[StBernard] Road Home program may help applicants fight insurance settlements

[Westley Annis]

Road Home program may help applicants fight insurance settlements

By Rebecca Mowbray
Business writer

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,” said Leger, an
attorney. “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 those funds
back into the Recovery Authority’s grant program to create additional
resources for rebuilding Louisiana. 
As an incentive for homeowners to continue to pursuing their insurance
claims on their own, the LRA is also working on a plan to ensure that
theycan recover attorneys fees if a lawyer wins them additional insurance
money which 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 deadlinefor 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 the 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
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 the 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. 

Under the Road Home program, property owners are eligible for grants of up
to $150,000. The money can be used to buy the owner out 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 suffered major or severe damage in
hurricanes 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 to additional payouts. The bigger issue, Donelon believes, 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. 

But Leger said the first order of business is to make sure that homeowners
don’t see their grants reduced by attorneys’ 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 he is eligible for. 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 they attorneys 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
homeowners’ behalf, or to pay attorneys fees, HUD would need to review the
plan to determine whether it’s a appropriate use of federal funds. 

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 Louisiana Attorney General Charles 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 home owners 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, homeowners companies only
have paid $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 where 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 attorneys fees and class action lawsuits may have a bad rap,
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.” 

(Rebecca Mowbray can be reached at rmowbray at timespicayune.com or at (504)
826-3417.)