Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Policyholders were awarded more than $100 million in damages because Citizens did not begin adjusting policyholder claims within 30 days of the loss events, as required by Louisiana law. Policyholder attorneys started the seizure process, but a state District judge entered an order staying the matter until a hearing on February 8, 2012. According to Citizens chief executive Richard Robertson, Citizens intends to attempt an appeal to the United States Supreme Court. You can read the full story here.

The policyholders’ home sustained “catastrophic” damages during Hurricane Katrina on August 29, 2005. At the time of the loss, they had a flood policy issued through the National Flood Insurance Program (“NFIP”) and a homeowners policy with State Farm. The insureds filed a flood claim with the NFIP, and were paid $145,000. They also filed a claim with State Farm, and received about $41,000 for wind damages.

In 2006, the policyholders sold the property to a buyer in an “as-is” condition without making any repairs. Later in 2006, the policyholders filed a lawsuit against State Farm, asserting that State Farm’s payment of about $41,000 was insufficient to pay for all of their damages. They provided State Farm with their own contractor’s estimate of $111,000 for replacement costs associated with the wind damage. After a re-inspection, State Farm paid the policyholders some additional funds. The policyholders then filed suit, seeking replacement cost benefits for their dwelling.

State Farm filed a motion for summary judgment, arguing that the policyholders were not entitled to replacement cost under the terms of the policy since they sold the property in “as-is” condition in 2006 and they had never performed any repairs or replacement of the property before the sale. State Farm argued that the policyholders were only entitled to the actual cash value as of August 28, 2005.

The trial court granted State Farm’s motion and the appellate court affirmed the ruling. The appellate court analyzed the language of the policy and held that the following language supported the decision limiting the policyholders to actual cash value because of the sale:

SECTION I – LOSS SETTLEMENT

We will settle covered property losses according to the following:

COVERAGE A – DWELLING

1. Replacement Cost Loss Settlement – Similar Construction

a. We will pay the cost to repair or replace with similar construction and for the same use on the premises shown in the Declarations, the damaged part of the property covered in Section I – Coverages, subject to the following:

(1) until actual repair or replacement is completed, we will pay only the actual cash value at the time of the loss of the damaged part of the property, up to the applicable limit of liability shown in the Declarations, not to exceed the cost to repair or replace the damaged part of the property;
(2) when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less;

The court held that the policy clearly states that the policyholders were limited to the actual cash value of the damaged property because they did not repair or replace the damaged property before the sale. This case does however stand for the proposition that a policyholder may still claim damages sustained from a loss despite a later sale of the insured property. The policyholder has an insurable interest if there was no assignment of the claim negotiated as part of the sale transaction. Keep in mind that this court applied Louisiana law in reaching its decision, and the law may differ in other jurisdictions.

Amy Kareem owned a business in Louisiana and asked her broker to procure insurance that would protect her business from, among other things, any loss resulting from criminal activities. Her broker procured an insurance policy and informed Ms. Kareem that criminal activities were covered. Ms. Kareem’s business was later damaged during a burglary, but her insurer denied her claim because the policy didn’t cover burglary or theft. Ms. Kareem brought suit against her insurance company for wrongly denying the claim and against her broker for failing to procure the proper insurance coverage.

The insurance company removed the case to federal court and argued that Ms. Kareem failed to state a claim that would allow for recovery against the broker in state court. The federal judge, though, determined that Ms. Kareem’s assertions were sufficient to keep the case in state court.

It is well established under Louisiana law that a plaintiff may recover for his insurance agent’s failure to procure insurance coverage as requested. According to the Louisiana Supreme Court, an insurance agent who undertakes to procure insurance for another owes an obligation to his client to use reasonable diligence in attempting to place the insurance requested and to notify the client promptly if he has failed to obtain the requested coverage.

Kareem v. Markel Southwest Underwriters, Inc., No. 10-527, 2011 WL 161974 (E.D. La. Jan. 18, 2011) (citations omitted).

The Court went on to recognize that:

A client may recover any losses he sustains in reliance on the agent’s representations that he was properly insured in the amount of the desired coverage…. [T]he three elements that a plaintiff must establish in order to state such a claim [are]: (1) an undertaking or agreement by the insurance agent to procure insurance; (2) failure of the agent to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly if he has failed to obtain the insurance; and (3) actions by the agent warranting the client’s assumption that the client was properly insured.

The Court looked to Ms. Kareem’s assertions that she asked her broker to procure insurance protecting her business from criminal activity and that her broker failed to do so, even though he informed her he had. This was sufficient to state a cause of action against the insurance broker.

The insurance company also argued that the suit was untimely, alleging Ms. Kareem knew or should have known she did not have the proper coverage on the date she signed the insurance application. The Court felt differently, however, and determined that because she did not receive the policy until after this loss occurred, Ms. Kareem did not know about the lack of coverage until the insurance company notified her. The suit was timely.

Keep in mind this case deals only with Louisiana law. Other states may treat the same situation differently.

Carter Auslander provided a detailed account of the Hurricane claim he handled at a historical property called “Latrobe’s,” and both the trial and appellate court that heard the issues relating to the loss have provided detailed opinions. Royal Cloud Nine, LLC, purchased insurance from Lafayette Insurance to cover Latrobe’s, a “historical architectural gem,” in New Orleans. Latrobe’s on Royal is one of New Orleans most architecturally significant buildings, and is located in the heart of the enchanting French Quarter. Designed by the “Father of American architecture,” Benjamin Henry, Latrobe’s building was originally intended to house the Louisiana State Bank Now, this stunning building is used for exquisite special events and celebrations. But this classic property suffered damage as a result of Hurricane Katrina. Lafayette Insurance Company eventually accepted coverage for the loss, but the claim assessment was wholly inadequate.

The insured retained Carter J. Auslander and Associates. Auslander described Latrobe’s as a first class property that was impeccably maintained. But after Hurricane Katrina, Lafayette failed to properly pay the claim. The carrier did not come to inspect and adjust the loss with the necessary objective to properly indemnify the insureds. In February 2006, Lafayette sent an expert to inspect and evaluate the damages to the property, including the roof damage. Lafayette’s expert indicated that he believed that roof was damaged and submitted to Lafayette an estimate for repair and an estimate for replacement. Lafayette disregarded the reports. On behalf of Royal Cloud Nine, Auslander presented the claim with a complete estimate for the property damage, including an estimate for the replacement of the slate roof. The independent adjuster hired by Lafayette also submitted an estimate for roof damage, but Lafayette ignored all submissions.

David Connor, the head of Lafayette claims, ordered a third estimate. The new expert submitted an estimate of damages for the roof, but the expert did not properly evaluate the damages.

