Louisiana lawmakers have proposed myriad bills designed to whip the insurance industry into shape after mishandling claims from hurricanes Laura and Delta which targeted the Lake Charles area during the Covid-19 pandemic. Those bills reflect legislators’ and their constituents’ frustration and anger over the lousy claims handling that resulted in delays in getting hurricane victims’ claims paid. Some property owners are still in limbo, waiting for their insurance company to pay their claims, eight months and several adjusters, after the hurricanes devastated southwest Louisiana.
The fact that various segments of the industry support some of the legislative proposals and that there is bipartisan support for some bills makes this session somewhat different from the aftermath of Katrina and Rita in the 2006 session when the legislature exercised restraint and did not beat up on the insurance industry.
Much of the proposed legislation is aimed at adjusters, outlining claims settlement practices, which seems appropriate in the wake of claims problems arising out of the four hurricanes striking Louisiana during the 2020 season. Other bills are viewed as extreme, particularly those dealing with quadrupling bad faith penalties, partly because the increased penalties would apply to the industry broadly, not just residential property lines.
Nonetheless, some people in the industry consider most, if not all, of the bills onerous and contend there will be a cost associated with implementation of the proposals and that the cost will ultimately fall on the state’s property insureds.
Since State Farm writes about one-third of the homeowners business in Louisiana, there were moments during the testimony on the bills in the insurance committees when it seemed that State Farm stood alone in the legislators’ crosshairs.
After several hours of discussion, the house bills were reported favorably out of the House Insurance Committee as amended, largely without objection.
The House bills and their status as of May 14 are:
House Bill 457 by Rep. Michael “Gabe” Firment, R-Pollock, was reported with amendments on May 4, in a 10-0 vote, and passed the House floor with a 102-0 vote on May 11.
The bill provides for certain standards of conduct for claims adjusters. Under the bill an adjuster shall: not permit an unlicensed employee or his representative to conduct business for which a license is required; not have a financial interest in any aspect of the claim other than the salary, fee or other consideration established with the insurer; not acquire any interest in salvage of property subject to the contract with the insurer; not solicit employment for any attorney, contractor or subcontractor in connection with any loss in which the adjuster is concerned or employed; not solicit or accept compensation from any contractor or subcontractor on behalf of any insured for which the adjuster is employed; not undertake the adjustment of any claim if the adjuster is not competent or knowledgeable; not knowingly make a material misrepresentation intended to injure any person engaged in the business of insurance; not represent or act as a public adjuster; not materially misrepresent the terms and the coverage of an insurance contract to an insured for the purpose of effecting settlement of a claim on less favorable terms than those provided in the insurance contract.
In addition, an adjuster shall: not approach investigations, adjustments and settlements in a manner prejudicial to the insured; not advise a claimant to refrain from seeking legal advice, nor advise against the retention of counsel to protect the claimant’s interest; not knowingly make any oral or written misrepresentation or statement regarding applicable policy provisions, contract conditions or pertinent state laws, and not negotiate or effect settlement with any third-party claimant without consent of the attorney.
An adjuster shall avoid any suggestion calculated to induce a witness to suppress or deviate from the truth.
The adjuster shall: treat all claimants fairly, make truthful and unbiased reports of the facts after completing a thorough investigation; handle every adjustment and settlement with honesty and integrity; act with due diligence to achieve a proper disposition of the claim; promptly report violations of any provision of the Insurance Code; exercise extraordinary care when dealing with elderly claimants.
The proposed law requires adjusters to read and acknowledge the claims adjuster standard of conduct upon license issuance and renewal.
The House Insurance Committee amended the bill to read that a claims adjuster who violates the standards of conduct is considered to have committed an unfair trade practice.
There are exemptions for persons employed only to provide technical assistance to a licensed adjuster. By amendment engineers, investigators and building consultants investigating certain perils were removed from the exemptions.
