Articles Posted in General Insurance Dispute Information

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In insurance, an assignment is the transfer of legal rights under an insurance policy to another party. The legality of assignments became a major issue in the aftermath of hurricanes Katrina and Rita. During this period, the federal government, in an effort to aid rebuilding efforts, issued money through the Road Home program to homeowners who held underinsured properties. In exchange, these homeowners were required to assign their rights to insurance claims under their policies to the the state of Louisiana. The purpose of this assignment was to prevent homeowners from fraudulently receiving duplicate payments. However, the program incentivized insurance companies to estimate damages too low, which in turn forced homeowners to take the higher amount offered through the Road Home program.

The shortfall created within the Road Home program forced the state of Louisiana to bring suit against insurance companies through the policy rights assigned to the state by homeowners. In essence, the state sought to recoup actual insurance claim damages that the homeowners were rightfully owed had they not opted into the Road Home program. Though most, if not all, of the homeowner insurance policy contracts contained an anti-assignment clause, the state maintained that it had the right to post-loss assignment. Therefore, it is critical to distinguish between a pre-loss assignment and a post-loss assignment.

A pre-loss assignment occurs when one transfers a legal right under an insurance policy to another before the injury or loss occurs. An example of a type of pre-loss assignment is found in cases when life insurance is assigned to a bank as collateral for a loan. Here, the assignment has occurred before the loss, in this case the death of the original policy holder, and any benefits that accrue at the time of death are used to repay the bank first. These types of assignments typically require consent from the insurer, but are usually barred by anti-assignment clauses.

A post-loss assignment, on the other hand, is the transfer of a legal right under an insurance policy to another party after the injury or loss occurs. Post-loss assignments frequently give the third party transferee the ability to file a claim against the insurance company for any loss accrued by the original policy holder. Many insurance companies try to block such assignments through broad anti-assignment clauses found in policy contracts. Such clauses were found in most Katrina and Rita policies, and insurance companies pointed to these sections in an attempt to avoid paying actual damage costs homeowners thought they rightfully assigned to the state.

While national jurisprudence holds that pre-loss anti-assignment clauses are valid in favor of contract law and public policy, anti-assignment clauses related to post-loss assignments are held to be invalid. The reasoning behind this difference primarily lies with public policy considerations. A pre-loss assignment, for example, may increase the risk beyond the point that the insurance company had originally contracted for and with a party the insurance company had not originally contracted with. A post-loss assignment, on the other hand, simply assigns an accrued right to payment after a loss has already occurred. There is no change in risk as the loss has already occurred, and since payment is to be made it matters none to whom the payment is made.
The Supreme Court of Louisiana holds that such public policy concerns are better suited for the legislature. However, the Court does state that clauses prohibiting post-loss assignment must be written in clear and unambiguous language. If the language in the policy contract is unclear, then, in accordance with laws regarding contracts of adhesion, the language will be construed against the insurance company and in favor of the insured. If you have entered into a contract with an insurance company and are looking to assign your rights under the policy to a third party, turn to the language in the contract itself. Though there is not specific set of words or test used to determine “clear and unambiguous,” your own judgment is a good starting point in determining whether or not you have the right to assignment.

Though your own judgment is an excellent place to start, insurance law is very complicated and is best suited for a practicing attorney.

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It is widely accepted in Louisiana that insurance companies may limit coverage in any manner they desire, so long as the limitations do not conflict with the law or with public policy. Coverage limitations must be written into the policy and the burden to prove that a claim is excluded generally falls on the insurer. One common limitation for auto insurance policies is a driver exclusion. Louisiana law specifically authorizes insurance carriers and their customers to agree to exclude a resident of an insured’s household from coverage under a policy. LSA-R.S. 32:900(L). This arrangement allows the insured to pay a lower premium since excluding one or more drivers in the household from the policy would reduce the insurance company’s potential liability. A dispute over the effectiveness of an excluded driver provision was at the center of the recent case of Young v. McGraw.

