Louisiana litigation finance reform vetoed; AOB ban, incentive boost for insurers becomes law

By Max Dorfman, Investigative Writer, Triple-I

Louisiana lawmakers passed several bills to bolster the state’s ailing homeowners insurance market during the recently ended 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 filing. However, that legislation was vetoed by Gov. John Bel Edwards and lawmakers do not plan to strike it down.

Also included was a broad prohibition on assignment of benefits (AOB), the practice whereby policyholders assign 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 claims fraud.

Louisiana’s property insurance market has weakened significantly since the state was hit by record hurricane activity during the 2020/2021 seasons. In fact, 11 insurers writing homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023. In addition, 12 insurers withdrew from the state and 50 companies stopped writing new business in hurricane-prone parishes, created a capacity crisis.

a persistent problem

Abuse of the legal system has been a persistent problem in Louisiana for some time. The state’s “burdensome bad faith laws contribute significantly to inflated claim payouts 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 Insurers and Reinsurers (ABIR).

These issues came to the fore 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 lawsuits for Hurricane Laura claims in Louisiana in a three-month span in 2022, ahead of the deadline to file claims for the major Category 4 hurricane that hit the state in 2020.

“The size and scope of McClenny, Moseley & Associates (MM&A)’s illegal insurance scheme is unlike anything I’ve seen before,” Donelon said in a news release. “It is rare for the department to issue regulatory actions against entities we do not regulate, but in this case, the order is necessary to protect policyholders from the company’s fraudulent insurance activity.”

According to the report of the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found that the Houston-based law firm engaged in insurance fraud and unfair business practices through Alabama-based Apex Roofing and Restoration and has faced allegations of criminal behavior and increasing penalties. MM&A has since closed its operations in Louisiana.

Litigation funding reform vetoed

Third-party litigation funding occurs when investors fund lawsuits against large companies in exchange for a share of the settlement. Funding of lawsuits by international hedge funds and other financial third parties, with no stake in the outcome of more than a part of the settlement, has become a $17 billion global industry, according to Swiss Re. The Brown Law Firm Rudnick sees the industry as even bigger, with a global industry of $39 billion in 2019, according to Bloomberg.

Some states have considered requiring greater transparency around the practice, and Montana passed legislation in May requiring certain disclosures in litigation funding. Louisiana Senate Bill 196 would have required parties to a lawsuit to disclose such arrangements within 60 days of filing the lawsuit.

Incentive Grants for Driven Insurers

The Louisiana Legislature also agreed to appropriate an additional $10 million for the previously approved insurer incentive program, bringing the amount available to insurers that agree to enter the state’s homeowners insurance market to offer new coverage to $55 million.

Also included in the bills is $30 million for a long-term grant program to help homeowners hurricane-harden their homes, a 50 percent increase over the amount Donelon discussed when planning the legislative session.