Amendments to Louisiana’s Bad Faith Statutes

The amendments become effective on July 1, 2024

It is unclear whether the amendments could potentially affect existing hurricane claims after the effective date. In Louisiana, substantive laws apply prospectively only in the absence of contrary legislative expression. Procedural and interpretative laws apply prospectively and retroactively unless there is a legislative expression to the contrary. Louisiana Civil Code article 6. Substantive laws establish new rules, rights, and duties or change existing ones. St. Paul Fire & Marine Ins. Co. v. Smith, 609 So.2d 809, 817 (La.1992); Ardoin v. Hartford Acc. & Indem. Co., 360 So.2d 1331, 1339 (La.1978). Procedural laws prescribe a method for enforcing a substantive right and relate to the form of the proceeding or the operation of the laws. Graham v. Sequoya Corp., 478 So.2d 1223, 1226 (La.1985); Terrebonne v. South Lafourche Tidal Control Levee Dist., 445 So.2d 1221, 1224 (La.1984). Interpretive laws merely establish the meaning the interpreted statute had from the time of its enactment. St. Paul Fire & Marine, 609 So.2d at 817; Ardoin, 360 So.2d at 1339. The Amendments do not expressly state whether they are retroactive.

The Amendments repeal La. R.S. 22:1973

22:1973 previously imposed a duty to pay claims promptly within sixty days after receipt of satisfactory proof of loss. § 22:1973 B.(5). Breach of this duty allows recovery of consequential damages resulting from this breach, plus penalties “not to exceed two times the [consequential] damages sustained or five thousand dollars, whichever is greater.” § 22.1973 C. The Amendments to the Senate Bill 323 remove this potential penalty of double the consequential damages, but other than the penalty, the substantive language of former 22:1973 is incorporated into 22:1892(I). 22:1973 previously provided:

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 or 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 of this Section:

1. 1. 1. 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 against the insurer in an amount not exceeding two times the damages sustained or five thousand dollars, whichever is greater. 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.

22:1892(I) now states (the language in bold was in 1973):

(1)(a) An insurer, including but not limited to a foreign line or surplus line insurer, owes to its 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 or the claimant, or both. Any insurer that breaches the duties of this Subsection shall be liable for any proven economic damages sustained as a result of the breach. For claims not involving loss to an insured’s immovable property, the insured may be awarded penalties in an amount not to exceed fifty percent of the damages sustained or five thousand dollars, whichever is greater, together with attorney fees and costs actually incurred due to the breach. Any penalty for breach of a duty imposed by this Subsection based solely upon a failure to pay the amount of any claim due to any person insured by the contract within the period provided by law following receipt of satisfactory proof of loss shall be awarded only if the breach is found to be arbitrary, capricious, or without probable cause.

(b) For claims arising under an insurance policy covering loss to immovable property, the insurer shall instead be subject to the provisions of Subsection B of this Section or R.S. 22:1892.2, as appropriate.

(2) Any one of the following acts, if knowingly committed or performed by an insurer or representative of the insurer, constitutes a breach of the insurer’s duties imposed in Paragraph (1) of this Subsection:

(a) A misrepresentation of pertinent facts or insurance policy provisions relating to any coverages at issue.

(b) A failure to pay a settlement within thirty days after an agreement is reduced to writing.

(c) A denial of 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.

(d) A misrepresentation to a claimant as to the applicable prescriptive period.

(e) A failure to pay claims pursuant to R.S. 22:1893 when the failure is arbitrary, capricious, or without probable cause.

(3) The provisions of this Subsection shall not create a separate cause of action against a representative of the insurer distinct and apart from the cause of action against the insurer.

Even though 22:1973 was “repealed,” everything except for the penalty in 22:1973(C) is incorporated into 22:1892(I).

The penalties under 22:1892 and 22:1892.2 now include an award for consequential damages that was previously in 1973

Unlike former 1973, the insured is not entitled to twice their consequential damages. Notably, under prior law, Plaintiffs generally preferred the 50% penalty under 1892 because the penalty was easier to calculate. Plaintiffs also sometimes attempted to recover penalties under both statutes by pointing to different conduct by the insurer which could trigger different parts of each statute. The Amendments remove this possibility by eliminating the double-damages penalty from prior 1973.

