Hurricane Insurance Litigation: More Than Wind Versus Water
| Author | Virginia Y. Trainor |
| Position | Phelps Dunbar, LLP. |
| Pages | 389-417 |
Page 389
Hurricanes Katrina and Rita. So much has already been said of these devastating events, leaving one to wonder whether there is anything else to be said on the topic. Apparently, there is. Two years after Hurricanes Katrina and Rita, there is still a litany of litigation, with many remaining questions to be answered by our courts. This author predicts that the litigation will continue for quite some time. One can only hope the rebuilding on Louisiana and Mississippi's Gulf Coasts will be complete and its residents' lives fully restored well before this time.
The focus of this article is to review the rulings that have come down thus far on the property insurance issues related to these events and the unique procedural problems that hopefully will never again be seen. Many of the issues discussed in this article are-outside of the context of the hurricane litigation-merely of academic interest. As one of my esteemed partners has observed, the lessons learned today about property insurance law are reminiscent of those learned in security devices during and after the Great Depression. The lessons learned are indeed important and may clarify Louisiana property insurance law to a degree never before envisioned.
In many ways, this article is merely meant to be a picture in time of the current state of the law at the two year anniversary of these events. The landscape changes on an almost daily basis, causing some concern on the part of the author that this very article may be outdated before it is published. But again, that is the point-to see how far we have come-but also to see how very far we have to go before these issues become but another topic for law students on future bar exams. Page 390
Almost immediately after August 29, 2005, insureds and insurers alike faced certain obstacles concerning insurance claims. Insurance agents could not be located, insurance policies were destroyed, and residents and business owners could not even enter their cities, much less have their homes and businesses inspected by insurance adjusters. Thus, before the investigation of these claims could even begin, there was often a long delay in simply starting the process.
This unique situation led to certain acts by the Governor, the Louisiana Department of Insurance ("LDOI"), the Louisiana legislature, and our courts to try to relieve some of the pressure related to these unprecedented circumstances.
By September 6, 2005, Governor Blanco issued Executive Order KBB005-32, which suspended all deadlines applicable to legal proceedings, including prescription and peremption, in all Louisiana courts, administrative agencies, and boards until September 25, 2005. With the onslaught of Hurricane Rita and the continuing impact of Hurricane Katrina, the order was extended to October 25, 2005 and then again to November 25, 2007.
The order applied statewide and to all litigation and allowed attorneys and all involved in the legal field to focus on their families and recovery from the events, without ramification for failing to execute filings due during this time.
Our Louisiana Legislature apparently had some forethought that a catastrophic event might one day befall our state. For a typical property loss, an insurer has fourteen days to initiate its claims investigation upon notice of a claim.1 However, in the event of a catastrophic event, an insurer is given thirty days to initiate its investigation. Although the term "catastrophic" is not Page 391 defined in the statute, one should be loathe to say that either of the two hurricanes was not a catastrophic event. Of course, the thirty days begins to run on the date of notice of an event from an insured, and as stated before, just giving notice to the insurer to start the process was an insurmountable task for some.
The LDOI took several steps during the days, weeks, and months immediately following the hurricanes to aid insureds, including:
-- Emergency Rules 15, 17, 19 and 20: All insurers were prohibited from canceling policies for any reason, including non-payment of a premium for certain impacted parishes and types of policies. These provisions expired in late 2005 or early 2006, depending on the parish.
-- Emergency Rule 22: Mandated that insurers form a mediation program to which insureds could voluntarily submit their homeowner disputes for resolution. As of the time of this writing, this rule is still in effect and in use and has been helpful in resolving many hurricane claims.
-- Emergency Rule 23: Suspended the right of insurers to cancel or fail to renew policies insuring residential or commercial property with a hurricane claim until sixty days after repairs were complete, except under certain limited circumstances, as when the insured has failed to pay insurance premiums or committed fraud, or where the insured has stated that he will not be rebuilding the insured property. This provision expired December 31, 2006, thereby allowing insurers to begin issuing notices of cancellation and non-renewal beginning January 1, 2007.
-- Directive 195: Extended the time for an insured to complete repairs to recover certain supplemental payments withheld by insurers until repairs are complete. This provision was revised several times, ultimately granting insureds up to two years from the date of the claim to complete repairs and obtain the supplemental payments. In contrast, the standard time in the typical property policy to recover these sums is 180 days (six months).2 There is some debate as to whether "date of the claim" refers to the date the claim arose or when it was reported. Page 392
-- Directive 199: Requested insurers to voluntarily extend the time to file suit on claims related to these events from one year after the loss to two years after the loss. Most insurers voluntarily complied with this request.
The Louisiana legislature followed upon the LDOI's Directive 199 with a statutory enactment extending the time to file suit for claims related to these events to two years and one day after the loss.3 The constitutionality of this action was challenged in the courts as was envisioned by the legislature.4 The Louisiana Attorney General brought a declaratory judgment action at the direction of the legislature against insurers seeking a ruling that the extension was constitutional.5 Certain insurers challenged the legislation on two main grounds: (1) that it violates the Contracts Clauses of the Louisiana and U.S. Constitutions by impairing the private contractual relationship between insurers and their policyholders; and (2) that it violates the Supremacy Clause of the Page 393 U.S. Constitution because it attempts to regulate flood insurance, which is preempted by federal law, i.e., the National Flood Insurance Program.
The matter proceeded to the Louisiana Supreme Court on an expedited basis after the district court upheld the constitutionality of the statute.6 The Louisiana Supreme Court affirmed.7 The insurers argued that the legislation could not apply retroactively to prohibit insurers from pleading that claims filed after one year are time barred. However, the supreme court concluded that because the Louisiana insurance industry is "pervasively regulated" and because the former minimum period to bring suit was already set by Louisiana law, insurers had notice that a change was a legal possibility.8 The supreme court further reasoned that because the hurricanes created a statewide emergency and impacted hundreds of thousands of Louisiana citizens, including forced evacuation and displacement, the legislation had a significant and legitimate public purpose in protecting the rights of those citizens and their general welfare.9
The supreme court likewise rejected the contention that the legislation violated the Supremacy Clause of the U.S. Constitution concluding that the section of the legislation, which included "flood insurance polic[ies]" could be read to reference flood insurance policies "other than those issued pursuant to the federally-regulated insurance program."10
In addition to extending the prescriptive period, the legislature amended one of Louisiana's statutory provisions for bad faith, Louisiana Revised Statutes section 22:658, to increase the penalties from 25% to 50% of "the amount to be found due from the insurer" and, in the case of a partial tender, 50% of "the difference between the amount paid or tendered and the amount Page 394 found to be due"--and to allow the recovery of reasonable attorney fees and costs.11
Moreover, Louisiana Revised Statutes section 22:658.2 was enacted to prohibit a property insurer from using a floodwater mark on a covered structure or the fact that a structure is moved off of its foundation, without consideration of other evidence, to determine whether a loss is covered under a homeowner's insurance policy.12 Perhaps more importantly, the provision puts the burden of proof on an insurer where "damage to immovable property is covered, in whole or in part, under the terms of the policy of insurance."13 A violation of section 22:658.2 expressly allows an insured to recover...
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