Louisiana Citizens Offers to Settle Katrina-Rita Suit for $80M

Louisiana’s property insurer of last resort has offered to settle a dispute over slow handling of hurricane claims from 2005 for up to $80 million, with no more than $25 million of that for attorneys’ fees — an offer that could sharply reduce the money that policyholders eventually receive.

The governing board of Louisiana Citizens Property Insurance Corp. approved the offer on Feb 9.

The board was told that would cover about 25,000 policyholders who say Citizens did not begin adjusting their claims for hurricanes Katrina and Rita within 30 days as required by state law. Citizens has said that it was totally overwhelmed in starting the claims adjustment process after Katrina devastated the New Orleans area with flooding in August 2005 and Rita followed a month later with flooding in southwestern Louisiana.

State courts have rejected Citizens’ appeals of a $104 million class-action judgment involving 18,500 policyholders. About 6,500 more have pending claims estimated to be worth $35 million.

“Negotiations mean negotiations, plaintiff attorney Fred Herman said in a telephone interview. “It is not claiming a position and saying that is it. It is a back and forth process that, if successful, results in a compromise.”

Plaintiff attorneys had offered to settle all claims in the case for $123 million. That offer, according to documents reviewed by the board, did not mention how much would go to pay lawyers, but would have covered all 25,000 policyholders with claims against Citizens. With a reduction in the current estimate of $6 million in sheriff’s seizure fees, plaintiffs said their offer would save Citizens about $20 million.

The plaintiffs’ offer also would have allowed Citizens to pay the judgment in three installments — $56.5 million immediately, followed by $43.5 million by Nov. 1 and $23 million by Dec. 31.

Herman said Citizens rejected a $50 million offer in March 2009 that also would have included attorney fees.

Citizens’ counteroffer did not cover a possible payment schedule. The company earlier turned over $6 million to eventually pay claimants instead of having to post an appeals bond to continue challenging the case. The $80 million offer would be added to that payment.

If attorney fees total $25 million, each policyholder would stand to get around $2,400 under Citizens’ offer. The 18,500 policyholders currently covered by court decisions are in line for about $5,000 each, according to their attorneys. A judge will eventually decide how much each claimant gets.

Insurance Commissioner Jim Donelon, who is the state overseer of Citizens, said the offer was made because Citizens is running out of legal options. Plaintiff attorneys already have seized $104 million from the insurer. That money currently is in a frozen account.

“If we settle, it’s over,” Donelon said. “If we don’t, we have a short fuse on our remaining legal options.”

Although Donelon said the state has until April 15 to file a formal appeal request with the U.S. Supreme Court that might be too long. Plaintiff attorneys say they are entitled to complete the seizure of the $104 million for eventual distribution to clients on Feb. 15 and have set a Feb. 14 deadline to reach a settlement. The high court already has denied Citizens an emergency order to block payment.

“After that date our ability to negotiate terms will have ended,” Herman said in a letter to the board.

Donelon said that Citizens has enough money to pay the current judgment, but that could strain the company’s reserves over the next two hurricane seasons — depending upon whether major storms hit Louisiana — and force Citizens to impose a special assessment on private insurance companies. Those assessments are passed on to private policyholders.

Any settlement would have to be approved by a state district judge.