How Not to Win a Lawsuit Against Tulane
Allianz Global Risks US Insurance Company had provided Tulane with up to $250 million of secondary property insurance in excess of the $100 million in property insurance that was furnished by Lexington Insurance Company and Zurich Insurance Company. However, unlike the Lexington and Zurich policies, which included coverage for losses caused by flood, the Allianz policy excluded coverage for losses caused by flood [1].
Lexington and Zurich paid their policy limits (collectively, $100 million) to Tulane for losses arising from Hurricane Katrina. However, when Tulane submitted a claim to Allianz for a partial payment of $100 million for excess property damages, the insurer filed suit for a declaratory judgment to defend the terms of its insurance policy, which excluded claims for flood damage. The suit was filed in New Orleans, in U.S. District Court for the Eastern District of Louisiana [1].
From the outset, Tulane enjoyed a critical advantage as the lawsuit and its countersuit were heard by the Honorable Kurt D. Engelhardt, with the Honorable Joseph C. Wilkinson Jr. serving as magistrate [1]. The judge's mother, Adrianne Engelhardt, a long-term employee of Tulane, had been an administrative assistant to its Medical School's deans in the 1980s and later worked for the Department of Psychiatry and Neurology [2]. The magistrate had been an adjunct faculty member of Tulane's Law School for many years [3].
Allianz's administrators, who were unfamiliar with the brier patch into which they were drawn, may also have inadvertently disadvantaged themselves by hiring William R. Acomb as one of the lead attorneys to represent them.
Acomb's father, Robert B. Acomb Jr., is a senior partner of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, the law firm that represented Tulane in this proceeding. The senior Acomb was also a member (1996-2000) of Tulane's Board of Administrators [4], a member (1989- ) of its President's Council [5], and a chairman (1982-1983) of its Alumni Fund [6]. Both Acombs were graduates of Tulane and its Law School, and both supported the school financially [7].
The inherent conflicts of interest may have operated to help insure that Allianz was promenaded down the path toward a foregone conclusion of a settlement.
As with any kangaroo court, the facts of this case were incidental to the outcome. What mattered was WHO controlled the decision-making process. This knowledge led Tulane to boldly assert that its policy with Allianz covered losses caused by flood, notwithstanding that this very exclusion was the basis of Allianz's lawsuit. What apparently mattered here is that Tulane desired the money, Allianz had the money, and the decision-makers were bent on an outcome that would favor Tulane.
Still, there were other aspects of the case that allowed some justification for the outcome.
Tulane argued that Katrina's windstorm was the primary cause of the property damage it sustained, and that it was entitled to compensation for its business losses. In addition, the contract with Allianz was apparently full of vagaries of the type that insurers sometimes use in order to confuse policyholders and justify a denial of their claims. However, in this instance, the ambiguities of Allianz's policy were turned against the insurer and interpreted in a manner that was used to justify Tulane's claim [1].
Caught in the brambles and lacking fervent allegiance from within, Allianz never had a chance. The case finally ended April 3, 2007 with Allianz settling with Tulane for an undisclosed amount [1]. In all likelihood, Allianz's attorneys were relieved to escape New Orleans with what was left of their sanity.
If there is any further significance to the outcome it is this: In the matter of Allianz v. Tulane, it was determined that the flooding of Tulane was the result of Hurricane Katrina's windstorm, which was the principal cause of Tulane's property damage. This precedent could be a boon to thousands of homeowners in the Gulf Coast region who were without flood insurance policies and who were denied homeowners insurance claims on the basis that their policies did not cover flood damage to their property.
This precedent might also apply to insured homeowners whose property damage exceeded the limits set by their flood insurance. Increasingly, insurance companies are facing juries that are sympathetic to plaintiffs who have lost their home to Katrina, as illustrated by a recent case in which damage to the homeowner's property exceeded the federal flood insurance limits of $250,000 on the house and $100,000 on its contents [8]. Thousands of Katrina victims whose homeowners insurance policies excluded flood damage could have their policies reinterpreted by the courts [9].
In one exceptional case, an Uptown resident won a jury verdict against an insurance company whose policy, like Tulane's, was ambiguous [10]. In contrast, the U.S. Fifth Circuit Court of Appeals sided with insurers against historically black Xavier University, which had successfully litigated its flood damage claim in federal district court, only to have its victory overturned by the appellate court and finally rejected by the U.S. Supreme Court [11].
In the final analysis, it is the state that regulates insurance policies, and the Louisiana Supreme Court ultimately ruled that insurers were right to deny payments to claimants who had a homeowners policy and sustained water damage to their property as a result of the flooding [12]. The ruling exemplifies how a powerful entity can leverage the court to the detriment of a deceived multitude.
Update
In 2012, the Times-Picayune reported that FEMA had reduced its disaster allocation for Tulane from $291.9 million to $166 million to reflect "previous insurance payments," and that it may further reduce its rebuilding grants to Tulane by $24.5 million for a similar reason [13].
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References
- Allianz Global Risks US Insurance Company v. Tulane Educational Fund Administration, Case No. 2:06-cv-01723-KDE-JCW, filed March 31, 2006; terminated April 3, 2007 as Case No. 2:06-cv-01723-KDE-KWR. See also: Mike Strecker, "Tulane Countersues Insurer in $250 Million Coverage Dispute," Tulane University Magazine - News, July 14, 2006,
http://www2.tulane.edu/article_news_details.cfm?ArticleID=6648, accessed 07/14/06.
- Carl Bernofsky, personal knowledge. See also: "Faculty and Staff, Tulane University," http://tulane.edu/viewou.cfm?OU=Psychiatry-Neurology (retrieved on Dec. 24, 2004). See also: "Kurt Engelhardt, Biography," U.S. Department of Justice, Office of Legal Policy, http://www.usdoj.gov/olp/engelhardtbio.htm, accessed 07/17/06.
- Tulane Law School Catalog, 1994-95; 1995-96; 1996-97; 1997-98; 1998-2000.
- Beatrice M. Field and Amanda R. Rittenhouse, POTPOURRI, August, 2002 p. 35, http://alumni.tulane.edu/potpourri/, accessed 01/18/05.
- Ibid., p. 63.
- Ibid., p. 93.
- Tulane University Law School, "Donor Honor Roll," http://www.law.tulane.edu/giving/honorroll/donor_honor_roll0304.pdf, accessed 04/13/07.
- "Insurance suit yields $2.8 million verdict; Federal jury says wind leveled house," The Times-Picayune, New Orleans, April 17, 2007, p. A-1.
- David Hammer, "La. court in favor of homeowner; Levee breeches not considered 'flood'," The Times-Picayune, New Orleans, November 21, 2007, Money, p. 1.
- Susan Finch, "Key Katrina case to hit high court; Homeowner suing over water damage," The Times-Picayune, New Orleans, January 15, 2008, National, p. 2.
- Susan Finch, "Suits against insurers snubbed; Similar case in state court," The Times-Picayune, New Orleans, February 20, 2008, Money, p. 1.
- David Hammer, "Court says policies exclude floods; Justices overturn rulings, back insurer," The Times-Picayune, New Orleans, April 9, 2008, National, p. 1.
- Bruce Alpert, "FEMA's allocation to Tulane targeted; Inspector: It should be $24.5 million less," The Times-Picayune, New Orleans, May 17, 2012, National, p. 9.
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