Louisiana Supreme Court Finds Business Interruption Coverage Does Not Apply to Losses Attributable to COVID-19

As a general rule of Louisiana law, a plaintiff cannot recover general damages for mental disturbance or distress unless the defendant’s act also causes physical injury, illness, or some other physical consequence. However, in Spencer v. Valero Refining Meraux, LLC, the Louisiana Supreme Court recently reexamined the circumstances under which a limited exception to this general rule may apply.

The Spencer case involved an explosion and fire that occurred shortly after midnight at the Valero refinery in Meraux, Louisiana. The plaintiffs claimed Valero should be liable for negligent infliction of emotional distress. Specifically, the plaintiffs alleged they heard loud sounds, experienced anxiety, and had difficulty sleeping after the event. None of the plaintiffs received any medical treatment or experienced physical injury/symptoms. The defendant argued that the plaintiffs could not recover damages under these circumstances.

The court held that recovery for negligent infliction of emotional distress is not precluded under Louisiana law. However, the court also cautioned that not every act that causes some harm also yields liability and compensatory damages. It held that Louisiana courts must also consider the goal set forth under Louisiana law to prevent “spurious” or false claims when examining these types of actions.

In review of the plaintiffs’ claims, the court cited Moresi v. State Through Dept. of Wildlife & Fisheries, to show that the plaintiffs were required to establish “the especial likelihood of genuine and serious mental distress, arising from the special circumstances, which serves as a guarantee that the claim is not spurious.” The Spencer court held evidence of generalized fear or evidence of mere inconvenience is not enough to show that a plaintiff’s distress is “serious.” The court added that this rule must be “stringently applied,” because these types of cases, though fact intensive, are inherently speculative in nature.

In review of the facts presented in Spencer, the court found that Valero owed a duty to the plaintiffs and breached the “duty it owed, which was a cause-in-fact of plaintiffs’ generalized fear and anxiety.” However, the plaintiffs failed to produce evidence to show that their complaints, which included anxiety and difficulty sleeping, were sufficiently “serious” to support an award for negligent infliction of emotional distress, and their claims were dismissed. Although the result in Spencer may be limited to its facts, the Court’s decision appears to align with the general rule that a plaintiff usually cannot recover general damages for emotional distress in Louisiana absent an accompanying injury.

References:

Spencer v. Valero Refining Meraux, LLC, 2022-00469 (La. 1/27/23), 356 So. 3d 936.

Moresi v. State Through Dept. of Wildlife & Fisheries, 567 So.2d 1801 (La 1990).

A worker’s benefits may be forfeited if the employee is untruthful on a medical questionnaire (if the misrepresentations directly relate to the alleged injury) or prejudices the employer’s ability to recovery from the “Louisiana Second Injury Fund.” La. R.S. 23:1208.1 Some Louisiana courts have shown reluctance to deny workers’ compensation benefits based on the employee’s alleged failure to truthfully answer a medical history questionnaire. However, the court in Spillman v. Career Adventures, Inc., --- So.3d ---- 2021 (La. App. 2d Cir. 8/11/21), 2021 WL 3523959, held that benefits were forfeited because the claimant provided false responses to several medical history questions and failed to answer a number of specific questions on a post-hire medical history questionnaire provided by his employer.

At trial, it was established that Spillman had pre-incident medical conditions to include: 1) injuries related to a 2007 work-related accident; 2) regional sympathetic dystrophy of the left foot; 3) COPD; 4) chronic pain from a gunshot wound in his left leg; 5) surgery to the AC joint of his right shoulder; 6) injuries from a 2018 motor vehicle accident to the right shoulder and right knee; 7) anxiety; 8) bipolar disorder; and 9) many other ailments.

Like many other employers, Spillman’s employer Career Adventures included with its employment packet a “Office of Workers’ Compensation Second Injury Board Questionnaire.” Spillman failed to truthfully complete this questionnaire and checked “no” to specific questions which asked if he had experienced many of his known conditions such as COPD and bipolar disorder. Although Spillman took the time to respond to numerous “fill in the blank” questions, he purposefully skipped at least 10 inquiries.

Eleven months after hire, Spillman alleged he was injured at work while performing his duties as a welder. At trial, Spillman’s family physician identified a torn tendon in the left elbow as a work-related injury. He further testified that the tendon injury limited his activities and merged with his pre-existing injuries to create a greater total disability. The workers’ compensation judge (“WCJ”) ruled that Spillman violated La. 23:1208.1 by failing to truthfully answer certain questions. The Second Circuit “went further” in affirming the workers’ compensation judge, stating:

“We go further than the WCJ. All information which would have been disclosed had Mr. Spillman truthfully answered each and every question on the preemployment questionnaire must be considered …”

Therefore, the appellate court in Spillman found that both false answers and a failure to answer certain questions can qualify as a willful misrepresentation sufficient to cause a forfeiture of benefits under La. R.S. 23:1208.1 under certain circumstances.

The Louisiana Supreme Court recently held that a claim for defense and indemnity may be asserted before a judicial finding of liability. The Court’s decision overruled prior decisions that held claims for defense and indemnity were premature until it was determined that damages were actually owed and the party claiming indemnity sustained a loss.

In Daniel Bennett v. Demco Energy Services, the plaintiff alleged he was injured when he drove over a downed power line that belonged to Cox Communications. Evidence showed Cox Communications contracted with Cable Man to provide services, maintenance, and repair for its telecommunication companies. The contract covered maintenance and repair of the subject phone line.

The contract included an indemnification provision that required Cable Man to indemnify and defend Cox Communications from any and all claims relating to Cable Man’s work, Pursuant to the contract, Cox Communications sent Cable Man a request to tender defense and indemnification under the contract. Cable Man refused the tender and Cox Communications filed a cross-claim against Cable Man asserting that it was owed defense and indemnification. In response, Cable Man filed an Exception of Prematurity and maintained that the claim for indemnity had not accrued because there had not been a judgment or a finding a Cable Man’s fault or liability.

The Louisiana First Circuit Court of Appeals granted the Exception of Prematurity and stated that “It is well-established that claims for indemnity, as well as claims for defense arising under an indemnity agreement, are premature prior to a determination that damages are actually owed and the indemnitee sustains a loss.” The court reasoned that the lawsuit was still pending against both parties and no liability determination had been made. Therefore, under the “well-established” law, Cable Man owed no obligation to Cox Communications for indemnity and costs at the time Cox asserted its cross-claim.

However, the Louisiana Supreme Court reversed the First Circuit’s decision and Cable Man’s claims of prematurity were denied. Acknowledging such claims for indemnification previously were considered premature, the Court held the law moving forward should allow for a claim for indemnity, whether in a third-party demand or a cross-claim, that is raised during the course of litigation and before a finding of liability. Further, the Court recognized potential inconsistencies with prior judicial determinations and stated, “in light of our ruling today, to the extent any prior jurisprudence can be interpreted otherwise, we now clarify that such a claim for indemnity is not prohibited before a liability adjudication.”

This ruling makes clear that “asserting a claim for indemnity, arising out of the same facts and circumstances, is not premature before a judicial finding of liability.” The right to collect on an indemnity agreement continues to be determined upon a finding of liability or loss, but a claim for indemnity can now be asserted in the same proceeding.

References:

Daniel Bennett v. Demco Energy Services, et al, 2023-CC-01358 (La. 5/10/24); 386 So.3d 270.