It has been more than eight years since Hurricane Katrina made landfall on Aug. 29, 2005, and only slightly more than one year since Hurricane Sandy made landfall on or about Oct. 29, 2012.
Following Hurricane Katrina, courts in Louisiana and Mississippi dealt with thorny legal issues such as whether damage was caused by wind and/or rain, the resulting coverage of such damage under homeowner, business and flood insurance policies and the scope of an insurance agent’s duty to provide information about and procure coverage for their customers.
It remains to be seen whether these issues will be re-litigated in states affected by Hurricane Sandy, particularly New Jersey and New York.
In the aftermath of Hurricane Katrina, there was some concern on the part of insurers that given the magnitude of its destruction and the number of people affected, courts and juries might be more inclined than usual to find insurance companies and agents responsible for the resulting losses. However, it would be fair to state that in many instances this did not happen. Louisiana courts, in particular, tended to reject claims against insurance agents.
Two decisions issued by Louisiana appellate courts at the end of the summer involving Katrina claims continue these trends.
Agent Negligence Asserted
In Mandina, Inc. v. O’Brien, the owner of Mandina’s restaurant in New Orleans sued his insurance agent for negligently failing to inform him that the business interruption (BI) coverage in the policy covering the restaurant did not apply to flood damage and for failing to obtain such coverage.
As a result of numerous claims against insurance agents following Hurricane Katrina, the Louisiana Supreme Court described the agent’s duties in detail in a 2010 opinion as follows:
“An agent has a duty of reasonable diligence to advise the client, but this duty has not been expanded to include the obligation to advise whether the client has procured the correct amount or type of insurance coverage. It is the insured’s responsibility to request the type of insurance coverage and the amount of coverage needed. It is not the agent’s obligation to spontaneously or affirmatively identify the scope or the amount of insurance coverage the client needs. It is also well settled that it is the insured’s obligation to read the policy when received, since the insured is deemed to know the policy contents.”
The Supreme Court’s stance made it extremely difficult to recover on a claim against an insurance agent under Louisiana law, except in a fairly narrow set of circumstances. Mandina’s attorney was undoubtedly aware of the status of Louisiana law and argued that the Mandina circumstances permitted recovery against Mandina’s insurance agent.
He argued that the owner of Mandina’s met with his insurance agent every year to discuss renewing his commercial insurance policies and had been doing so for more than 10 years before Hurricane Katrina struck. The meeting in 2005 took place five days before Katrina made landfall. At that meeting, the agent specifically recommended that the BI coverage under the restaurant’s commercial policy be increased due to the approach of Hurricane Katrina and the possibility that it might hit New Orleans. Mandina’s owner agreed, but because Katrina struck only days later he did not receive a copy of the renewal policy until after the hurricane hit.
Mandina’s suffered significant flood and wind damage, resulting in a substantial business interruption loss. Mandina’s owner made a claim under his commercial insurance policy, but was told that BI coverage did not apply to flood damage.
After filing his lawsuit, Mandina’s owner acknowledged that he was aware that the commercial insurance policy covering the restaurant excluded flood damage and that its flood policy did not provide BI coverage. But, he believed that the business interruption coverage he agreed to purchase following during the 2005 meeting with his insurance agent was a separate policy.
He pointed out that he always purchased the maximum insurance coverage recommended by his insurance agent at these meetings, and the fact that his agent had recommended that the BI coverage amount be increased due to Hurricane Katrina’s potential to hit New Orleans led him to believe that the coverage would apply to damage caused by either wind or flood.
The appellate court was not persuaded. Citing the Louisiana Supreme Court’s explanation of an agent’s duties, it found that Mandina’s owner had a duty to know the contents of his insurance policies. Even though he did not receive a copy of his 2005 renewal policy until after the hurricane landed, he had had BI coverage for many years and was legally presumed to know that the coverage did not apply to flood damage.
While his insurance agent had recommended an increase in the BI coverage limits, Mandina’s owner neither specifically asked if the coverage would apply in the event of a flood nor specifically requested such coverage, the court said. It summarized the situation as one where “an insured [like Mandina’s] who does not inquire about a particular coverage, who does not ask for the coverage, who does not ask for clarification about the coverage, and who never examines years of policies, has no right to assume that he has coverage and then sue his agent because his assumption was incorrect.”
Wind vs. Water
In Wallace v. Louisiana Citizens Property Insurance Corp., the owner of a home damaged by both wind and flood waters during Hurricane Katrina argued that his house was a total loss due to wind damage before the flood waters reached it and had to be demolished. The house was torn down before it could be examined by the expert retained by the defendant insurance company.
Following a bench trial, the judge rejected the opinions of the homeowner and two other witnesses who examined the home before it was demolished regarding the cause of damage. The judge accepted instead the opinion of the defense expert who testified that the only wind damage was to the home’s roof, even though his opinion was based solely on photographs of the home before it was demolished. The appellate court affirmed the dismissal of the suit.
It is not clear whether these and similar issues will be raised in Hurricane Sandy affected states. Currently, there are only a few reported cases involving claims arising out of Sandy, though it is probable that there are many in the early stages of litigation.
Sandy has, however, produced one lawsuit that is unique and, as the court itself noted, probably the first of its kind. In Brooks v. Foglio, the plaintiff Marjorie Brooks “alleges that her insurance company paid her too much money after her home was damaged by Hurricane Sandy.” The court was so amazed by this allegation that it took judicial notice that “pigs can fly and hell has frozen over.”
Undoubtedly, this will be a case worth watching.