The Louisiana Citizens Property Insurance Corporation will file an appeal today of a $95 million award in a class action lawsuit that accused the state-backed property insurer of last resort of taking too long to pay claims after Hurricane Katrina struck in 2005. Citizens CEO John Wortman said on Aug. 21 that Citizens would not have to assess policyholders to cover the amount of the appeal bond.
Originally Citizens board feared it might be required to put up the full amount of the award – $95 million – as collateral for the appeal bond, which the courts have said it is required to post. Wortman said, however, the board was able to negotiate an appeal bond for less than 25 percent of the jury award. Citizens has about $100 million on hand to pay claims and operating costs, and Wortman said it would be able to put up the money for the appeal bond from Citizens’ coffers.
Previously, “most of the bond companies were requiring 100 percent collateral and that was going to run us out of money and we were going to have to do an assessment,” Wortman told Insurance Journal. “We were able to negotiate some decreases in the collateralization requirement so we won’t have to do an assessment.”
The award stems from a class action lawsuit filed in Jefferson Parish. The Associated Press reported that Jefferson Parish Judge Henry Sullivan ruled in March that the company must pay $92.8 million to 18,573 policyholders because their Hurricane Katrina claims were not paid quickly enough. With interest, that figure has risen to $95 million.
At a press conference on Aug. 19, Louisiana Insurance Commissioner Donelon explained that a settlement had been reached over similar class action suits filed in Orleans and St. Bernard Parishes, limiting the award to $17 million, of which the attorneys who filed the suits would share a total of $5 million.
Donelon said a proposed settlement to the attorneys and plaintiffs in the Jefferson Parish case has not been accepted. Ultimately, Donelon said, Citizens hopes to make its case before the State Supreme Court.
Wortman said the board’s decision on a proposal for a 10 percent rate hike for Citizens that would go into effect in May 2010 is on hold until the state legislative auditor completes the audit of Citizens’ books for 2008. He said audits for 2004 – 2007 have been completed and the ’08 audit is expected to be finished by Oct. 1. He said that still gives the board plenty of time to consider rating for next year.
“There’s a statutory requirement that we have to do a market survey,” Wortman said. “We have to an actuarial sound calculation for each rating territory and then we take the highest of those. … We are a market of last resort and our charge is to be above the marketplace. We’ve completed that process. Actually our last rate increase was put in place May the 1st of ’09 so we have until ’10 to comply with the statute.”
Wortman also said the process of depopulating Citizens policies is an ongoing process. At its highest the insurer had around 170,000 policies on its books. During the past few years it has reduced that number by around 45,000 policies, bringing the number of policies back to pre-Hurricane Katrina levels.