“Mr. Lehman did not physically walk on the roof, but inspected it from a manlift from which much of the damage to the roof, particularly, the hairline cracks, were not visible. Mr. Lehman prepared a roofing estimate to make spot repairs with gray slate totaling only $5,500 that did not include the carriage house, nor did it include any warranty of the work performed”

It was obvious that the carrier was looking only to give a band-aid remedy to the insured after two of its own representatives’ recommendations were dismissed.

Since Lafayette was ignoring its own experts, Auslander knew he had to present more information detailing damages and highlighting the significance of the historical nature of the property. Auslander was able to present documentation from the Vieux Carre Commission about the property. The Vieux Carré Commission’s task is to protect, preserve, and maintain the distinct architectural, historic character, and zoning integrity of Latrobe’s and other historical buildings. The Commission’s position was that Latrobe’s roof had to be replaced with genuine slate. The revised estimate presented by Auslander totaled $487, 723.70. Finally, at the end of June 2006, Lafayette sent its first payment on this claim, but despite having been advised in detail of the damages, it only paid $61,403.33. Lafayette classified this payment as the settlement.

Ultimately, Royal Cloud Nine had to file suit against Lafayette for the damages. The Court found that it was improper for Lafayette to specifically reject its own adjuster’s submission of the damages and that it acted arbitrarily and capriciously in disregarding the roofing estimates in favor of the much lower and unreasonable estimate of $5500.00.

The trial court ordered Lafayette to pay Royal’s Hurricane Katrina damages.

• It awarded replacement of the interior damage, as provided in the claim presentation provided by Auslander.
• Lafayette was also ordered to pay for the replacement cost of the exterior damages presented in Auslander’s revised estimate (presented with the information for the standards for historical building repairs) and for the replacement of the slate roof as presented in Auslander’s claim package.
• Lafayette was ordered to pay a penalty of $247,784.80, plus interest for withholding payment after the proof of loss was submitted.
• Royal Cloud was awarded Attorneys’ fees and costs
• All costs were taxed against Lafayette
• Royal Cloud was also awarded judicial interest.

Lafayette appealed the trial court’s judgment. The appellate court affirmed the majority of the order but amended the judgment to give Lafayette a credit for the deducible and reduced the attorney fee percentage, It also awarded Royal Cloud interest from the date of the judgment and an additional $62,400.00 for roof damages.

The Wegeners’ two-story home sustained severe damage caused by wind and flooding as a result of Hurricane Katrina. Lafayette Insurance Company insured the home with coverage limits of $229,000 for the dwelling, $22,900 for other structures, $114,500 for personal property, and $45,800 additional living expenses. The Wegners filed a claim with Lafayette and received less than $25,000 for the structure, less then $2,500 for the contents, and were denied money for additional living expenses.

The Wegeners then hired an engineer, who determined that in addition to damage caused by wind driven water infiltration, excessive wind pressures caused the house to move laterally on its foundation, loosened the primary framing member connections, and damaged the wooden structures. The engineer recommended the structure be demolished. Lafayette hired its own engineers (HAAG), and they determined that flooding caused nearly all of the first story damage and found no structural damage to the house. Based on this report, Lafayette made no further adjustments or payments.

The Wegeners also filed a claim with their flood insurer, State Farm Insurance Company, which paid the policy limits of $198,900 for the dwelling and $27,000 for contents. Nearly two years later, State Farm also paid the Wegeners an additional $8,330 for Increased Cost of Compliance (ICC) to demolish the structure, for total payments of $234,230.

The Wegeners then filed suit against Lafayette, arguing their home was a total loss and they were entitled to the full amount of their policy limits. They also sought payment for additional living expenses, mental anguish damages, and statutory penalties and attorney's fees pursuant to La. R.S. 22:658 and La. R.S. 22:1220 (now La. R.S. 22:1973). The case went to trial, and the jury returned a verdict in favor of the Wegeners, awarding them an additional $20,000 for damage to the structure, an additional $4,000 for damage to contents, and $45,800 for additional living expenses. The jury found that Lafayette violated La. R.S. 22:1220(B)(1) and/or (5), but no award was made for mental anguish damages or penalties under La. R.S. 22:1220(C).

Thereafter, the trial court granted the Wegener’s Motion for Judgment Notwithstanding the Verdict or New Trial, finding that, pursuant to La. R.S. 22:1220, "the facts and inferences point so strongly and overwhelmingly in favor of plaintiffs that reasonable jurors could not arrive at a contrary verdict, that the defendant's actions in failing to pay plaintiffs for their additional living expenses within sixty (60) days after receipt of satisfactory proof of loss were arbitrary, capricious and without probable cause." The trial court awarded $91,600 in penalties, which was twice the amount awarded by the jury for additional living expenses.

Both parties sought review of various issues, and the case ultimately made its way to the Louisiana Supreme Court. There, Layfayette sought review of the jury's finding that Lafayette violated La. R.S. 22:1220; the award of $45,800 for additional living expenses; the trial court's exclusion of evidence of the Wegeners’ flood insurance claim and proceeds; and the trial court's grant of the JNOV and award of $91,600 in penalties. The Wegeners sought increases in the amounts of damages and penalties, or alternatively a new trial.

Noting that the Wegeners' claim for mental distress was based on Lafayette's alleged violation of its statutory duty under La. R.S. 22:1220, and not a breach of their insurance contract with Lafayette, the Court held that La. C.C.1998, which prohibits mental anguish/emotional distress damages on a breach of contract claim, did not apply in the Wegener’s case. Instead, the Court looked to the text of La. R.S. 22:1220, which provides that an insurer owes a duty of good faith and fair dealing to its insured. The Court noted that the general and special damages award authorized by the statute is directed at a violation of that statutory duty and is misconduct outside of the scope of an ordinary breach of contract. Affirming the Fifth Circuit’s reasoning in Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir.2009), the Court concluded that “La. C.C. art.1998 has no applicability in a claim for emotional distress/mental anguish damages under La. R.S. 22:1220.”

The Court then determined that the jury instructions on the mental anguish damages, which required proof of an intent to aggrieve the Wegeners before damages could be awarded, contained legal error. La. R.S. 22:1220 permits "any general or special damages" with no limitation or additional requirement other than the breach of duty by the insurer; intent is not a requirement. The jury was also unable to properly decide whether the Wegeners were entitled to penalties under La. R.S. 22:1220. Penalties are allowed under La. R.S. 22:1220 even if no damages have been awarded, but the particular structure of the jury interrogatories in this case forced the jury to skip the issue in its deliberations. Based on these errors, the Court vacated the verdict and remanded the case for a new trial.

