LRA may take over insurance claims
as posted at www.nola.com
July 15, 2006
by Rebecca Mowbray
The Road Home program may take over the insurance claims of its grant recipients and sue for additional payouts if participating homeowners didn't receive all they should have from their insurers, the chairman of the Louisiana Recovery Authority's housing task force said this week.
Walter Leger said his authority hopes such a move would prevent the Road Home program, which is intended to help homeowners cover uninsured property damage, from becoming a $7.5 billion subsidy to the insurance industry.
The group worries that the insurance industry will be less willing to pay out if it knows that homeowners can get help with their uninsured losses through Road Home. The Recovery Authority is also concerned that weary homeowners will give up on pursuing insurance claims if they know they can get grant money.
"We're going to reserve every right to pursue the claims," Leger said. "Otherwise, the insurance industry can use the Road Home program as a reason not to pay claims."
Homeowners participating in the Road Home program would be asked to sign over their pending claim rights to insurance payouts when receiving grant money. And if the Recovery Authority feels that a recipient's claims have been underpaid, it may opt to go after the insurer for more money. Details are still sketchy on the plan, but if the state is successful at extracting extra money from insurance companies, Leger said it will put that money back into the Recovery Authority's grant program to create additional resources for rebuilding Louisiana.
As an incentive for homeowners to continue pursuing their insurance claims on their own, the LRA is also working on a plan to ensure that they can recover attorney fees if a lawyer wins them additional insurance money that will ultimately save resources in the Road Home program.
Loretta Worters, vice president of communications at the Insurance Information Institute trade group, lauded the Recovery Authority's effort to create incentives for consumers to continue pursuing their claims. She said abandoning those claims would waste the federal money made available for the rebuilding effort.
"In essence, it's defrauding the Road Home. Ultimately you're defrauding the government, which we all, as taxpayers, pay for," Worters said. "There's only so much money to go around."
Worters encouraged consumers to keep pursuing their insurance claims, saying the industry has no way of knowing policyholders need more money if they don't file supplemental requests asking for it.
Leger's efforts to make sure that all sources of insurance money for rebuilding are exhausted come as the state is battling the insurance industry to extend an Aug. 29 deadline for filing lawsuits disputing their insurance claims. In Louisiana, homeowners have typically had one year to legally dispute their claims and payouts, the shortest time period of any Gulf Coast state.
On Monday, a suit was filed in 19th Judicial District Court in Baton Rouge to test the constitutionality of two laws that were passed in the most recent legislative session extending the deadline for filing suit over Hurricanes Katrina and Rita claims by an additional year. On Tuesday, Insurance Commissioner Jim Donelon ordered insurance companies to voluntarily extend the lawsuit deadline by an additional year by Aug. 1, or face fines and sanctions that could include revoking operating certificates.
The deadline for filing lawsuits is widely viewed as the last date that consumers can get additional payouts from their insurers because they lose their legal leverage after that date.
Too tired to fight
Under the Road Home program, property owners are eligible for grants of up to $150,000. The money can be used to buy out the owner of a decimated property or cover gaps between the homeowner's insurance proceeds and repair bills. The Louisiana Recovery Authority estimates that 123,000 homes and 82,000 rental properties in Louisiana sustained major or severe damage in Katrina and Rita and may be eligible for grants.
Donelon doesn't think insurance companies would officially instruct their agents to stiff people and send them to the grant program, but he thinks the existence of the Road Home program will make it easier for an adjuster to decline additional payouts. The bigger issue, Donelon said, will be homeowners who are too tired to continue fighting for more insurance money.
"Those are legitimate concerns that folks will just rely on the fact that there's a check available from the federal government for whatever they don't have to strain to collect from their insurers," Donelon said. "It's an ordeal to go through documenting your claim, fighting for the higher costs of supplies and additional damages when you can get the remainder from the grant program. That's a real issue."
