Louisiana homeowners find lawsuits against insurance bailout program more challenging

Cindy Piro looked over the heap of insurance documents she had amassed over the last year. None of it made sense.

There was a vast gulf between the cost of needed repairs to her Mandeville home and the $9,247 she received from Southern Fidelity Insurance Co. before it went belly-up. Piro thought Louisiana's bailout fund was supposed to step into the shoes of failed insurers and rescue her. But everything about her experience suggested she was wrong.

"I'm not going to be made whole?" Piro asked recently. "There's something wrong with this picture."

Her confusion is not uncommon among homeowners in south Louisiana seeking payment from the Louisiana Insurance Guaranty Association after a dozen cash-strapped insurers were steered into receivership over the past 18 months, leaving behind nearly 40,000 unpaid claims. LIGA, as the association is known, oversees an industry-backed fund and is on the hook for up to $500,000 per claim.

The organization has borrowed $600 million by issuing bonds to help pay claims quickly. But homeowners say its tactics are no different from those of stingy insurers: a conveyor belt of different adjusters, unexplained delays and denied claims.

"At the end of the day, if we're at an impasse, then the answer is people need to sue whether they do it personally or whether they hire an attorney," said John Wells, LIGA's executive director. "But before we get to that, if there's unreasonableness with a particular adjuster, we don't mind having a supervisor look at it."

Still, consumers like Piro are learning about another twist. Unlike insurance companies, LIGA cannot be sued for bad-faith damages. As a result, in disputes that lead to lawsuits, plaintiffs' lawyers are asking for a larger share of the settlement. As a result, homeowners might come away with more money than they had, but still less than they need to complete repairs.

Piro has been reluctant to sue, hoping that she would eventually get LIGA to pay by playing nice. But as the Aug. 29 filing deadline approaches for Hurricane Ida-related lawsuits against LIGA, she said it's becoming clear that the legal route, however imperfect, may be the only way.

More than 3,000 lawsuits related to the insolvent insurers have already been filed against the association. That number is expected to grow as the deadline looms.

LIGA has hired nearly two dozen law firms to help it respond. Those attorneys join the various third parties — adjusters, actuaries and financial consultants — that are also helping it sort through a historic backlog of claims.

Lawyers say the third parties are also shielded from bad faith claims and other damages while working for LIGA, leaving consumers with no way to check bad behavior.

"When you're suing your insurance company, you've got teeth in that lawsuit because there's a threat of bad-faith damages, attorneys fees and court costs — and they know this," said Justin Chopin, managing attorney at The Chopin Law Firm in New Orleans. "Once the insured hires a lawyer, everything changes."

The firm has more than 100 cases involving the association, he said.

"But LIGA is immune from liability. They are not on the hook for attorney's fees and court costs. There really is no incentive (to negotiate)."

Tough legal case

The bad-faith penalties helped deter insurers from engaging in deceptive business practices, like intentionally underpaying claims.

If a consumer didn't like what an insurer was offering, for instance, they could also invoke an independent appraisal process.

A standard in most policies, the appraisal process allows each party to name an appraiser from a list kept by the Louisiana Department of Insurance; those two people choose an umpire who decides the final cost. Once settled, the insurer usually agrees to pay.

With LIGA, consumers can still ask for an independent appraisal without hiring an attorney, but there's no guarantee the association will accept it.

"Once that is approved, LIGA sometimes says: 'Well, we're just not paying for it.' Then we have to file a suit and I have to explain that to a consumer," said David Binegar, an attorney with the law firm Binegar Christian in New Orleans.

Binegar said he regularly sees cases where people got only $5,000 or $6,000 paid upfront when their losses were astronomically higher.

"We've got cases where people got paid nothing and the appraisal award was over $100,000," Binegar said. "That's a giant underpayment."

Under Louisiana law, an attorney can seek extra damages against an insurer that's found to have dramatically underpaid a claim. Those penalties would normally allow a homeowner to walk away with the full payment of their claim even after paying their lawyer.

Without the possibility of damages, the cost of the lawsuit — if not paid out of pocket — comes directly from the settlement. And LIGA, no matter what, will pay no more than the cost of the claim.

"The statute is set up in a way where they have very little accountability," Binegar said.

To sue or not to sue

As the filing deadline nears, Piro will have to make a choice soon. In her view, there's hardly a decision to make.

"When I paid for my insurance, that's a two-party contract. They owe me," said Piro, a part-time real-estate agent. "I did everything in good faith according to the rules and laws."

She is still living with the damage to her home caused by Hurricane Ida nearly two years ago. Water stains circle the ceiling around her skylights; sections of drywall and carpet have been removed. The visible issues inside suggested roof damage that a hasty inspection would not confirm, she said.

Piro thought the many claims adjusters who have visited would recognize the damage, too. But in January, a representative from Sentry Claims Group, a LIGA contractor, told Piro her claim was being denied.

"'Well, that's where it's at. We're denying you,'" she recalls the woman saying.

What they didn't know was that Piro had already commissioned a structural engineer to evaluate her home in November 2021. At least one of the rafters was cracked on the east side of the house, and it was likely caused by wind damage, according to the assessment by Homepaje Structural. And the damage left a small gap between the roof and the gable wall.

"They're either going to force me to sell my house as it is, or I'm going to get screwed," she said.

Piro said she started shopping around for attorneys and found that lawyers want as much as 33% of her final settlement in a LIGA case.

With hurricane season's arrival, it feels like the walls are closing in.

Piro was one of the nearly 100,000 policyholders who were forced to migrate to the state's insurer of last resort, Louisiana Citizens Property Insurance Corp., after the failures of a dozen insurance companies writing business in Louisiana.

With Southern Fidelity, her annual premium had been no more than $3,000. Now under Citizens, she expects to pay $13,130 annually.

Her first installment is nearly $3,000. It's due by mid-July.