Last month, we reported on a Fifth Circuit Court of Appeals decision that held that Louisiana’s Valued Policy Law requires that an insurer must pay the agreed face value of the insured property only if the property is rendered a total loss from a covered peril. (Click here for a discussion of Chauvin v. State Farm Fire & Casualty Co.)
A Louisiana state appellate court was recently also faced with the question of the applicability of Louisiana’s Valued Policy Law in a Katrina-related case, in the case of Landry v. Louisiana Citizens Property Insurance Company, and the Louisiana state court followed the holding of the Chauvin court. In so holding, the appellate court ruled that insureds who suffered a total loss from a hurricane are not entitled to recover the full amount of their loss if the loss was due to both covered and non-covered perils.
The plaintiff policyholders in the case, Mark and Barbara Landry, purchased an insurance policy from Louisiana Citizens Property Insurance Corporation. The policy, whose limit was $57,200, specifically excluded damage caused by flood. The Landrys’ home was completely destroyed by Hurricane Katrina and they submitted a claim to Louisiana Citizens, which denied coverage on the basis that the home was destroyed by flood, which is excluded from coverage. In response, the Landrys argued that under Louisiana’s Valued Policy Law (“VPL”), they were entitled to payment of the policy’s face value because they suffered a total loss and covered wind damage was at least partially responsible for the loss.
The trial court granted a motion for partial summary judgment in favor of the Landrys, holding that the policy’s application did not identify any specific method of loss computation in the event of a total loss and that under the VPL Louisiana Citizens was liable for the full amount of the loss without an offset or deduction based on that portion of the damage caused by a non-covered peril.
The insurer appealed the trial court decision and the state appellate court relied partially on the Fifth Circuit’s recent decision in Chauvin v. State Farm Fire & Casualty Co. to reach its decision. The state appellate court agreed with the federal appellate court that in enacting the VPL, the Louisiana legislature never intended to expand coverage beyond that which the parties to an insurance contract intended. In addition, in determining whether under the VPL an insurer is required to pay the full value of a policy based on a loss caused by both covered and non-covered perils, both courts put great weight on whether the covered peril was the proximate cause of the total loss. If the covered peril was the proximate cause, payment of the full value of a policy would be required under the VPL.
On this basis, the Louisiana Court of Appeal reversed the trial court’s grant of summary judgment and remanded the case back to the trial court for further findings. The court stated that if the trial court determines that the “efficient or proximate cause” of the property damage was a covered peril such as wind, rain or hail, Louisiana Citizens would be have to obligated, under the VPL, to make payment for the full face value of the insurance policy. The Court of Appeal stated that the insurer bears the evidentiary burden of showing that floodwater was the “efficient or proximate cause” of the Landrys’ loss or it will be obligated to pay the full face amount of the Landrys’ policy.
InsureReinsure.com will continue to monitor this and other Katrina-related coverage developments.
