Thursday, October 15, 2009
Baton Rouge, Louisiana
BLEAK LOUISIANA INSURANCE CLIMATE
IN MONTHS TO COME!
There should be plenty of good news on the property insurance front, both in Louisiana and throughout the gulf south. Hurricane season is over, the third year in a row without the threat of a major storm. One would think this would be both good news and the beginning of price drops. But that’s not the case. There are bad financial storm clouds arising that bode ill for Louisiana policy holders in the coming year. Look for higher rates and less coverage. Here are some of the problem areas.
The new troubling insurance buzzword for homeowners? Chinese drywall. Thousands of Louisiana homes have been infested with defective drywall from China that was imported during the construction boom following Katrina to meet heavy demand. For reasons yet unknown, the drywall was contaminated with various sulfur compounds. This reaction causes quick metal corrosion allowing plumbing and appliances to fail. The foul odor that follows makes these homes unlivable and expensive to repair, and the defective sheetrock has to be torn out.
So you call you insurance company – right? Unfortunately, in most cases, insurance companies have been rejecting drywall claims, and even going so far as to not renew the homeowner’s policy. Property insurance companies, particularly in Louisiana, argue that drywall damage was not a “sudden event” like wind damage or flooding. Since 1984, insurance companies have been adding “pollution exclusion” to all their homeowner policies, stating that no coverage exists when a pollutant cases damage. Drywall problems, according to the insurance industry, cause damage over a period of time, and therefore the homeowner should have taken action for damage control.
This is not supposed to be the case in Louisiana. The Louisiana Insurance Department, back in the late 1990s, specifically defined the scope of such exclusion more narrowly than most states and allowed it to be applied “only to those injuries or damage caused by environmental pollution.” Simply put, nothing like drywall damage should be excluded, said the Insurance Commissioner at that time (obviously, a pretty bright guy). The Louisiana Supreme Court followed the Insurance department’s reasoning in the landmark case of Doerr v. Mobil Oil Corp. in 2000.
But with over 300 drywall cases now filed in Louisiana courts, the industry has run to the federal courts to try to bypass Louisiana law. Insurance companies are supposedly regulated by state law. But federal courts, particularly in Louisiana, have regularly usurped more and more state authority, putting homeowners at a much greater risk. So even though the law is clear that drywall damage should be covered by a homeowner’s insurance property, all bets are off when the federal courts get involved.
Insurance company lawyers argue that the manufacturer is to blame and possibly the contractor who picked and installed the drywall. They argue the building supply company also has liability. May be so, but the homeowner should not have to take on such a battle of choices. If you get in a multiple car wreck and you are not at fault, your insurance company pays your damage, and then takes a subrogation by you to make a claim against any other party who may be at fault. The same reasoning should apply with the defective drywall. Whether the damage was caused by the contractor, the building supply company or the manufacturer, this should not be your problem as a homeowner. The Louisiana Insurance Department should step in and immediately reassert the regulation on the books. It’s not right to force homeowners to hire a lawyer and undertake the expensive process of a lawsuit.
Louisiana homeowners also did not get the recent good news that was received by Mississippi homeowners. The Mississippi Supreme Court just last week unanimously ruled that homeowner insurance policies cover wind damage from hurricanes when water contributes to the loss. This is a big break for Mississippi property owners that will give relieve to thousands of families and businesses that were denied coverage by numerous insurance companies operating in the state.
In Louisiana, at least so far, property owners have hit a brick wall in federal court over flooding claims where wind damage is involved. There is some hope in the state court system, but litigation seems to be dragging along at a snail’s pace. Hopefully, the Louisiana Supreme Court will be as protective of Louisiana citizens as there counterparts seem to be in Mississippi.
Florida Governor Charlie Crist announced this week that property insurance rates in the Sunshine state have fallen by over 16% since 2007. The Louisiana property rates continue to go up with some companies suggesting that rates should climb an additional 18% in 2010. The problems in Florida are the same as in Louisiana. But in Florida, insurance relief has been a front burner issue over the past few years from the governor on down.
The difference is the lack of commitment, or for that matter any interest, on the part of Louisiana legislators and insurance officials to address the rate and availability problems. It’s not going to be a happy insurance New Year in Louisiana.
“Life is a crisis – so what!” Malcolm Bradbury
Peace and Justice
Jim Brown’s weekly column appears in numerous newspapers and websites throughout the south. To read past columns going back to 2002, go to www.jimbrownla.com.