Insurance Coverage Blog

I heard about the Louisiana Supreme Court's decision in Landry vs. Louisiana Citizens Property Insurance Corp.  yesterday morning, but had no time at all to do a post.  Got too busy even to do an emergency post linking to the decision.  But now I've read it, and I have a few moments to comment briefly.  By the way, here is the Landry decision.  Here is a link to a story by Rebecca Mowbray in the Times-Picayune.

This decision is the first thing I've read in Landry that has made sense to me.  The Court of Appeals' decision was more or less completely incomprehensible.  The state Supreme Court went for the simplest analysis, which is always a good idea and keeps courts out of trouble, and that analysis is basically as follows: when the state's Valued Policy Law was re-enacted in 1991 after being eliminated three years before, the Legislature reached an apparent compromise with insurance lobbyists that inserted into the law a provision allowing insurers to determine a loss by a different calcualation than that contained in the statute, as long as this was announced in both the policy and the application for the policy. 

The loss calculation of the statute is that the insurer must pay the full value of the policy if the property is a total loss because of a covered loss.  The exception allowed in the statute, of course, swallows up the rule, because what insurer will stay with the statutory formula when it can write a more favorable and more clearly defined one?  The Supreme Court found that the method of loss calculation in the policy -- in essence, the cost to replace or repair -- was valid under the exception noted in the Valued Policy Law. 

This is significant because the plaintiffs' argument was that the Valued Policy Law requires the insurer to pay the face value of a policy whenever a covered loss factored into a total loss, even if much or most of the loss was due to an uncovered cause.  In the case of the Landrys damage from Hurricane Rita, it appears to me highly likely that most or all of the damage was due to the uncovered cause, flood, rather than the covered cause, wind.  Under the Supreme Court's decision, the insurer will be liable only for the share of the damage that can be attributed to wind.  

The court appeared ready to limit the Valued Policy Law strictly to its literal terms -- fire insurance policies, rather than policies like homeowners insurance that happen to have fire coverage -- but said this was not necessary because its other analysis produced the same result.  The court noted that insurers have typically interpreted the law as applying not just to fire insurance policies but to all policies with fire coverage, and the court encouraged the Legislature to clarify the law.  

Lastly, in looking at the list of concurring justices, I see one of them is named Jeanette Theriot Knoll, and I am just guessing, but Theriot is probably not pronounced "the riot."

David, you are correct. "Theriot" is promounced, "Terry-oh."

"Terry-oh" is a pretty common Louisiana surname. It's Acadian (aka Cajun) and well known down south Louisiana way.

It's amazing to me that plaintiffs in Louisiana, Florida and perhaps elsewhere have, for so long, gotten away with insisting that the Valued Policy Laws were in place to address causation issues rather than valuation issues. I mean, really: arguing that a non-covered cause of loss should enable an insured to hit the jackpot and get policy limits just because the property was rendered a total loss? If the property had only been a 75% loss, and the loss was not caused by a covered peril, no one would argue that the insured should get 75% of the policy limits. Arguing for policy limits despite the fact that an excluded peril caused the damage required a really tortured reading of the statutes, in my opinion. And, yet, the courts (such as the Mierzwa panel in Florida) just pushed the view along, right into the realm of validity. I guess it stands to reason: judges are property owners and, consequently, insureds. And some of them, when they find an opportunity, just can't help sticking it to the insurers. Nevermind the law. Forget the language of the contract. It doesn't matter that whatever adversities fall to the insurers just get passed on to the rest of us in the form of higher premiums. What other explanation is there?

P.S. I just read my own post, and I realize it looks like I'm talking about situations in which the non-covered cause of loss was responsible for 100% of the total loss of the property. And I realize that the situations in which plaintiffs have generally argued for policy limits pursuant to VPLs are when the total loss was caused partly by a non-covered loss and partly by a covered loss. But, still.

Entertained:

Never expect logic or fairness to stop a policyholder from trying to find coverage for an uncovered claim.

And since there are no "reverse bad faith" concepts that apply to them (and since maybe one judge in a million enforces Rule 11) they have absolutely no reason not assert the most absurd, ridiculous and fantastic theories and causes of actions that they can get their lawyer's word processor to spit out.

But if a carrier were to behave that way just once: the carrier is evil.

Hey David-just a heads up...."E.A. Renfroe wants Provost-Umphrey disqualified from cases involving the former clients of attorney Dickie Scruggs." Sun Herald just posted story
http://www.sunherald.com/newsupdates/story/580011.html

Ah ha.....we have a summation of the BELLESOUTH DOCTRINE........finally....

"if a carrier were to behave that way just once: the carrier is evil."

Thank you, CLAIMSGUY. (BTW, you aren't with the Asssssociated Pressssssss, are you?)

ClaimsGuy -- Man, oh man, have you summed it up. And this is what kills me! It's usually not the insureds who stretch credulity to the Nth degree; it's their lawyers, the ones who have learned the game and unabashedly play it with a straight face, no matter how ridiculous. In fact, it's not even that they play the game; it's that they turn things on their heads and characterize the carrier as evil for even investigating a claim. And of course, the insureds happily climb on the bandwagon. Of course, it isn't all lawyers that behave this way. But, for Bellesouth and the others who insist on painting white wings behind all the policy holders and their lawyers, and red devil horns on all the carriers, your 3-paragraph post really ought to be required reading.

OAEGE, Belle would justify it as the insurance companies getting their just desserts, turnabout is fair play, etc.

Ahem! These cases are in the court of laws. They haven't exactly been thrown out.

It is human nature that folks who have suffered a big loss will listen to a lawyer who says he has a way to get the insurer to pay. And if the court decides in your favor, who is anyone to say you are overreaching?

Insurers do the same thing when it is in their interests. I remember after the Sept. 11 attack, we had insurers arguing that the airplane attacks were either one terrorist event or two, depending on which definition would result in them being liable for the lesser amount of claims payments to the policyholder.

And to the notion that the insurers on either side of the issue were opportunists who were only arguing to avoid paying claims, you could say they had a duty to their shareholders to get the matter settled in court.

Lavonne, I think you are wrong on the 9/11 analogy. Those cases were driven by oddball policy language that was, for the most part, drafted by the policyholder's representative: the broker.

In fact, where it was most difficult for the policyholder was in those cases where the policyholder had very clearly wanted a "one occurrence" form and approach because they were focused more on the number of deductables they would have at risk, not the number of policy limits they could collect.

It was a classic case of "be careful what you wish for".

It was also a classic case of "let's all watch the broker lie like a dog, since he is so scared of his E & O exposure".

Snake Farm doesn't have any shareholders. The policyholders own it.

I am sure those policyholders aren't too happy that their shares are paying State Farm lawyers to fight against them.

MUTUAL COMPANY........no shareholders, no shares.