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“Offset” and Homeowners vs. Flood Insurance: Issues with the Recent Louisiana Supreme Court Decision

Posted in Our Blog on October 4, 2011

In response to a story that ran in The Times-Picayune on Sunday, October 2nd (you can read that story HERE), here is an expanded version of a letter I wrote to the editor of the Picayune:

Last week’s Louisiana Supreme Court decision regarding “Offset” makes for a one-way benefit to homeowners insurers. If flood pays a big chunk of the damages, reducing the balance owed in order to make hurricane-damaged (water AND wind) homeowner “whole,” and homeowners get to reduce the total amount it owes, what happens if flood adjustment determines a smaller amount is due, and the homeowners adjuster decides the balance of the damages was not caused by wind? You can be certain that the homeowners insurer is not going to get generous and simply offer to pay the difference. And while this decision by the Louisiana Supreme Court has the legal effect of reducing the amounts that would be actually shown owning by the homeowners insurer for proven wind damage, it does not cut the other way. So the homeowners insurer will never have to pay more than the policy amount. Will premiums go down? You can bet they will not, but surely they will go up.

When homes with both wind and flood damages had this issue post-Katrina and local courts were already applying this rule, that is exactly what happened.

And, post-Katrina when homeowners insurers had their own adjusters delegated the authority by the federal government to determine which policies would pay – flood vs. wind – these shrewd adjusters decided that flood was almost entirely responsible for the damage. And with each blatant conflict-of-interest decision, these adjusters saved their employers from having to pay out of their own bank accounts, as the flood policy bank accounts (underwritten by the US taxpayers) were drained instead. Where there were dramatically smaller-sized flood policies that had too few dollars to fix all the damage, did those adjusters put more blame on wind, so the damage would get paid in full? Not in the many cases I personally studied; homeowners insurers simply passed the buck and the responsibility to flood insurance.

As a result of being able to use Offset, and blame flood and not wind for the vast majority of the damage (absent credible proof, mind you), AND get a commission on all of the flood insurance they wrote, homeowners insurers in the southeastern United States posted the greatest profits they’d ever posted.

My suggestion is that, if our own courts are going to allow this lopsided advantage to homeowners insurers, our legislature needs to modify the law such that as long as a homeowner is in fact made whole – paid 100% of his damages – and cannot get more (due to Offset), that likewise, insurers must also be held to pay the balance owed on the damages left unpaid by flood policies.

John W. Redmann
Attorney, Metairie