In December of 2007, Vernon Washington took out an insurance policy for his two cars with the USAgencies Casualty Insurance Company. During the application process, Washington signed an excluded driver endorsement. The provision expressly excluded as insured drivers Aretha McGraw and her two children, Christopher McGraw and Tiffany McGraw. During the policy’s period of coverage, Aretha McGraw was involved in a car accident while driving one of Washington’s cars. The owner of the other vehicle, Jacqueline Young, filed a suit which named McGraw, Washington, and USAgencies as defendants. USAgencies filed a motion for summary judgment, arguing that McGraw was an excluded driver under its policy and therefore was not covered. The trial court denied the motion and, after a trial, the court concluded that the evidence presented failed to establish that Washington and McGraw lived in the same household when the policy was issued. Therefore, McGraw could not be considered an excluded driver under the policy because the requirements of LSA-R.S. 32:900(L) were not met. The trial court awarded Young personal injury and property damages totaling $5,800. USAgencies appealed.

The Second Circuit Court of Appeal reviewed the evidence presented at the trial concerning whether McGraw was actually a member of Washington’s household at the time he took out the auto policy. McGraw testified that she and her children had lived with Washington continuously since 1998 and at the address of 1996 Joe G. Drive in Monroe since 2003. She admitted to giving the address of her parents’ house to the police officer at the accident scene, but said she “didn’t think it was a big deal” since she visits there every day and receives her mail there. Washington testified that he and McGraw had lived together at 1996 Joe G. Drive for seven years. He also explained that at the time he bought the auto policy, he informed USAgencies that McGraw was a member of his household but wanted to exclude her from coverage due to “financial constraints.” The court noted: “Our review of the record convinces us that the lower court’s finding that McGraw and Washington were not residents of the same household at the time the automobile liability policy was issued is clearly wrong.” “Consequently,” the court reasoned, “the trial court was manifestly erroneous in concluding that the policy endorsement excluding Aretha McGraw … under the policy was inapplicable and that … [she] was a covered operator of the vehicle at the time of the automobile accident.” The trial court’s judgment was, accordingly, reversed.

This case demonstrates the requirement that insurance companies carefully follow all statutory requirements, if they exist, when writing coverage limitations into policies. Post-contract reviews of the insurer’s processes may, like in this case, require a fact-intensive analysis and a clear understanding of the law’s requirements. Thus, a skilled attorney is essential for any party facing a dispute over a coverage limitation.

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Insurance policies routinely include provisions that are intended to limit the scope of the insurer’s coverage in the event of a claim by the policyholder. For instance, most homeowner’s insurance policies exclude coverage for fire damage that results from the policyholder’s deliberate arson. Commercial premises insurance policies, which commonly also include coverage for loss of business income, can carry similar limitations. The recent case of Berk-Cohen Associates, L.L.C. v. Landmark American Insurance Company in the U.S. Court of Appeals for the Fifth Circuit provides an instructive example of how insurance policies are “construed using the general rules of interpretation of contracts” by the courts.

Berk-Cohen Associates, L.L.C., as the owner of the Forest Isle Apartments in New Orleans, maintained an insurance policy to cover the complex with the Landmark American Insurance Company. The policy covered property damage but specifically did not cover losses at Forest Isle “caused directly or indirectly by Flood.” In the case of a covered cause of loss, such as wind damage or fire, the policy insured Berk-Cohen against both the property damage and the resulting lost business income. However, the scope of the income protection excluded any income that would have been earned directly as a consequence of any “favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses.” In other words, Berk-Cohen could not profit by a widespread calamity that was also the source of a property damage claims. Forest Isle suffered a series of misfortunes, including a tornado, a vehicle strike, and–most significant–damage from Hurricane Katrina. Following the hurricane, Landmark compensated Berk-Cohen for damages caused by wind but not flood. Concerning Berk-Cohen’s claim for lost business income, Landmark argued that it was not responsible for the increased rents that resulted from the extensive flooding around the city because flood damage was excluded from the policy. Accordingly, Landmark “declined to increase its calculation of lost business income to the extent that any foregone income arose from flooding.” Berk-Cohen initiated litigation and, following a bench trial, the district court held that, notwithstanding the flood damage exclusion in the policy, Landmark should have considered the business conditions attributable to flooding in other buildings when computing the business income that Berk-Cohen lost as a result of the wind damage to Forest Isle. On appeal, the Fifth Circuit upheld the district court’s opinion. It noted that the “Covered Cause of Loss” that gave rise to Berk-Choen’s property damage claim was wind. Consequently, the policy language prohibited Berk-Cohen from recovering for lost business income as a result of wind damage suffered by customers or other competing businesses. But, “any increase in customers’ demand or reduction in competitors’ supply due to flooding at other properties is a permissible factor in calculating lost business income.” (Emphasis supplied.) The court refused to permit Landmark to exclude coverage for flood damage by the policy language while at the same time invoking the same source of damage to reduce Berk-Cohen’s business income recovery. To do so would “extend[] the flood exclusion beyond its function,” since the policy specifically permits the income calculation to consider “favorable business conditions.” Accordingly, the court “decline[d] to use a limitation on coverage”–that is, flooding–“to alter the calculation of damages for a covered loss”–the lost income. The Fifth Circuit concluded that the “policy … excludes coverage for flood damages at the Forest Isle property. The flood exclusion does not, however, prevent Berk-Cohen from recovering lost business income due to the favorable business conditions arising from flood damage to other buildings.”

