State-backed insurer ordered to return policyholder fees

Louisiana Citizens Property Insurance Corp. may have to return $16 million to homeowner customers who, for years, were charged a $65 application fee without their knowledge.

On Dec. 12, Insurance Commissioner Jim Donelon ordered the application fees returned, saying Citizens broke state law because it didn’t list the charge on its policyholders’ declaration page. The “dec page” includes the basics of a policy, such as coverage limits and cost.

“The $16 million is the estimate on what they (Citizens) would have to pay,” Donelon said.

Donelon said he didn’t know how many years Citizens collected the fee, but $16 million amounts to about 246,000 application fees.

Citizens — which is the state’s insurer of last resort by providing coverage when traditional insurers won’t — is appealing the ruling in 19th Judicial District Court and has posted an $8 million appeal bond to do so, Donelon said.

Steven Cottrell, chief financial officer for Citizens, said the issue apparently dates back to 2005 or earlier.

The fee was listed on the application page that policyholders filled out when buying coverage, Cottrell said. For some unknown reason, the application fee wasn’t listed on the declaration page; it’s possible that Citizens management at that time wasn’t familiar with the requirement.

Cottrell said Citizens tries to follow the law and corrected the problem when it was discovered.

The shame is that Citizens is backed by the state’s property owners, Cottrell said. If Citizens runs out of money, potentially in part because of the $16 million being returned, property owners will be assessed a fee on their property insurance premiums to provide more funding.

Donelon’s ruling is the latest development in a class-action lawsuit originally filed in 2008. The lawsuit, whose lead plaintiff is Tracy Thibodeaux, of Houma, was certified as a class action, then decertified and eventually kicked back to the Insurance Department for an administrative hearing. The plaintiff attorneys, led by Jason L. Melancon, requested that ruling in December 2012. The plaintiff attorneys eventually asked 19th Judicial District Court Judge Timothy Kelley to force the Insurance Department to hold the hearing. Last month, Donelon ordered Citizens to refund all of the application fees it collected during the time the fee was not listed on policy declaration pages.

Although the plaintiff attorneys requested the refund issue be handled as a class-action complaint, the Insurance Department didn’t do so.

“There is no such creature in the law,” Donelon said of the complaint process.

Donelon said his ruling closed the door to a class-action lawsuit, but that doesn’t necessarily mean the plaintiff attorneys won’t receive a percentage of the application fees.

The attorneys have asked Kelley to award them fees for their work bringing the class action and the Insurance Department complaint, he said.

“I’m not taking a position on what Judge Kelley does or does not do relative to attorneys fees. I’m a regulator and I have ordered compliance with the law,” Donelon said.

Melancon said the plaintiff attorneys have worked on the case for more than five years, battling through a significant amount of opposition, and deserve to be paid for their efforts in fighting illegal activities by Citizens.