The Louisiana Supreme Court has upheld two state laws which extend the period to file a lawsuit against insurers on claims related to Hurricanes Katrina and Rita to Aug. 30, 2007.
The ruling late Friday upheld a district court ruling declaring constitutional Acts 739 and 802 of the Legislature, which extended the period to file a lawsuit for another year.
"This affirmation of the district court's ruling will provide extra time for those affected by Hurricanes Katrina or Rita with additional time they may need to file a claim with their insurance company," said Attorney General Charles Foti. "The citizens of our state are the true winners of today's ruling."
From that point, however, the legal strands begin to knot.
While being touted as a victory for the Attorney General's office, and widely expected to maintain an individual property owner's ability to litigate cases against insurance companies until next year, area lawyers have offered more pessimistic assessments of the effectiveness of the two laws.
"What we have is an unintentional red herring," said John Houghtaling, a New Orleans lawyer whose practice at Gauthier, Houghtaling and Williams litigates regularly against insurance companies on behalf of policy holders, and who has personally been twice ranked among the top 50 New Orleans lawyers by City Business. "We cannot overstate the significance of that fact."
Representative Tim Burns (D-Mandeville), who sponsored Act 802 and constructed its legal strategy of claiming that to enforce a one-year prescriptive period would be unreasonable in the face of the extraordinary impact of Hurricane Katrina on Louisianians, agreed somewhat with Houghtaling's assessment.
According to Burns, it was a narrow law designed to keep the court open to policyholders. He conceded that insurance agents, and the usual cases against them for omissions in the coverage they offer, are not included in the extension.
According to Houghtaling, that point will severely weaken all cases against insurance companies, creating an "empy chair" scenario in the court.
"What an insurance company will do," he said, "is go in to court and say 'You don't have coverage. If you are shocked by that, then it is your fault or your agent's fault for failing to explain or get proper limits.' The insurance company's first defense is to blame the agent."
Again, Burns agreed, saying that the laws are most effective in cases where low to moderate damage has been incurred and where the insurance company is demonstrating some degree of cooperation. "If you are getting no satisfaction from your insurance company and think you will sue them anyway: sue them now," he said. "If you are fairly close, then we have two things going: this legislation and the waivers from the insurance commissioner."
The difficulty stems from a peculiarity in Louisiana law regarding insurance prescription. While most states allow a three to five year statute of limitations, Louisiana law allows for a one-year prescriptive period for policyholders to file against insurers.
While the new laws bolster the waivers offered by most insurance companies, and keep companies from simply abandoning claims, they do not ensure that policyholders' legal position will be as strong in suits filed after the one year deadline as they would have been had they been filed within the first year.
Another consequence of losing an insurance agent's liability in cases filed after the deadline is that insurance companies will be able to control the forum in which cases are heard. A company may then opt to have its case heard in another district or even out of state, which Houghtaling says could be detrimental to a policyholder's chances.
"By losing the agent," he says, "[a policyholder] will lose 80 percent of his case."
In upholding the laws' constitutionality, the state supreme court exercised its right of police power as it countermanded federal laws guaranteeing private parties' right to contract.
The right-to-contract laws were the major argument against the laws' constitutionality.
Another point of contention in the acts was the inclusion of flood insurance in the new law. Since some flood insurance was provided through the federal National Flood Insurance Program, it was argued that the laws violated the constitution.
Flood insurance covered by the federal program was therefore excluded from the law in oral arguments.
The two acts in question required that a state court review the issue after the laws took effect on July 1. While a state district court did declare them constitutional, the Attorney General, seeking to etch them in stone before the one-year deadline passed, asked the state supreme court to review the lower courts ruling.