The policy, issued by Louisiana Citizens Property Insurance Corporation to Mark and Barbara Landry, specifically excluded damage caused by flood. The policy and the policy application explicitly set forth a method for loss computation which differed from that in the Louisiana VPL. The Landrys’ home was completely destroyed by Hurricane Katrina and they submitted a claim to their insurer, Louisiana Citizens, which denied coverage on the basis that a non-covered flood caused the destruction. The Landrys sued Louisiana Citizens, and argued that under the Louisiana 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.
Last year, the Louisiana 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 decision was appealed, and the Louisiana Court of Appeal reversed the lower court decision and held that the insurer bears the evidentiary burden of showing that floodwater was the “efficient or proximate cause” of the loss or it will be obligated to pay the full face amount of the policy under the VPL. (Click here to read more about the appellate court decision.)
The Louisiana Supreme Court has now vacated that portion of the appellate court’s decision interpreting the VPL. The portion of the VPL at issue involves whether an insurer is required to pay the face value of the insurance policy for a total loss caused, in part, by a covered peril and, in part by a non-covered peril. The Louisiana state legislature first enacted the VPL in 1900 and until its repeal in 1988, the provisions of the VPL were mandatory for certain policies issued to Louisiana insureds. The VPL was reenacted in 1991 and the legislature added a provision that allowed insurers to explicitly include a loss calculation method other than that in the VPL, as long as the alternate method is set forth in the insurance policy and policy application “in type of equal size.”
The Louisiana Supreme Court rejected the Landrys’ argument that Louisiana Citizens failed to provide a specific method of computing a total loss in the event the loss was caused concurrently by covered and non-covered events. Instead, the court held that the legislature did not limit the different methods that may be utilized by an insurer and held that Louisiana Citizens’ loss computation formula, which clearly indicates that only covered losses are to be settled, does comply with the VPL’s allowance for alternative computation methods. The case was remanded to the trial court for findings in line with the Louisiana Supreme Court’s decision.
This decision is in line with the Fifth Circuit’s August 2007 decision in Chauvin v. State Farm Fire & Casualty Co., in which the Fifth Circuit held that Louisiana’s VPL only requires an insurer to pay the agreed face value of the policy if the property is rendered a total loss from a covered peril. (Click here to read more about the Chauvin decision.)
InsureReinsure.com will continue to monitor this and other Katrina-related coverage developments.
