Proposal Would Give La. AG Muscle in Insurance Disputes

Mississippi Attorney General Jim Hood didn’t wait long to take on the insurance industry for denying the claims of thousands of policyholders after Hurricane Katrina.

Less than a month after the Aug. 29, 2005, storm wiped out parts of the Gulf Coast, Hood sued several insurance companies for refusing to cover damage from Katrina’s storm surge. He also launched a criminal probe of the claims-handling practices of State Farm Insurance Companies.

But don’t expect Hood’s Louisiana counterpart to follow suit – and file suit – anytime soon.

Attorney General Charles Foti says state law does not give him authority to sue insurers for alleged unfair trade practices, as Hood did. Hood’s suit, filed in a state court, accused companies of violating the Mississippi Consumer Protection Act by selling policies that exclude storm surge from coverage.

Even if Foti could file suit, he questions whether the courtroom is the best place to resolve thousands of disputes between Louisiana homeowners and insurance companies.

“Any lawyer tells you that you try to settle cases. A suit is the last resort,” Foti told The Associated Press during a recent interview.

Just because Foti hasn’t parroted the fiery rhetoric from Hood, who has called State Farm a “robber baron” and a “cult,” doesn’t mean he isn’t interested in tackling the issue. Foti is hosting a series of meetings in hurricane-ravaged parts of the state to hear complaints from homeowners about how insurers handled their claims.

“Almost everybody has some kind of horror story either about the insurance company or about the contract,” Foti said.

Foti wouldn’t specify why he’s gathering their experiences, but he said it’s not meant to be a threat leveled at insurance companies.

“All avenues are open to us,” he said. “We’re building up the evidence to see what has to be done.”

In the meantime, Louisiana lawmakers are poised to consider legislation that would give Foti more authority to deal with the insurance industry.

State Sen. Julie Quinn, a Metairie Republican who chairs the Property Insurance Task Force, has filed legislation, SB 185, that would create a position in Foti’s office for an insurance consumer protection officer. The bill will be considered in the legislative session that begins April 30.

The state Department of Insurance now represents consumers on insurance matters, but Quinn thinks Foti’s consumer protection office is better suited.

“I have never heard of one consumer satisfied with the outcome of their complaint with the Department of Insurance,” she said.

Like Foti, Insurance Commissioner James Donelon says he’s more interested in negotiating with insurance companies than resorting to litigation.

Donelon said he met with Foti recently and discussed efforts to broker a deal with State Farm to review and possibly pay claims by any policyholder whose home was reduced to a slab by Katrina. Roughly 400 to 1,000 State Farm policyholders are in that situation, he said.

“At this point, I am monitoring the situation but do not have a reason to initiate litigation,” Donelon said.

A key difference between Louisiana and Mississippi is that unlimited punitive damage awards are only allowed in the latter. Donelon said he can suspend or revoke a company’s license or recommend a fine capped at $250,000, but can’t sue on behalf of policyholders.

“I’m not inclined to file a lawsuit, and I don’t know that any insurance commissioner has ever done that in response to such claims,” he said.

Quinn said she is open to empowering the attorney general to sue insurance companies over their claims practices. She questions why Foti is prohibited from suing insurance companies but is free to investigate consumers for insurance fraud.

“That seems very unfair. It should be a fair playing field,” she said.

However, Quinn said the state must find a way to protect consumer rights without alienating insurance companies. “The goal is not to scare off insurance companies or make it too onerous for them to do business here,” she said.

Foti echoes that sentiment.

“Let’s give them the benefit of the doubt,” he said of insurers, “but the real benefit of the doubt should be for the policyholder that has paid this policy for 20 or 30 years and never made a claim.”