4.3 Louisiana Valued Policy Law, Total Losses & Wind-Versus-Flood Causation (RS 22:1318)

Why the Valued Policy Law Is Tested

PSI's Series 204 outline names "Louisiana Valued Policy Law (22:1318)" under P&C Insurance Basics, next to the valued policy concept in the loss valuation topics. Questions usually test the statute's conditions (valuation used for premium, total loss, covered peril) and its exceptions (a different stated loss computation method, blanket policies, criminal fault, insurable interest).

The Statute, Paragraph by Paragraph (R.S. 22:1318)

(A) The rule. Under any fire insurance policy insuring inanimate, immovable property in Louisiana, if the insurer places a valuation on the covered property and uses that valuation to determine the premium, then in a total loss the insurer must compute and pay any covered loss during the policy term at that valuation, without deduction or offset. The exception: if the insurer will use a different method of computing the loss, the policy and any application must state that method in type of equal size. Coverage may be voided for criminal fault of the insured or the insured's assigns.

(B) No contracting around it. Any policy clause contrary to the section is null and void. The insurer may still cancel or reduce coverage, as the law allows, before damage occurs.

(C) Insurable interest cap. In a total or partial loss, the insurer's liability may not exceed the insured's insurable interest in the property unless another law provides otherwise, and the insurer may contest that interest.

(D) Scope. The section applies to policies issued or renewed after January 1, 1992, and does not apply to a loss covered by a blanket-form policy. Acts 2014, No. 91 added a definition: a "fire insurance policy" is any property insurance policy, except a builders risk policy, that covers the peril of fire, whatever other coverage it provides.

The Katrina Cases: Valuation, Not Causation

After Hurricane Katrina, many coastal homes were destroyed by a combination of covered wind and excluded flood or storm surge. Owners argued that because wind caused some damage and the house was a total loss, R.S. 22:1318 (then numbered R.S. 22:695) required the homeowners insurer to pay the full insured value.

• Chauvin v. State Farm Fire & Casualty Co. (5th Cir. 2007). The federal Fifth Circuit held that the Valued Policy Law does not apply to a total loss that was not caused by a covered peril.
• Landry v. Louisiana Citizens Property Insurance Corp. (La. 2008). The Louisiana Supreme Court called the law a valuation statute that does not address causation. Once an insurer validly provides a different method of loss computation, the statute's valuation provisions do not apply, and losses, including total losses, are computed under the policy.

Adjuster takeaways:

1. A total loss does not automatically mean policy limits. First decide what caused the destruction.
2. Covered wind damage is paid under the policy; excluded flood damage is not, even when the structure ends up a total loss.
3. The insurer must prove the exclusion when damage is covered in part (R.S. 22:1893(B)). It may not rely on the floodwater mark alone (R.S. 22:1893(A)).
4. Check whether the policy and application state a loss settlement method in type of equal size. If so, the policy method controls.

Movable Property and Other Valuation Concepts

The statute reaches only inanimate immovable property. Louisiana's Civil Code separates immovables (tracts of land and their component parts, such as buildings) from movables. Contents, business personal property and vehicles are valued under the policy's own terms: actual cash value, replacement cost, agreed value or stated amount.

Salvage and Total Losses

When an insurer pays a total loss, it may take salvage under the policy's terms. A claims adjuster may not acquire any interest in salvage of property subject to the insurer's contract (R.S. 22:1674.1(A)(2)). If the insured keeps salvageable materials, the agreed salvage value is typically reflected in the settlement.