Appeals Court Tosses $35M Louisiana Citizens Settlement

April 23, 2010

The 4th Circuit Court of Appeals tossed out the $35 million settlement of two class action lawsuits against Louisiana Citizens Property Insurance Corp., saying the deal was not fair to some policyholders.

The appellate court ruling could prove costly to Citizens, which faces three class-action lawsuits because of delays in adjusting and settling claims from hurricanes Katrina and Rita. The settlement voided by the 4th Circuit covered Citizens’ failure to offer to settle claims within 30 days of being notified of losses.

Insurance Commissioner Jim Donelon had testified that the state’s property owners would benefit from the settlement, because the small payout would prevent Citizens from having to raise insurance rates.

“This fact, although alluring, is not one which should be considered in settling this class action,” the court said in its ruling.

Citizens had to borrow around $1 billion to pay its Hurricane Katrina claims. The state-backed insurer is paying off the debt by charging a fee to all property insurers, who pass the fee along to their policyholders. The fee is now around 5 percent a year.

Citizens Chief Executive Officer John Wortman said the 4th Circuit ruling was disappointing.

“We’re kind of looking at our options at this time, but we’ll most likely appeal,” he said.

The court also faulted the settlement for a number of other reasons, among them that it created a conflict among the class members. The people whose claims were not adjusted in a timely fashion are potentially entitled to a $5,000 payment, the court said. The people whose claims were not paid in a timely fashion are potentially entitled to a $1,000 payment.

Under the settlement, the most anyone could get was $1,000, the court said. Some policyholders would be made whole but others would not.

The court also ruled that attorneys for Citizens and the plaintiffs used only the mail to get in touch with the people affected by Citizens’ faulty claims handling. The settlement also didn’t explain that if policyholders opted out of the agreement, their claims in another class-action lawsuit would never make it to court and the policyholders might lose thousands of dollars.

Plaintiff attorney Fred Herman, one of the lead attorneys in another class action lawsuit against Citizens, said the 4th Circuit ruling is a victory for the Citizens policyholders who were not treated fairly after Katrina and Rita.

In that lawsuit, a Jefferson Parish district court ruled that Citizens must pay around $150 million in penalties. Citizens has appealed that ruling.

Information from: The Advocate,

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