Insurance Law

Landry Valued Policy Law: Louisiana Supreme Court rules for Citizens Property

By David Rossmiller

I heard about the Louisiana Supreme Court's decision in Landry vs. Louisiana Citizens Property Insurance Corp.  yesterday morning, but had no time at all to do a post.  Got too busy even to do an emergency post linking to the decision.  But now I've read it, and I have a few moments to comment briefly.  By the way, here is the Landry decision.  Here is a link to a story by Rebecca Mowbray in the Times-Picayune.

This decision is the first thing I've read in Landry that has made sense to me.  The Court of Appeals' decision was more or less completely incomprehensible.  The state Supreme Court went for the simplest analysis, which is always a good idea and keeps courts out of trouble, and that analysis is basically as follows: when the state's Valued Policy Law was re-enacted in 1991 after being eliminated three years before, the Legislature reached an apparent compromise with insurance lobbyists that inserted into the law a provision allowing insurers to determine a loss by a different calcualation than that contained in the statute, as long as this was announced in both the policy and the application for the policy. 

The loss calculation of the statute is that the insurer must pay the full value of the policy if the property is a total loss because of a covered loss.  The exception allowed in the statute, of course, swallows up the rule, because what insurer will stay with the statutory formula when it can write a more favorable and more clearly defined one?  The Supreme Court found that the method of loss calculation in the policy -- in essence, the cost to replace or repair -- was valid under the exception noted in the Valued Policy Law. 

This is significant because the plaintiffs' argument was that the Valued Policy Law requires the insurer to pay the face value of a policy whenever a covered loss factored into a total loss, even if much or most of the loss was due to an uncovered cause.  In the case of the Landrys damage from Hurricane Rita, it appears to me highly likely that most or all of the damage was due to the uncovered cause, flood, rather than the covered cause, wind.  Under the Supreme Court's decision, the insurer will be liable only for the share of the damage that can be attributed to wind.  

The court appeared ready to limit the Valued Policy Law strictly to its literal terms -- fire insurance policies, rather than policies like homeowners insurance that happen to have fire coverage -- but said this was not necessary because its other analysis produced the same result.  The court noted that insurers have typically interpreted the law as applying not just to fire insurance policies but to all policies with fire coverage, and the court encouraged the Legislature to clarify the law.  

Lastly, in looking at the list of concurring justices, I see one of them is named Jeanette Theriot Knoll, and I am just guessing, but Theriot is probably not pronounced "the riot."

Full post as published by Insurance Coverage Law Blog on May 22, 2008 (boomark / email).