Having discovered the detour attempted by the insurer defendants of Louisiana’s Road Home litigation – a petition to the Fifth Circuit with leave to file an Interlocutory Appeal granted the 19th of this month – SLABBED turns to the orders of Judge Duval for background on the issues under Appeal.
The Louisiana Road Home program is a grant program funded by the United States Department of Housing and Urban Development (“HUD”) and operated by the Louisiana Recovery Authority. In the wake of Hurricanes Katrina and Rita, Congress appropriated funds for disaster relief to be administered through HUD’s Community Development Block Grant Program. HUD distributed some of these funds to Louisiana, which in turn created the Road Home program to distribute these funds as grants to homeowners. Road Home grants are designed to compensate homeowners up to $150,000.00 for structural damage, exclusive of contents damages, caused by Hurricanes Katrina or Rita.
Katrina litigation in Louisiana has suffered from the Fifth Circuit’s overly broad definition of “flood” and off-the-wall ruling on anti-concurrent causation, as well as the heavily promoted image of “Katrina the flood”. However, Sop will likely be as surprised as I to learn, Despite the request of this Court, the State could not point to any federal statute or regulation governing the Road Home program that could create a legal subrogation.
Congress appropriated disaster assistance funds to existing federal programs, including HUD’s CDBG program, subject to rules governing the allowable use of program funds. The CDBG rules required each recipient state to develop and submit a plan for approval and the federal approval process includes a review to ensure a plan is consistent with related federal law.
Consistent with federal law, the Road Home program prohibits providing any relief funds that would duplicate payments from other sources, and therefore the Road Home program deducts any insurance payments from the federal grants that it receives. Individual recipients of grant money must likewise reimburse the State insofar as they subsequently receive insurance payments or other payments for losses covered by their Road Home grants. To the extent that the State recovers funds pursuant to these Agreements, the State recycles such funds within the Road Home Program. As part of the closing process, the Road Home program requires that individual recipients execute the Road Home Limited Subrogation/ Agreement (“Agreement”) in which the recipient promises to pay back any Road Home funds that are duplicated through other sources, such as through insurance payments for building coverage.
The recipient further assigns the right to such duplicate funds to the State, and further agrees to provide notice to the State if he/she chooses to “abandon, dismiss, or release the claims against [his/her] insurance company . . . to allow the State to individually pursue recovery of the rights which have been assigned to the State herein.”
Because Louisiana’s Road Home plan includes the Road Home Limited Subrogation/ Assignment Agreement (“Agreement”), accordingly, the Road Home regulations, by virtue of their inclusion in the federally approved state plan, carry the weight of a federal regulation governing the Road Home program and create a legal subrogation.
The State asserts that approximately 90,000 Agreements have been executed, and it has made in excess of eight billion dollars of federal funds available to Louisiana citizens through the Road Home program…It commenced the present class action on August 23, 2007 in the Civil District Court for the Parish of Orleans in an effort to recover those funds from Insurers to which Road Home recipients were entitled that had been assigned to the State via the Road Home Limited Subrogation/ Assignment Agreements. The matter was removed to this Court on September 11, 2007.
Judge Duval’s Order and Reasons issued March 5. 2009, is one of the two orders on appeal.
Before the Court are two motions filed by the opposing parties in this matter. The various insurance companies named as defendants in this matter (“Insurers” or “Defendants”) have filed a Motion to Dismiss… The State has filed a Motion to Sever and Remand…the Court will deny the State’s Motion to Sever, and grant in part and deny in part the Insurers’ Motion to Dismiss…All of the State’s extracontractual claims, including claims of bad faith and breach of fiduciary duty, all claims premised upon the denial of coverage for flood damage due to levee breaches under homeowner insurance policies, and all claims under Louisiana’s Valued Policy Law are hereby dismissed with prejudice.
The insurer defendants filed a motion to reconsider citing Lucien Tile; and, the second order on appeal is Duval’s related Order and Reasons dated April 16, 2009.
…this Court is persuaded that the Louisiana Fourth Circuit Court of Appeal’s decision in Lucien Tile does not require reconsideration of its prior order. While the Court gives this decision due regard, it is not strictly a “controlling” decision by the Louisiana Supreme Court. The case is also is distinguishable from the instant matter as neither of the two assignments in Lucien Tile mentioned a specific loss that it purported to assign. The first assignment had nothing to do insurance, let alone post loss assignment of an insurance policy.
While Duval denied the insurer defendants’ motion to reconsider, his order stated:
…pursuant to 28 U.S.C. § 1292(b), this Court is of the opinion that the order entered herein involves a controlling question of law as to which there is a substantial ground for a difference of opinion and an immediate appeal from these orders may materially advance the ultimate termination of the litigation. In accordance with 28 U.S.C. § 1292(b), an application for appeal must be made to the Court of Appeals within ten days after the entry of this order; and IT IS FURTHER ORDERED that, pursuant to 28 U.S.C. § 1292(b), this case is STAYED pending the resolution of the appeal.
His reasoning informs discussion:
This case indeed involves a controlling question of law. The validity of the post-loss assignments by Road Home grant recipients despite anti-assignment clauses either results in the State’s case proceeding or coming to an abrupt end. The material facts are not in dispute considering that every insurance contract appears to contain a similar anti-assignment clause.
Louisiana’s lack of controlling precedent on this point muster in favor of certifying this issue for appeal. It does not escape this Court that this case also concerns immense financial interests of Louisiana, apparently reaching upwards of eight billion dollars. Resolution of this issue will significantly impact the likelihood that Louisiana can recover those funds.
The bottom line?
There are two distinctly different sets of “controlling law”. One set includes the law and rules governing the use of federal funds when a state is the recipient as well as those federal laws and rules governing the operation of HUD”S Community Development Block Grant program.
The other is the Louisiana law and/or law as interpreted by a state or federal court – or misinterpreted as the State’s Amended Complaint suggests:
The State’s Amended Complaint includes allegations that the Insurers “improperly equated inundation which had as its efficient proximate cause windstorm and/or third party fault or negligence with ‘flooding’ in an effort calculated to improperly expand each subject policy’s water damage exclusion and thus improperly deny benefits owed to the recipients.”
The Fifth Circuit must consider both sets of “controlling law” – and, it would be wise to distinguish between inundation and a flood, a backdoor to the much needed correction of Leonard.