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 issued a judgment that reinstated the $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 “on their behalf as well as others similarly situated,” 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 in 2008 sought summary judgments imposing penalties on Citizens for each compensable claim it failed to adjust in a timely manner. The district court in 2009 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 Dec. 16 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 “the plain language of La. Rev. Stat. § 22:2658(A)(3) does not require a showing of bad faith by the insurer, but simply requires proof of notice and inaction for over thirty days. We further find the provisions of La. Rev. Stat. § 22:1220(C) cap the penalties for such inaction at five thousand dollars when damages are not proven.”

Louisiana Insurance Commissioner Jim Donelon took issue with the high court’s 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 of claims, 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 explained.

The Court found that was not enough. “Citizens argued the ‘beyond catastrophic’ circumstances and its advance payments relieved it of liability and introduced evidence purporting to show that Hurricanes Katrina and Rita wrecked havoc upon the infrastructure of Southern Louisiana and created obstacles to the settlement and resolution of insurance claims within any short period of time,” Justice Knoll wrote.

But, he continued, 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. Under its mandatory directives, either the insurer timely initiates loss adjustment, or the insurer is subject to penalties.”

According to the insurance department:

• Citizens currently has $140 million cash on hand. In addition, Citizens 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.
• Because Citizens is domiciled in Louisiana and only writes insurance in Louisiana, the company does not have access to the federal court system in New Orleans, which has rejected the notion of class actions for these penalties resulting from failure to comply with the same statutory time limits to adjust claims from Hurricanes Katrina and Rita.
• The number of claimants currently is 18,573 but there is potential for much more.

Other similar class action lawsuits against Citizens are pending. Citizens attempted to settle one arising out of Orleans Parish, Orrill vs. Louisiana Citizens, for $35 million. However, that settlement was ruled inadequate by the 4th Circuit court. The most recent settlement demand from plaintiffs in that case was for $50 million, according to the insurance department.

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

Topics Lawsuits Catastrophe Claims Louisiana Hurricane