Louisiana Supreme Court Backs Insurer In Katrina Case

The Louisiana Supreme Court has ruled that the state's valued policy law cannot be invoked by homeowners where the loss is partly caused by a noncovered flood peril if the policy explicitly contains a loss computation method different from the valued policy law.

The court sided with Louisiana Citizens Property Insurance Corp. in a case brought by policyholders Mark and Barbara Landry, whose Vermilion Parish home was destroyed by Hurricane Katrina in 2005.

Under the valued policy law, in cases where a building is totally destroyed, the insurer must generally pay the face value of the policy rather than the actual cash value of the loss.

Louisiana reenacted the law in 1991, adding a provision allowing insurers to explicitly include a loss calculation method other than that in the valued policy law, as long as the alternate method appears in the policy printed "in type of equal size," according to Brian Green, an attorney with Edwards Angell Palmer & Dodge's New York office.

According to James Whittle, an assistant general counsel for the American Insurance Association, the high court in its Wednesday ruling interpreted the valued policy law as requiring payments to the insured based on the cost of the loss, not on what caused the loss, where excluded perils are involved.

Mr. Whittle said the plaintiffs in their argument tried to use the valued policy law to trump flood exclusions imposed by the contract in property policies in the state, and the High Court declined to allow them to do so.

Attorneys for the Landrys argued that the valued policy law should require state-sponsored Citizens Property Insurance to pay the full value of the policy, even though some of the damage was caused by flooding, which is not covered by their insurance policy.

In this case, according to Mr. Whittle, the Landrys did not have flood insurance.

But, plaintiffs with flood insurance are also seeking to have the valued policy law viewed in their favor if the loss they suffered from the flood exceeded the limits of their flood coverage.

At the same time, the case must still go back to the trial court, because the high court's decision was based on a different legal ground than that used by the Louisiana Court of Appeal which reversed a trial court finding for the Landrys.

"The high court also vacated parts of the appeals court decision based on a variety of causations and burdens of proof," he explained.

In its decision, the Supreme Court said there is "no reason to require (Citizens) to set forth a different method of loss computation for losses caused concurrently by covered and noncovered perils."

The high court also found that the appeals court shouldn't have tried to apply the valued policy law's valuation provisions to the Landrys' case.

Mr. Whittle said not only was the decision a good one for insurers, it was also a good one for the citizens of Louisiana.

If Citizens had lost the case and been forced to pay countless additional millions to pay uncovered claims, all homeowners in the state would have had to cover any deficits through assessments on their property coverage, according to Mr. Whittle.

According to Mr. Green, the ruling is in line with a federal appeals court ruling that an insurer is only required to pay the agreed face value of the policy if the property is rendered a total loss from a covered peril.