As the case was to be retried, the Court also addressed Lafayette’s argument that the evidence of the Wegeners’ flood insurance claim and payments was improperly excluded. In Louisiana, an insured may not recover in excess of his or her actual loss, but can recover under each policy until the total loss sustained is indemnified. Because the experts at the trial below offered differing opinions on the amount of damages and cost to rebuild the Wegeners’ home, evidence of the flood payments was relevant.

Evidence of flood insurance payments is relevant to the issue of what uncompensated losses remained. Without the benefit of evidence relative to the Wegeners' flood insurance claim, the jury is essentially required to award damages to the Wegeners in a vacuum, without having the ability to determine whether such an award is double recovery.

Accordingly, the Court held that evidence of payments for flood loss would be relevant and admissible at the new trial.

Please tune in next week for another bad faith discussion.

In Dickie Brennan & Company, Inc., v. Lexington Insurance Company, No. 10-30381, 2011 WL 996193 (5th Cir March 22, 2011), the Fifth Circuit Court of Appeals determined that Civil Authority coverage requires a direct causal relationship between the governmental action and prior property damage.

As Hurricane Gustav approached Louisiana on August 30, 2008, New Orleans Mayor Ray Nagin issued a mandatory evacuation order. Although the Order did not refer to any property damage, it stated that both the Governor and Mayor Nagin were declaring a state of emergency “because of anticipated high like and marsh tides due to the tidal surge, combined with the possibility of intense thunderstorms, hurricane force winds, and widespread severe flooding.”

The civil authority provision in the Brennan policy stated:

“Additional Coverages.”

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to two consecutive weeks from the date of that action.

In Louisiana, an insured must establish:

1. that the loss of income was caused by an action of civil authority;
2. the action of civil authority must prohibit access to the described premises of the insured;
3. the action of civil authority prohibiting access to the described premises must be caused by direct physical loss of or damage to property other than at the described premises; and
4. the loss or damage to property other than the described premises must be caused by or result from a covered cause of loss as set forth in the policy.

In this case, the parties disputed whether the mandatory evacuation order fulfilled the third element. The Brennans argued that the third element is fulfilled when the civil authority action is a response to property damage (with no geographic limitation) that has been sustained earlier from the same cause threatening to damage the locale where the insured premises are located. The Brennans alleged that Hurricane Gustav had already damaged property in the Caribbean nations of Cuba, Jamaica, the Dominican Republic, and Haiti when Nagin issued the evacuation order.

In other words, the Brennans argued that the prior damage in the Caribbean, coupled with Gustav's projected path toward New Orleans, satisfied this element. Lexington, on the other hand, argued that the policy required a causal link between the prior damage and the civil authority action and that the damage must be near (although not at) the insured premises to satisfy that link.

Mayor Nagin’s Order did not mention the earlier property damage in the Caribbean. It listed possible future storm surge, high winds, and flooding based on Gustav’s predicted path as reasons for evacuation and not “due to” physical damage to property, either distant property in the Caribbean or property in Louisiana.

The Court rejected Brennan’s argument that actual damage that had occurred in the Caribbean was sufficient to establish coverage.

The general rule is that “[c]ivil authority coverage is intended to apply to situations where access to an insured’s property is prevented or prohibited by an order of civil authority issued as a direct result of physical damage to other premises in the proximity of the insured’s property.” Although it does not expressly address the proximity issue, the Lexington policy requires proof of causal link between prior damage and civil authority action.

Recently, I spoke with Anthony Odeh about his assistance with this claim. I learned some additional information about this loss and Odeh’s background. Odeh started Claims Consulting, LLC, in 2005 after recognizing the need for insureds to have a professional assist them with claims. His strong construction background (he was formally a general contractor) helped build his public adjusting company, which now handles claims in Louisiana, Michigan and Florida.

Odeh values the importance of being an involved member of the community. He and his team volunteer with the American Red Cross, and he is a member of NAPIA and United Policyholders.

When working Louisiana claims, Odeh explained how particularly difficult it can be to level the playing field for the insureds.

In Louisiana, insurers treat PA’s with a lot of resistance and I think this is because there is a misconstrued perception that PA’s are the enemy. Until 2007, the practice of public adjusting was not recognized in Louisiana. While other states have regulated and licensed public insurance adjusters for generations, public adjusting was something new for Louisiana. Since insurance adjusters were not accustomed to an advocate public adjuster helping and impacting claims, adjusting the damages with the insurance companies has been an uphill battle.

The resistance towards PA’s was clearly expressed in the comments posted to the article on WDSU.com. Several comments attacked public adjusting as a whole and cautioned insureds that the public adjusters were paid from the proceeds of the recovery.

Unlike many other news reports about insurance claims, Mr. Quintanila, the actual policyholder, was interviewed and quoted in the article. Quintanila explained his claim experience:

I had to get the plumber, I had to get the electrician. I had to get the permit from the city… regular citizens don’t know how insurance really works and the way I feel like now, I feel like they just, just give you this money and you have to be happy and satisfied with what they give you.

The online comments posted about the article were very critical towards public adjusting, but they failed to provide any response or solution for insureds in Mr. Quintanila’s position. Odeh, however, did provide a solution for this policyholder. In the end, the insurance company paid for loss of rents for the three apartments and paid a gross payment of more than $53,000.00 for the damage to the structure.

In Louisiana, overhead and profit (O&P) is to be paid when repairs involve three or more trades, to cover the expense of a general contractor to coordinate the work. The lawsuit contended the O&P should have been paid to insureds who handled their own contracting. O&P is usually an additional 20% of the repair bill.

Insureds that want to opt-in on the class action settlement must submit a claim form by October 20, 2010.

There is more information at the settlement Administrator's website on how to go about making a claim or opting-out.

The panel assigned U.S. District Judge Carl Barbier to preside over the multidistrict litigation (MDL). The cases will be transferred to the Eastern District of Louisiana. In determining the location, the MDL Panel stated:

Without discounting the spill’s effects on other states, if there is a geographic and psychological “center of gravity” in this docket, then the Eastern District of Louisiana is closest to it.

The MDL Panel issued a second order consolidating and transferring all shareholder actions against BP to the Southern District of Texas.

Oil and water don't mix,
Petroleum don't go with no fish,
Awww, it ain't my fault

BP big pimpin',
Big pile of bad presses,
Billionaire point pressure,
Awww, it ain't my fault....

The track is available on iTunes for less than a dollar, and all the proceeds will benefit fishermen and those who work in seafood restaurants, whose lives and work have been affected indefinitely by the oil spill.