In offering the bill, Firment told the committee that he had worked with industry on amendments to the proposed legislation. As a result, there were more than 30 amendments to HB 457.
The green cards submitted in support of the proposed legislation included the Independent Insurance Agents and Brokers of Louisiana.
Speaking in opposition to the bill was Rodney Braxton, Southern Strategy Group, representing State Farm, who contended that, if passed, the bill would add to the insurer’s cost, “which is always a concern to State Farm.”
Firment described the cost increase issue as a “scare tactic” that insurers use any time a reform issue comes up.
Stating that he did not want the bill to be about “State Farm bashing,” Firment said that he had spoken to State Farm seeking suggestions for solutions and that State Farm was not forthcoming with suggestions.
Braxton told Firment that he was asking State Farm to tell him “how to fix something that we do not feel needs fixing.”
Firment countered, “State Farm’s claims practices in many instances are not acceptable.”
Kyle Smith, Smith Global LLC, testified, “What we have experienced is the inexperience of adjusters.” He told the panel about an elderly lady with storm damage to her home and a $9,000 deductible on her policy. The first adjuster to see her would not climb on the roof or go inside the house because of the pandemic. A tree had broken and the top of the tree crashed through the roof of the lady’s home. Since the adjuster did not see the extent of the damage, State Farm gave her a check for $167. Five months later, the lady was facing having to move from her daughter-in-law’s home because it was sold. Smith filed a claim on the lady’s behalf, and she ultimately received a check for $212,000, according to Smith.
Relative to the bill, representatives of NAMIC and APCIA, after working with Firment, presented white cards. While they did not present red cards to speak against the bill, APCIA representative Kevin Cunningham said, “We are not in a green card situation yet.”
According to Cunningham, the two insurer associations are working with Firment “in a manner that is responsive to the problem and not detrimental to the environment” in which the business of insurance is conducted.
House Bill 458 by Firment gives guidance on when to give additional living expenses and fair rental coverages under residential insurance policies. The bill was reported favorably with amendments on May 4 in an 11-0 vote. The bill is scheduled for House floor debate on May 18.
The proposed law provides that, if a residential property insurance policy includes coverage for additional living expenses or fair rental value and the insured location experiences a stoppage of water, electricity, sewer or natural gas services for a period of at least 24 hours, the insured location shall be deemed uninhabitable, not fit to live in, or not fit for its normal use until the water, electricity, sewer and natural gas services are restored.
The law applies only if a state of emergency has been declared by the governor and shall only apply to geographic areas specified in the emergency declaration. Also, the law applies only to any insurer engaged in the business of residential insurance in Louisiana.
“This bill seems to cause more consternation than the other bills,” Firment said. “All this bill does is give guidance on when to give additional living expenses. The bill does not change coverage.” There has to be coverage under the policy to trigger ALE, he explained to the committee.
Rep. Edmond Jordan, D-Baton Rouge, opined that the proposed legislation would not add cost, but said it created an opportunity for fraud and “on its face is a subtle form of classism.”
Firment did not see the potential for fraud. “If the insurance companies had been handling (ALE) right to begin with, we would not have a problem. Since they handled it differently, we need guidance. It only will be an issue” in an area-wide disaster. “If the power is out and there is not damage, there is no coverage.”
Rep. Lawrence “Larry” Frieman, R-Abita Springs, suggested increasing the 24 hours to two or three days. The bill was not so amended by the committee, but that could happen later in the process.
Braxton said that ALE in State Farm’s policy is not triggered by loss of a utility. “There does not have to be damage,” therefore the trigger in this law is “outside of our policy language.” Passage of this law “could force us to change our policy language or cover something not currently covered.”
Firment did not wish to add language requiring physical damage “Then we are changing policies as all are different. … This is to correct bad behavior. We should not be having this conversation,” he said.
Jeff Zewe and Warren Byrd of the Department of Insurance informed the panel that no insurance policies contain a definition of inhabitable.
