PENALTIES: RECENT DEVELOPMENTS David Strauss King & Jurgens - - PowerPoint PPT Presentation

LOUISIANA INSURANCE PENALTIES: RECENT DEVELOPMENTS

David Strauss King & Jurgens (504) 582-3816 dstrauss@kingjurgens.com

NEW ORLEANS BAR ASSOCIATION PROCRASTINATOR’S PROGRAM

OVERVIEW OF BAD FAITH

Elements of the Bad Faith Claim

Insurer’s Duties – First Party

Pay Claim due within 30 Days after Receipt of Satisfactory Proofs of Loss Initiate Loss Adjustment within 14 days (not a catastrophic loss) or 30 days (catastrophic loss) after Notification

Make Written Offer to Settle Property Damage Claims within 30 Days of Receipt of Satisfactory Proofs of Loss Fail to Pay Settlement within 30 Days after Written Agreement Fail to Pay Amount Due within 60 Days of Satisfactory Proof of Loss Violate La. R.S. 22:658.2 (Immovable Property Claims) Deny Coverage or Fail to Settle Based on Altered Application and No Notice Misrepresent Coverages Mislead Re: Applicable Rx Period

• La. R.S. 22:1892

Insurer’s Duties – Third Party

• La. R.S. 22:1973

Offer to Settle Property Damage Claims within 30 Days of Satisfactory Proof of Loss Pay within 30 Days

• f Settlement

Misleads Re: Prescription Period Fails to Pay within 30 Days of Written Agreement Misrepresent Coverage

What Damages Are Available?

In addition to general

• r special damages,

penalties not to exceed 2x damages or $5,000, whichever is greater In addition to amount

• f loss, penalty of 50%
• f damages or $1,000,

whichever is greater; Plus reasonable attorney fees and costs

Other Damages Under R.S. 22:1892

Penalty not to exceed 10% of reasonable expenses, or $1000, whichever is greater, plus atty fees and costs Penalty not to exceed 15% of check, or $200, whichever is greater Failure to reimburse for alternative transportation Delay in processing check or draft Requiring particular repair place Penalty not to exceed $500 for each offense

TRENDS

Trends: Third Party Excess Exposure

• PL obtains judgment beyond policy limits
• Tortfeasor assigns his bad faith rights

against his insurer to PL

• PL sues liability insurer: asserts tortfeasor’s

bad faith failure to settle within limit claim

Trends: Third Party Excess Exposure

Kelly v. State Farm = robust interest

• 1. Affirmative duty to settle within limits
• 2. Poor communication with insured = bad

faith

• 3. Misrepresentation of facts = bad faith

Trends: Third Party Excess Exposure

Trends: Third Party Excess Exposure

Set ups A strict application of the statute does not contemplate gamesmanship, such as having “unrealistic offers ... presented through ‘carefully ambiguous demands coupled with sudden-death timetables' ” in

• rder to “set up” the insurer for an excess

liability judgment.

Kelly v. State Farm - Lessons

• Clear, complete and timely communications with the

insured during the claims process, particularly where the damages may exceed the limits

• Communications

must contain all “pertinent information” (coverage information, facts developed, liability analysis, exposure analysis, settlement efforts, insured’s right to retain his own counsel etc.) in a way that demonstrates consideration of the risk from the insured’s perspective.

Trends: Auto Property Damage

THIRD PARTY

• Failed to settle – but no such duty
• Failed to pay enough – but no such duty
• Diminunition in value

BODY SHOP CHAOS

Body Shop Anti-Steering Bad Faith

Do body shops have right of action against insurers for bad faith under anti-steering provision 22:1892(D)(1)?

. . . No insurer shall require . . . repairs be made to a motor vehicle, including window glass repairs or replacement, in a particular place or shop or by a particular entity. Any insurer violating the provisions of this Subsection shall be fined not more than five hundred dollars for each offense. NO: Medine’s Body Shop v. Progressive (La. 1st Cir. 2016)

BAD FAITH PRESCRIPTIVE PERIODS IN LOUISIANA

Prescriptive Period for Bad Faith: First Party

State Court = 1 year, so far

• Fils v. Starr Indem. & Liab. Co., 2018 WL 2123564 (La.
• App. 3 Cir. 5/9/18)
• Labarre v. Texas Brine Co., 2016-265 (La. App. 1 Cir.

12/2/16), 2016 WL 7031633

Prescriptive Period for Bad Faith: First Party

Federal Court = 1 year in Eastern District

Naz, L.L.C. v. United Nat. Ins. Co., 2018 WL 3997299 (E.D.La. 2018); Ross v. Hanover Ins. Co., 2009 WL 2762713 (E.D.La. 2009); Brown v. Protective Life Ins. Co., 353 F. Supp. 2d 739 (E.D.La. 2004); Rodriguez v. Travelers Ins. Co., 2002 WL 31409452 (E.D.La. 2002).