This case demonstrates that applying the “normal cannons of contract interpretation” can work to the benefit of the insured. As with any contract, the insurance company is bound by the plain meaning of the policy language, even if it means that excluding coverage for one claim will open the door to liability for another. The lesson here is that a knowledgeable and experienced attorney is invaluable to anyone who is involved in a dispute over insurance coverage.

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As previously discussed in Part I, the case of Charles Ebinger, et ux. v. Venus Construction Corporation, et al. focuses on the time period in which a claim for damages can be brought against a contractor and the time period in which a contractor may bring an indemnifying action against a subcontractor. This Part, however, focuses on the Louisiana Supreme Court’s reasoning as to how it interpreted the applicable statute of limitations.

The Ebingers moved into their newly built home in April of 1997. On October 9, 2003, the Ebingers filed suit against Venus Construction alleging defects in the home’s foundation had caused cracks in the drywall, tile, brick walls, and floor. Venus Construction filed its indemnity claim on September 22, 2006 against the engineer and subcontractor that supplied the foundation.

First the Court determined when the cause of action arose. The Court determined that “regardless of the length of the peremptive period, it [the peremptive period] began when the owners took possession of the house or filed an acceptance of the work.” In this case, a certificate of occupancy issued on April 22, 1997, and therefore, that is when the peremptive period began. At the time the Ebingers moved into their home, the original statute was in place and thus the Ebingers would have ten (10) years to file a claim.

Second, the Louisiana Supreme Court looked at the language of the statutes to determine whether the superseding statutes were written to act retroactively or have prospective application. Though the peremptive period was ten years at the time the statute of limitations began to run, the legislature amended the governing statute in 1999, substituting ‘seven’ for ‘ten’ years as the peremptive period. Further, this Act stated “the provisions of this Act shall have prospective application only and shall apply to contracts entered into on or after the effective date of this Act.” Thus, at this time, the Ebingers would still have a valid claim through the original ten year peremptive period because the amended statute had only prospective applicability, not retroactive applicability, as specifically written in the Act by the legislature. Next, the Court looked at the second revision of the Act in 2003 which substitute ‘five’ for ‘seven’ years and did not maintain the ‘prospective application’ language. The Court states that the legislature’s actions in drafting a law are knowing and intentional, and thus, if the legislature meant for the ‘prospective application’ language to continue, then the legislature would have included it in the Act. However, because the legislature did not, the Court’s interpretation is that the 2003 Amendment supersedes the original statute and makes the peremptive period five years, even for those causes of action that arose back when the ten and seven year periods were applicable.

Third, the Court examines Constitutional rights to Due Process and determines that the statute of limitations is a procedural law and as long as it does not disturb a vested legal right, a right that at the moment may be expressed, then the statute of limitations (peremptive period) may be applied retroactively. In the end, the Ebingers’ claim is not perempted even though it was filed two months after the 2003 Amendment because the Ebingers’ right to sue had vested the moment they attained the certificate of occupancy. However, as for Venus Construction, “the mere expectancy of a future benefit,” for Venus Construction in this case the right to file a claim for indemnification, “does not constitute a vested right.” Therefore, Venus Construction’s right to file a claim for indemnification did not vest until a judgment was entered against Venus Construction, and thus the peremptive period has run for Venus Construction to file a claim for indemnification against the subcontractor.