“No policy covers power outage if there is no damage to covered property,” Firment said.
Braxton believes the bill would require some companies to pay outside of the contract.
Cunningham told the panel that the bill was “troubling” to APCIA. “Some companies will view this as an expansion of coverage and will increase the cost.”
The bill does not mandate that an insurer of residences offer ALE coverage.
House Bill 467 by Rep. Edmond Jordan, D-Baton Rouge, would ban credit information, education level, home ownership, employment, trade, business, occupation or profession as rating factors. The bill passed out of committee as amended on May 5 in a 7-6 vote with Rep. Sherman Mack, R-Albany, incredulous that credit score is an indicator of risk. The bill is scheduled for House floor debate on May 17.
House Bill 469 by Rep. Ed Larvadain III, D-Alexandria, provides for insurance claims settlement practices. The bill was reported out of the committee on an 8-0 vote. The bill is scheduled for House floor debate on May 13.
Among other things, the bill would increase bad faith penalties on homeowners insurance claims from 50 percent to 200 percent of the amount found to be due to the insured from the insurer.
“I just want insurance companies to do what they are being paid to do,” Larvadain told the committee.
The IIABL, among others in the insurance industry, opposes HB 469.
House Bill 585 by Brett F. Geymann, R-Lake Charles, deals with claims settlement practices. The bill was reported favorably with amendments on an 11-0 vote after an amendment passed after committee Chairman Chad Brown, D-Plaquemine, broke the 5-5 tie vote, first voting against the amendment, and then voting for the amendment before the nay vote was recorded. The bill is scheduled for debate on the House floor May 18.
The proposed law provides that, if an insured provides the insurer an alternative adjustment and the discrepancy in damages is equal to or greater than 25 percent of the insurer’s estimate, the insurer shall: accept the insured’s damage estimate; negotiate with the insured and agree to a recalculated damage estimate or conduct a new onsite adjustment. If the insured and insurer do not agree on a damage estimate after the insurer conducts a new onsite adjustment, and a court later determines there is a discrepancy of 25 percent or greater between the insurer’s original estimate and the court’s estimate, the insured is entitled to recover all costs associated with resolving the dispute.
Current law provides that failure of the insurer to make a payment for damages within 30 days after receipt of a satisfactory written proof of loss and demand, or failure to make a written offer for settlement within 30 days, subjects the insurer to a penalty of 50 percent damages on the amount found to be due from the insurer, or $1,000, whichever is greater. If partial payment has been made, the penalty is 50 percent of the difference between the amount paid and the amount due as well as attorney fees and costs. Initially, HB 585 would increase the $1,000 part of the penalty to $10,000.
Geymann told the committee, “We have serious problems in south Louisiana.” He explained that his neighbor is on her ninth adjuster and that nine months after the storm there are still blue tarps on roofs. “We need to find a way for homeowners to recoup the cost associated with getting the adjustment of their claim.” Many claimants are reluctant to hire a structural engineer or their own adjuster because they are afraid they won’t get their money back.
Frieman said he could not support the bill with the bad faith contained therein because it applies to all lines of insurance.
Initially, the bill shortened the amount of time insurers have to pay claims from 30 days to 15 days. The timeframe was amended back to 30 days.
“We need good adjusters to make good decisions. We need to recognize what we do will affect all claims,” Firment opined.
According to Geymann, insurance companies would not have to do “any of this. It’s just a process they could use.”
Farm Bureau, NAMIC, APCIA, IIABL and State Farm opposed the bill.
Braxton told the panel that he has a problem with the bad faith provisions because there already are bad faith provisions in the Insurance Code. Braxton questioned how HB 585 would mesh with Firment’s bill.
Cunningham is concerned about the bad faith provisions of HB 585, which he said would “have a chilling effect on companies’ willingness to write in Louisiana.”
Cunningham told the panel that companies were not apt to keep adjusters sitting around waiting for the next storm.
In closing Geymann said that the “status quo is not an option.”
