Judicial Interest Rate for Louisiana Hits a 17-Year High

The Louisiana Legislature recently enacted Act 3, which reflects an effort to address the handling of insurance claims in Louisiana – particularly for catastrophic losses – and define ambiguities in the law. This blog addresses changes to Louisiana’s “bad faith” statutes. Broadly, Act 3 amends and enacts new sections of La. R.S. 22:1892, repeals La. R.S. 22:1973, and enacts La. R.S. 1892.2 to address situations involving catastrophic losses.

Prior Louisiana Bad Faith Statutes – La. R.S. 22:1892 and La. R.S. 22:1973

Previously, La. R.S. 22:1892(A) stated an insurer must:

• Issue payment to an insured within 30 days of receipt of satisfactory proof of loss;
• Pay the amount of a bona fide third-party’s property damage or reasonable medical expenses within 30 days of a written settlement agreement;
• Initiate loss adjustment within 14 days of notice of a non-catastrophic loss or within 30 days of receipt of notice of a catastrophic loss;
• Make a written offer to settle property damage within 30 days of receipt of satisfactory proof of loss.

If an insurer did not follow the requirements of La. R.S. 22:1892(A), the insurer could be required to pay the insured the amount owed under the policy plus a penalty if the insured established that the insurer’s conduct was “arbitrary, capricious and without probable cause.” Courts defined this standard as “vexatious” and without justification. The penalty is calculated as either 50% of the amount owed under the policy or 50% of the difference between the amount owed and a partial tender made by the insurer, if any. Additionally, if the insured established entitlement to the penalty, the insured could also recover attorneys’ fees and costs from the insurer.

Former La. R.S. 22:1973 codified an insurer’s duty of good faith and fair dealing. It set an affirmative duty to adjust claims fairly and promptly and make reasonable efforts to settle claims with the insured, a claimant or both. This general duty of good faith and fair dealing applies only to insureds.^ The statute also outlined six prohibits acts that, if knowingly performed, constituted a violation of the statute. Five of these six prohibited acts applied to both insureds and third-party claimants.^*

If an insured proved a knowing violation of La. R.S. 22:1973, the insurer could be required to pay the amount owed under the policy, damages caused by the insurer’s violation of the statute and a penalty of up to 200% of the damages that the insured or claimant incurred as a result of the breach. Such damages were separate and distinct from the amounts owed under the policy but could extend to anything for which the insured could establish a causal link.˚̃

Revisions to La. R.S. 22:1892

The new revisions enact several important changes. While the text of the new statute should be considered when evaluating any pending or potential claims, a summary is provided here.

1. Time Delays

Under amended and re-enacted La. R.S. 22:1892(A), insurers must generally adhere to the time delays and conduct outlined under the previous law. Under La. R.S. 22:1892.2, for catastrophic events at residential properties, an insurer’s payment is owed within 60 days of receipt of satisfactory proof of loss. For catastrophic losses at non-residential properties, the statute provides an insurer’s payment is owed within 90 days of receipt of satisfactory proof of loss.

Another exception exists when an insurer initiates loss adjustment before the 14-day or 30-day deadline. If this occurs, the insurer’s obligation to issue a written offer to settle is extended by the number of days the insurer initiates loss adjustment before the deadline.

2. Reciprocal Duty of Good Faith

Under the new law, La. R.S. 22:1973 is repealed and the general duty of “good faith and fair dealing” owed by an insurer to its insured and the prohibited insurer conduct previously outlined in La. R.S. 22:1973 is now encompassed within §1892.

The new statute also provides that the insured, the claimant or the representative of the insured/claimant owes the duty of good faith and fair dealing. If an insured fails to comply with affirmative duties under the policy, misrepresents pertinent facts and coverages, submits an estimate that lacks a basis in the evidence or the policy, then the insured’s conduct may be considered in determining whether the insurer’s conduct warrants an award of penalties.

3. Cure Period

For catastrophic losses, the new law states suits may only be brought if the insured first provides the insurer with “cure period notice.” This notice requires that the insured provide the insurer with written notice of the violation, a written formal demand and notice of the facts and circumstances of the dispute. After this notice, several options exist:

1. The insurer can pay the demand in full (along with the insured’s actual expenses and attorney fees no greater than 20%) within 60 days of the notice and extinguish any further cause of action.

• The insurer can issue partial payment on the claim within 60 days of the notice and reduce the penalty owed, if any, by half.

• The insurer can request additional information, but this does not extend the insurer’s other deadlines.

4. Revised Penalty Provisions

The amendments also modify the recoverable penalty. The statute specifies the calculation of the penalty based on the type of violation, the type of property and the type of loss event. Generally, the insured is no longer entitled to recover all damages sustained by a breach of the statute: now the claimant may only recover “proven economic damages.” Notably, the potential for a penalty of up to 200% of the damages sustained as a result of the breach no longer exists.

