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Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE FROM: CLERK OF SUPREME COURT OF LOUISIANA NEWS RELEASE #028

The Opinions handed down on the 10th day of May, 2011, are as follows:

BY JOHNSON, J.: 2010-CQ-1823 IN RE: KATRINA CANAL BREACHES LITIGATION (United States Court of Appeals for the Fifth Circuit) We answer the certified question as set forth in this opinion. Pursuant to Rule XII, Supreme Court of Louisiana, the judgment rendered by this Court upon the question certified shall be sent by the Clerk of this Court under its seal to the United States Court of Appeals for the Fifth Circuit and to the parties. CERTIFIED QUESTION ANSWERED.

5/10/11

SUPREME COURT OF LOUISIANA NO. 2010-CQ-1823 IN RE: KATRINA CANAL BREACHES LITIGATION ON CERTIFIED QUESTION FROM THE UNITED STATES FIFTH CIRCUIT COURT OF APPEALS

JOHNSON, Justice We accepted the certified question presented to this Court by the United States Fifth Circuit Court of Appeals in In Re: Katrina Canal Breaches Litigation, 613 F. 3d 504 (5th Cir. 2010).1 The question presented is "Does an anti-assignment clause in a homeowner's insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer's consent, bar an insured's post-loss assignment of the insured's claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?" For the reasons set forth below, we answer the question as follows:2 There is no public policy in Louisiana which precludes an anti-assignment clause from applying to post-loss assignments. However, the language of the anti-assignment clause must clearly and unambiguously express that it applies to post-loss assignments, and thus it must be evaluated on a policy by policy basis.

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In Re: Katrina Canal Breaches Litigation, 2010-1823 (La. 10/29/10), 51 So. 3d 1.

The Fifth Circuit provided: "We disclaim any intent that the Louisiana Supreme Court confine its reply to the precise form or scope of the legal questions certified." 613 F. 3d at 512.

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FACTS AND PROCEDURAL HISTORY3 To provide relief in the aftermath of Hurricanes Katrina and Rita, Congress appropriated federal funds, administered by the Department of Housing and Urban Development ("HUD"), to affected states. Louisiana distributed some of those funds via the "Road Home" program, which provided grants of up to $150,000 to Louisiana homeowners to repair uninsured or under-insured property damage. Purporting to fulfill an obligation under federal law to "prevent recipients from receiving any duplication of benefits," the State required more than 150,000 Road Home grant recipients to execute a "Limited Subrogation/Assignment Agreement."4 It stated, in pertinent part: I/we hereby assign to the State of Louisiana ... to the extent of the grant proceeds awarded or to be awarded to me under the [Road Home] Program, all of my/our claims and future rights to reimbursement and all payments hereafter received or to be received by me/us: (a) under any policy of casualty or property damage insurance or flood insurance on the residence, excluding contents ("Residence") described in my/application for Homeowner's Assistance under the Program ("Policies"): (b) from FEMA, Small Business Administration, and any other federal agency, arising out of physical damage to the Residence caused by Hurricane Katrina and/or Hurricane Rita. According to the State, the Road Home program created perverse incentives for insurance companies and insured homeowners: some insurers inadequately adjusted and paid grant-eligible homeowners' claims, and some grant-eligible homeowners had little motivation to file claims or challenge low insurance

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We set out the facts primarily as delineated by the United States Fifth Circuit. 613 F. 3d at

507-09. According to the State, the guidelines for administering Road Home funds were set forth by the Louisiana Recovery Authority ("LRA") in its 2006 Road Home Housing Programs Action Plan Amendment for Disaster Recovery Funds ("action plan"). That plan contains the requirement that fund recipients agree to subrogate claims for unpaid and outstanding insurance claims back to the Program. The LRA was granted authority to develop the action plan by the legislature in the 2006 Legislative session. Act No. 5, 2006 1st Extraordinary Sess. (La. 2006); S.C.R. 63, 2006 Reg. Sess. (La. 2006). Such plan was required to, and did, obtain approval by the governor, the legislature, and the HUD.
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settlements. Consequently, Road Home applications and grant amounts drastically increased, creating a one billion dollar projected shortfall in the program. To remedy this situation, and pursuant to the assignment agreements, the State filed suit against more than two hundred insurance companies - allegedly all of the insurers who wrote property insurance in Louisiana at the time of the Hurricanes - in state court in Orleans Parish. The State sought to recover the funds expended and anticipated to be expended under the Road Home program and a declaration of the insurers' duties under the "all risk" policies they had issued to Road Home applicants. The Defendants successfully removed the case to federal district court under the Class Action Fairness Act. According to the Defendants, the insurance industry has paid more than forty billion dollars to homeowners as a result of losses from Hurricanes Katrina and Rita. The insurers argue that the State's suit is an attempt to obtain yet more money from the insurers, even in situations where the homeowner was satisfied with the amount paid, had already filed a lawsuit against the insurer, or had reached a settlement agreement. Moreover, the insurers contend the State brought suit without investigating whether the Defendants had actually failed to make sufficient payment on individual homeowners' claims. The Defendants subsequently filed a Federal Rule 12(b)(6) motion to dismiss in the federal district court, arguing in part that the State's claims failed as a matter of law because anti-assignment clauses in the homeowners' policies invalidated the purported assignments to the State. Making an Erie5 guess, the federal district court denied the motion to dismiss, holding that the contractual anti-assignment provisions did not bar post-loss assignments under Louisiana law. The federal district court also denied the
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Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).

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Defendants' motion for reconsideration, but certified that order for interlocutory appeal pursuant to 28 U.S.C.

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