Louisiana Regulators Wait for $95 Million Phone Call

John Wortman, chief executive officer of Louisiana's state-run insurer of last resort, was waiting for the phone to ring the morning of Aug. 24 with word that could save $95 million.

"I am waiting on pins and needles to see if the lawyers can pull it together," Wortman said Monday morning.

At issue is Louisiana Citizens Property Insurance Corp.'s attempt to preserve its right to appeal a $95 million judgment against it stemming from a class-action lawsuit filed in Jefferson Parish. Policyholders allege the state-run insurer did not adjust claims in a timely manner following hurricanes Katrina and Rita in 2005. A judge in Jefferson Parish is requiring Citizens to post a $95 million appeal bond while Citizens attempts to have its case heard in state Supreme Court.

If a compromise is not reached, plaintiffs will be able to take $95 million from Citizens on the morning of Aug. 25. That would leave the insurer with a mere $5 million in cash to pay for operating costs -- in the middle of the Atlantic hurricane season (BestWire Aug. 19, 2009).

On Aug. 24, Citizens had two options on the table: first, Citizens' lawyers are attempting to compromise with plaintiffs' attorneys, offering them $6 million in lieu of the $95 million bond. If they aren't able to reach a compromise, Citizens will buy the $95 million appeal bond from one of three insurers: Berkshire Hathaway, Travelers or Zurich, Wortman said.

"If we don't hear from the lawyers by noon, we'll have to move forward with the bond," Wortman said.

However, Citizens is no longer talking about assessing insurers in the state, he said. "That's off the table, which is a good thing," Wortman said.

The Jefferson Parish lawsuit was one of three similar suits. The others were filed in St. Bernard and Orleans parishes, but those were settled by Citizens for $17 million. Wortman said the Jefferson parish suit was to be wrapped up in the settlement as well but "the judge never signed off on it." The same allegations were also made against private insurers, but they have access to the federal court in New Orleans, which would not certify the class-action lawsuits, Wortman said.

The top writers of homeowners multiperil in Louisiana in 2008, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 30.4% market share; Allstate Insurance Group, with 16.7%; Louisiana Farm Bureau Mutual Insurance Co., with 6.4%; Farmers Insurance Group, with 6.3%; and Liberty Mutual Insurance Cos., with 6.3%.