After Their Insurer Went Bankrupt, Louisiana Homeowners Find Little Help

The 74-year-old had fought for more than a year to get State National Fire Insurance Company to make good on her claims from hurricanes Laura and Delta.

But by the time the carrier went out of business, Whittaker had received only a fraction of what she needed to fix up her home.

She couldn't afford to purchase new insulation, to keep "the cold air in — or out," so her daughter covered their walls and ceilings with contractor plastic and they used their kitchen oven to heat their home.

Fortunately, Louisiana has a safety net for policyholders, like Whittaker, whose insurers go under: the Louisiana Insurance Guaranty Association, or LIGA.

Created by the Legislature in 1970, the state-sponsored nonprofit promises to pay policyholders up to $500,000 for claims left unpaid by an insolvent property insurer, as well as $10,000 for unearned premiums.

After two years of costly, catastrophic storms, LIGA is facing its biggest test in decades.

In November, the Louisiana Department of Insurance took over two state-based property insurers — State National and Access Home Insurance Company — after they ran out of cash to pay out claims. Two months later, the state took over another carrier, Americas Insurance Company.

Together, the trio of carriers had around around 25,000 active claims when they went belly-up, requiring LIGA to swoop in and pick up where they left off.

Since then, LIGA has paid out roughly $169 million to policyholders orphaned by insolvent insurers and issued around 15,000 checks, officials say.

And LIGA's work is just getting started. In April, a fourth insurer, Lighthouse Property Insurance, went insolvent. It had around 16,000 active claims.

But so far, the safety net has been little help to Whittaker. Six months after State National went under, she hasn't received a dime from LIGA. Her home remains in shambles, down to its studs.

It's an all-too-familiar feeling for Whittaker and other policyholders, who say that LIGA has been slow in handling their claims. After waiting months for their insurers to respond, they're now waiting on LIGA.

"I love this house," Whittaker said. "I'm just hoping that before I die, I get to see it fixed, and that I get to live a normal life again ... This is not normal."

John Wells, LIGA's executive director, says the nonprofit is moving as fast as possible to make policyholders whole, under extraordinary demand. LIGA has intervened in court proceedings earlier than required to get a head start on processing claims.

It's also bulked up its staff in recent months from around a dozen people to more than 500, mostly through contracts with independent adjusting firms. Wells said each policyholder has been assigned a dedicated adjuster "to hold that person's hand through the process."

Officials with LIGA say policyholders' frustrations are understandable. Many of them have already suffered multiple adjusters and are "out of patience by the time it gets to our door," said Stephanie LaBorde, LIGA's general counsel.

"We're the ones holding the hot potato when the buzzer goes off," she said.

'That hammer is not available'

But critics say LIGA doesn't have an incentive to move quickly. Unlike insurance companies, it isn't subject to bad faith penalties for delays.

The threat of having to pay attorney's fees and a penalty worth 50% of unpaid claims is usually what gets insurers to act, said Kirk Guidry, Sr., a Baton Rouge attorney who has several clients waiting on LIGA.

"But that hammer is not available in these LIGA claims," Guidry said.

Last week, a pair of state lawmakers presented legislation that would make LIGA liable for penalties if it didn't pay a policyholder within 120 days of receiving satisfactory proof of loss.

The author of House Bill 881, state Rep. Ryan Bourriaque, a Republican whose district includes all of Cameron Parish, said some of his constituents had settled with their insurers before they went bankrupt, but now they can't get LIGA to pay those claims.

New Orleans' Democratic Rep. Mandie Landry said her constituents have also complained of delays with LIGA. She said the penalties are needed as a "low simmer" to incentivize LIGA to move faster.

The proposal failed to advance out of the House Committee on Insurance on Wednesday, in part, because penalties against LIGA would ultimately fall on Louisiana's taxpayers.

That's because LIGA supports itself through assessments on solvent insurers, who often recoup those dollars from the state, over the course of a decade, through tax credits. Insurers can also offset those payments through rate hikes on policyholders.

Under state law, LIGA can issue assessments — worth 1% of insurers net direct written premium — once a year.

For the first time since 2004, LIGA exercised that authority in December, collecting around $100 million from insurers. Another assessment of $100 million was sent out a few weeks ago.

Given the quantity of claims, LIGA will likely need to borrow money later this year, against future assessments, to continue making payments to policyholders, Wells said.

But just because LIGA doesn't have to pay penalties or attorney's fees doesn't mean it won't face lawsuits.

Galen Hair, an attorney with Hair Shunnarah Trial Attorneys, said adjusters hired by LIGA are "being a lot more adversarial" with policyholders currently than they were last year, when dealing with claims from the failed Florida-based carrier Gulfstream Property and Casualty Insurance Company.

Hair said suing LIGA is a "lose-lose scenario": policyholders have to pay for attorney's fees out of pocket, and taxpayers have to pay for LIGA's defense costs.

But, given the difficulties policyholders are facing, Hair said litigation is "exactly where this storm is headed."

Reasons for delays

Part of what's slowing LIGA down is that much of the failed carriers' data is messy, often requiring staffers to spend time manually processing it to get it into a workable format, Wells said.

LIGA might have received satisfactory proof of loss from a policyholder, but if it doesn't have a copy of the policy, or information on past payments, it can't determine whether a claim is ready to be paid.

It's also not always clear, at least initially, which policyholders need assistance.

After making an initial payment, insurance companies will often mark a claim as resolved, even if supplemental payments may be needed. That can make it difficult for LIGA to know whether that policyholder needs additional attention.

Lanny Malcombe, a resident of Cut Off, received around $20,000 from State National before it went insolvent in November. That was nowhere close to the $114,000 an independent adjuster said was needed to repair his home.

When he learned that LIGA was taking over his claim, Malcombe breathed a sigh of relief: "A lot of people told me the state was easier to work with than the insurer."

In December, Malcombe sent the independent estimate to State National. And in February, an adjuster hired by LIGA inspected his property.

Since then, he's received no communication from LIGA on his claim. In the meantime, Malcombe, 71, has spent $35,000 out of his savings to keep his repairs moving.

"I thought the state would take care of us in a timely fashion," Malcombe said. "Nobody has come back with us with an offer."

A spokesperson for LIGA said State National had marked Malcombe's case as "resolved, and as such it was not among the open/pending items when LIGA began helping policyholders."

Whittaker's home in Sulphur today looks much like it did when her insurer went under six months ago.

She needs around $200,000, according to a contractor's estimate, to fully fix up her home. Before going under, State National paid her $50,000, enough for a new roof, but not much else. Much of what's left over is on hold with her mortgage company.

"She's been waiting a very long time to get what she's owed," said Shelia Tolar, an attorney with Brasher Law Firm, which is representing Whittaker and around 20 other clients facing similar difficulties with LIGA.

Whittaker spent around a year renting an apartment in Beaumont, but moved back home in October, after exhausting her coverage for additional living expenses.

For now, she can't do much else but wait for LIGA.

"It's like I'm never going to see the light at the end of the tunnel," Whittaker said. "Is it ever going to end? Am I ever going to have a house again?"

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