Enjoy the video:
 

The reason why it is important to go to seminars is get an edge and tips about your practice. I will go over cases and what the judges say. Still, the value of attending is to hear the practical analysis and how these cases can be used by adjusters, public adjusters, attorneys and others in the practice of their respective trades.

Here are the cases and the outline. I will be giving a similar speech in Houston at the Windstorm Conference, January 24-27. 2011. I promise that if you attend, you will come away with some practical tips you can use to help your clients--whether insurers or policyholders.
 

The Gulf of Mexico oil spill could be leaking at a rate of 25,000 barrels a day, five times the government's current estimate, industry experts say.

Basing their calculations on government data and standard industry measurement tools, the experts said the Gulf spill may already rival the historic 1969 Santa Barbara, Calif., and 1989 Exxon Valdez disasters.

Ian MacDonald, professor of oceanography at Florida State University who specializes in tracking ocean oil seeps from satellite imagery, said there may already be more than 9 million gallons of oil floating in the Gulf now, based on his estimate of a 25,000 barrel-a-day leak rate. That's compared to 12 million gallons spilled in the Valdez accident.

Interior Department officials said it may take 90 days to cap the leaking well. If the 25,000 barrels a day is accurate and it leaks for 90 days, that's 2.25 million barrels or 94.5 million gallons.

Mr. MacDonald and his colleagues at the Earth, Ocean and Atmospheric Science Department have worked jointly with National Oceanic and Atmospheric Administration in the past on oil spill tracking, and have shared their estimates with NOAA scientists. He said the NOAA scientists didn't dispute the calculations.

A NOAA spokeswoman said the government estimate of 5,000 barrels a day leaking from the BP PLC deep sea well was based on collaborative assessments produced by BP, NOAA and the U.S. Coast Guard. NOAA scientists weren't immediately available to comment.

The 5,000-barrel figure was first announced late Wednesday and marked a five-fold increase from the previous estimate. News of the higher estimate ratcheted up the pressure on officials to take more-aggressive steps to contain the spill and heightened concerns about potential environmental damage and disruption to the Gulf Coast economy.

Climate Now called this an Oilpocalypse Now! That blog provides a detailed report on the serious issues confronting Gulf Coast states.

In Safety Device Questioned in '04, the Wall Street Journal also noted that safety devices could have been better:

Some newer rigs have blowout preventers with two separate pairs of shear rams—providing an added safeguard in case one shear malfunctions or hits an obstruction in the pipe. The Deepwater Horizon had a single pair of shear rams.

The Interior Department's Minerals Management Service, which regulates offshore drilling, questioned whether shear rams were strong enough to shear through a pipe.

In two offshore incidents in 2001, the rams didn't work as expected. The agency issued new rules in 2003 instructing the oil industry to make sure the rams would work reliably.

In 2004, a study commissioned by the MMS raised significant questions about the ability of rams to cut through the stronger pipes used in deep-water drilling. Those thicker pipes—as well as the shear rams—must withstand the enormous pressures found at 5,000 feet below sea level.

The study noted there was no agreement on how to determine if the sheer rams would work properly in deep-water conditions. Only three of 14 newly build rigs had blowout preventers that were able to squeeze off and cut the pipe at the water pressure likely to be experienced at the equipment's maximum water depth, the study noted. (emphasis added)

I will be flying over the Gulf of Mexico to Galveston on Hurricane Ike litigation matters as many are reading this post. I am certain that the spill will be even more unbelievable to see than this past Thursday when I last flew over the disaster. The Gulf Coast needs a reprieve from these heartbreaks. The recent post in Slabbed, “We interrupt this interruption of our regularly scheduled disaster blogging to report that levees have failed above Memphis” – said the Editilla this soggy Sunday morning, is sadly accurate of what we have been experiencing lately.

Yesterday, Time Magazine reported in an article, Gulf Oil Spill Swiftly Balloons, Could Move East, that:

The Coast Guard conceded Saturday that it's nearly impossible to know how much oil has gushed since the April 20 rig explosion, after saying earlier it was at least 1.6 million gallons....Even at that rate, the spill should eclipse the 1989 Exxon Valdez incident as the worst U.S. oil disaster in history within about a week. But a growing number of experts warned that the situation may already be much worse.

The oil slick over the water's surface appeared to triple in size over the past two days, which could indicate an increase in the rate that oil is spewing from the well, according to one analysis of images collected from satellites and reviewed by the University of Miami. While it's hard to judge the volume of oil by satellite because of depth, it does show an indication of change in growth, experts said.

"The spill and the spreading is getting so much faster and expanding much quicker than they estimated," said Hans Graber, executive director of the university's Center for Southeastern Tropical Advanced Remote Sensing. "Clearly, in the last couple of days, there was a big change in the size." Florida State University oceanography professor Ian R. MacDonald said his examination of Coast Guard charts and satellite images indicated that 8 million to 9 million gallons had already spilled by April 28.

Doug Suttles, BP's chief operating officer for exploration and production, said it was impossible to know just how much oil was gushing from the well, but said the company and federal officials were preparing for the worst-case scenario. Oil industry experts and officials are reluctant to describe what, exactly, a worst-case scenario would look like — but if the oil gets into the Gulf Stream and carries it to the beaches of Florida, it stands to be an environmental and economic disaster of epic proportions.

The Deepwater Horizon well is at the end of one branch of the Gulf Stream, the famed warm-water current that flows from the Gulf of Mexico to the North Atlantic. Several experts said that if the oil enters the stream, it would flow around the southern tip of Florida and up the eastern seaboard.

"It will be on the East Coast of Florida in almost no time," Graber said. "I don't think we can prevent that. It's more of a question of when rather than if."

Our firm will file our first BP Oil spill lawsuit tomorrow morning. We will do so with our long term co-counsel in the panhandle of Florida, Keefe, Anchors, Gordon & Moyle, P.A. Michelle Anchors is proudly a fervent environmentalist, and she wrote the following in her Blog:

Those of us who grew up on the Emerald Coast have been around the block a few times watching the Weather Channel and waiting to see where the hurricane would land. Most of us have never watched an oil slick to see whether and when it would land. Waiting for a hurricane seemed to be a lot more fun. Maybe we would get out of school. Maybe the electricity would go out. Maybe the wind would bring good waves for the surfers. And now that I represent clients who have to fight their insurance companies after a hurricane, maybe I would even get some business. But waiting for the oil spill of the Deepwater Horizon to reach our coast is gut wrenching. I don’t want the business.