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Being able to be involved in the design and building of a new home can be an exciting experience. But there is nothing more special than seeing the home’s construction completed and fully furnished. After all of this, there can be nothing more upsetting than the discovery that the new home has building defects. Imagine settling in and noticing some part of the home’s structure misshapen or cracking at the seams of walls or floors, or perhaps even a foundation or structural supports that have improperly settled or misplaced. The focus of Charles Ebinger, et ux. v. Venus Construction Corporation, et al. focuses on the time period in which a claim for these damages can be brought against a contractor and the time period in which a contractor may bring an indemnifying action against a subcontractor.

The crux of this follows what happens from the time that the building has completed through when litigation is brought against the contractor, and in the event the contractor is found liable, then the indemnification proceeding the contractor would most likely bring against any subcontractor who may be at fault for the imperfect work. However, this is complicated by taking into account the statute of limitations that exists to bring about such a suit. And this is further complicated when taking into account the revisions of the statute of limitations by the legislature.

In short, and to be clear, ‘to indemnify’ means to compensate for damages or losses sustained and to pay for expenses incurred through the litigation. Thus, in the event that a contractor, one who oversees and employs the various subcontractors for a specific job, is found to be liable for damage that exists in a specific construction unit, then, if it is through no fault of the contractor, but is the fault of one of the subcontractors and his or her oversight of his or her unit and specific job, then the contractor may seek to have his or her losses, in this case through litigation and a damages award against the contractor, paid by, or reimbursed by, the subcontractor.

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As we have discussed previously on our blogs, Louisiana courts apply “ordinary contract principles” when interpreting insurance policies. “Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning.” Cadwallader v. Allstate Ins. Co. The U.S. Court of Appeals for the Fifth Circuit, applying Louisiana law, recently utilized this approach when reviewing an appeal in a case involving a tragic medical injury.

Dr. Robert Lee Berry, an anesthesiologist, was employed by Louisiana Anesthesia Associates (“LAA”), a practice that provided anesthesia services to hospitals throughout the state. In March, 2001, Berry’s employment was terminated by Dr. William Preau, a shareholder of LAA, when it was discovered that Berry had been abusing narcotics while on duty. Yet, less than four months later, Preau wrote an unqualified letter of recommendation on Berry’s behalf when Berry applied for a job at the Kadlec Medical Center in Richland, Washington. Preau did not disclose Berry’s known drug use at work or his employment termination from LAA. On November 12, 2002, Berry improperly anesthetized a patient, Kimberly Jones, at Kadlec while under the influence of drugs. As a result of Berry’s mistake, Jones suffered an anoxic brain injury and emerged from the surgery in a permanent vegetative state. Jones’s family sued Kadlec Medical Center and Berry in Washington, ultimately arriving at a settlment with Kadlec for $7.5 million. Kadlec then brought suit against LAA and Preau in the district court for the Eastern District of Louisiana. At that trial, the jury found that Preau had committed “intentional and negligent misrepresentation” by failing to disclose Berry’s drug abuse and employment termination in his recommendation letter. The jury awarded Kadlec damages of over $8 million. This amount reflected Kadlec’s settlement with the Jones family plus approximately $750,000 in attorney’s fees Kadlec incurred defending the suit.

In 2001 when Preau wrote the recommendation letter on Berry’s behalf, LAA was insured under a commercial general liability policy issued by the St. Paul Fire & Marine Insurance Co. The policy covered covered LAA’s shareholders, including Preau. When St. Paul declined coverage of the judgment against Preau in the Kadlec suit, Preau filed an action against St. Paul. Following cross-motions for summary judgment, and the district court entered judgment for Preau. The main issue on appeal was whether the damages that Preau was obligated to pay Kadlec were covered under the policy’s “bodily injury” provision, which defined the term as “any physical harm, including sickness or disease, to the physical health of other persons.” The Fifth Circuit held that characterizing the judgment against Preau as requiring him to pay Kadlec damages for “bodily injury” was inaccurate. Instead, the judgment required Preau to pay economic damages to Kadlec for the losses it suffered due to Preau’s misrepresentation. “The economic damages Kadlec sought for Preau’s tortious misrepresentation are distinct from the damages Jones or any other party might seek for her bodily injuries.” In the court’s view, even though the amount of the damages that Kadlec sought from Preau was directly related to the amount it had paid to defend and settle the Jones family’s claim, the damages were still of the economic variety, and therefore not of the type covered by the St. Paul policy. The court further explained the distinction by noting that Preau’s liability to Kadlec arose from his breach of an independent duty he owed to Kadlec–Preau did not become legally responsible to Kadlec Suit for Jones’s bodily injuries, but rather the losses Kadlec faced due to Preau’s breach. Accordingly, the court reversed the district court’s judgment and remanded with instructions to enter judgment in favor of St. Paul.