5. Timing

The law also formalizes and codifies the prescriptive period for claims brought under La. R.S. 22:1892 or La. R.S. 22:1892.2 to two years.

References:

^Theriot v. Midland Risk Ins. Co., 1995-2895 (La. 5/20/97) 694 So.2d 184.

* Team Contractors, L.L.C. v. Waypoint NOLA, L.L.C., 780 Fed.Appx. 132 (5th Cir. 2019).

˚Durio v. Horace Mann Ins. Co., 2011-0084 (La. 10/24/11) 74 So.3d 1159.

̃ Audubon Orthopedic and Sports Medicine, APMC v. Lafayette Ins. Co., 2009-0007 (La.App. 4 Cir. 4/21/10) 38 So.3d 963.

For decades, Louisiana law provided a claimant or injured person an uncommon opportunity (1) to directly name an insurer in a lawsuit, and (2) to make the jury aware of the presence of insurance. This was known nationally as the “Louisiana Direct Action Statute.” This statute, embodied in LSA—R.S. 22:1269, has long been a topic of debate.

The Louisiana Legislature recently amended the “direct action statute” in Act 275 and declared that the injured person “shall have no right of direct action against the insurer” unless at least one of the exceptions applies: the insured files for bankruptcy, the insured is insolvent, service cannot be made on the insured, a tort cause of action exists against a family member, uninsured motorist claims, the insured is deceased, or when the insurer issues a reservation of rights or coverage denial (but only for the purpose of establishing coverage). The Act further provides that the insurer shall not be included in the caption of the case. And, the existence of insurance is not to be disclosed unless the Louisiana Code of Evidence requires it. This new legislation is effective August 1, 2024.

But, the Act also provides for new provisions that allow for the joinder of an insurer after settlement or in connection with a final judgment. The Act further includes specific provisions enacted to provide notice to an insurer of an action and outlines the procedures and timelines for how insurers assert reservation of rights or a denial of coverage.

The revisions to LSA—R.S. 1269 represent a significant change in how lawsuits involving insurance companies will proceed.

Sometimes, a number of people or parties will file claims, in which each party alleges the same or similar injuries that were caused by the same or similar conduct. In these circumstances, federal and Louisiana law recognize class actions as procedural devices that can be used to aggregate the parties’ claims into a single action.

The purpose and intent of class action procedure is to adjudicate and obtain res judicata effect on all common issues applicable to the representatives who bring the action. However, this res judicata effect also applies to all others who are “similarly situated,” provided they are given adequate notice of the pending class action and do not timely exercise the option to exclude themselves from the class. Class actions are commonly filed in matters that involve common facts and damages such as plant explosions, claims based upon allegedly defective products, or claims involving employment practices or civil rights violations.

Before a court can hold a trial on the merits of a class action, the court must determine whether all of the procedural requirements are met for certification of the class. In making this determination, the court rules on whether the matter may proceed as a class action or whether the named parties must bring individual claims. In Louisiana, the threshold requirements for class certification are found in La. C.C.P. art. 591(A), which provides:

A. One or more members of a class may sue or be sued as representative parties on behalf of all, only if:

(1) The class is so numerous that joinder of all members is impracticable.

(2) There are questions of law or fact common to the class.

(3) The claims or defenses of the representative parties are typical of the claims or defenses of the class.

(4) The representative parties will fairly and adequately protect the interests of the class.

(5) The class is or may be defined objectively in terms of ascertainable criteria, such that the court may determine the constituency of the class for purposes of the conclusiveness of any judgment that may be rendered in the case.

Every one of these requirements must be met for an action to be maintained as a class action. Stated differently, the class cannot be certified if even one of these threshold requirements is not met. A party seeking class certification must also establish one of the additional requirements outlined in La. C.C.P. art. 591(B).

In Doe v. Southern Gyms, LLC, the Louisiana Supreme Court held that a court must conduct a “rigorous analysis” of the class certification requirements, to ensure that every one of them are satisfied before a case is certified as a class action. Moreover, it is the plaintiff’s burden to prove that every requirement of La. C.C.P. art. 591 is satisfied. While only the procedural requirements for class certifications are relevant to determine if a matter should be certified, the “rigorous analysis” required of the court oftentimes requires analysis of the overlapping merits of the plaintiff’s underlying claim. See Wal-Mart Stores, Inc. v. Dukes.

Whether a matter should be certified as a class action is often a contested issue involving high stakes. If it is certified, the matter proceeds as a class action, where the claims are asserted on behalf of the entire class and can result in substantial damage awards. If the matter is not certified, the claim representatives must pursue their claims individually, which leads to significantly less exposure for defendants named in the action.

Case References:

Doe v. Southern Gyms, LLC, 2012-1566 (La. 3/19/13), 112 So.3d 822, 829.
Wal-Mart Stores, Inc. v. Dukes, --- U.S. ---, 131 S.Ct. 2541, 2550, 180 L.Ed.2d 374 (2011).