Even if property owners were motivated to sue, many consumers find that their individual claims are too small for a lawyer to take the case. But if those many small claims were consolidated, the government might be able to use its muscle to pursue them.
"The government is in a stronger position to go after these kind of claims," said Bob Hunter, director of insurance at the Consumer Federation of America.
If Leger, an attorney who made his mark suing the tobacco companies and representing plaintiffs when the Bright Field freighter slammed into the Riverwalk Marketplace in 1996, can set up a program to wring additional claims payments from insurers, the state may find itself in the unusual position of becoming a major player in the many class action lawsuits unfolding in courts across the Gulf Coast.
"The state may have to become a party to these big class actions," said John Lovett, a Loyola University law professor who is studying the Road Home program and the property issues created by Hurricane Katrina.
Attorney fees issue
But Leger said the first order of business is to make sure that homeowners don't see their grants reduced by attorney fees if they hire a lawyer and land additional insurance money.
The calculation used to determine the size of each Road Home applicant's grant involves tallying up the homeowner's insurance payouts and deducting that amount from the total amount of grant money for which he is eligible. Leger doesn't want homeowners to be penalized if some of their insurance payout is eaten up by legal fees.
As Leger sees it, if an attorney is able to get an extra $25,000 for a homeowner on an insurance claim and the attorney takes $5,000 for a fee, the homeowner should only see his grant reduced by $20,000 instead of $25,000, because that's all he got from the additional insurance proceeds. The idea is that the attorney fees should come out of Recovery Authority money because paying the lawyer $5,000 ultimately saves the Road Home program $20,000, and that savings will expand the program's reach.
The U.S. Department of Housing and Urban Development, which supplied the Recovery Authority with the rebuilding grant money, said the attorney fees provision was not part of the Road Home grant program submitted by the state. If the state wants to use HUD money to pursue insurance claims on behalf of homeowners, or to pay attorney fees, HUD would need to review the plan to determine whether it's a appropriate use of federal money.
It will ultimately be up to Gov. Kathleen Blanco or Attorney General Charles Foti to decide whether to pursue the homeowners claims, Leger said. It is the Recovery Authority's job to get homeowners to sign over their rights to those claims.
Kris Wartelle, spokeswoman for Foti, bristled at the notion that the state's top lawyer would get involved in homeowners insurance claims unless there were questions of fraud or illegality. She said that no official request has been made for the attorney general's office to create a blueprint for pursuing claims. "It's all just like talk. There's no type of formal request," Wartelle said.
Leger said that he has had informal discussions with HUD and the attorney general's office, and plans to follow up with official requests.
If the state or a related entity were to pursue claims, it would probably end up negotiating claims in groups by company or by situation, such as underpayment of claims and allocation of wind damage and flood damage, and farming the work out to outside counsel. Pursuing claims that weary and distracted homeowners can't could be a complex and ambitious undertaking.
"The issue becomes, is it worth the effort to staff up and acquire the necessary legal assistance that would be required to pursue those subrogations?" Donelon said.
But the Louisiana Department of Insurance believes it could be financially worthwhile to do so. While Boston insurance modeling firm AIR Worldwide Corp. estimated in the fall that there would be $20.8 billion in non-flood insured property losses from Katrina in Louisiana, insurance companies have paid only $12.8 billion in Katrina claims in Louisiana so far.
Donelon believes that the gap in anticipated payouts suggests that there may be several hundred thousand claims in the state in which homeowners believe they are owed additional money although their insurers consider the cases closed. "The companies are telling me that they're 95 percent closed on their hurricane claims. I doubt that seriously," Donelon said.
While talk of attorney fees and class action lawsuits may have a bad sound, Leger said it's ultimately about making sure the state makes the best of limited resources to rebuild.
"The state is trying to do the right thing to help people and to preserve the asset of the state: that money. The more money we have, the more money we can give to people to rebuild," Leger said. "I don't think there's anything unfair about this. It only makes sense."
United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.
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