By Max Dorfman, Research Writer, Triple-I
Louisiana lawmakers passed several bills to reinforce the state’s weakened property insurance market during the recently completed 2023 legislative session. These included one that would have required parties to a lawsuit to disclose third-party litigation funding agreements within 60 days of a filing. However, that legislation was vetoed by Gov. John Bel Edwards, and lawmakers do not plan to override it.
Also included was a broad ban on assignment of benefits (AOB), the practice by which policyholders sign over to a third party – a contractor, attorney, or public adjuster – their right to bill an insurance company directly for repairs or other services. While this is a common practice across the country, in some states – notably, Florida and Louisiana – it has been a source of extensive claim fraud.
The Louisiana property insurance market has been significantly weakened since the state was hit by record hurricane activity during the 2020/2021 seasons. Indeed, 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023. Additionally, 12 insurers withdrew from the state and 50 companies stopped writing new business in hurricane-prone parishes, creating a capacity crisis.
A persistent problem
Legal system abuse has been a persistent issue in Louisiana for some time. The state’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).
These problems were highlighted in February 2023, when Insurance Commissioner Jim Donelon issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state. According to Donelon, the firm filed more than 1,500 Hurricane Laura claim lawsuits in Louisiana over the span of three months in 2022, prior to the deadline to file suits over the Category 4 major hurricane that struck the state in 2020.
“The size and scope of McClenny, Moseley & Associates’ (MM&A) illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based law firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of criminal behavior and mounting sanctions. MM&A has since shut down its operations in Louisiana.
Litigation funding reform vetoed
Third-party litigation funding occurs when investors finance lawsuits against large companies in return for a share in the settlement. Funding of lawsuits by international hedge funds and other financial third parties – with no stake in the outcome other than a share of the settlement – has become a $17 billion global industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even larger, at $39 billion global industry in 2019, according to Bloomberg.
Some states have considered mandating greater transparency around the practice, and Montana in May approved legislation requiring certain disclosures in litigation financing. Louisiana’s Senate Bill 196 would have required parties to a lawsuit to disclose such arrangements within 60 days of filing a suit.
Insurer incentive grants boosted
The Louisiana Legislature also agreed to allocate an extra $10 million for the previously approved insurer incentive program, bringing to $55 million the amount available to insurers that agree to enter the state’s home insurance market to offer new coverage.
Also included in the bills is $30 million for a long-term grant program to help homeowners fortify their homes against hurricanes – a 50 percent increase over the amount Donelon discussed when planning for the legislative session.