Although the courts claim reliance on “ordinary” contract principles when interpreting insurance policies, this case shows how a court’s analysis of a policy–which to most consumers is already a particularly dense and forbidding document–can be anything but straightforward and obvious. If you are in a dispute with an insurance company over coverage, seek counsel from an experienced attorney who can help you navigate the complexities of the policy language and Louisiana case law to determine the strength of your claim.

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Previously on our network of blogs, we have discussed uninsured/underinsured motorist (“UM”) coverage in auto policies. The statutory requirement for UM insurance “embodies a strong public policy to give full recovery for automobile accident victims.” Duncan v. U.S.A.A. Insurance Co. So strong is this public policy preference, in fact, that “the requirement of UM coverage is an implied amendment to any automobile liability policy, even when not expressly addressed, as UM coverage will be read into the policy unless validly rejected.” If a policyholder wishes to reject UM coverage, he must do so by filling out a form that is issued by the state commissioner of insurance. The Louisiana Supreme Court has explained that completing the form is no simple, routine matter; the insurance company must see that the insured: (1) initials the line in the form that sets out the rejection of UM coverage; (2) prints his name; (3) signs his name; (4) fills in the policy number; and (5) fills in the date. (The same requirements for declining UM coverage would apply to an official representative of a corporate entity that owns a vehicle.) Moreover,

“in order for the form to be valid, [the information] must be completed before the UM selection form is signed by the insured, such that the signature of the insured … signifies an acceptance of and agreement with all of the information contained on the form. An insurer who is unable to prove that the UM selection form was completed before it was signed by the insured simply cannot meet its burden of proving … that the UM selection form is valid.” Gray v. American National Property & Casualty Co.

Indeed, even when an insurance company uses the official form and confirms that it is properly completed, it will only “receive[] a presumption that the insured’s waiver of coverage was knowing” (emphasis supplied), which can be rebutted.

The effectiveness of a UM waiver was at the center of a recent decision by the Third Circuit Court of Appeal in Melder v. State Farm. On March 1, 2007, Naddia Melder was driving a 2006 Nissan pickup truck that belonged to her employer, Grimes Industrial Supply, LLC (“GIS”), in Alexandria. She was involved in a collision with another vehicle in which she sustained serious injuries. After the accident, Melder filed a suit against State Farm seeking to recover under the UM coverage provision of the policy which GIS maintained on the vehicle. State Farm filed a motion for summary judgment asserting that when Floyd Grimes, the owner of GIS, obtained the insurance policy on the Nissan, he rejected UM coverage. After a hearing, the trial court granted the motion and dismissed the action against State Farm. Melder appealed, alleging that genuine issues of material fact about the validity of the UM waiver existed. The Third Circuit agreed with Melder. It cited the inconsistent evidence in the record about Mr. Grimes’s authority to execute the UM waiver. The policy indicated that the Nissan was owned by Floyd Grimes and his brother, Frank Grimes. But other evidence pointed to the corporate entity, GIS, as the owner of the truck. The court concluded, “the record contains no evidence of the authority by which Mr. Grimes executed the UM rejection, either on behalf of the … company or the apparently non-existent partnership between himself and Frank Grimes.” Thus, the court held that a genuine, material issue existed about whether the waiver, though properly completed, was valid. It reversed the trial court’s granting of summary judgment for State Farm and remanded the case for trial.

The Melder case shows Louisiana’s strong policy toward including UM coverage in all auto policies. The significant steps required to waive UM coverage are intended to prevent unintentional or mistaken waivers by policyholders. Even though State Farm followed the requirements diligently, it failed to verify something even more fundamental–whether the person signing the form possessed the legal authority to make a decision about waiving coverage.

