On August 23, 2007, Louisiana Attorney General, Charles C. Foti, Jr. filed a lawsuit accusing over a hundred insurance companies of improperly denying Katrina related damages. The action was brought on behalf of homeowners who are eligible to receive funds through the Road Home Program (“Program”). Foti accuses almost every insurance company that issued a homeowner’s policy in Louisiana of wrongly denying claims in an effort to shift the burden of payment for those claims to the Program. See The State of Louisiana, et al. v. AAA Insurance, et al., Case No. 07-5528 (E.D.La. Sept. 11, 2007). A copy of the Complaint is available here.

The Road Home Program, funded by the U.S. Department of Housing and Urban Development, was established to assist Louisiana residents affected by hurricanes to return to their homes as quickly as possible. The Program offers grants to homeowners to compensate for uninsured hurricane damages. Prior to receiving funds from the Program, an individual must execute a subrogation document in which, among other things, the individual assigns its rights to assert a claim against its insurer to the State of Louisiana. The State of Louisiana is also a plaintiff in this action.

The Complaint alleges that the insurers improperly classified the damage caused by the hurricanes as flood damage, which is not covered. The action seeks a declaration by the court that the proximate cause of the hurricane losses was windstorm, a covered peril. Similar to the arguments asserted in In re Katrina Breaches Litigation decided by the 5th Circuit, Foti further claims that because hurricane damage, storm surge or flooding from levee failures were not specially excluded from the policies, the insurers’ policies provide coverage for such occurrences associated with hurricanes. The suit further alleges that the defendants encouraged their adjusters to maximize their assessment of the amount of damage caused by flooding, a non-covered peril. It also alleged that defendants routinely delayed payment of claims or denied coverage for benefits owed to the insureds.

On September 18, 2007, this case was consolidated with In re Katrina Canal Breaches Consolidated Litigation¸ Case No. 05-4182, and is pending before Judge Duval. Responsive pleadings are due by the end of November.

We will continue to monitor this litigation and other Katrina-related developments and provide updates at InsureReinsure.com