Louisiana court curbs hurricane insurance recovery

By Jonathan Stempel

NEW YORK (Reuters) - A divided Louisiana state appeals court has ruled that people who lost their homes in hurricanes are not necessarily entitled to recover the full amount of their losses if their insurance policies covered only some perils but not others.

Tuesday's decision by Louisiana's Third Circuit Court of Appeal is a partial victory for the insurance industry, which has for two years battled Gulf Coast homeowners over the amounts it must pay to cover damage from several storms, including Hurricanes Katrina, Dennis, Rita and Wilma.

It is less favorable to insurers than an August 6 ruling by the U.S. Fifth Circuit Court of Appeals in New Orleans, in a case involving State Farm Fire & Casualty Co, concerning similar issues and the same state law.

In a 3-2 decision, the Louisiana appeals panel said a lower court erred in ruling that, under the state's Valued Policy Law, homeowners could recover in full for the total destruction of their homes, even if covered perils such as wind and rain were not solely responsible for the loss.

It sent the case back to the trial court and said the insurer, Louisiana Citizens Property Insurance Co, bears the "clear burden" to show that uncovered perils, such as flood waters, were the "efficient and proximate cause" of the loss.

The decision "does not require us to change Louisiana's legal course, to succumb to emotion or to engage in doomsday scenarios," Judge Sylvia Cooks wrote for the majority.

The case involved Mark and Barbara Landry, who lived in Erath, located in Vermilion Parish, and lost their home in Hurricane Rita in September 2005. Their $57,200 homeowners' policy covered losses from wind and rain but not floods.

"I feel like the decision is very favorable to plaintiffs," said Tom Filo, a lawyer representing the Landrys. "It's certainly foreseeable that in every hurricane, there will be a storm surge, which is caused by wind, which is always a covered peril."

Filo expects an appeal to the Louisiana Supreme Court.

Louisiana Citizens had argued that holding the industry liable for total losses would burden residents by making it unattractive for carriers to operate in the state. A lawyer for the insurer did not immediately return calls seeking comment.

Hurricanes cost the insurance industry more than $68 billion in 2005, including more than $38 billion of insured losses from Katrina alone.

The August 6 federal appeals court ruling, in a case involving homes destroyed in Katrina and Rita, said insurers need pay a policy's full value only when homes are rendered total losses from covered perils.

(Additional reporting by Dan Wilchins)