Louisiana AG’s Suit Against Insurers Over Katrina Stays in U.S. Court

Policyholders may not be entitled to recover any money from a sweeping antitrust lawsuit that former Attorney General Charles Foti filed against some of the nation’s largest insurers after Hurricane Katrina, a plaintiffs lawyer said April 2.

Foti, who teamed up with private attorneys to file the suit only days after he was voted out of office, accused insurers of engaging in an elaborate price-fixing scheme and conspiring to shortchange policyholders after the August 2005 hurricane.

U.S. District Court Judge Jay Zainey rejected a bid by plaintiffs attorneys to transfer the case to state court, where Foti originally filed it last year. Zainey agreed with lawyers for insurers who said the case is a class action that belongs in federal court.

Plaintiffs attorneys argued the suit doesn’t qualify as a class action because policyholders aren’t a party and may not be entitled to recover any money if the case is successful.

“If you win, where does the money go?” Zainey asked plaintiffs attorney Stephen Herman.

Herman said money from any judgment could be deposited in the state’s coffers and subject to the state Legislature’s appropriation.

“It is not clear in my mind how the recovery, if any, would be allocated or disbursed to anyone,” Herman said.

The suit accuses Allstate Insurance Co., State Farm Fire and Casualty Co. and several other insurers of working together to fix prices, manipulate damage estimates and low-ball claims payments after Katrina and Hurricane Rita devastated the state in 2005.

Foti, who finished third in an October 2007 primary, teamed up with private lawyers to file the case less than a month later. A spokeswoman for new Attorney General James “Buddy” Caldwell says Foti’s successor hasn’t decided whether to continue with the case, which seeks unspecified monetary damages, plus attorneys’ fees and costs.

“We will now consult among our attorneys and make a decision without undue delay,” Caldwell said in a written statement.

Caldwell has said he inherited some “curious” cases from Foti, who collaborated with campaign donors to file several multimillion-dollar lawsuits on his way out of office.

Some of the same private lawyers who represent the AG’s office in the price-fixing case against insurers also teamed up with Foti on Jan. 14 – his last day in office – to sue Amgen Inc., the world’s largest biotechnology company, over an alleged pricing scheme.

Foti’s suit against insurers accuses the companies of editing engineering reports and delaying payments in an effort to coerce policyholders into settling damage claims for less than their actual value.

In a press release dated Nov. 7, 2007, Foti said insurers’ actions “resulted in the unjust enrichment of themselves to the detriment of the state, policyholders and commerce in Louisiana.”

Zainey said policyholders appear to be the “aggrieved parties” if the suit’s allegations are true, but Herman said the case is about the “integrity of the marketplace” and is broader than the interests of policyholders.

“The first injury is to the marketplace, and everything else flows from that,” he said.

Insurers’ lawyers say Foti’s case mirrors other class actions the same private attorneys filed in federal court in New Orleans.

“Having suffered an adverse ruling in one of the prior class actions, (Foti) wants to litigate the very same class action already pending in this court in a Louisiana state court,” insurers’ lawyers wrote in court papers.

The plaintiffs, however, insist Foti’s lawsuit is “completely distinguishable” from the other cases.

Also named as defendants in the suit are: Lafayette Insurance Co., USAA Casualty Insurance Co., Farmers Insurance Exchange, Standard Fire Insurance Co., and several companies that worked with the insurers on handling claims after Katrina and Rita.

Allstate spokesman Michael Siemienas said Foti’s suit “reasserts claims that have been dismissed in the past.”

“Allstate will vigorously fight this suit, and we believe this case should fall under federal jurisdiction,” he added.

Shares of Allstate Corp., parent company of Allstate Insurance Co., fell 7 cents to $49.71 in late afternoon trading April 2.