Losses are now divided into two categories: (1) non-catastrophic loss, covered by 22:1892; and (2) catastrophic loss, covered by 22:1892.2

A catastrophic loss is a natural disaster for which the president or governor declared a state of emergency; essentially a hurricane. 22:1892.2 also applies to non-catastrophic losses to immovable property.

For non-catastrophic losses under 22:1892, an insured can now recover the 50% penalty and consequential damages under the same statute. The amended 22:1892 still awards attorney fees and costs.

22:1892 now imposes a duty of good faith on the insured

The statute includes an illustrative, non-exclusive list of conduct that is a breach of good faith, such as failure to comply with affirmative duties, misrepresenting pertinent facts, etc. However, an insured’s bad faith conduct can only be considered by a jury in determining the statutory penalties against the insurer. The insured’s bad faith does not impact the insurer’s rights and remedies, such as the right to void a policy or deny coverage.

The Amendments create 22:1892.2 for adjustment of catastrophic losses

22:1892.2 also appears to apply to non-catastrophic damages to immovable property, but this is slightly unclear.

22:1892.2 imposes new statutory deadlines

For residential property, a tender is due within 60 days of a satisfactory proof of loss. For commercial property, a tender is due within 90 days of a satisfactory proof of loss. The insurance commissioner can extend the 90 day deadline by 30 days for commercial policies covering multiple locations. Like 22:1892, 22:1892.2 provides a statutory penalty of 50% of the amount found to be due, proven economic damages, attorney fees and costs.

22:1892.2 outlines a complex “cure period"

• As a condition precedent to bringing an action under 1892.2, the insurer shall be given sixty days’ written notice of the violation by the insured or his representative (the “Cure Notice Period”).
• The cure period notice may be provided through either a form transmitted by the department or by formal written demand.
• If the insurer pays the full amount of the demand within sixty days, plus expenses and attorney fees (not to exceed 20%), there shall be no further cause of action for penalties for the amounts in the demand.
• If the insurer issues a timely partial payment, the penalty on the amount paid is reduced by half (if penalties are ultimately awarded).
• Regardless, the insurer must respond to cure notice within 60 days.
• If a cure period notice is transmitted 90 days before prescription, prescription is suspended for thirty days after the insurer transmits its written response to the cure period notice.
• If any suit is filed prior to transmitting the cure period notice, the lawsuit is automatically stayed until sixty days after the cure period notice is received. The delay for answering any suit is automatically extended until thirty days after the end of the cure period. If the insurer timely pays the full amount demanded any cause of action prematurely filed is dismissed at the insured’s cost.

The Cure Period will likely create several issues for litigation. For example, the Notice Cure Period requires a “formal written demand,” but does not specify the form requirements. On the other hand, the Notice Cure Period affords the insurer, for the first time, a dependable avenue to avoid statutory penalties by paying the entire amount requested in the notice within 60 days, plus costs and a 20% attorney fee. Under the prior law, an insured had a credible argument that the entire amount of the claim must be determined by the insurer and paid within 30 days of the initial inspection. This is because Louisiana has minimal formal requirements for a satisfactory proof of loss, and some courts held that an insurer’s initial inspection could constitute a satisfactory proof of loss. See Sevier v. U.S. Fid. & Guar. Co., 497 So.2d 1380, 1384 (La. 1986); McDill v. Utica Mut. Ins. Co., 475 So. 2d 1085, 1089 (La. 1985); Paul v. Nat’l Am. Ins. Co., 361 So.2d 1281 (La. App. 1 Cir. 1978); J.R.A. Inc. v. Essex Ins. Co., 2010-0797, p. 33 (La. App. 4 Cir. 5/27/11), 72 So.3d 862, 881 (“A personal inspection of an insured’s property by an adjuster for the insurance company also constitutes satisfactory proof of loss,” citing Paul, 361 So.2d at 1285); First United Methodist Church of Houma v. Church Mut. Ins. Co., S.I., No. 22-2265, 2023 WL 2241556 (E.D. La. Feb. 27, 2023), Lee v. State Farm Fire & Cas. Co., 2:21-CV-01830, 2022 WL 14054181 (W.D. La. Oct. 24, 2022). District courts frequently held that whether the initial inspection constituted a satisfactory proof of loss was an issue of fact unsuitable for summary judgment, which generally allowed Plaintiffs to leverage potential statutory penalties in settlement negotiations. Now, insurers have at least one avenue to avoid statutory penalties as a matter of law.

