

Baria holds little hope for passage of the time provision. A much-weaker bill of rights passed the House last year, but Senate Insurance Committee Chair Eugene S. "Buck" Clark never even brought it up for discussion.

"The insurance industry is very powerful," Baria said. "They exert their influence over various pieces of legislation, in Mississippi and nationally."

Clark said he is willing to look at Baria's bill. They plan to meet next week.

However, Clark said, "I'm not going to promise now which bills I might bring up." Clark also acknowledged insurance lobbyists aplenty roam the state Capitol.

"There's a lobbyist for every insurance company, and then they have contract lobbyists," he said. "Oh yeah, they're up there. I talk to all of them." He said the lobbyists had nothing to do with his failure to allow committee discussion of the 2008 policyholder bill.

"We're all policyholders," Clark said. "I wouldn't say it was the lobbyists at all. It's just me talking to some of my colleagues."