by Clancy DuBos
Lawyers for Jefferson Parish homeowners who successfully sued Louisiana Citizens insurance company after Hurricane Katrina have been fighting several legislative bills that they say attempt to undercut, retroactively, a $95 million judgment rendered against the company for not initiating the post-Katrina claims adjustment process quickly enough.
State law requires property insurers to begin adjusting claims within 30 days. Citizens, which is a state-sponsored property insurer of last resort, failed to meet that deadline in thousands of cases, prompting the suit.
Fred Herman, an attorney for Jefferson Parish homeowners in a class action suit in state court against Citizens, is working with lobbyist Alton Ashy to fight at least three bills in the state Senate and three identical measures in the House. Both men say the bills are designed to undo state Supreme Court and U.S. Supreme Court rulings against Citizens.
State Insurance Commissioner Jim Donelon supports the bills and does not deny that they are aimed at undoing the judgment, which he says “places a burden on 95 percent of the other homeowners in the state.” The burden cited by Donelon is an additional assessment on homeowner policies that is levied to keep Citizens afloat in the face of the judgment and other costs.
All three Senate measures have come up for consideration in committee but were delayed in the face of opposition. The House bills have yet to be considered. The three Senate bills at issue are Senate Bills 204 and 358 by Sen. Blade Morrish, R-Jennings, and Senate Bill 311 by Sen. Eric LaFleur, D-Ville Platte.
Morrish’s SB 358 is the one that most directly affects the recent lawsuit. It would bar recovery of class action-based penalties against Citizens — effectively barring class action suits against the insurer and jeopardizing recovery in the successful lawsuit against the company. Morrish voluntarily delayed consideration of the bill when it came up for committee action.
Donelon says “a handful of politically connected” plaintiff attorneys have driven the litigation and are simply out to get money by opposing the bills. Ashy counters that the successful class action suit against Citizens has actually made the company better, because the company now maintains larger reserves and reinsurance as well as adjusters ready to handle claims — all as a consequence of the litigation.
“Mr. Donelon has done a very good job of portraying this as a money grab by lawyers,” Ashy adds. “What he hasn’t said is that in addition to the Legislative Auditor calling it the worst-run insurance company in the state, Citizens neglected to honor its obligations to its policyholders. Now they want legislative relief to do something that the judicial system said was wrong. That’s just not the right way to handle it.”
Citizens had no contract adjusters when Katrina hit. The penalty for failing to adjust claims in a timely fashion is capped at $5,000 per claimant. In the suit filed by Herman and other attorneys, Citizens was hit with the maximum penalty for all members of the class.
Donelon says that ruling was “outrageous” because it was rendered as the result of a summary judgment — a ruling by a judge without a trial based on the lack of any significant factual disputes. Donelon says not all homeowners were equally delayed, and therefore the case should not have been heard as a class action or decided by summary judgment. He says a similar case in federal court failed to gain class certification.
Morrish’s SB 204 would let Citizens avoid having to post bonds in litigation. The bond requirement on losing parties helps guarantee payment of adverse judgments. SB 204 came up for committee hearing last week but committee members deadlocked 4-4 on it. It remains on the committee calendar.
LaFleur’s bill would loosen the penalty provisions that apply to all insurance companies for delays in resolving claims. It would provide that penalties apply only when delays are deemed “arbitrary, capricious or without probable cause.” It too was deferred voluntarily when it came up for committee consideration.
“This gives insurers any little excuse not to even begin evaluating a claim, leaving policyholders … to the mercy of insurance companies,” Herman says of the LaFleur bill.
Citizens and the plaintiff lawyers might yet discuss a settlement of the litigation. The main issue for plaintiffs and their attorneys is whether they will be able to collect on the judgment, which has grown to $110 million with interest and costs. Donelon says he would be willing to settle the matter for $90 million if the attorneys would cap their fees at one third. Herman says it’s not legal or ethical to settle a class action based on attorney’s fees. “We would entertain any discussion of fees once they pay the judgment,” Herman says.
Meanwhile, the bills could come up again at any time in the Senate Insurance Committee, which Morrish chairs.