Judge rules temporary living costs covered only if home badly damaged

09:35 AM CST on Thursday, January 26, 2006

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Allstate Insurance will not have to pay temporary living expenses for Texas policyholders who could not return to their homes after Hurricane Rita because of power outages, impassable roads and other conditions, a judge ruled Wednesday.

State District Judge Lora Livingston of Austin rejected a request by the Texas Department of Insurance for a court order that would have compelled Allstate to pay for temporary housing and other expenses of policyholders affected by the hurricane. Allstate paid expenses for those whose homes were seriously damaged.

The judge said homeowner policies sold by the state's second-largest insurer stated that the company was not responsible for expenses stemming from loss of use of a home unless the structure was damaged.

"The mere existence of a hurricane which tangentially causes policyholders to be either without power or access to their home is not a peril insured against," Judge Livingston wrote in the ruling.

Insurance Department officials said Wednesday that they were considering their options, including an appeal to a higher court. The agency is represented in the case by the attorney general's office.

"We are disappointed in the ruling," said Jim Hurley, a department spokesman. "We will continue to fight for Texas homeowners."

Mr. Hurley said other major insurers, who use policy forms similar to Allstate's, paid the temporary expenses of policyholders that Allstate refused to pay.

"Far and away, the great majority of our complaints after Hurricane Rita were against Allstate," he said.

Allstate officials say the total number of complaints against the company is "small" relative to the "vast" scope of the hurricane.

"Allstate has 25,000 claims from Hurricane Rita," said Joe McCormick, a spokesman for the insurer. "This case brought by the state was about a very narrow segment of claims where there was no physical damage to the homes. ... The decision is important to Texas policyholders because both parties in a contract must have confidence in the terms." Allstate paid thousands of claims for additional living expenses for policyholders in Southeast Texas who were unable to return to their homes because they were damaged.

The state obtained a temporary court order against Allstate in October to compel the company to pay temporary living costs of those displaced by the hurricane. But the order was put on hold less than a week later when Allstate appealed.

The Insurance Department also is battling with Allstate over its "excessive" homeowner rates in a case before an administrative law judge. After the state rejected Allstate's proposed rates last fall, the company appealed the decision to the state Office of Administrative Hearings.

State regulators say the rates are too high, while the company maintains they are fair.

E-mail tstutz@dallasnews.com