Louisiana Supreme Court Interprets Valued Policy Lae And Upholds Different Valuation Method Contained In Policy
July, 2008
The Supreme Court of Louisiana holds in Landry v. Louisiana Citizens Property Ins. Co., --- So.2d ---, 2008 WL 2151827 (La. May 23, 2008), that the different method of loss computation contained in the insureds’ homeowners’ policy was valid; therefore, the method provided by Louisiana’s Valued Policy Law (“VPL”), La.R.S. 22:695(A), did not apply.
Facts
Hurricane Rita rendered the insureds’ home a total loss. When Hurricane Rita hit, the insureds’ home was covered under a homeowners’ policy. The application for this policy contained an acknowledgement: “I acknowledge that in accordance with Act 850 of 1991 enacting R.S. 22:695 the insurance policy for which I have made application contains the following provisions and method of loss computation.” The homeowners’ policy contained a loss settlement provision that stated in the event of property damage if the amount of insurance on the home was “less than 80% of the full replacement cost of the building,” the insurer would pay the greater of the building’s actual cash value or 80% of its replacement cost. The insured and its insurer disagreed on the proper loss computation, and litigation ensued.
The insureds prevailed on their motion for summary judgment: the “trial court found that the Valued Policy Law applied and defendant [the insurer] had not set forth an alternative method of loss computation in the application. The trial court reasoned the statute is clear that in those cases where the insurer determines valuation for the property, based the premium on that valuation, bears liability for any covered loss … and the property is deemed a total loss (although caused in part by … a covered peril, and in part by … a non-covered peril), the insurer is liable for the full amount of the policy.”
The court of appeal reversed, and remanded “the case for a determination of whether the defendant could prove that flood water (the non-covered peril) was the ‘efficient proximate cause’ of the total loss of” the insureds’ home. The Supreme Court “granted certiorari to review the decision of the court of appeal … and, more specifically, to determine whether the court of appeal was correct in reversing the trial court’s grant of summary judgment in favor of” the insureds.
Analysis
The Landry court affirmed in part, vacated in part, and remanded. The appellate court’s decision reversing the trial court’s summary judgment order entered in favor of the insureds was affirmed: Louisiana’s VPL does not require that the policy’s face value is paid in every instance of a total loss. The VPL states that the policy’s face value is paid “unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefore, shall set forth in type of equal size, the actual method of such loss computation by the insurer ….” The Landry court held that “the insurance contract at issue validly set forth a different method of loss computation ….”The Landry court vacated the portions of the appellate court’s decision regarding application of the efficient proximate cause doctrine and necessary burdens of proof. The Landry court simply found that these issues described by the appellate court had no place:
… La.R.S. 22:695(A) is a valuation provision. Although originally intended as a mandatory rule of public policy, the legislature has determined that the valuation provided by the statute can be changed by the insurer. When the insurer sets forth an alternative method of loss computation in the policy, and includes it in the application as required … the insured is placed on notice of the method of loss computation to be used in the event of a loss. Once … changed … the provisions of the statute are inapplicable.