During the last few days, I have received calls from some of my clients asking if we can help them prepare for this potential disaster. Not to be unnecessarily alarmist, but the potential consequences are grave. Emotionally, environmentally, and economically, Northwest Florida has everything to lose. So we have mustered our troops and our resources and we are going to fight BP, who could have and should have taken more actions to prevent this devastating event. This is not like a hurricane that the forces of Mother Nature unleashes without any human or corporate control. This is an oil company that apparently did not take the precautions necessary to protect us all – this is an underwater Chernobyl.

With oil coming ashore, there will be massive income and loss of use claims. Those have already started and will only increase as the oil permeates a community. As a result, Merlin Law Group hired an environmental attorney who has extensive experience with pollution litigation. We also retained a consultant who managed claims from the oil industry's side following the Exxon Valdez disaster. We also hired Trial Exhibits, which photographed and documented damage for a oil transport company following a 1993 oil spill off St. Petersburg and Clearwater. We will do our best to help and serve our clients. I look forward to working with Michelle Anchors and others as we work through this unprecedented catastrophe.

Oil spills, clean up and recovery are topics of discussion at my family gatherings. My father helped start the Marine Spill Response Corporation operations in the Gulf Coast at Lake Charles, Louisiana. After his retirement there, he has taught oil spill clean up and recovery for the State of Louisiana and throughout the Gulf Coast. I am certain that many of the people trying their hardest to stop the spread of this spill have been taught by him. There is only so much that can be done if the flow of oil is not contained.

Underwater robots failed to activate a cutoff valve on the ocean floor to stop the leak. BP is hoping a plan to cover the well with a steel cap and capture the leaking oil will avert an environmental disaster. But that will take four weeks, and by then more than 150,000 barrels could have spilled. If the steel cap does not work, BP will have to rely on stemming the flow by drilling a relief well, which would take two to three months. If it takes that long, the spill could be even larger than the 258,000 barrels leaked in 1989 by the Exxon Valdez.

Estimates of the damage are already in the billions. In BP Vows to Pay All Gulf Coast Oil Spill Damage Claims, the National Law Journal reported:

BP Plc will compensate all those affected by an oil spill from one of its wells in the Gulf of Mexico, its Chief Executive said, accepting the disaster could hit plans to open new areas off the U.S. coast to drilling.

"We are taking full responsibility for the spill and we will clean it up and where people can present legitimate claims for damages we will honour them. We are going to be very, very aggressive in all of that," Tony Hayward told Reuters in an interview on Friday.
...

The cost to the fishing industry in Louisiana could be $2.5 billion while the impact on tourism along Florida's Paradise coast could be $3 billion, Neil McMahon, analyst at investment firm Bernstein, said in a research note on Friday.

On the way to Houston on Thursday morning, I was amazed to look out the window of our plane and see the size of the oil spill. As far as I could see, oil was there. This will not end anytime soon. There will be significant claims, losses and litigation involving this tragic event.

Pollution or Contamination

We do not cover any loss, directly or indirectly, regardless of any cause or event contributing concurrently or in any sequence to the loss, caused by the discharge, dispersal, seepage, migration or release or escape of pollutants. Nor do we cover the cost to extract pollutants from land or water, or the cost to remove, restore, or replace polluted or contaminated land or water. A "pollutant" is any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and "waste." A "contaminant" is an impurity resulting from the mixture of or contact with a foreign substance. "Waste" includes materials to be disposed of, recycled, reconditioned or reclaimed.”

Gradual or Sudden Loss

We do not cover any loss caused by gradual deterioration, wet or dry rot, warping, smog, rust or other corrosion. In addition, we do not cover any loss caused by inherent vice, wear and tear, mechanical breakdown or latent defect. However, we do insure ensuing covered loss unless another exclusion applies.

Faulty, Inadequate or Defective Planning

We do not cover any loss caused by faulty, inadequate or defective:

a. Planning, zoning, development, surveying, siting;
b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
c. Materials used in repair, construction, renovation or remodeling, grading or compaction; or
d. Maintenance; of part or all of any property whether on or off the residence. However, we do insure ensuing covered loss unless another exclusion applies.

These are the provisions many insurers are relying upon to deny Chinese drywall claims under property insurance policies. So, the decision is very important and will have to be followed closely. Everybody can expect more claims to be filed citing this decision. The reasoning was interesting and relied, in part, upon the deposition of the insurance company’s corporate representative. The Court noted the following deposition testimony in its Judgment:

Q: I said, given your experience in working with insureds and how they might interpret or understand the policy, do you think that a person would read this and think that they would need to buy additional coverage to cover Chinese drywall?

A: It would depend on the person. If I read it, I would know it. I'm a person. There's other persons that may not.
…

Q: Do you agree that the burden is on the insurer to show that a damage is excluded?

MR. FRANK: Was that the end of it?

MR. CASEY: Yes.

MR. FRANK: Objection to the extent it calls for a legal conclusion. If you know, you can go ahead and answer.

A: I am pretty sure that that's the way - I mean that we usually, if we feel something is not covered, we document why and explain it. That would be what we would do.

…

Q: Were the damages to the Fingers’ drywall itself direct or indirect?

A: We found no damages to the drywall.

Q: And were the damages to the Fingers' metallic components direct or indirect?

A: We found those are a direct result of the gases emitted or given off by the drywall.

…

Q: Did Audubon investigate as to whether the drywall was installed correctly or incorrectly?

A: No.

Q: Is there a reason why they didn't investigate?

A: It wasn't germane to the issue.

Q: Why not?

A: The question was whether the drywall was causing the problem itself, not whether it was hung correctly.

In a footnote, the Court explained the basic premise  of coverage under an all-risk policy:

"Generally, an 'all risk' insurance policy creates a special type of coverage extending to risks not usually covered under other insurance, and recovery under an "all risk" policy will, as a rule, be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage."

Louisiana law differs from other jurisdictions regarding the pollution exclusion cited above. The Court easily found that it did not apply (even the insurer agreed, but because it found it failed to include the endorsement in that policy) as, under Louisiana law, the pollution exclusion could not apply to defective building materials in a home:

The [pollution] exclusion does not, and was never intended, to apply to residential homeowners claims for damages caused by substandard building materials. Doerr v. Mobil Oil Corporation, 2000-0947 (La. 12/19/00), 774 So.2d 119, 134; State Farm Fire Ins. Co. v. MLT Construction Co., 2002-1811 (La. App. 4th Cir. 6/4/03), 849 So.2d 762, 770. The Louisiana Department of Insurance determined that a "pollution incident" under a pollution exclusion in homeowners' policies only refers to an incident which causes "environmental damage," or "injurious [to the environment, not the claimant] presence in an upon the land, the atmosphere, or any watercourse or body of water of solid, liquid, gaseous or thermal contaminants, irritants or pollutants." (See Advisory Letter No. 97-01 Commissioner of Insurance, State of Louisiana (June 4, 1997)).

