New Orleans Port Locked in Katrina Insurance Dispute

November 9, 2007

The Port of New Orleans, trying to get back on track after Hurricane Katrina, is locked in a fight with an insurance carrier over more than $100 million in storm damage claims.

The port is suing Factory Mutual Insurance Co., claiming the insurer has only paid about $18 million from a policy that has limits of $145 million for flood and wind damage.

The port has estimated its storm damages at about $175 million, which includes property losses and business interruption.

Steven Zenofsky, a spokesman for Johnston, R.I.-based Factory Mutual, said he could not comment on a pending lawsuit.

The suit was originally filed in state court in New Orleans in August 2006. It was to cover the port against the general one-year limitation on suing insurance companies over claims disputes, a common practice for anyone who had not reached a settlement for damages from Katrina, which hit Aug. 29, 2005.

The case was later transferred to federal court.

Since then, one of the port’s insurers, Lexington Insurance Co., paid the full $20 million limitation on its policy. Factory Mutual’s policy is for claims above that figure.

The port’s attorney, Gerald Gussoni, said he could not discuss the dispute in detail, citing the pending suit.

“This storm happened more than two years ago,” Gussoni said. “We believe it should have been resolved long before now.”

According to an updated complaint filed in court this week, the dispute is making damage repairs more expensive because of increasing costs of materials and labor in the New Orleans area since Katrina.

Also, Gussoni said the Federal Emergency Management Agency will not make a final payment to the port until all insurance resources have been exhausted. So far, FEMA has paid the port about $3 million for uninsured damage, but the port has sent the agency a list of about $100 million in potential federal payments.

For such catastrophes as fires, the port carries $500 million in coverage, but flood and wind coverage limits Factory Mutual’s liability to $145 million.

The suit alleges Factory Mutual has underpaid claims, falsely claimed that the port has not provided an accurate accounting of its damages and generally acted in “bad faith.”

The lawsuit does not seek a specific damage amount from the insurer but requests a jury trial.

The suit has been assigned to U.S. District Judge Donald Walter, a senior judge from northwestern Louisiana. A status conference is planned with both sides for today.

The insurance dispute comes amid numerous post-Katrina problems for the port, including the expected closure of the Mississippi River Gulf Outlet, which had allowed deep-draft ships into the Industrial Canal portion of the port. The outlet was blamed as a major source of Katrina flooding in St. Bernard Parish.

Since Katrina, International Shipholding Corp. has moved its GC Railway business from New Orleans’ Industrial Canal to Mobile, Ala. In August, Southern Scrap Material Co. said it planned by year’s end to move its shipbreaking operations from the Industrial Canal. And last month, Bollinger Shipyards said it would close its yard on the canal and move its operations to other Bollinger yards in Louisiana, in Morgan City and Sulphur.

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