By Max Dorfman, Investigative Writer, Triple-I

louisiana legislators passed several bills to bolster the ailing state-owned 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 filing. However, that legislation was vetoed by Governor John Bel Edwardsand lawmakers don’t plan to repeal it.

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 “onerous bad faith laws” contribute significantly to inflated claim payments and awards. according to a joint document published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Bermuda 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 reports for him Times Picayune/New Orleans AdvocateAn 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 behavior criminal 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. Financing of trials for international hedge funds and other financial third parties – with no stake in the outcome more than a part of the deal – has become a $17 billion global industry, according to SwissRe. The Brown Rudnick law firm reckons the industry is 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 mountain in may passed legislation requiring certain disclosures in litigation financing. 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.

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