Federal Court = 10 years in Western/Middle Districts

• Aspen Specialty Ins. Co. v. Technical Indus., Inc., 2015

WL 339598 (W.D.La. 2015)

• Brooks v. Safeco Ins. Co., 2017 WL 8944056 (M.D.La.

2017).

Prescriptive Period for Bad Faith: Third Party

Third Party = 1 year

• Zidan v. USAA Property and Casualty Ins. Co., 622 So.2d

265 (La. App. 1 Cir. 5/28/93), writ denied, 629 So.2d 1138 (La. 1993)

• Brown v. Protective Life Ins. Co., 353 F.Supp.2d 739, 743

(E.D. La. 2004) PRESCRIPTION ON BAD FAITH ASSIGNMENT BEGIN TO RUN WHEN INSURED MUST PAY JUDGMENT ?

Belanger v. Geico = YES

R.O.R. LETTER AS BAD FAITH Century Sur. Co. v. Blevins

799 F.3d 366, 368 (5th Cir. 2015)

• One of claims asserted by insured was that its

insurer had committed a “bad faith refusal to provide coverage”

• The insured had alleged that its insurer violated

its obligation of good faith and fair leading by sending “a reservation of rights letter which was ‘unclear and unintelligible’ and failed to state any ‘legitimate reason in the Policy’ for denial of coverage.”

Century Sur. Co. v. Blevins

• The insurer alleged these claims could be

brought only pursuant to 22:1892 or 22:1973

• The district court agreed and held that Louisiana

does not recognize a separate and distinct

• bligation of good faith
• The

district court dismissed the insured’s counterclaim for bad faith because it failed to state a claim under 22:1973

• The Court of Appeals reversed and remanded

Century Sur. Co. v. Blevins

• Fifth Circuit = the district court’s decision at odds

with Kelly v. State Farm

• Under Kelly, a first party insured’s right to bring a

cause of action for breach of the duty of good faith and fair dealing preceded 1973 and therefore is not constrained by 1973. The Court explained:

Century Sur. Co. v. Blevins

In Kelly the Louisiana Supreme Court extended the logic of Theriot and held that “an insured's cause of action for a breach of the implied covenant of good faith and fair dealing is not limited to the prohibited acts listed in La. R.S. 22:[1973](B).” The difference between the third parties in Theriot and the insureds in Kelly is that the third parties' right to bring causes of action against insurers was created by § 1973, whereas insureds' right to bring a cause of action for breach of the duty of good faith and fair dealing preceded 1973

Inter-Company Bad Faith

Does the primary carrier owe a duty of good faith to the excess insurer? YES: Great Southwest Fire Insurance Ins. v. CNA Ins., 557 So.2d 966 (La. 1990) Can an excess judgment give rise to bad faith cause of action by excess carrier? YES: Great Southwest Is an excess judgment necessary for excess carrier to have bad faith claim? NO: If an excess carrier steps in and pays to facilitate a settlement

• ver the primary’s limits does excess have a cause of action?

RSUI Indemnity v. American States Ins., 768 F.3d 374 (5th Cir. 2014)

Inter-Company Bad Faith

IN CLAIM BASED ON THEORY OF FORCED SETTLEMENT EVIDENTIARY BURDEN IS HIGH: RSUI TRIAL VERDICT AFTER REMAND (1) The insureds had no claim against the underlying insurer in light of the settlement agreement and release the underlying insurer obtained from the plaintiff for the benefit

• f the insureds (the settlement agreement included a

“Gasquet” release) And thus insureds had no claim against underlying insurer to which the excess insurer could be subrogated

Inter-Company Bad Faith

(2) Even if there was a viable claim against the underlying insurer, excess insurer failed to establish that underlying insurer’s breach of its duties to the insureds caused the excess insurer to pay a particular amount more than it

• therwise would have paid

This is troublesome for the excess insurers because the Court placed a lot of weight on the Plaintiff’s attorney’s testimony about how he valued his case and how the underlying insurer’s failure to aggressively defend had no impact on settlement value. The excess insurer had many complaints about the underlying insurer’s lack of defense. Nevertheless, the Court found that the excess didn’t prove that it had paid more than it otherwise would have.

