Suit Names Board Members, Former Execs of Louisiana Citizens

March 26, 2008

Two policyholders of the Louisiana Citizens Property Insurance Corp. have filed a federal lawsuit against board members and former executives of the corporation, which was established by the state as an “insurer of last resort” for people who could not get property insurance from other companies.

A third plaintiff in the lawsuit is a woman who is not insured by Citizens. Like many in the state, she had to pay a special assessment on her bill from the company that insures her to help pay back $989 million in bonds issued to help Citizens pay claims from Hurricanes Katrina and Rita.

The suit relies heavily on the work of legislative auditor Steve Theriot, who revealed in a series of reports last year that Citizens paid thousands of dollars in undocumented expenses to firms that were not under contract, while officials at the state-sponsored insurer of last resort, including former chief executive Terry Lisotta, engaged in lavish spending that had little or no public purpose. All the while, Citizens failed to keep proper financial records.

“The false charges, invoices and payments … resulted in defendants receiving money and benefits which they were not entitled to, thus decreasing the funds available to Citizens’ policyholders as well as causing non-Citizens policyholders to be burdened with larger assessments through recoupments from their insurers,” says the complaint, which was filed by New Orleans attorney Madro Bandaries.

Citizens chief executive John Wortman said his agency’s lawyers are studying the matter but don’t place much stock in it. “I don’t think that it has merit, but we’ll do what we have to do to defend it appropriately,” said Wortman, who replaced Lisotta last spring.

Lisotta’s attorney, David Courcelle, said he was unable to comment because he had not read the suit.

Also named as a defendant was the Property Insurance Association of Louisiana, which ran Citizens and provided all of its employees until recently. The two entities are now separating.

“We haven’t been served with the suit, but we’re reviewing the allegations now,” said A.J. Herbert, the insurance association’s attorney said.

The complaint was filed under a federal law that is frequently used to bust organized crime, the Racketeer Influenced Corrupt Organization, or RICO, statute. Because it is a civil suit, the case could produce fines or other penalties, but not jail time, for any of the defendants. In their filing, the plaintiffs asked for “treble damages, legal interest and reasonable attorney’s fees.”

The case has been assigned to U.S. District Judge Martin Feldman.

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