Louisiana Commissioner: $29 Million Paid to Five Insurers Was an Oversight

Louisiana Insurance Commissioner Jim Donelon agrees that his department incorrectly paid $29 million to five insurers as part of a state incentive program before the insurers signed "cooperative endeavor agreements," as was found by a report from Legislative Auditor Steve Theriot's office.

"This was our first rodeo," Donelon told BestWire. "We regulate insurers. We do not regulate economic development. This was our first time doing this, and frankly, our staff were busy implementing the solvency standards and writing requirements of this program. We overlooked the requirement that there first be in place a cooperative endeavor agreement."

The Insure Louisiana Incentive Program provided grants to companies that would write new homeowners and commercial property insurance policies. The program, which has ended, was meant to attract new property/casualty insurers to the state. Leftover funds in the program were returned to the state treasury recently.

In January 2008, the grants were given to the five insurers "while the cooperative endeavor agreements governing these grants were not signed by both parties until June and July 2008," the audit says. "Management expressed a desire to expedite the payments and the program. By issuing payments to insurers prior to possession of a signed cooperative endeavor agreement, DOI increases the risk of loss to the state as an insurer cannot be legally required to comply with an agreement until it is signed by both contracting parties."

In a letter written to Theriot, Donelon conceded the mistake but said because the program has ended, "no corrective action is necessary."

Throughout the audit report, Theriot's office repeatedly referenced the insurance department's unwillingness to hand over certain documents and e-mails. Donelon has said he withheld some to protect confidential data and personal information (BestWire, Feb.1, 2008), but in August a judge ruled the DOI must comply (BestWire, Aug. 7, 2009).

Theriot said the DOI has complied with the court order but "because the audit was substantially complete at the time of the judgment, those records were not available during the audit," the report says. Theriot has been "limited in his ability to accumulate audit evidence," and therefore the audit "is limited in scope," the report says.

Though his office has complied with the latest court order, Donelon said he is asking a state appellate court to decide if Theriot is entitled to all the documents he had asked for.

"The biggest thing here is that I want to resolve this issue for all state agencies," Donelon said. He added that his attorney thinks the "lower court missed the ball," and a precedent exists that would overturn the ruling that came down on the side of Theriot. Donelon said the appeal process could take anywhere from six months to a year but Donelon said the issue ends for him with a ruling from the 1st Circuit Court of Appeal in Baton Rouge.

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%.