Res Judicata Bars Insured from Challenging Insurer’s Use of Schedule to Deduct Depreciation from the Loss

    The insured was barred by res judicata from filing a second lawsuit challenging the insurer's method of establishing the amount of the loss. Burke v. GeoVera Spec. Ins. Co., 2024 U.S. App. LEXIS 9186 (5th Cir, April 16, 2024).

    On August 29, 2021, Hurricane Ida caused wind damage to the Burkes' home. They filed a claim with their insurer, GeoVera Specialty, and received payment. In calculating the payment, GeoVera Specialty adjusted the damage claim pursuant to its Roof System Payment Schedule, which lists the criteria used in reducing roof damage claims based on depreciation. Based on that schedule, GeoVera Specialty reduced the roof damage component of the Burkes' claim by forty-eight percent.

    In March 2022, the Burkes filed suit alleging that GeoVera Specialty undervalued their claim. On September 8, 2022, the parties filed a joint motion to dismiss the lawsuit after reaching a settlement, which the district court granted.

    Over a year later, in July 2023, the Burkes filed this suit against GeoVera Specialty, again attacking the payment of their Hurricane Ida claim, but on the grounds that use of the Roof System Payment Schedule violated a Louisiana statute. The Burkes alleged that the Roof System Payment Schedule was a "predetermined rate of depreciation to be applied to every roof based exclusively on its objective age and roofing materials without regard for its actual condition prior to the covered wind damage." They further alleged that this ran counter to the statute's requirement that "depreciation shall be reasonable and based on a combination of objective criteria and subjective assessment, including the actual condition of the property prior to loss." (Depreciation Statute).

    GeoVera Specialty moved to dismiss. The district court granted the motion and dismissed the compliant with prejudice. The court concluded that the claims were barred by res judicata based on the dismissal of the Burkes' earlier suit for the same property damage. The Burkes appealed.

    The Fifth Circuit considered the elements of claim preclusion, or res judicata. The only issue was whether there was a valid judgment in the Burkes' prior lawsuit. The Burkes argued it was not a valid judgment because it resulted from the parties' settlement agreement, which in turn was based on a depreciation calculation that violated the Depreciation Statute. Therefore, the settlement was void under another Louisiana statute providing that "a contract is absolutely null when it violates a rule of public order, as when the object of a contract is illicit or immoral." (Public Order Statute). The district court rejected the argument and concluded that the Depreciation Statute was not a rule of public order, and therefore its prior judgment of dismissal barred this action under the doctrine of res judicata. 

    The Fifth Circuit affirmed. The success of the Burkes' argument depended on accepting that the Depreciation Statute was a rule of public order within the meaning of Public Order Statute. The district court correctly held that the Depreciation Statute was not a rule of public order and instead was a rule intended for the protection of private parties.