It's now late April. Posting on a decision rendered in March, early March at that, breaches a blogger's protocol. And In Re: Katrina Canal Breaches Consolidated Litigation; Pertains to: Road Home, Louisiana State, No. 05-4182, 2009 U.S. Dist. LEXIS 30406 (E.D. La. March 5, 2009), received press when issued. The case allowed individual claims of homeowners to proceed with a class action suit even if they did not file individual suits by the deadline. Nevertheless, because it involves hurricanes, flood damage and anti-assignment provisions, issues we follow with interest at this site, the latest installment of Katrina Canal Breaches deserves another look.
The Louisiana Road Home program was funded by a HUD grant to provide disaster relief to victims of Hurricanes Katrina and Rita. Road Home grants were designed to compensate homeowners up to $150,000 for structural damage. The Road Home program prohibited providing any relief funds that would duplicate payments from other sources. Accordingly, recipients had to reimburse the State if they subsequently received any insurance payments from losses covered by their Road Home grants. To facilitate reimbursement, the Road Home program required recipients to execute a Subrogation/Assignment, assigning the right to such duplicate funds to the State.
Approximately 90,000 Agreements were executed, making in excess of eight billion dollars of federal funds available to hurricane victims through the Road Home program. The State filed a class action suit to recover those funds from Insurers to which Road Home recipients were entitled and which had been assigned to the State.
The Insurers moved to dismiss on various grounds. First, the Insurers argued the State had no standing because the assignments from the homeowners were invalid based on the policies anti-assignment clauses. Louisiana law permitted the enforcement of anti-assignment clauses. But here the Court was faced with a post-loss assignment, i.e., the homeowners assigned their rights under the policies to the State after loss from the hurricanes.
The Court decided that assignments were permitted under Louisiana law, despite anti-assignment clauses. In other jurisdictions, courts generally permitted the assignment of an insurance claim despite an anti-assignment clause if the assignment occurred post-loss. After the loss occurred, assignment of the claim did not modify the risk. Therefore, there was no reason to limit the assignment of a claim, regardless of an anti-assignment clause. Recall that in Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007), the Hawai`i Supreme Court held that transfer of a policy in disregard of an anti-assignment provision was invalid. Del Monte dealt with a post-loss assignment loss, but an assignment made prior to the successor's entry of a Consent Decree under CERCLA with the EPA.
The Katrina Canal Breaches court next agreed with the Insurers that any claims outside the contract, such as allegations of bad faith and breach of fiduciary duty, were barred because these claims had not been assigned to the State.
Finally, the Court dismissed the State's Valued Policy Law claims. The State argued under Louisiana law, if any insurer placed a valuation on the property and used such valuation to determined the premium, the insurer had to indemnify the covered loss at such valuation without deduction or offset. The Court agreed with the Insurers that Louisiana law only applied the Valued Policy Law to claims brought under fire insurance policies.