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In a prior post, we reviewed the Johnson v. Louisiana Farm Bureau Casualty Insurance Co. case. The case concerned the undelivered notice from Farm Bureau to Janice Johnson that the company would not renew her homeowner’s insurance policy. The case centered around the state law that requires notice of the intent not to renew:

“An insurer that has issued a policy of homeowner’s insurance shall not fail to renew the policy unless it has mailed or delivered to the named insured, at the address shown in the policy, written notice of its intention not to renew. The notice of nonrenewal shall be mailed or delivered at least thirty days before the expiration date of the policy.” La. R.S. 22:1335, formerly La.R.S. 22:636.6.

In the Johnson case, the Third Circuit interpreted the “mailing or delivery” requirement to mean that the notice must actually be received by the homeowner. During the trial, the jury found that Farm Bureau had properly mailed the notice. But Johnson’s testimony that she always opened every piece of mail she received (except for bank statements) convinced the jury that she had not, in fact, received Farm Bureau’s letter. Since the Third Circuit regarded the conclusion about delivery to be a matter of “the credibility of the witnesses,” and could not find “manifest error in the jury’s credibility determination nor in their determination that the notice of non-renewal was not delivered,” it affirmed the trial court’s award of damages to Johnson.

Farm Bureau appealed this decision, which so happened to contrast directly with a recent decision from the Fourth Circuit. The Fourth Circuit case, which featured very similar facts, reached the following conclusion:

“[t]he mailing of a notice of nonrenewal to the insured’s address, as listed on the policy, at least thirty days before the expiration of the policy satisfies the burden placed upon the insurer.” Collins v. State Farm (La.App. 4 Cir. 1/26/11).

The Louisiana Supreme Court sided with the Fourth Circuit, finding that “the key is that the statute requires only mailing, not proof of receipt.” Because “the plain language of the statute requires only that such notice be mailed,” in the court’s view “any evidence of non-delivery is relevant only as far as it is evidence of non-mailing or improper mailing.” The court determined that the jury’s fact-finding duty extended no farther than determining that Farm Bureau had properly mailed the notice, which was “all that [Farm Bureau] was required to do under [the statute] in order to give notice of nonrenewal of [Johnson’s] insurance policy.” Accordingly, the Supreme Court reversed the Third Circuit and declared that “Farm Bureau did not provide homeowner’s coverage to [Johnson] at the time of the loss.” As a result, Johnson was denied the $296,500 payment she expected from Farm Bureau.

The purpose of the nonrenewal notice is to provide an insured homeowner sufficient time to obtain new insurance with another company before the existing policy expires. While the law placed a specific burden on insurance companies to send such a notice, customers in Louisiana are now clearly warned that the failed delivery of a properly mailed notice will not obligate an insurer to extend coverage, even if the consequences are catastrophic to the homeowner.

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Nearly six years after Hurricane Katrina struck, Louisiana residents are still dealing with the traumatic and costly effects of the storm. The American Red Cross estimates that approximately 275,000 Louisiana homes were destroyed by the storm and thousands more were damaged. Even those homeowners with insurance can find the recovery of damages to be a difficult and definitely expensive process. This financial burden, regardless of the supposed
Many homeowners filing claims for damages were in for a nasty surprise: the “Named Storm Deductible.” Under Louisiana law, insurance companies can implement deductibles of as much as 5% of the value of the insured property for damage caused by “named storms,” including tropical storms and hurricanes such as Hurricane Gustav or Hurricane Katrina. Frequently these provisions have not appeared on the original policies, but were added during a policy renewal, meaning homeowners are unaware of its existence or don’t understand its implications.

Under a Named Storm Deductible of 5%, for example, damage caused to a home with an insured value of $100,000 would cost the homeowners a deductible of $5,000, rather than the standard $500 or $1,000 deductible ordinarily applied to such losses. Litigation arguing against and interpreting these deductibles can be complicated and frustrating.

Homeowners Mary Williams, Michael Manint, and Susan Manint ran into this problem firsthand when recovering from damage caused to their homes by Hurricane Katrina. While their policy from Republic Fire and Casualty Insurance Company includes a Named Storm Deductible of five percent (5%), it does not specifically designate what the 5% is to be taken from: the damage amount or the dwelling coverage limit. One year, when renewing their homeowners insurance, Republic sent them an Important Policyholder Notice explaining the application of the Named Storm Deductible. The Notice included an example of the Named Storm Deductible which showed that the deductible would be 5% of the dwelling coverage limit. This distinction, however, did not actually appear within the provisions of their policies.

