Allstate Decision Could Rock Louisiana Insurance Markets, Experts Warn

NU Online News Service

A $2.8 million verdict against Allstate by a federal jury in New Orleans in a Hurricane Katrina damage case will create major woes for the insurance industry in Louisiana, experts said today.

Robert Hartwig, president and chief economist of the Insurance Information Institute, predicted that the verdict--which included $1.5 million in punitive damages--means "trial lawyers will read this as open season on insurers."

Randy Maniloff, a Philadelphia attorney who tracks and has written commentary on hurricane damage cases, forecast that "settlement demands will now go up because people will see this and say they can get a punitive award."

The jury in U.S. District Court for the Eastern District of Louisiana made the finding in favor of Robert and Merryl Weiss, whose home on the North Side of Lake Pontchartrain in Slidell, La., was demolished by the 2005 hurricane.

Their verdict followed testimony that an initial survey of the home attributed its destruction to wind damage but the final report for Allstate said it was storm surge.

The couple had already received $350,000 under a federal flood insurance policy, but sued Allstate for wind damage. Allstate said it plans to appeal.

Mr. Maniloff said he expected Allstate to take the position that the jury's decision "is an aberration and does not reflect what future verdicts will bring." However, he added, "you have to question if an insurance company can get an unbiased verdict in Louisiana."

The attorney also noted that there will be an issue now with homeowners receiving payment under a federal flood policy and "turning around and saying 'it was wind [damage].' Essentially they are saying there were two causes for the same loss. Clearly that is going to be an issue because there are so many flood policies."

Mr. Hartwig took note of what occurred after a Mississippi federal jury in January brought in a $2.7 million verdict against State Farm--of which $2.5 million was punitive damages.

Even though the verdict was reduced, it "precipitated a chain of events," said Mr. Hartwig, culminating with State Farm indicating it would not write new policies in Mississippi.

"It bodes ill for Louisiana," said Mr. Hartwig. He added that even if the verdict is reduced, if there are more cases like Weiss, "it likely will signal the doom of the home insurance market in the southern part of the state."

Another possible effect, he said, is that Citizens--the state's property insurer of last resort--"might see an acceleration of its market share."

For insurers, "the decision could lead to an interminable level of uncertainty," he said