Claims of policy ambiguity are the staple of Katrina coverage litigation, as they are in a lot of coverage actions. Lieschen Clover v. Allstate Ins. Co., 2006 WL 3366132 (Banktrcy. E.D. La., November 20, 2006) is one of those cases. Allstate removed Clover’s claims against the insurer and the agent who sold Clover the policy, saying the plaintiff had improperly joined the agent to the lawsuit to defeat diversity jurisdiction and prevent removal to federal court. Both the agent and Clover were citizens of Louisiana at the time the lawsuit was filed. The court uses the term "improper joinder" rather than "fraudulent joinder," which is the more common term, apparently because it sounds nicer. I agree.
Clover, who is now a resident of Pampano Beach, Florida, is a pro se plaintiff who sued over business interruption coverage for a New Orleans establishment that was put out of commission by Hurricane Katrina. He pointed to two provisions in the policy as entitling him to coverage:
1. [The insurer will pay up to 12 consecutive months for] Your loss of income resulting from a covered loss but not to exceed the actual reduction in net income from the operation of the business plus charges and expenses which necessarily continue during the interruption of business.
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4. The reasonable and necessary loss of net income or net rental income for up to two weeks should civil authorities prohibit you from occupying the insured premises due to a loss at the immediately adjacent premises, caused by a peril we insure you against.
Clover said the words "adjacent premises" in paragraph 4 were interpreted by Allstate as meaning all of New Orleans, while his agent told him when he got the policy that adjacent premises meant nearby buildings. As it turned out, Allstate had already paid him the two weeks’ loss of income under paragraph 4, but Clover claimed the agent’s representation created an ambiguity about the meaning of paragraph 4, and that entitled him to the one year’s coverage of paragraph 1. Now, people who read this blog analyze insurance policies for a living, and you all could guess with great certainty that argument isn’t going to cut it with a federal judge. It didn’t. An ambiguity as to the price of a hamburger and fries doesn’t entitle you to order anything on the menu free for a year.
The court found that the meaning of paragraph 4 was clear, and that a Louisiana statute bars claims against insurance agents more than one year from the date a negligent act or statement was discovered or should have been discovered. Because the policy’s coverage was clear, the court said, the discovery date ran from the issuance of the policy. Unfortunately for Clover, that date was one year and six days before he filed his lawsuit. So the court said the claims against the agent were not viable and would be dismissed. With the agent out of the lawsuit, complete diversity of citizenship existed between Clover and Allstate, and the case will stay in federal court.