[StBernard] Storm Claims

[Westley Annis]

Clock is ticking on storm claims

Bills would extend insurance deadline
Wednesday, May 17, 2006
By Rebecca Mowbray
Business writer 

Louisiana consumers have until Aug. 29, the first anniversary of Hurricane
Katrina, to resolve their storm-related homeowners and business insurance
claims, unless state lawmakers pass legislation putting off the deadline for
another year. 

Most insurance policies carry a one-year statute of limitations, which means
policyholders have up to a year after the loss to file any lawsuits
disputing their settlement. Once that date passes, it's hard for consumers
to negotiate for more money because insurance companies know their
policyholders have no legal recourse. 

The one-year deadline isn't usually a source of contention. But the scope of
Katrina's devastation, as well as 24-hour curfews that prevented families
and adjusters from accessing some properties for weeks after the storm,
slowed down the insurance process. In addition, many policyholders waited on
FEMA to come out with its latest flood map advisory -- released last month
-- before beginning to rebuild. And many others continue to wait on grants
the Louisiana Recovery Authority has said it will make available to
homeowners. 

Lawmakers are scrambling to extend the looming deadline, which doesn't apply
to flood insurance policies or to policies issued through Louisiana Citizens
Property Insurance Corp., the state's insurer of last resort. Three separate
but coordinated bills dealing with the subject are working their way through
the Legislature, each with slight differences in the types of insurance
covered or the legal theories on which they are based, to increase the
chances that one will survive. 

Once the one-year deadline passes, "it doesn't mean (that insurance
companies) won't deal fairly with you, but you lose a huge stick," said Rep.
Tim Burns, R-Mandeville, who is sponsoring one of the bills. "If they wanted
to just say, 'We're not paying you anymore,' they could." 

But state Insurance Commissioner Jim Donelon worries that if such
legislation passes, it could lull consumers into a false sense of security,
especially since any legislative change could be subject to legal challenges
and an eventual reversal. 

And one insurance industry group monitoring the situation says it opposes
all of the legislative measures and takes issue with the assumption that the
industry will stop paying consumers after Aug. 29. 

"The implication there is that the insurance company would stall. I think
the insurance companies would like to settle these as quickly as possible,"
said John Marlow, assistant vice president of the American Insurance
Association's Southwest Region. "What consumers need to do is talk to their
carrier." 

Timing is everything 

The situation in Louisiana is critical because of the way state laws dictate
the start of the one-year lawsuit period. Other states, as well as the
National Flood Insurance Program, delay the start of the one-year period
until a claim has been formally denied. Flood insurance lawsuits must be
filed within one year of a written denial of all or part of the claim, said
Ed Pasterick, a senior adviser to the national flood program. 

In Mississippi, state law gives people three years to sue their insurance
carrier, according to the Mississippi Department of Insurance. 

The fast-growing Citizens plan, now the third-largest insurer in Louisiana,
allows policyholders to file suit within two years of a loss. 

But for other insurance policies in Louisiana -- aside from those written by
Citizens -- the one-year period begins on the date of the loss, or in this
case, the date Hurricane Katrina hit. 

The Burns bill, HB 1302, which was approved by the House Civil Law and
Procedure committee Tuesday, attempts to extend the lawsuit period. 

Meanwhile, two other pieces of legislation seeking to address the deadline
are moving forward. 

A bill sponsored by Rep. Arthur Morrell, D-New Orleans, passed the House of
Representatives Monday by a vote of 96-8. Morrell's bill, HB 1289, would
apply to health insurance as well as property coverage. 

Another bill, sponsored by Sen. Julie Quinn, R-Metairie, and Sen. Edwin
Murray, D-New Orleans, would extend the deadline for Katrina-related
lawsuits by one year to Sept. 1, 2007, and also extends it to health
insurance. Insurance lawsuits related to Hurricane Rita also would be given
a one-year extension under SB 740. 

The bills come at the problem from different directions. The Senate bill and
Morrell's bill would create a state law that insurance claimants would have
two years after the damage to file a suit. But lawmakers recognize that the
bill raises constitutional questions because it affects existing contracts
between private parties. 

Burns' bill calls upon a legal principle recognized by the courts that
basically says it is unfair to impose a time restriction on a legal filing
if a person was unable to file a suit for some valid reason. His bill asks
the courts for an expedited ruling on whether his, Morrell's and the Senate
bills are constitutional. 

The lawmakers hope to pass all the bills in the next week or so, followed by
a state Supreme Court decision. 

Tepid industry support 

Loretta Worters, vice president of communications for the Insurance
Information Institute, an industry-financed group, said she thinks the
industry might support legislation changing the time frame for lawsuits, as
long as it was restricted to Katrina and Rita claims. 

It's better to be realistic and agree to an extended deadline, she said,
than to have a flurry of lawsuits filed as the Aug. 29 deadline approaches
to preserve a policyholder's legal rights. 

"You don't want to have an onslaught of litigation against the industry,"
Worters said. "That just slows down the claims process. I would think that
companies would want to be lenient in this area." 

