Act 427 of the Louisiana Legislature encourages transparency and will help policyholders

HB909Act427HomeownersInsuranceDisclosures

Act 427 of the Louisiana Legislature was recently signed into law by Governor Jindal. It requires insurance carriers to submit certain claims and policy data to the Louisiana Insurance Commissioner each year. This is a good thing for policyholders. Examples of the data include: total amount of premiums collected, total amount of paid losses less deductible, and a general description of the methodology used to compute rates. In my view, the portion of the Act requiring data on methodology to compute rates (ie, how much and why carriers charge policyholders for each portion of the coverage) is likely to have a direct, positive impact on policyholders’ court cases. The transparency will encourage carriers to pay claims on time, and discourage specious coverage defenses.

For example, I settled an insurance claim earlier this year where coverage for the contractor’s overhead and profit was in dispute. In the industry there is the “3 trades rule.” If there are 3 or more trades involved in the repairs (e.g., roofing, sheetrock, and flooring), then a 20% increase in the claim payment is required. This compensates the general contractor (or policyholder) for the labor involved in overseeing sub-contractors, purchasing materials, etc. In the past, some carriers have refused to pay overhead and profit. However, several appellate courts have upheld the 3 trades rule. And it is generally known in the industry that overhead and profit compensation is required when there are 3 or more trades involved. In my client’s case, the defense attorney remarkably made an issue out of overhead and profit coverage when there were more than 5 trades involved. So I requested the applicable rate making methodology from Louisiana Commissioner of Insurance. I assumed that methodology would have a designation for overhead and profit. However, the rate making methodology had not been submitted to the Commissioner by the carrier. This made it necessary for me to prove the 3 trades rule by researching the applicable case precedents and asking the insurance adjusters about it at deposition. In the end, the carrier’s representative did acknowledge the 3 trades rule and overhead and profit was paid.

In view of newly passed Act 427, however, matters like overhead and profit coverage should be easier to prove. If the methodology shows that a policyholder paid for a particular coverage, then the carrier is more likely to pay the corresponding part of the insurance claim without issue.