…The fact that Chinese drywall releases various gases into the home is not sufficient to qualify as a "pollutant" under the pollution exclusion, which this Court interprets consistent with Doerr v. Mobil Oil…Audubon acknowledged in its response to Plaintiffs' Motion for Partial Summary Judgment that its pollution exclusion was inapplicable and Audubon amended its Answer accordingly.

Turning to the Gradual or Sudden Loss exclusionary language, the Court relied upon testimony as well as case law generally indicating that the clause does not apply in the homeowner's Chinese drywall claim. Some may find the Court's reasoning is strained and applicable only to Louisiana cases, as many insurers and experts claim that the drywall destroys itself:

The GSL Exclusion is designed to exclude expected losses. Wilson, Bill, ed. Forms & Substance-Coverage Concerns, Quirks and Solutions, Independent Agent, May 2004 at p. 12. Coverage is required here because "the purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen." Boudreaux v. Verret, 422 So.2d 1167, 1172 (La. App. 3rd Cir. 1982); Gulf Transp. Co. v. Fireman's Fund Ins. Co., 83 So. 730, 733 (Miss. 1920).

…The Fingers' losses relate to the drywall off-gasing, not by wear, tear and/or gradual deterioration…. Both Audubon's expert, Dr. Zdenek Hejzlar, and the Fingers' inspector, AI Mallet, agree that the Fingers' damages are caused by the sulphurous gases emitting from the Chinese drywall…

…Audubon suggests that the phrase "rust or other corrosion" bars coverage. This position is rejected because the plain language of the GSL exclusion refers to: "any loss caused by....rust or other corrosion."… The exclusion is intended to apply where corrosion, rust or the like is the cause of the property damage; it is not designed to preclude coverage when the rust or corrosion is the damage itself. Trus Joint MacMillan v. Neeb Kearey, 2000 WL 306654 (E.D. La. 2000). Here, the corrosion caused to the metals in the Fingers' home by the sulphurous gases released by the Chinese drywall is the loss, not the cause of the loss, indicating the corrosion language of the Gradual or Sudden Loss exclusion does not bar coverage….

..The GSL exclusion also refers to losses caused by an "inherent vice" or "latent defect." Audubon's insurance policy does not define these terms. Black's Law dictionary defines a latent, inherent, or hidden defect as: "a product imperfection that is not discoverable by reasonable inspection." See Black's Law Dictionary, 481 (9th ed. 2009). Again, the Louisiana jurisprudence, which is rooted in Maritime law, focuses on inevitable losses due deterioration of the thing. See ARNOLD COUCH ON MARITIME INSURANCE (11th ed) § 778. The inherent vice or latent defect exclusion applies to "a loss due to any quality in the property that causes property to damage or destroy itself that results from something within the property itself as opposed to some outside force." FC&S Online, Processors Coverage Form, Insurance Services Office Non filed 1M Coverage, December 2005, http://www.nationalunderwriterpc.com. First party policies typically exclude damages due to an inherent vice or latent defect in order to prevent the insurer from having to compensate the insured for property that "has its own shelf life and will eventually wear out or break down because of intrinsic quality or nature." Eugene Wollan, Risks Not Taken, John Liner Review 86, (Fall 2006). Here, there is no evidence that the Chinese drywall is damaging or destroying itself, indicating the "inherent vice" or "latent defect" language from the GSL exclusion does not apply. Audubon's expert report likewise does not evidence any damage to the drywall itself.

Remember the noted testimony that the insurer did not investigate to see if the drywall was installed properly and that other people could interpret the policy differently? The Court apparently thought this was important and noted that the insurer’s own expert did not consider the drywall defective when considering the Faulty, Inadequate or Defective Planning exclusion:

Chinese drywall is not defective within the meaning of the FIDP exclusion…Again, Audubon did not provide a useful definition of this exclusion in its contract. Interpreting the plain language of the Audubon policy, the Chinese drywall "defect" is not one that renders the drywall unable to perform the purpose of drywall. …Indeed, it has not been alleged that the subject drywall would be defective in all geographies. The Chinese drywall here can still act as an aesthetic or "finishing" material for a home. Rather, the damage that the Chinese drywall causes is based upon a quality distinct from these roles. Audubon agrees.

I previously posted in FC&S Says Ensuing Loss Coverage Applies to Chinese Drywall Claims that:

“The insurance industry is probably calling and writing the editors of the FC&S Bulletin because the June 2009 edition correctly notes that Ensuing Loss Damage is covered under the ISO form policies for typical Chinese Drywall losses. I recently noted various coverage issues related to Chinese Drywall. A number of these cases are coming to our office because insurers are not affording first party coverage.

This trial court never had to reach the issue of the ensuing loss provisions because the insurer had no more defenses. It was a moot point.

As certain as the sun will rise in the East tomorrow morning, there will be an appeal of this decision. Whether it will be affirmed is about as questionable as whether I will rise and get in my five mile run or just stay in bed and enjoy the Easter weekend.

According to the Pro Football Hall of Fame, the name “Saints” was chosen by popular vote in a fan contest staged by the New Orleans States-Item. The franchise was awarded on All Saints Day, November 1, 1966. New Orleans is famous worldwide as the city of jazz and the famous marching song, "When the Saints Go Marching In.”

Except for a small number, almost all of our Hurricane Katrina insurance coverage cases in New Orleans and the Mississippi Gulf Coast are over. I was honored to use whatever talents and knowledge I have in this area of insurance law to represent some of the finest and nicest folks you would ever want to have as clients. I did it with some help from lifelong friends I first met when living in the area as a teenager. My parents received “thank yous” from friends of theirs who I was able to help.

The State Farm cases we litigated and resolved provided a significant milestone to our law firm’s success. The Port of New Orleans litigation was certainly the most challenging and fun case packed into ten months that any policyholder’s coverage counsel could hope. Saying “thank you” is important and I am looking forward to this Thursday evening’s dinner at former client, Pearl River Community College. Indeed, we hosted a thank you Thanksgiving Luncheon just for the rank and file employees at the Port of New Orleans. This kind of leads me to the point of this post.

It has been my experience that attorneys sometimes get far too much credit for winning cases. Often, the facts that make or break an insurance coverage matter are with the people you represent or the folks that are working for the organization you represent. Far too often, arrogant attorneys simply need to ask for some help from their own clients and treat them like equals rather than jump to conclusions and spend far too much money on experts that know less about the loss than the people who lived through it.

