Ignoring recent decisions by federal courts on the same issue, a Louisiana trial court has held that under Louisiana’s Valued Policy Law an insurer must pay the full value of a homeowners policy when part of the loss is covered and part of the loss is excluded, unless the method of calculating any deduction for excluded loss is set forth in the policy application. See Landry v. Louisiana Citizens Property Insurance Corp., No. 85571 D (La. Dist. Court, Vermilion Parish, Jan. 4, 2007). Multiple Louisiana federal court decisions in 2006 had previously held that the Valued Policy Law does not apply when a total loss is not caused solely by a covered peril. See, e.g., Richard v. State Farm Fire and Cas. Co., No. 87610, 2006 U.S. Dist. LEXIS 87610 (W.D. La. Dec. 4, 2006); Sprinkle v. Lexington Ins. Co., No. 82538, 2006 U.S. Dist. LEXIS 82538 (E.D. La. Nov. 13, 2006); Chauvin v. State Farm Fire and Cas. Co., 450 F. Supp. 2d 660 (E.D. La. 2006). Background The scantly reasoned Landry decision provides little background. From the few facts recited by the court, Mark and Barbara Landry had entered into a homeowners insurance contract with Louisiana Citizens Property Insurance Corporation (“Citizens”), the Louisiana state controlled insurer. On September 23, 2005, the Landry’s house in Erath, Louisiana was severely damaged by Hurricane Rita. The damage exceeded the value of the Landry’s house.

Citizens asserted that while part of the damage to the house was covered due to wind damage, a portion of the damage was not covered because it fell within a “flood” exclusion. The Landrys argued that Citizens was “precluded from denying payment of the face value of the policy on the basis of concurrent covered and noncovered causes of the total loss because [Citizen’s] did not comply with Louisiana’s Valued Policy Law.” Specifically, they asserted that the homeowners policy “application did not set forth any method of loss computation allowing offsets and deductions for flood damage in the event of a total loss” and therefore, Citizens could not make any deduction for the excluded flood damage.

Louisiana’s Valued Policy Law provides in part:

Under any fire insurance policy insuring inanimate, immovable property in this state, if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in the case of total loss the insurer shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy at such valuation without deduction or offset unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefore, shall set forth in type of equal size, the actual method of such loss computation by the insurer.

  The Court’s Decision

Although several Louisiana federal courts had held in 2006 that the Valued Policy Law did not apply unless there was a total loss from a covered peril, the Landry court did not mention or address those decisions. Instead, it held because the method for calculating a deduction for excluded flood loss was not set forth in the Landry’s policy application, Citizens had to pay full policy limits. The court cited only one case, Hart v. North British Mercantile Insurance Co., 162 So. 177 (La. 1935) in its short analysis. In Hart, the Louisiana Supreme Court held that the Valued Policy Law required an insurer to pay policy limits where a house was 75 percent destroyed by fire, but was so damaged that it was beyond repair and had to be demolished. The Hart court reasoned that even though part of the structure may still be standing, the fire had rendered the house “useless for the purpose it was used; it was totally destroyed, as a building, as all of its value as such to the owner was destroyed.”

It is unclear why the Landry court believed the Hart decision, which did not deal with concurrent causation, was relevant to the Landry’s loss which involved concurrent causation. Unfortunately, the Landry court did not discuss its rationale in its written opinion. Instead, it merely stated that following the holding of Hart, Citizens was liable for full value of the policy. The Landry decision is at odds with recent Louisiana federal decisions, which have rejected such a reading of the Louisiana Valued Policy Law because it leads to absurd consequences. For example, in Chauvin, the court explained that if the Valued Policy Law required payment of policy limits when there were concurrent covered and uncovered losses, a policyholder “could recover the full value of his policy if he lost 20 shingles in a windstorm and was simultaneously flooded under 10 feet of water.” The court rejected such an absurd reading of the insurance contract, holding that the legislature never could have intended such a “commercially unreasonable result.”

While not addressed by the Landry court, the Chauvin court declined to follow a Florida decision that, like Landry, had interpreted a valued policy statute to require the insurer to pay the face value of the policy when there were concurrent causes of loss and one was excluded. See Mierzwa v. Fla. Windstorm

Underwriting Ass’n, 877 So. 2d 774 (Fla. Dist. Ct. App. 2004). The Chauvin court explained that Mierzwa should be rejected because a second Florida appellate court directly refuted its logic and the Florida legislature repudiated its reasoning by revising Florida’s valued policy law “to make clear that an insurer is not responsible for damage caused by excluded perils.” See Chauvin, 450 F. Supp. 2d at 668.

The Chauvin decision, which carefully examined the interaction between the Louisiana Valued Policy Law and concurrent causation, and other Louisiana federal decisions which followed its reasoning, are in line with other state court decisions that “have held that a covered loss must be the primary cause of the total loss for an insured to recover under a valued policy law. Id. (citing Great Am. Ins. Co. v. Smith, 172 So. 2d 558 (Miss. 1965); Brady v. State Ins. Co., 160 N.W. 882 (Neb. 1916).

Implications

If the scantly reasoned Landry decision is upheld or followed by other Louisiana state courts, the impact on Louisiana insurers could be significant. They could be required to provide coverage for losses for which they never charged a premium if the policyholder suffers any covered loss, however small. While it is understandable that courts may be sympathetic to the plight of Louisiana homeowners who either failed to buy flood insurance or were underinsured, such an absurd statutory interpretation should not be permitted to stand, particularly in light of the well-reasoned federal decisions that were ignored by the Landry court.