Katrina's storm surge had barely receded when hordes of lawyers began compiling lawsuits against the nation's largest insurers. Many of the suits claimed insurance policies were drafted in bad faith, intentionally leaving out coverage for flood or wind or mold while leaving policyholders to believe they were covered. Even in the case of flood insurance, which all homeowner's policies exclude, many policyholders contend they had no idea they were exposed.
 
Maybe that's because most people would rather retest on the SAT than actually read the voluminous fine print in their homeowner's policies. A recent survey by the Insurance Information Network found 27% of consumers haven't looked at their policies in three years.
 
At least in part, this is due to policies being chocked full of what Mississippi attorney Richard Scruggs terms "Da Vinci-type language," referring to the arcane, circular verbiage. Scruggs is the legal mastermind behind a massive class action suit against Allstate, State Farm and Nationwide. His brother-in-law, Senator Trent Lott, is among the clientele.
 
But this situation may be about to change in Louisiana, because policies will soon be made much more user-friendly.
 
During the November special session, the state Legislature passed a law requiring insurance companies to place a one-page coversheet on all new and renewing policies. This will state what is and isn't covered, including damage from wind, flood and mold, as well as listing maximum payouts for each area of coverage.
 
The law was passed with no opposition. Policyholders cheered the move because it could add much-needed clarity, and lawmakers said they were making insurance comprehensible for their constituents.
 
Insurers, meanwhile, hoped by adding clarity, the law would keep lawsuits at bay and help policyholders understand what they are paying for and what they are eligible to receive.
 
"It will be on the face of the policy, in 14-point type," says Jeff Albright, CEO of the Independent Insurance Agents and Brokers of Louisiana. "It's going to be hard to miss."
 
Meanwhile, throughout the entire legislative process, trail lawyers remained quiet and never attempted to block the law--even though it could potentially mean a loss of business for them.
"It should help significantly and help reduce litigation," Albright says. "It's one of those things of how can you best protect the public and be responsible for the conduct of business. All this does is provide fair disclosure."
 
David Tatman, a lobbyist for the Professional Insurance Agents of Louisiana and a licensed agent, agrees with the assessment but adds there is a loophole in the law that states the payment of a claim on a homeowner's policy doesn't necessarily constitute a final settlement.
A New Orleans lawmaker added that amendment to ensure policyholders would eventually get the full extent of their claim.
 
"That means if something is inadvertently left out of that cover sheet, the policyholder can come back and open up that claim anytime they want," he says.
 
Albright says the provision is redundant. "Policyholders can do that now anyway," he says. "That language was well-intentioned, but misinformed. Nothing in the legislation limited the ability of a policyholder who is unhappy with a settlement from going back against a company with a lawsuit."
 
Loophole or not, the new law will make it harder for policyholders to argue bad faith on their insurer's part.
 
Even if the new forms are unable to limit lawsuits, Tatman says a new program implemented by the state could do the job in a way that is fair to both sides. Third party mediators are now available to Louisiana residents impacted by the hurricanes who are at odds with their insurance companies. The mediators essentially serve as judges--at no cost to either party. Their use is voluntary.
 
Many are eager to see how effective the one-page forms will be, but it could be a while before they're put into practice. Lawmakers considered including an implementation deadline, but that idea was abandoned as promises were made.
 
"How long could it possibly take just to make a form?" Senator Edwin Murray of New Orleans asked the House Insurance Committee in November, shortly before the law was adopted.
Murray, who sponsored one of the bills that led to the law, was told it could take the Department of Insurance as few as 30 days from when the law was signed by the governor, which happened on December 6.
 
But now, department spokeswoman Bobby Ann Clark says the one-page form is still being constructed and it could take several more months.
 
"It's going to be a while," she says.
 
The insurance industry has to be consulted and bureaucratic hoops need to be cleared.
The new law may help decrease the number of lawsuits filed by confused consumers, but that is no assurance Louisianans will actually take the time to read through their forms and understand their policies.
 
"It will be clearer for policyholders as far as what's covered; but if it isn't read, it won't do any good," Tatman says.
 

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