Louisiana Last-Resort Insurer Looks to Prevent 'Potentially Catastrophic' Judgment

Louisiana's state-run insurer of last resort as well as the property insurance industry in the state are hoping to buy some time to avoid what the Department of Insurance is calling a "potentially catastrophic event."

Louisiana Citizens Property Insurance Corp. is looking for ways to preserve its right to appeal a $95 million judgment against it stemming from a class-action lawsuit filed in Jefferson Parish by policyholders who 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, but 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.

"I'm on my knees begging companies to sell us the bond without 100% collateral," said John Wortman, chief executive officer of Citizens. "We won't be able to pay operating expenses, and that means we'll be forced to assess property insurers."

Wortman said he's spoken to companies like Liberty Mutual, Zurich and Chubb to get the bond. State insurers could be assessed a second time if a storm hits Louisiana because Citizens will need to reach its $100 million retention before tapping into reinsurance.

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 90% of claims filed against private insurers companies post Katrina/Rita, like my own insurance claim, were not adjusted in a timely fashion due to extreme circumstances caused by both hurricanes but were denied class certification by the federal courts," said Insurance Commissioner Jim Donelon. "So only policyholders of the state-financed residual market will enjoy this windfall if we are ultimately unsuccessful in our efforts to overturn this judgment."

The clock is ticking, Wortman said. Plaintiffs from the Jefferson Parish class-action can begin to seek money from Citizens on Sept. 1. "Our assets will be frozen," he said.

Wortman said Citizens is still trying to work out a deal with the plaintiffs' attorneys. Though the federal court has no jurisdiction in the case, it is acting as a mediator, Wortman said, and a meeting is being held Aug. 20 "in an effort to reach a compromise on these matters," the insurance department 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%.