Louisiana Closer to Recouping ‘Road Home’ Money

State Supreme Court: Contested Policies Must Be Evaluated Separately

Louisiana may be able to recoup much of the money it handed out after Hurricanes Katrina and Rita in 2005 to help storm victims repair their homes, following a recent ruling by the state’s high court.

Under a program known as “Road Home,” grants of up to $150,000 dollars were provided to recipients to repair uninsured or under-insured property damage after the two hurricanes. In exchange, the state required more than 150,000 homeowners accepting Road Home money to sign a “Limited Subrogation/Assignment Agreement,” which allowed the state the right to receive reimbursement from any funds paid to the homeowners by companies that insured their homes.

The homeowners’ insurers balked at the agreement, asserting that the anti-assignment clauses in the homeowners’ policies invalidated the assignments of claims proceeds to the state.

Louisiana Attorney General Buddy Caldwell saw things differently and filed suit against some 200 insurers that wrote property insurance in Louisiana at the time the hurricanes hit in 2005. The case made its way to the U.S. 5th Circuit Court of Appeals, which in October 2010 certified the following question to the Louisiana Supreme Court: “Does an anti-assignment clause in a homeowner’s insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer’s consent, bar an insured’s post-loss assignment of the insured’s claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?”

At the time, the Fifth Circuit explained that it handed the question of legality of the Road Home subrogation agreements to the Louisiana Supreme Court because that court had not previously “determined whether an insurance contract’s anti-assignment clause prohibits post-loss assignments of policy rights, because this issue is case-dispositive, and because either the state or the insurers stand to lose billions of dollars in claims.”

With In Re: Katrina Canal Breaches Litigation, 613 F. 3d 504 (5th Cir. 2010), the state Supreme Court answered that Louisiana public policy does not prevent an anti-assignment clause from applying to post-loss assignments. However, the Court clarified, “the language of the anti-assignment clause must clearly and unambiguously express that it applies to post-loss assignments, and thus it must be evaluated on a policy by policy basis.”

Because the policy must “clearly and unambiguously” state that post-loss assignments are not allowed, the Supreme Court determined that the federal district court must evaluate the contested “anti-assignment clauses on a policy by policy basis to determine whether the language is sufficient to prohibit post-loss assignments.”

Attorney General Caldwell sees the ruling as setting the stage for the state’s full recovery of the money provided to homeowners to expedite repairs to their homes.

In the state’s view, the Road Home program created a situation in which “some insurers inadequately adjusted and paid grant-eligible homeowners’ claims, and some grant-eligible homeowners had little motivation to file claims or challenge low insurance settlements,” the Fifth Circuit noted in 2010.

According to the insurer/defendants, the suit was an attempt by the state “to obtain yet more money from the insurers, even in situations where the homeowner was satisfied with the amount paid, had already filed a lawsuit against the insurer, or had reached a settlement agreement.”

Topics Carriers Louisiana Homeowners