A valued policy law says that an insurer must reimburse an insured for the total value of a home if the premiums were calculated based on that total value. States that have valued policy laws include Florida, Mississippi and Louisiana, and it had been assumed that, if a home were destroyed, an insurer would have to pay the percentage attributable to a covered peril but would pay nothing for damages caused by an uncovered peril. Then in 2004 the Court of Appeal of Florida, Fourth District, decided Mierzwa v. Florida Windstorm Underwriting Assoc., which interpreted Florida’s law as requiring an insurer to pay the entire value of the home, including damage from an uncovered cause. The Florida legislature later passed a law overturning the result, but the law applies only to future policies, not those in effect at the time of Hurricane Katrina and Hurricane Rita last year. Here’s a link to Florida’s new law. The relevant language is in subsection (b).
Insurers have been bracing for Katrina and Rita lawsuits seeking an expansive reading of the valued policy laws. In one such case, the U.S. District Court in Louisiana recently gave an interpretation of that state’s valued policy law consistent with the new Florida law and the traditional understanding of valued policy laws. The case is Turk v. Louisiana Citizens Property Insurance Corp., 2006 WL 1635677 (W.D. La. June 7, 2006).
In an opinion notable for its brevity (too often courts are tempted to ramble on and on in opinions in coverage cases; lawyers succumb to the same temptation in briefing), the court said that when 50 percent of a loss is caused by a covered cause, the insurer is responsible only for 50 percent of the damages. The court therefore granted partial summary judgment to the insurer, but recognizing "there is substantial ground for difference of opinion and that an immediate appeal may materially advance the ultimate termination of the litigation," the judge stayed further proceedings pending appeal of his order. Here’s a link to Louisiana’s valued policy law.