House Bill 591 by Firment establishes certain claims settlement practices by statute. The bill was reported favorably with amendments May 4 by the House Insurance Committee on a 10-0 vote. On May 11 the bill passed the House with an 86-0 vote and is pending introduction in the Senate.
The bill provides that insurance policies covering damaged property and allowing for depreciation must note that depreciation may be deducted, and if applied, the insurer must provide a written explanation of how the depreciation was calculated.
The proposed law bars insurers from requiring that repairs, replacement, restoration or remediation be made by a particular preferred vendor or recommended contractor when making payment on a residential or commercial property claim. The insurer shall not recommend a preferred vendor or contractor without informing the insured or claimant that they are not obligated to use the recommended vendor or contractor.
The proposed law provides that in adjustment or settlement of first-party losses under fire and extended coverage policies, insurers are required to include general contractors’ overhead and profit in payment for losses when a general contractor’s service is reasonably foreseeable. The bill provides that the deduction of prospective contractor profit and sales tax in determining the actual cash value of an adjustment or settlement is not allowed on replacement cost policies or on actual cash value policies.
In adjustment of first-party losses, HB 591 provides that any consequential damage incurred in making the repairs or replacement not otherwise excluded shall be included in the loss. If a loss requires replacement items, and replacement items do not match in quality, color or size, the insurer shall replace all items in the area to provide a reasonably uniform appearance.
The proposed law also provides a mediation process to resolve differences between the insured and insurer.
“This bill codifies the practices for handling claims,” Firment said.
A general discussion of the appraisal process included in the bill ensued. Jordan viewed the appraisal process as mandatory arbitration.
“We are trying to put in place an appraisal process because it is cheaper than litigation,” said Joel Moore of the National Association of Independent Adjusters. “It will slow down the tsunami of lawsuits.”
IIABL favored the bill. Albright told the committee that his member agents have seen “a decline in the quality of adjusting in the past few years. … We like both of these bills and think it will help our policyholders a great deal.”
Moore described the proposal as “the best way to get out from under bad claims.
The Senate bills putting the industry under the gun are:
Senate Bill 29 by Sen. Mark Abraham, R-Lake Charles, authorizes the commissioner of insurance to issue emergency rules and take certain actions relative to insurance during a declared emergency. The bill was reported favorably by the House Insurance Committee in a 9-0 vote on May 12 and was referred to the Legislative Bureau where it is pending. The bill was reported favorably with amendments by the Senate Insurance Committee on April 28 and passed the full Senate on a 26-10 vote May 4.
Senate Bill 54 by Sen. Jay Luneau, D-Alexandria, requires the commissioner of insurance to create a standard form disclosing a homeowners named storm, hurricane, and wind and hail deductible. The bill has passed the Senate and is waiting to be heard by the House Insurance Committee.
The form must be signed by the named insured and becomes part of the insurance policy.
Luneau testified that the form is modeled after the uninsured motorist selection form. Because it becomes part of the policy, agents are concerned that it will create the same kind of litigation problems that insurers and agents deal with because of the UM form. Consequently, IIABL opposes SB 54.
Senate Bill 55 by Luneau is pending in the Senate Insurance Committee where it was considered May 5. The proposed law prohibits risk classifications on the basis of the status of the insured being a widow or widower, the insured’s credit score, or gender of an insured over 25 years-old.
Senate Bill 70 by Abraham, adds commercial property insurance to the existing statute that limits separate hurricane, named storm, and wind and hail deductibles on homeowners policies to one deductible in each calendar year.
The bill permits an insurer to apply the remaining amount of a deductible to succeeding named storms or hurricanes occurring in the same year.
IIABL supports SB 70.
The bill was passed by the House Insurance Committee, 10-0 and referred to the Legislative Bureau where it is pending. The bill was reported favorably with amendments by the Senate Insurance Committee on April 28 and passed the Senate by a 37-0 vote on May 4.