NU Online News Service, Dec. 20, 1:02 p.m.EST

Louisiana Insurance Commissioner Jim Donelon says a recent stateSupreme Court decision to reinstate a nearly $93 millionclass-action judgment against the state's last-resort insurer is a"potentially devastating event."

Speaking at a press conference in Baton Rouge, La., Donelon saysevery property-insurance policyholder is at "grave risk andexposure."

The lower court's early 2009 award was to give about 18,575policyholders $5,000 each because Louisiana Citizens PropertyInsurance Corp. waited too long to begin adjusting claims afterhurricanes Katrina and Rita in 2005.

Citizens avoided having to post a bond to pay the originaljudgment while the state-run insurer appealed the case. Now, unlessthe state Supreme Court reconsiders, all property-insurancepolicyholders in Louisiana could be footing the bill becauseCitizens has the ability to levy assessments.

Donelon says the worst-case scenario is that Citizens' maximumexposure to the decision is $200 million, if other eligiblepolicyholders emerge.

The penalties involved are not for insufficient claim payment,but for not initiating claim adjustment within 30 days.

Donelon says he is not opposed to policyholders getting $5,000if they deserve it, but each should have to go to court to get theamount determined instead of an overall blanket judgment for all.He says private insurers faced similar class-action lawsuits butthey were not deemed applicable for class-action status.

Donelon says he thinks the Supreme Court's decision is an"impermissible and unconstitutional" application of the law. Heconsiders the judgment "unconscionable."

The case does nothing to remove the stigma of politicalfavoritism within the Louisiana court system, says Donelon, addingthat he fears it will have a "chilling effect on an insurancemarket in recovery." 

Citizens has about $200 million on hand but much of it is"spoken for"—earmarked for expenses like employee payroll, serviceproviders and reinsurance, Donelon says.

The last-resort insurer could pay the $93 million, but it wouldleave the company in bad shape heading into the next hurricaneseason.