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

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

Speaking at a press conference in Baton Rouge, La., Donelon says every property-insurance policyholder is at "grave risk and exposure."

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

Citizens avoided having to post a bond to pay the original judgment while the state-run insurer appealed the case. Now, unless the state Supreme Court reconsiders, all property-insurance policyholders in Louisiana could be footing the bill because Citizens has the ability to levy assessments.

Donelon says the worst-case scenario is that Citizens' maximum exposure to the decision is $200 million, if other eligible policyholders 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 $5,000 if they deserve it, but each should have to go to court to get the amount determined instead of an overall blanket judgment for all. He says private insurers faced similar class-action lawsuits but they 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. He considers the judgment "unconscionable."

The case does nothing to remove the stigma of political favoritism within the Louisiana court system, says Donelon, adding that he fears it will have a "chilling effect on an insurance market in recovery."

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

The last-resort insurer could pay the $93 million, but it would leave the company in bad shape heading into the next hurricane season.

Special Reports /

Donelon: Decision Against Louisiana Citizens a ‘Potentially Devastating Event’

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