Louisiana

UNFAIR CLAIMS SETTLEMENT PRACTICES ACT
LA. REV. STAT. ANN. § 22:1964 (1958/2009).
LA. REV. STAT. ANN. § 22:1973 (2009) (duty of P/C insurers); § 22:1892 (2009).

Louisiana case law explicitly provides that there must be coverage prior to recovery on a bad faith claim. “Breach of contract is a condition precedent to recovery for the breach of the duty of good faith….” Bayle v. Allstate Ins. Co., 615 F.3d 350, 363 (5th Cir. 2010). “In order to recover statutory penalties against an insurer [for bad faith], an insured ‘must first have a valid, underlying, substantive claim upon which insurance coverage is based.’” Matthews v. Allstate Ins. Co., 731 F. Supp. 2d 552, 566 (E.D. La. 2010) (citing Moffett v. Allstate Indem. Co., 2008 WL 5082902, at *4 (E.D.La. Nov. 25, 2008)).

Because Louisiana is a civil law, rather than a common law, jurisdiction, its bad faith law is largely a creature of its civil code and statutes, rather than court decisions. See the Louisiana Insurer Bad Faith Statutes, La. R.S. 22:1892 and 22:1973.

• Can insureds sue for bad faith (i.e., first party bad faith)? Yes.
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• Can third parties sue for bad faith (i.e., third party bad faith)? In limited circumstances.

FIRST PARTY BAD FAITH:

• Are there statutory grounds for the bad faith cause of action? If so, identify the source (i.e., an Unfair Claims Practices Act, or some other consumer protection statute) and its main provisions. Section 1892 provides in relevant part:

A. An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured, the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.

B. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer’s duties imposed in Subsection A:

     (1) Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue;

     (2) Failing to pay a settlement within thirty days after an agreement is reduced to writing;

     (3) Denying coverage or attempting to settle a claim on the basis of an application which the insurer knows was altered without notice to, or knowledge or consent of, the insured;

     (4) Misleading a claimant as to the applicable prescriptive period;

     (5) Failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause.

     (6) Failing to pay claims pursuant to R.S. 22:1893 when such failure is arbitrary, capricious, or without probable cause.

C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.

Section 1973 provides that an insurer shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest.

See Section 1973.A(1). Section 1973.A(2) provides that an insurer shall pay the amount of any third party property damage claim and any reasonable medical expenses claim due any bona fide third party claimant within thirty days after written agreement of settlement of the claim from any third party claimant.

Section 1973.B, which contains the penalty provision, provides: B. (1) Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor or failure to make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4), respectively, or failure to make such payment within thirty days after written agreement or settlement as provided in Paragraph (A)(2), when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a partial payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.

• Is there a common law/judicially created bad faith cause of action (i.e., the implied covenant of good faith)? If so, identify the major case(s) and language of the standards applicable to bad faith cases.  No. Because Louisiana is a civil law, rather than a common law, jurisdiction, its bad faith law is largely a creature of its civil code and statutes, rather than court decisions.
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• What is the applicable statute of limitations?  Undecided. The majority opinion is that a cause of action for bad faith is a tort action subject to Louisiana’s one year statute of limitations.
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• What defenses are available to the bad faith cause of action (e.g.., the "genuine dispute of fact" doctrine; "wrong but reasonable")?  There is Louisiana jurisprudence that, in order to assert a claim against an insurer for penalties and attorneys’ fees, there must be a valid, underlying substantive claim for which insurance coverage exists. Clausen v. Fidelity and Deposit Co. of Maryland, 660 So.2d 83 (La. App. 1 Cir. 1995), rehearing denied, writ denied 666 So.2d 320 (La. 1996). Louisiana courts have also held that a party seeking penalties and attorneys’ fees under Section 658 has the burden of proving that the insurer acted arbitrarily in refusing to pay a claim. Rushing v. Dairyland Ins. Co., 449 So.2d 511 (La. App. 1 Cir.), aff’d. 456 So.2d 599 (La. 1984). Where the insurer has legitimate doubts about coverage for a claim, the insurer has the right to litigate these questionable claims without being subjected to penalties and damages. Darby v. Safeco Ins. Co., 545 So.2d 1022, 1029 (La. 1989).
  
