Donelon Directs Insurers to Talk to Policyholders as Hurricane Ida Claims Deadline Looms

A day after the Louisiana Supreme Court announced that it is lifting a stay on hurricane-damage lawsuits filed by McClenny Moseley & Associates, state Insurance Commissioner James Donelon on Thursday issued a directive warning insurers not to use a letter of representation from the law firm as an excuse not to communicate with claimants.

“It has been suggested to me that some insurers are refusing to communicate with policyholders solely because they have received a letter of representation from MMA,” Donelon said in Directive 221. “The letter of representation from MMA is no longer valid given that this firm is absolutely prohibited from practicing law in the state of Louisiana. Therefore, the LDI will not now consider this a valid reason to excuse an insurer’s obligation to communicate with their policyholder, as La. R.S. 22:1896 prohibits an insurer from this type of business practice.”

Owners of property damaged by Hurricane Ida have only a few weeks to file damage claims. The storm passed through Louisiana on Aug. 29, 2021 and the state has a two-year statute of limitations.

MMA admitted during court hearings that it mailed 856 letters of representation to insurers when it did not, in fact, represent the property owners. The law firm actually filed hurricane damage claims for those properties because it represented Apex Roofing and Restoration and other contractors.

That admission led to a series of court hearings that resulted, first, in district court judges barring the law firm from pursuing lawsuits in Louisiana federal courts and then an order on May 10 by the Louisiana Supreme Court barring MMA from prosecuting any storm-related lawsuits in the state system. The Louisiana Supreme Court also suspended the law license of R. William Huye III, managing partner of MMA’s New Orleans office, while the state Bar’s Office of Disciplinary Counsel investigates his actions.

The Louisiana Insurance Department fined MMA $2 million for “fraudulent behavior,” which also included presenting demands for payment and negotiating settlements with insurers without the authority of or even the knowledge of the policyholders.

The insurance commissioner’s directive tells insurers to contact Magistrate Judge Michael North with the Eastern District of Louisiana if they are trying to determine if their policyholder has obtained new counsel. The judge is compiling a list of former MMA clients whose lawsuits were stayed.

David Caldwell, executive counsel for the Insurance Department, said Friday that MMA was involved in numerous claims that were never litigated. In many of those cases, the insurer issued settlement checks made out to MMA.

Normally in that situation, the law firm would cash the checks, take out a fee for its services and send the remainder to the policyholder. But MMA cannot cash any settlement checks because it is has been suspended from the practice of law, Caldwell said. In some instances, MMA is not entitled to any fee because it never actually represented the policyholder.

Caldwell said the each case has to be resolved independently. He said the department is working with insurers and policyholders in an attempt to resolve issues without the insurer or property owner filing a declaratory action which can cost $5,000 in legal fees.

“It’s a mess,” Caldwell said. “It’s unprecedented. We’ve never seen this scale of fraud before.”

The state Supreme Court issued an order on Wednesday that will lift its stay on MMA lawsuits on Aug. 16. The court explained Edward J. Walters, a trustee the court appointed to manage the transfer of the law firm’s case files to other attorneys, reported that he has completed his work. The court’s order authorizes judges to stay proceedings for up to 30 days if new attorneys taking over MMA files need more time to prepare their cases.

New Orleans insurance defense attorney Matthew Monson, whose complaints about MMA led to the law firm’s downfall, said the law firm is involved in an estimated 6,000 to 7,000 claims, but not all of them resulted in lawsuits. He said he doesn’t expect any increase in litigation because the stay is being lifted.

“The two-year statute of limitations on Hurricane Ida creates a deadline of Aug. 29, 2023 to file lawsuits, so we expect an increased volume as the deadline approaches,” he said.

Top photo: Mud and debris surround damaged homes after Hurricane Ida in Ironton, La. (David Grunfeld/The Times-Picayune/The New Orleans Advocate via AP)