But Marlow, of the American Insurance Association, said his group doesn't
support any of the bills. "We're opposed to those. It alters the language of
an existing contract after the fact, and we feel it has some
constitutionality issues," he said. 

Changing the time frame for lawsuits after the fact raises insurance
companies' exposure to additional lawsuits without allowing them to price
for it, Marlow said. 

"We would much more prefer the ability to provide extensions to our
policyholders on a voluntary basis and wrap up those claims as expeditiously
as possible," Marlow said. 

For that reason, Rep. Shirley Bowler, R-Harahan, has introduced House
Concurrent Resolution 143 calling upon insurance companies to voluntarily
waive the one-year limit. Resolutions have no force of law but are a way for
the Legislature to make a formal request. 

But the state's two largest residential insurers oppose any changes to the
one-year lawsuit period, preferring instead to handle situations
individually. 

"We're opposed to the extension. There's three months left, and we think
we're going to get everything done," said Jeff McCollum, a spokesman for
State Farm, the state's largest home insurer. "Three months. It's quite a
bit of time." 

"We feel this is too drastic a measure," said Lorrie Brouse, regional
counsel for Allstate. In previous catastrophes, Brouse said, Allstate has
negotiated individual extensions with policyholders who need more time to
sort out their claims. "If a customer feels that their claim is going to
continue to be open, or they feel that there's going to be additional
damage, there are ways to toll (extend) the statute." 

Possible lost option 

Last fall, the governor issued an executive order suspending the time limits
on filing lawsuits related to hurricanes. 

But whether that order would survive a court challenge is another question,
said Donelon, the state insurance commissioner. 

Donelon and others fear that passing legislation to change the period for
Katrina and Rita victims to file lawsuits could invite legal challenges. As
a result, consumers could be lulled into a false sense of security while
they continue negotiating their claims, only to have the statute found
unconstitutional. And that could leave homeowners without recourse. 

The commissioner wants to let the bills in the Legislature run their course,
but he and his staff also are investigating other ways to help consumers. "I
have the matter under active review," Donelon said. "I'm still in discussion
with my staff on those options." 

In the meantime, the state insurance department is trying to finish cases
pending in the state's mediation program before the Aug. 29 deadline. The
program mediates disputes between policyholders and their insurance
companies with the promise that if either side is unhappy with the proposed
resolution, they resort to the courts. 

But with the lawsuit deadline at the end of the summer, the insurance
department will need to wrap up the program to make sure that parties in
those cases can still pursue legal options at the close of mediation. 

"Once we get to closer to Aug. 29, folks are going to be discouraged from
mediation because they're going to have to go get a lawyer," Donelon said. 

One deadline that might not be extended is the one for recoverable
depreciation. 

Recoverable depreciation allows insurance companies to hold back a portion
of a settlement check until repair work has been completed or a replacement
item has been bought. The amount the insurance company holds back is
generally tied to the depreciated value of the property that is being
replaced. 

In the wake of Katrina, the state insurance commissioner implemented a
number of emergency measures, including one that gave policyholders up to a
full year to claim recoverable depreciation. Under normal circumstances,
policyholders in Louisiana have only six months to claim that money. 

At this point, the state has no plans to extend this deadline further, Bobby
Clark, a spokeswoman for the Louisiana insurance department, said Tuesday. 

Retaining leverage 

Amy Bach, executive director of United Policyholders, a California advocacy
group that has been working in insurance issues in Louisiana after Hurricane
Katrina, said the safest course of action for homeowners is to start
negotiating now to extend the one-year statute of limitations with their
insurance carriers. 

Bach advises homeowners to write a letter asking their insurance carrier to
forgo enforcement of the one-year provision until the claim has been denied
or paid. Policyholders should ask their insurance company to notify them
when their case is deemed closed. 

In the letter, Bach said, policyholders should explain that they don't want
to hire a lawyer but want to preserve their rights while rebuilding their
home and working out the details of their insurance claim. Ask the company
to send a written confirmation of its agreement not to enforce the one-year
suit provision in the policy. If the company refuses, or ignores you, that's
when it's time to get a lawyer, Bach said. 

It's key to start the process now, Bach said, because you need time to allow
insurance companies to respond and to work out the details of your
extension. If you find you need to resort to a lawyer, hire one as early as
possible, because lots of people will be looking come July and August, and
many will be too busy to take on additional cases. 

If you need to find a lawyer, look for a plaintiff's-side attorney who has
experience with insurance cases because it's a constantly evolving field of
law, Bach said. Look for someone who will bankroll your case; lawyers that
ask you for money along the way probably aren't financially strong enough to
prosecute your case. And look for someone who is responsive and who will dig
out the facts of your case. 

Bach said these steps, and the one-year deadline, are important. 

"There isn't a one-year limit on their duty to pay a claim, but you lose the
ability to sue them, which means, essentially, that you lose your leverage,"
said Bach, whose group frequently works with homeowners in California after
wildfires. "That's when insurers get to thumb their nose at you and say,
'Too bad for you.' "