STRICT LIABILITY FOR FAILURE TO TIMELY INITIATE ADJUSTMENT:

Oubre v. Louisiana Citizens Fair Plan

Oubre: LA Supreme Court

• Narrow 4-3 opinion
• Imposes Strict Liability:
• La. R.S. 22:658 requires only proof of notice + inaction

for over 30 days. “It is the insurer’s inaction alone that triggers the penalty; no justification or lack thereof on the part of the insurer need be shown

• $5,000 is ceiling when damages not proven
• Nevertheless, “no error” with the trial court’s decision to

impose max $5,000/claimant

• Oubre v. Louisiana Citizens, 79 So.3d 987 (La. 2011)

Oubre: Lessons Learned

Bright Line Rules:

• Initiate loss adjustment = make an appointment to inspect
• r inspect if no appointment, within requisite time,
• Issuing advance payments does not constitute initiation of

loss adjustment- Failure to timely initiate adjustment = per se liability; no need to prove bad faith

• Even if the insured cannot prove any damages,

based on the majority’s ruling, the penalty to be imposed for failure to comply will necessarily result in a fine of $5,000

Insurer Penalties for Misinterpreting Its Policy

• The Louisiana Supreme Court leaves little room for error:

Louisiana Bag Co. v. Audubon Ins. Co., 999 So.2d 1104 (La. 2008)

• The U.S. Fifth Circuit’s Limits to Louisiana Bag: No

penalties for good faith policy misinterpretations

• Seacor Holdings, Inc. v. Commonwealth Ins. Co., 635

F.3d 675 (5th Cir. 2011)

• Berk-Cohen Associates, L.L.C. v. Landmark American

Insurance Company, 433 Fed. Appx. 268 (5th Cir. 2011)

Louisiana Bag v. Audubon Indem. Co.

• 4/20/03 – Plaintiff’s manufacturing plant & warehouse

destroyed in fire

• Plaintiff immediately reported claim to Audubon
• 4/22/03 – Defendant’s adjuster inspected property:
• Determined loss exceeded policy limits for all

coverages

• Identified potential coverage issues, including

whether policy provided for stock coverage on blanket or per location basis

• Audubon was unable to ascertain stock coverage

because it could not obtain a copy of the subject policy (issued by Defendant itself)

Louisiana Bag v. Audubon Indem. Co.

• Even with potential coverage issues, investigation

indicated amount due

• Stock coverage issue resolved in July 2003
• Adjuster issued five reports between 4/25/03 and

8/21/03, each of which recommended that Defendant pay policy limits

• Defendant hired numerous experts – all indicated

total loss > policy limits

Louisiana Bag: LA Supreme Court’s Holding

Defendant’s conduct = bad faith

• Defendant had knowledge of undisputed portions

yet still did not tender and thus was arbitrary, capricious and without probably cause

• There can be no good

reason—or no probably cause—for withholding an undisputed amount

Louisiana Bag: LA Supreme Court’s Holding

Stock coverage: regardless of blanket or per location, Defendant should have paid undisputed portion – the $750,000 per location limit – within 30 days

• Even after coverage opinion, Defendant still failed

to timely pay in full

• Even without benefit of opinion, Defendant’s

potential error interpreting policy is not reasonable ground for refusing to timely pay

U.S. 5th Circuit Limits to Louisiana Bag: Seacor Holdings v. Commonwealth

• Plaintiff made a claim under all-risk policy for

Hurricanes Katrina and Rita

• Defendant paid Plaintiff over $4 million in

undisputed claims, but parties disagreed about deductible and applicable liability provisions

• Plaintiff filed suit seeking interpretation of subject

provisions and additional payments under the

• contract. Plaintiff, relying on LA Bag, later added

bad faith claims for Defendant’s failure to timely pay because it misinterpreted its own policy

U.S. 5th Circuit Limits to Louisiana Bag: Seacor Holdings v. Commonwealth

U.S. Fifth Circuit held Defendant owed additional policy limits but was not in bad faith for failure to timely pay:

• Not a “coverage question” – only which deductible and

liability limits applied

• No stare decisis in Louisiana so LA Bag not authoritative

source of law

• LA Supreme Court’s guidance “less than uniform”
• Not apparent from bad faith statutes that Louisiana

legislature intended insurers to pay penalties whenever they err in their interpretation of coverage.

U.S. 5th Circuit Limits to Louisiana Bag: Berk-Cohen v. Landmark

• Plaintiff’s apartment complex suffered damages from

various things, including Hurricane Katrina

• Landmark paid over $20 million but didn’t pay additional

lost income from increased rents after Katrina, alleging increase was due to flooding, which was excluded

• Plaintiff sued for additional lost income and bad faith
• Fifth Circuit held policy covered additional lost income but

refused to assess penalties – insurer made good faith error in interpreting policy. “The penalty does not apply when there is a reasonable and legitimate question as to the extend and causation of the claim”

U.S. 5th Circuit Limits to Louisiana Bag: Berk-Cohen v. Landmark

Court distinguished LA Bag:

• Policy provision susceptible to two different

interpretations so Defendant’s refusal not arbitrary or capricious

• Unlike Defendant in LA Bag, Defendant here paid

undisputed portions

Lessons Learned

• Bad facts make bad law
• Always pay undisputed portion

Calculating Penalty Under La. R.S. 22:1892 – “Amount Found to be Due”

If insurer fails to pay undisputed amount within 30 days, penalty assessed on everything it owes, even amounts disputed in good faith. LA Supreme Court: Sher v. Lafayette, 988 So.2d 186 (La. 2008)

• Defendant withheld payment of personal property claim since Plaintiff

didn’t have personal property coverage

• Defendant argued it disputed personal property claim in good faith

and thus shouldn’t be subject to penalties on this amount

• Court held it was irrelevant—Defendant failed to pay undisputed loss
• f rents and property damage claims within 30 days and was

therefore liable for penalties on entire amount due

Calculating Penalty Under La. R.S. 22:1892 – “Amount Found to be Due”

U.S. 5th Circuit: French v. Allstate, 637 F.3d 571 (5th Cir. 2011)

• Defendant’s adjuster recommended payment in

excess of $80,000

• Defendant timely paid $10,000 but was six days

late in paying the remainder

• Court found Defendant owed policy limits and

assessed 25% penalty on policy limits

• 5th Circuit held court must subtract $10,000 timely

paid before assessing 25% penalty

Calculating Penalty Under La. R.S. 22:1892 – “Amount Found to be Due”

U.S. 5th Circuit: LA Bag v. Audubon

• Defendant made one timely payment but failed to

timely pay total undisputed portion

• Defendant liable for penalties on total, less timely

payment

Penalties Under La. R.S. 22:1973

• If insurer breaches duty of good faith, insured

may be entitled to penalties for damages sustained by breach (in addition to any contractual damages)

• LA courts had typically calculated the penalties by

doubling consequential damages insured proved were caused breach, or by awarding $5,000 if no consequential damages proven

• LA 4th and 3rd Circuits issued several opinions

miscalculating these penalties

LA Supreme Court Reinstates Proper Calculation: Durio v. Horace Mann

• Penalties = doubling damages attributable to

breach – contract damages are not to be considered in calculation

• “Damages sustained” of section (C) = “damages

sustained as result of breach” of section (A):

• 22:1220 (A) – “damages sustained as a result of

the breach” of duty imposed

• 22:1220

(C) – “in addition to damages, discretionary penalties can be awarded, limited to 2x “damages sustained” or $5K, whichever is greater

Lessons Learned

• Courts more willing to impose penalties on

insurance companies

• Cannot recover under both bad faith

statutes so policyholder should carefully consider if can prove consequential damages from the breach

• f the duty under 22:1973
• r seek 50% under 22:1892

Mental Anguish: LA Supreme Court

Available Under 22:1973? Yes: Wegener v. Lafayette Standard of Proof? INTENT: Plaintiff need NOT prove intent to aggrieve: Wegner

Mental Anguish

Require Medical Testimony/Records? NO: Dickerson v. Lexington, 556 F.3d 290 (5th Cir. 2009) Burke v. Lafayette, 90 So.3d 562 (4th Cir. 2012) YES: French v. Allstate, 637 F.3d 571 (5th Cir. 2011)

Lessons Learned

• Mental anguish damages are clearly recoverable under
• La. R.S. 22:1220
• La. C.C. Art. 1998 not applicable (Plaintiff need not prove

intent to aggrieve)

• Plaintiff need not offer much to support claim
• Red face + aggravation + inconvenience = $200K

(supported by own daughter’s testimony): Burke

• Durio – at least some medical evidence

and more reasonable award

No Bad Faith Where Reasonable Basis to Investigate Car Theft Claims

Derrick Johnson v. State Farm, 2012 U.S. Dist. LEXIS 68487 (E.D. La. 2012)

• BMW was discovered burned in a rural area shortly after it

was reported stolen; not stripped of any major component parts other than the wheels

• Plaintiffs provided inconsistent statements with respect to

the facts and circumstances before and after the alleged theft

• Expert examination of the vehicle = vehicle could only

move under its own power with a properly programmed key and Plaintiffs confirmed that they had the only two properly programmed keys for the vehicle

No Bad Faith Where Reasonable Basis to Investigate Car Theft Claims

Johnson v. State Farm (E.D. La 2012)

• No evidence of forced entry and Plaintiffs denied hearing

any car alarms, breaking glass, squealing tires, or tow trucks despite vehicle was stolen from just outside of their bedroom window

• Plaintiffs’ financial condition = motive for fabricating a theft
• Plaintiffs have come forward with no facts showing that

State Farm lacked a reasonable basis to investigate and defend against the claim rather than to “simply pay the claim without question”

51

Conclusion