La. Authority May Go After Insurance Claims of ‘Road Home’ Participants

July 17, 2006

Louisiana’s program to help storm-damaged homeowners rebuild or relocate may take over insurance claims and sue for additional insurance payments on behalf of recipients, a top official with the Louisiana Recovery Authority says.

The agency hopes such a move would prevent the Road Home program, which is intended to help homeowners cover uninsured property damage, from becoming a $7.5 billion subsidy to the insurance industry, said Walter Leger, chairman of the LRA’s housing task force.

The agency worries that the insurance industry will be less willing to pay out if it knows that homeowners can get help with their uninsured losses through Road Home. Also, homeowners may give up pursuing insurance claims if they know they can get grant money, Leger said.

“We’re going to reserve every right to pursue the claims,” said Leger, an attorney. “Otherwise, the insurance industry can use the Road Home program as a reason not to pay claims.”

Homeowners participating in the Road Home program would be asked to sign over their pending claim rights to insurance payments when receiving grant money, Leger said. If the LRA feels that a recipient’s claims have been underpaid, it may opt to go after the insurer for more money.

Any money recovered from insurance companies would go back into the grant program to provide additional rebuilding resources, Leger said.

Loretta Worters, vice president of communications at the Insurance Information Institute, said abandoning claims would waste the federal money made available for the rebuilding effort.

“In essence, it’s defrauding the Road Home. Ultimately you’re defrauding the government, which we all, as taxpayers, pay for,” Worters said. “There’s only so much money to go around.”

Under the Road Home program, property owners are eligible for grants of up to $150,000. The money can be used to buy the owner out of a decimated property or cover gaps between the homeowner’s insurance proceeds and repair bills.

The Louisiana Recovery Authority estimates that 123,000 homes and 82,000 rental properties in Louisiana suffered major or severe damage in hurricanes Katrina and Rita and may be eligible for grants.

Insurance Commissioner James Donelon said he did not believe insurance companies would officially instruct their agents to stiff people and send them to the grant program, but believes the existence of the Road Home program will make it easier for an adjuster to refuse additional payments.

The bigger issue will be homeowners who are too tired to continue fighting for more insurance money, Donelon said.

“Those are legitimate concerns that folks will just rely on the fact that there’s a check available from the federal government for whatever they don’t have to strain to collect from their insurers,” Donelon said.

Even if property owners were motivated to sue, many consumers find that their individual claims are too small for a lawyer to take the case. But if those many small claims were consolidated, the government might be able to use its muscle to pursue them.

“The government is in a stronger position to go after these kind of claims,” said Bob Hunter, director of insurance at the Consumer Federation of America.

Information from: The Times-Picayune,

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