Donelon Blasts Revival of $92M Award vs. Citizens

By MICHAEL KUNZELMAN | December 22, 2011

Louisiana Insurance Commissioner Jim Donelon says he will ask the state’s highest court to reconsider its reinstatement of a $92.8 million judgment against Citizens Property Insurance Corp. for its slow adjustment of policyholder claims after hurricanes Katrina and Rita in 2005.

During a news conference Tuesday, Donelon said the Louisiana Supreme Court’s ruling Friday involving Citizens, the state-backed insurer of last resort, was “unconscionable” and legally deficient.

A state appeals court had reversed a Jefferson Parish judge’s decision in 2009 to award $5,000 apiece to more than 18,000 Citizens policyholders.

But the Supreme Court overturned the appeals court’s ruling by a 4-3 vote. The court’s majority agreed with 24th Judicial District Court Judge Henry Sullivan that plaintiffs were entitled to the awards because Citizens failed to start adjusting their claims within 30 days, as required by state law.

“Bad faith is simply not required to subject the insurer to penalties for failure to timely initiate loss adjustment,” the majority opinion says. “It is the insurer’s inaction alone that triggers the penalty; no justification or lack thereof on the part of the insurer need be shown.”

The court’s ruling also makes the plaintiffs eligible for an estimated $11 million in interest on top of the original judgment.

Donelon said the ruling enriches “politically connected” plaintiffs’ lawyers at the expense of policyholders, who will have to pay more if Citizens runs out of money to pay claims.

“This judgment sends a message worldwide that this Louisiana is the same old Louisiana,” Donelon said.

Fred Herman, an attorney for the plaintiffs, didn’t immediately return a call seeking comment Tuesday.

Donelon said Citizens has roughly $200 million in the bank and probably can afford to pay the judgment unless the number of plaintiffs significantly grows or another devastating storm strikes Louisiana.

“But if the wind blows during the next hurricane season …. there will be another assessment on every policyholder,” he said.

Even if the state Supreme Court agrees to rehear the case, Donelon said he will renew his push for a legislative change to protect Citizens from similar claims in the future.

The class-action case isn’t the only one Katrina spawned against Citizens. Donelon says the insurer tried to settle a similar batch of state court claims in New Orleans for $30 million, but an appeals court ruled the settlement wasn’t adequate and nixed the deal.

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