Key insurance ruling contested
Homeowners ask high court to toss it
as posted at www.nola.com
By Rebecca Mowbray
Plaintiffs attorneys have asked the U.S. Supreme Court to throw out an August decision by the 5th U.S. Circuit Court of Appeals that went in favor of insurance companies on Louisiana's controversial valued policy law.
"We've asked the U.S. Supreme Court to let this go to the Louisiana Supreme Court," said Jeffery Struckhoff, an attorney for the plaintiffs in the case Chauvin v. State Farm Fire & Casualty Co.
The state's valued policy law has been one of the mostly hotly contested issues in Hurricane Katrina litigation because it could force insurance companies to cover flood damage when it occurred in combination with wind damage in cases in which the home was destroyed.
Flood damage is excluded from homeowners insurance policies and is covered by the National Flood Insurance Program.
The valued policy law is a 107-year-old law that affixes the value of homeowners insurance policies so that if the house is destroyed, no squabbling occurs over what the policy is worth.
In state court, it has been interpreted to mean that when a home is obliterated through a combination of forces -- some covered by the insurance policy and some not covered by the insurance policy -- an insurer who is responsible for any portion of the loss can be held liable for the whole thing.
The law applies only when the house is totaled. The valued policy law originally was devised to make sure that fire damage is covered, but it is now being applied to the ubiquitous wind-versus-water questions from the 2005 hurricanes.
In August the 5th Circuit affirmed a lower court ruling in favor of insurance companies in the case Chauvin v. State Farm, a consolidated case of a number of valued policy law cases against nine different insurance companies, including State Farm, Allstate Insurance Co., Travelers, Hartford Insurance Co.and USAA.
The federal appeals court agreed with Judge Sarah Vance's ruling in U.S. District Court in New Orleans that Louisiana's valued policy law does not apply unless the damage is wholly attributable to a covered peril, such as wind.
But attorneys for the homeowners say state courts should be deciding issues of state law and that the 5th Circuit should have deferred to the Louisiana Supreme Court.
Struckhoff, a plaintiffs attorney with the Metairie firm Lestelle & Lestelle, has asked the nation's highest court to get rid of the 5th Circuit's Chauvin decision and either redirect questions of Louisiana law to the state Supreme Court or put the Chauvin proceedings on hold until another valued policy law case makes its way to the state's highest court.
That case, the Hurricane Rita case of Landry v. Louisiana Citizens Property Insurance Corp., is pending in state court. Last December a Vermilion Parish judge ordered the state-sponsored insurer of last resort to pay the full value of the policy on the Landrys' Erath home, which was destroyed in Rita, because Citizens didn't have an alternate formula for how to apportion flood and wind damage.
In late August by a 3-2 vote, the 3rd Circuit Court of Appeal in Lake Charles sent the case back to the local court to determine whether Rita's wind or storm surge was the primary cause of damage, saying that if wind was the "efficient proximate cause," Citizens would be liable for paying the policy limits. Both sides have since asked the Louisiana Supreme Court to review the decision.
State Farm, the first defendant in the Chauvin case, has filed a brief siding with Citizens in the Landry case that asks for the Louisiana Supreme Court to take up the valued policy law.
So far the state and federal court systems have come out with different interpretations of Louisiana's valued policy law, creating confusion about what the rules really are.
If the two different interpretations were to stand, it is possible that domestically chartered insurance companies such as Citizens and Lafayette Insurance Co. would end up following the state rules, while national companies such as State Farm and Allstate would follow the federal interpretation of state rules.
In Chauvin, insurance companies have until early December to respond to the plaintiffs' motion to the U.S. Supreme Court, then it might take the court a few months to decide whether to get involved, Struckhoff said.
Louisiana is not the only state with a valued policy law. Florida also had one, and its application to flood damage was upheld after the 2004 hurricane season. After that court ruling, the Florida Legislature repealed the law.