After Hurricane Katrina struck Louisiana, Republic determined that Ms. Williams and the Manints would have to pay deductibles of $7,320 and $4,445, respectively, which were 5% of their dwelling coverage limits. Both homeowners, however, had expected to have to pay only 5% of the covered loss, which would have amounted to costs under $1,000.

Both homeowners filed suit against Republic, asserting that the company had miscalculated the Named Storm Deductible. They argued this on the theory that the Important Policyholder Notice, which showed that the 5% was to be taken from the dwelling coverage limit, could not be considered when interpreting the Named Storm Deductible. The district court however, disagreed and ruled in favor of Republic, confirming that the deductible had been calculated correctly.

On appeal, the court affirmed the district court’s ruling. Under Louisiana law, because the Important Policyholder Notice was physically attached to the renewal policies, it was made a part of them as well. This meant that the Notice’s interpretation showing that the 5% was to be taken from the dwelling coverage limit was part of the policy and thus enforceable against the homeowners.

If you find yourself in a similar predicament, consulting with a legal expert may be your best chance in receiving the justice you deserve.

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If a homeowner insures his home and then suffers damage to the structure, the process of making a claim and being paid for the loss can be long and frustrating. Frequently, the insurance company will arrive at its value of the loss and attempt to persuade the homeowner to accept that value, even if it doesn’t reflect the homeowner’s actual costs of repair. In such a case, the homeowner should check his policy for an “appraisal clause.” This provision provides for an alternative method for setting the value of the property damage. An appraisal procedure requires the homeowner to obtain an independent appraiser to survey the damage and assign a value to the loss. Similarly, the insurance company must hire an independent appraiser to perform the same analysis. The two appraisers must petition the court for the appointment of an umpire who will then oversee the negotiation of the settlement based on the two appraisals. Once any two of the parties–the appraisers and/or the umpire–agree as to the value of the loss, the matter is settled.

In Louisiana, like other states, flood insurance policies are underwritten through the National Flood Insurance Program (NFIP) and administered by the Federal Emergency Management Agency (FEMA). The NFIP authorizes private insurance companies to issue policies and handle the claim settlement process. Claims are actually paid by the federal government. FEMA requires that all NFIP flood insurance policies include an appraisal clause.

After their was heavily damaged by flood in Hurricane Katrina, William and Cynthia Dwyer filed a claim with their flood insurer, Fidelity National Property and Casualty Insurance Company. The Fidelity policy was issued through the NFIP. The Dwyers disagreed with Fidelity’s offer of settlement and took the dispute to the District Court for the Eastern District of Louisiana. The court entered judgment for the Dwyers, and on appeal by Fidelity, the Fifth Circuit Court of Appeals vacated the judgment and ordered the parties to submit to the appraisal process as outlined in the policy. The Dwyers and Fidelity sought appointment of an umpire, who then submitted to the district court an appraisal that included the amount of actual damage to the Dwyer home as well as a “mark-up for overhead and profit” intended to cover the cost of a general contractor to make the repairs. Fidelity accepted the umpire’s figure on damages but objected to the addition of the mark-up because the Dwyers had already sold the house and would not have any role in the repair itself. The Fifth Circuit agreed with Fidelity that “the award of overhead and profit was erroneous” and noted that “Fidelity told the district court that absent the improper award of overhead and profit, it agreed with the umpire’s appraisal.” Thus, determining that Fidelity and the umpire were in agreement on the amount of the loss, the court entered judgment ordering Fidelity to pay the Dwyers $1,552.51. This amount represented the umpire’s appraisal amount less the erroneous overhead and profit, the policy deductible, and the amount Fidelity had already paid out to the Dwyers.

The appraisal process seeks to take the potentially emotional settlement of an insurance claim out of the hands of the homeowner and the insurance company and leave the decision to disinterested, expert third parties who have no connection to the outcome. Although the process is generally more cost-effective and expedient than litigation, a homeowner should consult with an experienced attorney to ensure the procedure is properly followed and his rights are protected.

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