Louisiana’s property insurance market is headed toward a calamity as state lawmakers consider stiffer penalties on insurers who delay hurricane damage payouts and the state’s litigation climate becomes more hostile, industry groups say.
Much of the industry’s angst comes in the wake of a March 29 federal court decision that awarded a business owner more than $1.7 million over a dispute involving $238.909 in damage caused by Hurricane Laura in 2020. Though the American Property Casualty Insurance Association (APCIA) reports that Scottsdale Insurance Co. made payments to the plaintiff as storm damage proof was submitted, the court found the insurer was required to pay bad-faith penalties and other costs.
“Under Louisiana’s bad faith statute, which mandates a 50% penalty for late payments, the judge calculated penalty damages exceeding $890,000,” an APCIA analysis sent to the Louisiana Record states. “The judge then added more than $535,000 in attorneys’ fees and more than $130,000 in court costs.”
The damages award is more than seven times the initial disputed amount, the APCIA points out.
“This extremely unfavorable litigation environment, along with the natural disaster challenges the state faces, have played a role in multiple recent insurer insolvencies and has led to insurer departures from the state,” the APCIA concluded.
Insurers are now being pressured to make swift payouts, regardless of whether accurate documentation is provided, or else they face potentially large damages awards, industry groups report.
State lawmakers, meanwhile, have been proposing stiffer penalties for insurers that miss deadlines for paying claims. Sen. Jeremy Stine (R-Lake Charles) this year proposed raising the penalty related to major storm damage to 100% of damages if the claim has not been paid by 60 days after adequate proof has been submitted.
“The Louisiana property insurance market is melting down,” Jeff Albright, CEO of the Independent Insurance Agents & Brokers of Louisiana, told the Record in an email. “Insurance companies have gone insolvent, pulled out of Louisiana, nonrenewed a significant percentage of their business and stopped writing any new policies.”
Property insurers that are willing to take on new customers now charge significantly higher premium costs, according to Albright. And raising bad-faith penalties on insurers will only encourage more litigation, with insurers either having to increase costs to policyholders or leave the state all together, he said.
“We need to encourage more insurers to do business in Louisiana, not chase out the few that are left,” Albright said.