Insurance industry’s testicles working overtime to keep up with judicial demand for tasty, life-giving seed

Yesterday saw yet another insurance industry victory in the ongoing saga of litigation arising from Hurricane Katrina related property damage. Joseph Sher’s a five-story apartment building in New Orleans sustained considerable damage when a levee broke and let a sizable portion of Lake Pontchartrain into the city proper.

Mr. Sher’s building damage, personal property damage and lost rents amounted to some $375,000. His insurer, Lafayette Insurance Company, initially offered $270.09 to settle the claim and later exhibited the generosity for which the insurance industry is famous by upping the offer to $2,484.99. Needless to say, litigation ensured. Mr. Sher filed in Louisiana state court.

A major bone of contention was an exclusion in the policy that foreclosed claims for damages caused by flooding but did not define the term “flood.” Much of Mr. Sher’s damages resulted from water filling the basement of his apartment building.

The trial court judge ruled the term “flood” ambiguous, which triggered the rule of insurance contract construction under which ambiguous terms are construed strictly against the insurer and strictly in favor of the insured. A five-day jury trial resulted in a win for Mr. Sher and an award of damages as follows:

Building Damage Above the Basement       $ 175,850.00
Building Damage In the Basement                 144,300.00
Lost Rents                                                       17,350.00
Business Personal Property                              31,577.00
Penalties Pursuant to R.S. 22:658                  184,538.50
TOTAL                                                        $ 553,615.50

The trial judge later tacked on the following:

Costs Pursuant to C.C.P. art. 1920             $ 16,288.60
Costs Pursuant to C.C.P. art. 970                  42,020.24
Attorney’s Fees Pursuant to C.C. art. 1997  258,728.00
and/or R.S. 22:658
TOTAL                                                       $ 317,036.84

The total judgment was $870,652.34. Then, of course, came the appeal.

The Louisiana Court of Appeals took away a substantial chunk of the judgment, including much of the statutory penalty and all the attorney fees, but left intact the trial court’s ruling that the flood exclusion was ambiguous. The amended judgment as it left the appellate court:

Building Damage Above the Basement       $ 175,850.00
Building Damage In the Basement                 144,300.00
Lost Rents                                                       17,350.00
Business Personal Property                              31,577.00
Penalties Pursuant to R.S. 22:658                     92,269.25
TOTAL                                                         $ 461,346.25
Costs Pursuant to C.C.P. art. 1920              $ 16,288.60
Costs Pursuant to C.C.P. art. 970                   42,020.24
Attorney’s Fees Pursuant to C.C. art. 1997              0.00
and/or R.S. 22:658
TOTAL                                                          $ 53,308.84

The court thus reduced the overall award to $514,655.09.

Still not good enough for the insurance company, which appealed to the Louisiana Supreme Court. Yesterday the Court sided with Lafayette, holding that there was nothing ambiguous about the flood exclusion. Sher v. Lafayette Ins. Co. (pdf, 41 pages). In so doing the Court parroted the “reasoning” of the U.S. Court of Appeals for the Fifth Circuit in a couple of other Katrina insurance coverage decisions dating back to the early days of this blog. The Fifth Circuit decisions are discussed here and here.

By the time the Louisiana Supreme Court finished spit-shining Lafayette’s knob the award looked like this:

Building Damage Above the Basement       $ 175,850.00
Building Damage In the Basement                            0.00
Lost Rents                                                         8,800.00
Business Personal Property                                       0.00
Penalties Pursuant to R.S. 22:658                    46,162.50
TOTAL                                                        $ 230,812.50
Costs Pursuant to C.C.P. art. 1920              $ 16,288.60
Costs Pursuant to C.C.P. art. 970                            0.00
Attorney’s Fees Pursuant to C.C. art. 1997             0.00
and/or R.S. 22:658
TOTAL                                                          $ 16,288.60

Final tally: $247,001.10. On the plus side, Lafayette must pay out substantially more than its ridiculous final prelitigation offer. On the downside, (1) Sher’s recovery is less that the attorney fees he incurred (as found by the trial court) and (2) the judgment does nothing whatsoever to discourage odious bad faith claims handling practices of the sort Lafayette exhibited here.

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Comments

  • New Orleans News Ladder  On April 10, 2008 at 10:48 am

    Whoa! You so rock here! Damn! It is really really fun when someone knows what the important stuff is talkin’bout…even when the subject involves such egregious ratfuck.

    Thanks, Noble Mon.
    Bruce
    Editorilla~New Orleans News Ladder

  • genghishitler  On April 10, 2008 at 11:02 am

    such egregious ratfuck

    That’s a keeper right there! Thanks for stopping in, Bruce.

  • startupvet  On April 14, 2008 at 7:40 am

    Since Sher was in a flood zone, why didn’t he purchase flood insurance?

  • genghishitler  On April 14, 2008 at 12:28 pm

    Danged if I know. Private insurers don’t sell flood insurance, so anyone who wants the coverage must buy it through the federal government. Sher’s failure to obtain such coverage could be the result of anything from cost to availability to plain ol’ ignorance.

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