For example, employees in the maintenance department of the Port of New Orleans had never talked in depth with anybody before we were retained a couple years after Hurricane Katrina. A bright paralegal retained by my co-counsel suggested donuts and coffee in the morning and an offer of after hours beer for the guys who have to spend their own time away from their already busy jobs just to meet with the attorneys. This helped set a tone for discussion and they provided me all the help I needed to get the case resolved quickly.

I recall spending a great deal of time with one maintenance worker who had a tattoo of the Louisiana Tigers on one arm and the Dallas Cowboys on the other. I asked him why he did not have a tattoo for the Saints, and he told me that they had caused him too much heartbreak over his life. Maybe he has changed his mind.

In a post, The Port of New Orleans Employees, I noted these lessons and thoughts:

“Life's lessons can be very beneficial if you actually remember them and change your behavior according to what you have learned. I was lucky to watch my father as he lead various tours of duty in the Coast Guard. Both the ordinary seaman and the Chiefs that ran the ships seemed to respect him. He always treated everybody as important because they were. He always thanked them, and then showed his appreciation.

We had a settlement that had the Board of the Port Authority of New Orleans doing "high-fives" largely because the rank and file Port employees helped the legal team. As is customary in many of the cases we litigate, I cannot comment about the amount of the settlement even though this one is of public record. What I can say is that we held a very public "thank you" luncheon for the Port employees. Without their help, we would not have been as successful…

After the Port retained us in November 2007, it became obvious that those responsible for putting their claim together had not adequately discussed it with the employees out on the wharves, docks, in the maintenance departments, and those outside the main office building. …

A number of Port employees left their families before Katrina struck New Orleans because they had to work during the catastrophe. As a result, a number of them knew their homes had been destroyed and did not know for several weeks where their spouses and children went. A few broke down when they recounted their hardship and trauma. Many still have not rebuilt their homes. The Port Police Department helped us track down eye witnesses to the destruction. They told us of the numerous rescue efforts in the Lower Ninth Ward and how much flood damage had occurred along the Industrial Canal. They found video and photographs taken during and immediately after the storm, helping us prove our theories of loss and damage.

I often say that I am a "Johnny come lately" to the cases I get retained upon. We come after the fact and then pry into the business and past of our clients. We were a major disruption to the Port because we looked into every employee's memory about what the Port was doing before and then after Katrina. We went through six million of their documents, invaded their computers, and took time away from their pressing jobs to get our own jobs done. We completely dislodged and stole office space from the marketing department. I am certain we were silently cursed.

The employees' help and their understanding of what we were trying to do for them and the Port paid huge dividends in this case. We owe a great deal of thanks to the "rank and file…”

I could not be happier that the New Orleans Saints are the World Champions. Their fans, who have been through so much, deserve it more than most will ever realize.

So, as part of the celebration, I would suggest everyone join in with the song from the Great Louis Armstrong:

In my presentations at the Windstorm Conference with Steve Pate yesterday afternoon, I tried to do just that. Adjusters, whether company, independent or public, are travelling to disaster sites in many states. The subtle differences in each state's insurance laws have to be considered by all adjusters in their day to day activities. And, there are some general themes and trends common to all.

Here is the list of cases we discussed in our presentation that we believe will affect those adjusting claims in Gulf Coast areas outside of Florida:

• Fonte v. Audubon Ins. Co., 8 So. 3d 161 (Miss. 2009)
• Certain Underwriters at Lloyds London v. Law, 570 F.3d 574 (5th Cir. 2009)
• Guideone Mut. Ins. Co. v. Rock, No. 06-218, 2009 WL 1854452 (N.D. Miss., June 29, 2009)
• Corban v. United Services Automobile Association, 20 So. 3d 601 (Miss. 2009)
• Watson v. Allstate Ins. Co., Slip Copy, No. 07-3462, 2009 WL 1704730 (E.D. La., June 17, 2009)
• Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009)
• Campbell v. Shelter Mutual Ins. Co., No. 07-1983, 2009 WL 56003 (E.D. La., Jan. 7, 2009) (Following Dickerson)
• Korbel v. Lexington Ins. Co., 308 Fed. Appx. 800 (5th Cir. 2009)
• Copelin v. State Farm Ins. Co., No. 06-4115, 2009 WL 36188 (E.D. La., February 12, 2009)
• Marketfare Canal, LLC v. United Fire & Cas. Co., 594 F.Supp 2d 724 (E.D. La. 2009)
• Grilletta v. Lexington Ins. Co., 558 F.3d 359 (5th Cir. 2009)
• State Farm Lloyds v. Johnson, 290 S.W. 3d 886, 52 Tex. Sup. Ct. J. 1042 (Tex. 2009)
• Spicewood Summit Office Condominiums Ass'n, Inc. v. America First Lloyd's Ins. Co., 287 S.W. 3d 461, (Tex. App.-Austin, 2009)
• Temcharoen v. United Fire Lloyds, 293 S.W. 3d 332 (Tex .App.-Eastland  2009)
• Moffett v. Computer Sciences Corp., et al., 647 F.Supp. 2d 517 (D. Md. 2009)

Here are some practical points of adjustment that should be implemented and considered:

1. Flood exclusions are being upheld in cases throughout the Gulf Coast. Policyholders may have coverage for hurricanes as a "windstorm," but the law is recognizing that the flood/storm surge damage from the hurricane is excluded.

2. Mental distress claims brought about by wrongful claims conduct will be recognized in Mississippi and Louisiana. The Louisiana standard to support such a claim is very low. Adjusters must be trained to use the "golden rule" with adjustment activities and appreciate the emotional distress caused by a catastrophe followed by a serious discussion of adjustment.

3. Arbitrary guidelines suggesting an outcome for an investigation will give rise to claims practice violations or bad faith lawsuits.

4. Adjusters must make a full investigation of a loss. In slab situations, engineers will almost always have to be consulted on a case by case basis to support a claims decision.

5. In Mississippi, the insurer bears the burden to prove the amount of excluded flood damage under an all risk policy. The policyholder must prove the amount of wind damage caused to contents under a named peril policy.

6. Louisiana has very liberal proof of loss requirements for policyholders to satisfy. Insurers must be very prompt paying undisputed amounts of claim damage to avoid penalties.

7. Second homes that are not primary residences raise a number of potential coverage defenses which may apply to underwriting and application misrepresentations. These are often not raised by adjusters in the field. Agents need to make certain second home coverages are properly written to avoid errors and omission claims.

