The Louisiana Department of Insurance did not have the authority to issue fines and a cease-and-desist order against a Texas law firm accused of massive fraud involving hurricane damage claims, an administrative judge ruled.
Judge Cazeline G. Hebert handed down the decision on Jan. 31, concluding that the department did not have the jurisdiction under Louisiana law to issue a cease-and-desist order and $2 million in fines against McClenny, Moseley & Associates and several of its attorneys in 2023. Since then, MMA has acknowledged sending letters to Louisiana insurers on behalf of more than 800 Louisiana policyholders who, in fact, never retained the law firm.
The MMA attorneys appealed LDI’s actions two years ago, arguing that the department’s order and fines should be vacated because LDI has jurisdiction only over those engaged in the business of insurance, not the practice of law. Hebert agreed with MMA, concluding that the law firm was not engaged in the business of insurance and that Louisiana law does not give LDI such criminal enforcement powers.
“... (Louisiana law) limits LDI’s jurisdiction by requiring it to turn over any fraudulent act it determines may be a violation of criminal law to the (state) Department of Justice, the Department of Public Safety and Corrections, public safety services, office of state police, and any other appropriate law enforcement or prosecutorial agency for further investigation, enforcement or prosecution,” the decision states.
LDI’s legal argument that it has subject matter jurisdiction over all acts of insurance fraud and a duty to deal with those who participate in insurance fraud is not persuasive, according to Hebert.
“... Only the proper law enforcement or prosecutorial agency had jurisdiction to investigate, enforce or prosecute (the) appellant’s alleged fraudulent acts – not LDI,” the judge concluded.
LDI spokesman John Ford told the Louisiana Record in an email that the department does not have the authority to challenge the judge’s ruling.
“State agencies can’t appeal Division of Administrative Law rulings, so we don’t have the option to,” Ford said.
The cease-and-desist order and fines were issued by the previous Louisiana insurance commissioner, Jim Donelon, but the current commissioner, Tim Temple, expressed disappointment with the ruling.
“The LDI had authority to investigate and issue administrative actions against MMA in 2023 for committing fraud in the insurance claim process,” Temple said in a prepared statement. “I respect the judge, but I disagree with her ruling in this case, and I will work with and encourage the Louisiana Department of Justice to pursue MMA for its criminal activities.”
The 2023 fines were issued to MMA, founding partners James McClenny and John Moseley, and Louisiana managing partner William Huye III. They were accused of taking part in unfair trade practices and insurance fraud affecting 850 Louisiana homeowners and policyholders, according to LDI.
The law firm worked with Apex Roofing to represent Louisiana residents affected by hurricane damage.
Insurance fraud costs Louisiana residents about $4 billion annually, since such illegalities end up inflating the amount consumers pay for policies, according to LDI.
“At my direction and under the authority granted to me by Louisiana law, our (LDI) Office of Insurance Fraud will continue investigating entities that violate our Insurance Code and put Louisiana consumers at risk,” Temple said.