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.
FIRST PARTY BAD FAITH:
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.
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.
THIRD PARTY BAD FAITH:
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).
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.