8. Safe is better than sorry. While one Texas case suggests a method to avoid the two year and a day statute of limitation in Texas, the safer practice is to file litigation on claims disputes within two years from the date of loss.

9. Insurers have a "reasonable basis" defense to claims of bad faith. Adjusters should promptly and fully investigate losses detailing findings and obtaining bona fide consultant opinions when needed to show a good faith basis for a claims decision. And, they must fairly consider all evidence and not be selective as to evidence indicating less or no coverage.

10. Appraisals in Texas are going to be much more common. While the law is very unclear, courts are tending to enforce appraisal first and review causation and coverage issues later in most situations.

11. National Flood Proofs of Loss have to be filed on time and completely. If not, there is an appeal procedure that is now subject to judicial review if National Flood arbitrarily denies a request for a late filing or claims determination change.

12. Texas practically places a much higher burden of proof on the policyholder to prove the amount of covered versus non-covered loss. Recent Louisiana decisions also follow this reasoning by making the policyholder segregate the amount of covered versus non-covered loss. Engineers, contractors and consultants often give a percentage of covered versus non-covered loss with support to meet this burden.

I hope these points are helpful. It sure beats reading all those cases.

The case involved an insurance agent who sold insurance to a private school for 16 years before Hurricane Katrina struck in 2005. At issue, was the relatively limited amount of business interruption coverage. The form sold had a limit of $350,000, inclusive of both business income and extra expenses. Apparently, the coverage limit was raised once during the sixteen years from $250,000 to $350,000, based on an explanation by the agent of what the coverage provided. The agent allegedly told the school's business managers at that time that the coverage protected the school against the risk that it would incur extra expenses while it was fixing physical damage.

Following Hurricane Katrina, the school was closed for several months. The school lost significant income as a result of lost tuition. The school sued the agent for error and omissions of failing to advise school personnel that business income/extra expense coverage included tuition loss. Allegedly, the requested limits would have been much higher had the full explanation of coverage benefits been provided.

The matter went to a trial court which found that the insurance agent breached the standard of reasonable care by failing to fully inform the school of the full nature of the coverage and the need to select higher limits in consideration of the school's one source of revenue--tuition. The damages were found to be $3,166,606.

That is not the end of the story or lesson of this case, however. As is often the situation in agent negligence cases, there is usually the issue of comparative negligence. I once tried a case before a jury where both the agent and my client said the agent failed to purchase theft coverage under a commercial policy. While some may wonder why a trial was necessary when the agent admits such a failure, most states place a duty on the policyholder to read the policy. In that case, my client had the policy for two years. Had he read the policy, he would have learned of the mistake. Thus, the jury had to consider the issue of my client’s failure to read the policy in comparison to the agent's blunder.

Similarly, in the Louisiana case, the school's business managers could have done a number of things to obtain the full understanding of coverage--including simply reading the policy. The court found the school 70% comparatively negligent, and reduced the total award by that percentage.

The lessons from the case are clear for agents and policyholders:

1. Policyholder Must Communicate Needs;
2. Agents Should Communicate Coverages Available--Usually Followed up With Written Information so Policyholders Do Not Get the Wrong Impression;
3. Agents Should Investigate Needs of Clients--Use Checklists Which are Copied for Verification to Policyholders.

Insurance agents perform a vital function in the insurance marketplace and especially with businesses. I am not a fan of internet marketing and placement of insurance because agents can provide much better and detailed explanations of various coverages needed by different businesses.

For instance, our law firm carries an extraordinary amount of coverage for valuable papers and data restoration, which might not be important to a butcher shop. Yet, a butcher shop may need a utility services endorsement, spoilage coverage, and equipment breakdown coverage to properly protect its large investment in refrigerated meat. Insurance agents are trained to investigate those needs and make policyholders aware of those coverages which prevent economic calamity.

My advice is for policyholders to listen to insurance agents about the products that are available. Agents need to spend more time with clients and establish a relationship where insurance is looked upon as a necessary hedge against unthinkable consequences.

Isidore argued that the federal court had subject matter jurisdiction under 28 U.S.C. s. 1332, based on diversity of citizenship; Isidore was a resident of Louisiana and USAA was a Texas entity. USAA argued it is a reciprocal interinsurance exchange, organized under the laws of Texas with members who reside in all 50 states, including Louisiana. A reciprocal interinsurance exchange is treated as an unincorporated association for the purposes of determining diversity jurisdiction. To determine the citizenship of an unincorporated association, the court must consider the citizenship of each of the entity’s members.

The Court granted USAA’s motion to dismiss. Pursuant to Federal Rule of Civil Procedure 12(b)(1), it was Isidore’s burden to prove that USAA was not a reciprocal interinsurance exchange, but Isidore presented no evidence or argument to rebut USAA’s representation. Additionally, the Court found that as USAA had members who were residents of Louisiana and Isidore was also a resident of Louisiana, complete diversity was lacking and the court lacked subject matter jurisdiction.

You can read the full opinion by clicking here.

The Federal District Court for the Eastern District of Louisiana granted Allstate’s motion for partial summary judgment, but not based on Allstate’s arguments. Instead, the Court concluded that partial summary judgment was appropriate because it believed Louisiana’s Valued Policy Law applies only to fire insurance policies.

In reaching this decision, the Court looked to Louisiana’s Valued Policy Law:

A. Under any fire insurance policy insuring inanimate, immovable property in this state, if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in the case of a total loss the insurer shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy at such valuation without deduction or offset, unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefor, shall set forth in type of equal size, the actual method of such loss computation by the insurer. Coverage may be voided under said contract in the event of criminal fault on the part of the insured or the assigns of the insured.

La.Rev.Stat. § 22:1318. (Emphasis added)

The Court also relied on dicta in the Louisiana Supreme Court’s opinion in Landry v. Louisiana Citizens Property Insurance Co., 983 So. 2d 66 (La. 2008). In a footnote in Landry, the Louisiana Supreme Court noted that the legislative history of the Valued Policy Law and the definitions in the statute, when contrasted with the language in related statutes, reveals “that the statute is intended to apply only to fire insurance policies, which may include coverage against other perils as allowed by La. R.S. 22:691 and is distinct from homeowners' policies.” Id. at 76 n. 10.

Noting that there was not a final decision from the Louisiana Supreme Court on the issue, the Court made “an Erie guess” and determined that the Louisiana Supreme Court would reach the same conclusion:

“the VPL only applies to fire insurance policies. Because the Plaintiff in the present case was issued a homeowners policy, which is distinguishable from a fire insurance policy, the VPL is not applicable to her claim.”

You can read the Court’s order in full by clicking here.