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Louisiana Citizens Property Ins. Corp. Offers $80M For Hurricanes Katrina And Rita Settlement
By Staff - February 13, 2012

Louisiana Citizens Property Insurance Corporation is a non-profit corporation created to provide insurance products for residential and commercial property applicants who are in good faith entitled, but unable to procure insurance through the voluntary insurance market.  It is the insurance carrier of last resort and is state mandated to be more costly than private property insurance carriers. 
 
Now, Louisiana Citizens has offered to settle a dispute over slow handling of hurricane claims from 2005 for up to $80 million.  No more than $25 million of that $80 million would pay for attorneys' fees.
 
This offer, if accepted and approved, could sharply reduce the amount paid to policyholders.  The governing board of Louisiana Citizens Property Insurance Corp. approved this offer on Feb 9.
 
The board was told that would cover about 25,000 policyholders who say Louisiana Citizens did not begin adjusting their claims for hurricanes Katrina and Rita within 30 days as required by state law. Citizens has said that it was totally overwhelmed in starting the claims adjustment process after Katrina devastated the New Orleans area with flooding in August 2005 and Rita followed a month later with flooding in southwestern Louisiana.

State courts have rejected Louisiana Citizens’ appeals of a $104 million class-action judgment involving 18,500 policyholders. About 6,500 more have pending claims estimated to be worth $35 million.
 
“Negotiations mean negotiations, plaintiff attorney Fred Herman said in a telephone interview. “It is not claiming a position and saying that is it. It is a back and forth process that, if successful, results in a compromise.”

Plaintiff attorneys had offered to settle all claims in the case for $123 million. That offer, according to documents reviewed by the board, did not mention how much would go to pay lawyers, but would have covered all 25,000 policyholders with claims against Louisiana Citizens. With a reduction in the current estimate of $6 million in sheriff’s seizure fees, plaintiffs said their offer would save Louisiana Citizens about $20 million.

The plaintiffs’ offer also would have allowed Louisiana Citizens to pay the judgment in three installments — $56.5 million immediately, followed by $43.5 million by Nov. 1 and $23 million by Dec. 31.

Herman said Louisiana Citizens rejected a $50 million offer in March 2009 that also would have included attorney fees.
 
Louisiana Citizens’ counteroffer did not cover a possible payment schedule. The company earlier turned over $6 million to eventually pay claimants instead of having to post an appeals bond to continue challenging the case. The $80 million offer would be added to that payment.

If attorney fees total $25 million, each policyholder would stand to get around $2,400 under Louisiana Citizens’ offer. The 18,500 policyholders currently covered by court decisions are in line for about $5,000 each, according to their attorneys. A judge will eventually decide how much each claimant gets.
 
Insurance Commissioner Jim Donelon, who is the state overseer of Louisiana Citizens, said the offer was made because Louisiana Citizens is running out of legal options. Plaintiff attorneys already have seized $104 million from the insurer. That money currently is in a frozen account.
“If we settle, it’s over,” Donelon said. “If we don’t, we have a short fuse on our remaining legal options.”
 
Although Donelon said the state has until April 15 to file a formal appeal request with the U.S. Supreme Court that might be too long. Plaintiff attorneys say they are entitled to complete the seizure of the $104 million for eventual distribution to clients on Feb. 15 and have set a Feb. 14 deadline to reach a settlement. The high court already has denied Louisiana Citizens an emergency order to block payment.

“After that date our ability to negotiate terms will have ended,” Herman said in a letter to the board.
 
Donelon said that Louisiana Citizens has enough money to pay the current judgment, but that could strain the company’s reserves over the next two hurricane seasons — depending upon whether major storms hit Louisiana — and force Citizens to impose a special assessment on private insurance companies. Those assessments are passed on to private policyholders.

Any settlement would have to be approved by a state district judge.
 
 
 

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