  Penalties and attorneys’ fees are not to be assessed merely because the insurer is ultimately cast in judgment and coverage is found to exist under the policy. See, e.g., Headrick v. Pennsylvania Millers Ins. Assoc., 245 So. 2d 324 (La. 1971).  However, it has also been held that an insurer knowingly takes the risk of misinterpreting its policy provisions (as determined by a court second-guessing the insurer’s actions). If the insurer errs in interpreting its own policy provisions, even when the issues involved are unique, that error may result in the insurer being cast for penalties and attorneys’ fees. See, e.g., Holland v. Golden Rule Indemnity Company, 688 So.2d 1186, 1189-90 (La. App. 3 Cir. 1996); Albert v. Cuna Mutual Ins. Society, 255 So.2d 170 (La. App. 3 Cir. 1971). Likewise, an insurer is not precluded from seeking a judicial determination of its contractual liability (through a separate declaratory judgment action or through motion practice in the main tort action if the insurer is a party), but it still must take the risk of facing penalties and attorneys’ fees if its policy interpretation is found by the court to have been erroneous. Coltar v. Gulf Ins. Co., 318 So.2d 923 (La. App. 4 Cir. 1975); Smith v. Reserve Nat’l Ins. Co., 370 So.2d 186 (La. App. 3 Cir. 1976).
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• What are the recoverable damages for the bad faith cause of action? Section 1973.A provides that an insurer who breaches the duty of good faith and fair dealing “shall be liable for any damages sustained as a result of the breach”. Although the statute as written provides that an award of damages is mandatory, the insured or claimant is still required to prove that he or she sustained damages resulting from the breach. Massachusetts Indemnity and Life Insurance Company v. Humphreys, 644 So.2d 818 (La. App. 1 Cir. 1994).
  
  The damages, if proven, are not the tort or contractual damages claimed or awarded, but are the damages, foreseeable or not, that are a direct consequence of the insurer’s breach. Hall v. State Farm Mut. Auto Ins. Co., 658 So.2d 204 (La. App. 3 Cir. 1995); Williams v. Louisiana Indem. Co., 658 So.2d 739 (La. App. 2 Cir. 1995).  Courts have allowed insureds or claimants to recover damages resulting from bad faith such as mental anguish, emotional distress, humiliation, aggravation, inconvenience, loss of property, loss of use, and defense costs incurred in underlying actions resulting from an insurer’s breach. See, e.g., Real Asset Management, Inc. v. Lloyd’s of London, 61 F.3d 1223 (5th Cir. (La.) 1995); Credeur v. McCullough, 702 So.2d 985 (La. App. 3 Cir. 1997); Holt v. Aetna Casualty & Surety Co., 680 So.2d 117 (La. App. 2 Cir. 1996); Williams, supra.

Under Louisiana law, attorney fees are not awarded unless expressly provided by statute. Section 1973 does not specifically provide for recovery of attorney fees for prosecution of a section 1973 action. Hence, attorney fees are not recoverable under a Section 1973 cause of action. However, Section 1892 expressly provides a claim for attorney fees.

Are punitive damages recoverable? No. Under Louisiana law, punitive damages may only be awarded if provided by statute. The Louisiana bad faith statutes provide that a claimant may be entitled to general damages, penalties, and attorney fees, but do not provide for punitive damages.

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THIRD PARTY BAD FAITH:

• Are there statutory grounds for the bad faith cause of action? If so, identify the source (i.e., an Unfair Claims Practices Act, or some other consumer protection statute) and its main provisions. In limited circumstances as set forth in La. R.S. 22:1892 and 22:1973.  One major difference between the common law duty of good faith and fair dealing and the Louisiana statutory scheme is found in the second sentence of Section 1973.A: “The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both.”

By imposing an affirmative duty on insurers to make reasonable efforts to resolve claims, not only with the insured, but also with the third party claimant, the Legislature has extended the duty of good faith and fair dealing beyond the parties to the insurance contract. The scope of third party actions under La. R.S. 22:1973 (formerly 22:1220) was addressed definitively in Theriot v. Midland Risk Insurance Company, 694 So.2d 184, 192 at n. 15 (La. 1997).

A plaintiff can assert a La. R.S. 22:1973 bad faith penalty claim against a tortfeasor’s insurer, but only where the plaintiff can prove that the insurer committed one of the bad faith acts specifically set forth in subsection B, supra.  Following Theriot, subsequent courts have held that a third party claimant does not have an action against an insurer under Section 1973.B(5) for failing to pay the amount of any claim “due to any person insured by the contract,” within 60 days of receipt of satisfactory proof of loss, because the term “due to any person insured by the contract” is strictly construed to mean that only an “insured” can have a Section 1973.B(5) cause of action. See Woodruff v. State Farm Ins. Co., 767 So.2d 785 (La. App. 4 Cir. 2000).

• Is there a common law/judicially created bad faith cause of action (i.e., the implied covenant of good faith)? If so, identify the major case(s) and language of the standards applicable to bad faith cases.  No. Because Louisiana is a civil law, rather than a common law, jurisdiction, its bad faith law is largely a creature of its civil code and statutes, rather than court decisions.
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• What is the applicable statute of limitations?  Undecided. The majority opinion is that a cause of action for bad faith is a tort action subject to Louisiana’s one year statute of limitations.

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