Louisiana High Court Asked to Look at Insurer Duties in Road Home Case

Are some 151,000 homeowners insurance claim assignments made to the state of Louisiana as part of its Road Home program legal under Louisiana law? That’s the question the U.S. Fifth Circuit Court of Appeals has certified to the Louisiana Supreme Court in a consolidated case stemming from the destruction caused by Hurricanes Katrina and Rita in 2005.

The case is State of Louisiana v. Anpac, et al (commonly referred to as the Road Home case). The state Supreme Court’s answer will determine whether Louisiana will be able to recoup potentially billions of dollars in Road Home funds from the more than 200 insurance companies who are defendants in the case, according to Louisiana Attorney General Buddy Caldwell.

After Hurricanes Katrina and Rita in 2008, “Congress appropriated federal funds, administered by the Department of Housing and Urban Development (HUD), to affected states,” the Fifth Circuit explained. “Louisiana distributed some of those funds via the ‘Road Home’ program.”

Grants of up to $150,000 dollars were provided to Road Home recipients to repair uninsured or under-insured property damage.

In order to prevent those recipients from receiving duplicate benefits — from both Road Home and insurance companies — Louisiana required grant recipients to sign a “Limited Subrogation/Assignment Agreement.” Insurers have questioned the legality of that agreement.

The Fifth Circuit explained that it handed the question of legality of the Road Home subrogation agreements to the Louisiana Supreme Court because the high court had not previously “determined whether an insurance contract’s anti-assignment clause prohibits post-loss assignments of policy rights, because this issue is case-dispositive, and because either the State or the insurers stand to lose billions of dollars in claims.”

In the state’s view, the Road Home program created a situation in which “some insurers inadequately adjusted and paid grant-eligible homeowners’ claims, and some grant-eligible homeowners had little motivation to file claims or challenge low insurance settlements,” the Fifth Circuit explained.

A resulting increase in Road Home applicants and a projected $1 billion shortfall led the state to sue the defendants – “allegedly all of the insurers who wrote property insurance in Louisiana at the time of the hurricanes” – in an effort “to recover the funds expended and anticipated to be expended under the Road Home program,” the Fifth Circuit wrote. The state also sought “a declaration of the insurers’ duties under the ‘all risk’ policies they had issued to Road Home applicants.”

According to the insurer/defendants, the suit is an attempt by the state “to obtain yet more money from the insurers, even in situations where the homeowner was satisfied with the amount paid, had already filed a lawsuit against the insurer, or had reached a settlement agreement.”

The insurers also allege that the state sued without first investigating whether the insurers “had actually failed to make sufficient payment on individual homeowners’ claims,” according to the Fifth Circuit.

The Louisiana Supreme Court has the option of accepting or denying the certification.