Louisiana Judgment Called A Peril To Citizens Property Insurance

NU Online News Service, Aug. 19, 3:40 p.m. EDT

Louisiana's state-backed homeowners insurer may find itself unable to pay claims if a big storm strikes because of a $92,8 million class action judgment stemming from Hurricane Katrina, officials said.

Louisiana Citizens Property Insurance Corporation's Chief Executive Officer John Wortman and Insurance Commissioner Jim Donelon warned in a statement that a potential "catastrophic event" looms for Citizens.

The $92,8 million judgment against Citizens follows a suit by Citizens policyholders who alleged their 2005 Hurricane Katrina/Rita claims were not adjusted in accordance with the statutory deadline, In March, after ruling that Citizens had to pay $92.8 million to 18,573 policyholders, Jefferson Parish Judge Henry Sullivan said the insurers could not appeal without posting a $95 million bond.

Citizens attorneys argued unsuccessfully that state agencies are not required to file such appeal bonds. Commissioner Donelon noted yesterday that class actions on similar grounds against private insurers had been summarily rejected by a federal court.

Mr. Donelon in a statement said the plaintiffs in the pending class action lawsuit can seize from Citizens' checking account the full amount of their judgment as of next Tuesday morning, which would leave only $5 million left for continuing operations, even as two named storms are approaching. Citizens has until Monday to post the bond.

By posting a cash bond, Citizens said it will preserve its right to secure a review of the judgment from the Louisiana Supreme Court and through an assessment on every property insurance policy in the state be able to resume paying claims and commissions through the ongoing hurricane season.

Commissioner Donelon announced at the press conference with Mr. Wortman that Citizens is pursuing several options to deal with the funding crisis.

Among the steps the commissioner said were being taken:

o Mr. Wortman, with the assistance of Governor Bobby Jindal, will continue his efforts to obtain an appeal bond.

o Citizens' attorneys will continue to try to work out a compromise with plaintiffs counsel.

o Commissioner Donelon, State Treasurer John Kennedy, Mr. Wortman and Citizens' attorneys are scheduled to participate in a special meeting tomorrow afternoon in New Orleans with U.S. District Court Magistrate Judge Joseph Wilkinson in an effort to reach a compromise.

o Another option will include the approval by the Citizens board of directors for an assessment of $95 million to collateralize any bond written by a surety company on behalf of Citizens.

o The last option would be for the Citizens board of directors to authorize the posting of a $95 million cash bond and to temporarily suspend the payment of claims and commissions while implementing an assessment on every property insurance policy in the state to replenish its treasury.

Citizens is scheduled to hold a special meeting of its board of directors Friday afternoon to discuss all of these options and the steps it can take to preserve its continued operations.

The commissioner's statement noted that Citizens had previously reached a settlement agreement in Jefferson Parrish to end another lawsuit involving the exact same issues for a total payment of only $17 million. It would, he said, have resolved all penalty cases pending in St. Bernard and Orleans Parishes and preempted the case in Jefferson Parish.

But while that settlement was approved by Judge Kern Reese of the Civil District Court in Orleans Parish, it was enjoined by JudgeSullivan of the 24th Judicial District Court in Gretna, said Commissioner Donelon.

In the case involving the $92,8 million judgment, Mr. Donelon said, "We have been unsuccessful in eight out of eight attempts to get the Louisiana Supreme Court to intervene in this matter on an interim basis."

He said 90 percent of claims filed against private insurance companies post Katrina/Rita, "like my own insurance claim, were not adjusted in a timely fashion due to extreme circumstances caused by both hurricanes but were denied class certification by the federal courts in New Orleans, so only policyholders of the state-financed residual market will enjoy this $5,000 per head windfall if we are ultimately unsuccessful in our efforts to overturn this judgment."

A spokesperson for Mr. Donelon, Amy David, said after lawyers fees are taken out the judgment will only yield plaintiffs between $2,500 and $2,750.