Eighth Louisiana homeowners insurer goes under, stranding 10,300 policyholders

Weston Property & Casualty Insurance Co., a Miami-based insurer that was on the verge of financial collapse for weeks, has been taken over by Florida's government.

The firm had 10,300 Louisiana policyholders who will now be directed to the state's industry bailout program.

Weston is the eighth insurer writing policies in Louisiana to collapse in the past year. State officials say it's still unclear what effect the relatively small insurer will have on the Louisiana Insurance Guaranty Association, a state-chartered entity funded by the industry. The association recently announced plans to borrow $600 million via bonds to take care of the customers of the seven companies that previously failed.

Policyholders have one month

The Florida Office of Insurance Regulation struck a deal with Weston's managers to place the firm in receivership on July 29, public records show. The company's board agreed to liquidate the 10-year-old firm. In an affidavit dated Tuesday, the state's regulators concluded that the insurer was "impaired and insolvent or about to become insolvent."

Policyholders will have a month before cancellation.

The recent string of U.S. insurance failures has largely affected companies in Louisiana and Florida, two states especially prone to hurricanes.

Crisis in Louisiana

Regulators and insurance agents say the four hurricanes to make landfall in Louisiana since late 2020 have pushed the state's homeowners insurance market into a crisis. Property insurers have paid out $18.4 billion in claims as of June 30, according to Louisiana Department of Insurance data. About $11 billion of that was paid to homeowners, the data shows.

The guaranty association's estimate that it will need $600 million to pay off the losses from the failed companies was meant to include a little cushion. But it's too soon to say what the actual cost will be, said John Wells, the association's executive director.

"Just unearned premium alone, I'm guessing, will be in the $10 million or $15 million range," Wells said, referring to premiums that were paid in advance and must be returned to Louisiana customers.

"Because they were smaller in nature, hopefully by now they've paid out more of their home claims so less will be coming to us. But it's a wait-and-see game to see what we're going to get."

Rampant litigation

Four of the eight failed companies were based in Louisiana, while the other four were domiciled in Florida. Insurance experts say the two states are experiencing parallel crises, but with some significant differences.

Martin Grace, a business professor who studies insurance at Temple University, said that in addition to poorly capitalized insurers, Florida is beset with rampant litigation that pressures companies to pay out more on claims.

Third parties in Florida are allowed to sue insurers if a homeowner assigns them the right to their insurance claim. The provision has motivated a number of - in some cases - unscrupulous vendors to challenge insurers in court. If they lose, insurers are on the hook for legal fees and the costs associated with the claim.

"We haven't had big storms in a while, but Florida has been having its own problems with paying claims. That's also causing these undercapitalized companies to be further stressed," Grace said.

"There may be stress in Louisiana, too, but the Florida business is what's hurting them."