The Supreme Court ruling in Couvillion Group, LLC v. Plaquemines Parish Government, 2020 -00074 (La. 4/27/20) is a reminder that an indemnity claim must be sufficiently related to the principal demand and that contract indemnity provisions are to be strictly construed.
In Couvillion, the general contractor sued the owner of a public works port project for contract delay damages resulting from a cease work order issued to allow redesign of a fuel tank platform. When the contractor submitted its delay claim, the owner requested that its project engineer review it and make recommendations. The engineer recommended payment of a little over $1 million dollars. When the owner refused to pay, the contractor sued. In response, the owner filed a third-party demand against the engineer alleging that its recommendation was erroneous and excessive and that, if it was bound by the engineer’s recommendation, then the engineer must indemnify the owner.
On behalf of the engineer, Keogh Cox attorneys argued that the engineer should not be required to reimburse the owner for any delay costs and asked for dismissal through an exception of no cause of action. Code of Procedure Article 1111 provides that a defendant in a principal action may bring in any person who may be liable to him for all or part of the principal demand. Here, that was not the situation. The engineer was not liable to the owner for any part of the contractor’s delay claim because the engineer did not cause the delay. The delay damages were incurred before the engineer made a recommendation for payment. The events giving rise to the two claims were separate and distinct: the main demand arose from the project delay and the third- party demand arose from the engineer’s recommendation of the claim amount. The Court commented that the principal claim against the owner for delay damages was too attenuated from the owner’s claim against the engineer, thus the third-party demand was improper.
The owner also relied on the indemnity provision in the engineer’s contract that required the engineer to indemnify the owner against any and all claims for personal injury or “damages to property” that may arise from its services. The Court held that the plain meaning of the term did not include the economic-only losses related to the subject delay claim. The Court further reasoned that indemnity agreements are to be strictly construed, rejecting the owner’s broader interpretation.
In a first-party action obtained by assignment for excess liability against an insurer, the Louisiana Supreme Court in Smith v. Citadel Insurance,19-00052 (La. 10/22/19) ruled that the claim against the carrier is subject to the 10-year contract prescription period under La. law, stating:
“For the above reasons, we hold an insurer’s duty of good faith owed to its insured under La. R.S. 22:1973 does not exist separate and apart from an insurer’s contractual obligations. The duty of good faith is codified in La. R.S. 22:1973, but this duty is an outgrowth of the contractual and fiduciary relationship between the insured and the insurer, and the duty of good faith and fair dealing emanates from the contract between the parties. Thus, first-party bad faith claims against an insurer are governed by the ten-year prescriptive period set forth in La. C.C. art. 3499. Consequently, Ms. Smith’s first-party bad faith claim against GoAuto, brought pursuant to an assignment of rights from the insured, was subject to a 10-year prescriptive period and is not prescribed.”
The concurring justice noted that it was not necessary to engage in the protracted discussion concerning the duties of insurers relative to first-party claims. Nevertheless, the court offered an in-depth discussion of these duties.
“Prescription” is the time
period in which a litigant must file suit, or the action is barred. One
of the first lessons a Louisiana law student learns is the importance of
determining the prescriptive period of a cause of action. Filing a cause
of action too late is fatal. A recent decision from the Louisiana Fifth
Circuit Court of Appeal reads like a law school exam and illustrates that
determining which prescriptive period applies is sometimes the key to the case.
In DeFelice v. Federated
Nat’l Ins. Co., 18-374 (La. App. 5 Cir. 7/9/19), mold was discovered in
plaintiff’s home on June 10, 2016. Plaintiffs notified their insurance
company, who hired a mold remediation company to inspect the home. When
the home was inspected on June 22, 2016, the inspector verbally informed
plaintiffs that the home was safe. On the same day, a separate mold
inspector collected samples. The second mold inspector issued a report on June
23, 2016 advising that mold remediation may be necessary. This report
specifically stated that “certain mold and mold spores in buildings and housing
can result in mild to severe health effects in humans and can deteriorate the
structure of the dwelling resulting in content or structure damage.” The
second report was provided to the plaintiffs.
Plaintiffs continued to live in
the home. In August of 2016, plaintiffs’ infant son was born.
Shortly thereafter, the infant began to experience breathing issues and was
diagnosed with a lung condition by December of 2016. Plaintiffs vacated
the premises in January of 2017.
More than one year after receipt
of the second mold report, plaintiffs filed suit on July 24, 2017 against their
insurer and the inspector who advised that the home had no mold problems.
Plaintiffs raised claims for property damage, damage to the health of the
parents, damage to the health of the minor child, and consortium claims on
behalf of the parents for the damage to the minor child.
The DeFelice court found
that prescription began to run on June 23, 2016 with regard to the parents’
individual and property damage claims. Because suit was not filed within
a year of the second mold report advising of possible health and property
damages, the parents’ individual health claims and the claims for property
damage were prescribed under the one-year period set by Civil Code article
The minor child was not born
when the report was issued on June 23, 2016. Plaintiffs argued that those
claims were brought within a year of the child’s birth, and were therefore
timely. The DeFelice court agreed and held that prescription could not
began to run until the child was born. While Louisiana law provides that a child
is a “person” upon conception, this “legal fiction” applies only to protect the
interests of the child. The court reasoned that a finding that prescription
commenced prior to birth would not “protect the interests” of the child.
While the parent’s claims were prescribed, the claim filed on behalf of the
infant, and any claims that the parents had related to their infant’s health
condition, were timely.
The court’s analysis in
DeFelice reminds that determining which prescriptive period applies to which
claim is often the most important issue.