Recent Legislative Changes That Impact First-Party Property Insurance Claims in Louisiana

In recent years, Louisiana has enacted several legislative changes to reform its property insurance market and address challenges faced by both insurers and policyholders. These new laws are particularly significant for first-party property insurance claims, which involve policyholders filing claims with their own insurers to recover for property damages.

1. Repeal of the Three-Year Rule

Historically, Louisiana law prohibited insurers from canceling or nonrenewing homeowners' policies that had been in effect for three or more years, except under specific circumstances. This "three-year rule" was designed to protect long-term policyholders. However, in an effort to attract insurers back to the state, the legislature repealed this rule. Effective August 1, 2024, insurers are permitted to non-renew up to 5% of their homeowners' policies per calendar year for any reason, provided they notify the Commissioner of Insurance. They may also request approval to non-renew more than 5% of policies under certain conditions.

2. Introduction of the File-and-Use Rating System

To expedite the approval process for insurance rates and encourage market competition, Louisiana replaced its prior approval system with a file-and-use rating system. Under this system, insurers can implement new rates upon filing them with the Commissioner of Insurance. The Commissioner retains the authority to disapprove rates within 30 days of filing. This change aligns Louisiana with the majority of states that utilize competitive rating systems.

3. Prohibition on Including Unimproved Land Value in Coverage

House Bill 144, enacted as Act 600, prohibits insurers from issuing homeowners' insurance policies that include the value of unimproved land in the coverage limits. This means that coverage should be based solely on the replacement cost of improvements (structures) on the property, excluding the land's value. This measure aims to prevent inflated coverage amounts and ensure that policyholders are not over-insured.

4. Regulation of Appraisers and Umpires

House Bill 609 establishes regulations for the registration, qualifications, and responsibilities of appraisers and umpires involved in the insurance appraisal process. It mandates that these professionals be registered with the Commissioner of Insurance and sets guidelines to prevent conflicts of interest. The law also outlines a structured process for appraisals and the payment of awards, aiming to bring more clarity to the appraisal process. 

5. Overhaul of Bad Faith Statutes

Effective July 1, 2024, Louisiana revised its bad faith statutes concerning claims arising from catastrophic losses to immovable property. Claimants are now required to provide insurers with a written notice detailing the dispute and allow a 60-day period for the insurer to address any issues raised in the notice before filing a bad faith lawsuit. If the insurer pays the full amount sought within this period, no further cause of action exists under the revised statute. This change introduces a "cure period" intended to encourage prompt resolution by providing insurance companies another opportunity to cure or rectify any deficiencies that may have occurred during their initial adjustment.

6. Insurance Regulatory Sandbox Act

House Bill 701 enacts the Insurance Regulatory Sandbox Act, allowing the Commissioner of Insurance to grant waivers for innovative insurance products and services. This framework facilitates the development and testing of new insurance solutions in a controlled environment, promoting innovation while ensuring consumer protection.

Implications for Policyholders

These legislative changes have significant implications for policyholders:

• Policy Nonrenewal: With the repeal of the three-year rule, policyholders may face nonrenewal even after maintaining a policy for several years. It's crucial to stay informed about your insurance company’s policies and any communications regarding nonrenewal.
• Coverage Assessment: The prohibition on including unimproved land value in coverage limits ensures that policyholders pay premiums based solely on the insurable value of their property's structures.
• Claims Process: The introduction of a cure period before filing bad faith lawsuits encourages prompt resolution of disputes, potentially leading to faster settlements.

Policyholders are advised to review their insurance policies carefully, stay informed about these legislative changes, and maintain open communication with their insurers to navigate the evolving landscape of property insurance in Louisiana.