Stephen Herman Wins $92.7 Million Judgment Against Louisiana Citizens for Failing 18,000 Katrina Homeowners

When Hurricanes Katrina and Rita tore through Louisiana in the summer and fall of 2005, thousands of homeowners who could not obtain private insurance turned to Louisiana Citizens Property Insurance Corporation, the state-created insurer of last resort. After the storms passed and policyholders filed claims, Citizens did not begin adjusting more than 18,000 of those claims within 30 days as required by Louisiana law. For many families already displaced and waiting on rebuilding funds, the delay compounded an already catastrophic situation.

A class action was filed on behalf of those policyholders, and Stephen Herman of Herman Herman and Katz was among the attorneys representing the class. The central legal question was whether Citizens could be penalized without a separate showing of bad faith. Louisiana Revised Statute 22:658(A)(3) required insurers to initiate loss adjustment within 30 days of notification, but Citizens argued that the sheer scale of the disaster justified the delays.

The 24th Judicial District Court in Jefferson Parish ruled for the plaintiffs. The court applied the statute as written, awarding a $5,000 penalty for each of the 18,573 compensable claims where Citizens had failed to act in time, producing a total judgment of roughly $92.7 million. Citizens appealed, and the Louisiana Fifth Circuit Court of Appeal reversed the judgment, holding that proof of bad faith was a prerequisite to any penalty.

The Louisiana Supreme Court took up the case and, in a 4-3 decision issued December 16, 2011, reversed the appellate court and reinstated the district court judgment. The majority held that the plain language of the statute required only proof of notice and inaction exceeding 30 days. The court rejected Citizens' argument that a 'super catastrophe' created an implicit exception, writing that 'no exceptions' existed in the statutory text. The reinstated award of $92,685,000 in penalties carried an additional estimated $11 million in interest, putting the combined figure above $103 million.

The decision settled a question that had divided Louisiana's lower courts since the storm: insurers writing policies in Louisiana face automatic per-claim penalties for adjustment delays, regardless of the volume of claims or the conditions producing those delays.