The State of Louisiana’s “Road Home” program provides compensation of up to $150,000 to underinsured homeowners affected by Hurricanes Katrina and Rita for damage to their homes. To prevent any duplication of benefits, Louisiana requires recipients to assign any post-loss insurance payments to the state. This requirement, however, brought unintended consequences: insurers allegedly had an incentive to underpay, and homeowners had little incentive to file a claim or challenge low settlements, giving rise to a billion dollar shortfall in the program.

Accordingly, Louisiana filed suit against over 200 insurers, seeking to recover this shortfall. The insurers removed In re Katrina Canal Breaches Litigation to federal court and filed a motion to dismiss, arguing that the anti-assignment clauses found in the recipients’ policies invalidated any assignments. The district court denied the motion, but certified an interlocutory appeal.

The Fifth Circuit Court of Appeals, citing a split in Louisiana authority, certified the anti-assignment clause question to the Louisiana Supreme Court. It noted that ordinarily, post-loss assignments create little risk for insurers but that in this case, broader questions were raised, as the state sought to re-litigate claims that had already been pursued. The Fifth Circuit also stated that the Louisiana Supreme Court’s decision will be dispositive of the issues raised in the appeal.