Allstate Katrina Ruling Could Rock Louisiana's Homeowners Market

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, coverage experts warn.

Robert P. Hartwig, president 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, even though 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.

An Allstate representative, Mike Siemienas, said the insurer “is shocked with the jury's verdict in favor of the plaintiff.”

“Allstate believes that it acted in good faith throughout the entire claims process with Weiss, and we are disappointed that the jury ruled differently. We will appeal this ruling,” according to Mr. Siemienas.

He said Allstate has settled about 90 percent of its Katrina claims, and “we are continuing to work to resolve claims every day.”

Jurors decided that Allstate's payment for wind damage was insufficient. Allstate paid about $50,000 in structural damage in living expenses under its homeowner policy, which had a $343,000 limit for damage to the dwelling and $240,000 for personal property.

The insurer argued that its engineering findings did not support a claim for a higher amount, but the family contended their home was situated above the 14 feet of storm surge waters coming off the lake.

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 a $2.7 million verdict against State Farm on a Katrina claim–of which $2.5 million was punitive damages.

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

“It bodes ill for Louisiana,” said Mr. Hartwig, adding 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 added.