1892.2 provides some potentially valuable clarification of a “satisfactory proof of loss.”

Under 1892.2(D)(1)-(4), an insurer may make additional requests for information or inspection if during its investigation of the claim the additional requests are considered necessary. A request for information that is in the possession of the insurer or its representatives does not extend any of the insurer’s deadlines. This does not relieve an insurer of its obligation to transmit payment of the amount of any claim due to any insured within the deadline following receipt of satisfactory proof of loss or to extend any deadline for payment when the requested information or inspection is found by the trier of fact to be unnecessary.

This provision at least implies that a request for additional information that is not in the insurer’s possession extends an insurer’s statutory deadline. This provision should not be interpreted to extend the deadline for issuing a tender of the undisputed portion of the claim. See Louisiana Bag Co. Inc. v. Audubon Indem. Co., 999 So.2d 1104 (La. 2008) (“Where there is a legitimate dispute as to the extent or amount of the loss, the insurer can avoid imposition of statutory penalties by paying the undisputed portion of the claim.”). Rather, the Amendments could potentially allow the insurer to make piecemeal payments based on receipt of new and necessary information. Prior law seemed to allow courts to impose a penalty on the entire amount of the loss which was not paid within thirty days of the initial satisfactory proof of loss. In Eaux Holdings LLC v. Scottsdale Ins. Co., 2:20-CV-01582, 2022 WL 2393605 (W.D. La. July 1, 2022), the insured’s property was damaged in Hurricane Laura. The insurer originally tendered $250,000, which the parties stipulated was timely, and then made several additional tenders. Following a jury trial, the jury found the insured was entitled to the policy limits of $2,035,000, all payments after the initial tender were untimely, and the failure to pay was arbitrary, capricious, or without probable cause. In seeking a judgment notwithstanding the verdict, the insurer argued it was not in bad faith because the policy and Louisiana law provide a replacement cost value payment is not owed until repairs are complete and the insured submits the amounts actually spent on repairs. According to the insurer, the later tender was made within 30 days of receipt of the claimed repair costs, and as such the payment is not untimely. In contrast, the insured argued it merely needed to show the insurer had sufficient information to know the extent of the loss and failed to pay that much within 30 days. The court found no basis in law to reverse the jury’s ruling on the issue.

The Amendments potentially address the ruling in Eaux and similar cases by allowing the insurer to make tenders based on the receipt of new and necessary information. However, what constitutes “new” and “necessary” information will likely be litigated.

The Amendments also allow the insured to make a supplemental claim

A supplemental claim adds newly found damage or additional costs to the original claim. The fact that an insurer makes a supplemental payment shall not itself be construed as evidence of bad faith. Again, the amendment seems to clarify that the insurer may make payments over a period of time based on the receipt of new information, rather than requiring the insurer tender the entire amount of the loss within 30 days of the inspection.

A timely tender within thirty days of an appraisal award does not itself constitute evidence of bad faith

This is the only reference in the Amendments to appraisal and appears to codify a line of caselaw regarding payment of appraisal awards. In Long v. American Sec. Ins. Co., the insured’s property was damaged in Hurricane Katrina. 2010-0026 (La. App. 4 Cir. 11/17/10); 52 So.3d 260. The insurer initially timely tendered a small amount based on its damage estimate. The insured contested the estimate, and the insurer instructed him to obtain his own estimates. Rather than submit his own estimates, the insured invoked the appraisal process. The insurer’s appraiser estimated $116,932.10 in damages, and the insured’s appraiser’s estimated $513,335.07. The insurer did not issue a tender at that point in time. Instead, the two appraisers opted for an umpire, who found $387,864.07 in damages. The insurer then tendered the policy limits of $141,566.76. The insured alleged the insurer failed to tender an undisputed portion of the appraisers estimates within thirty days and claimed the appraisal process did not interrupt the thirty-day time period.

The insured cited Willwoods Cmty. v. Essex Ins. Co., 09–651 (La. App. 5 Cir. 4/13/10), 33 So.3d 1102. The Willwoods plaintiffs invoked the appraisal process, and the excess insurer tendered two unconditional payments prior to the umpire rendering a decision. Id. at 1105–06. Because the insurer’s last tender was based at least partly on the insurer’s appraisers’ suggested appraisal award, the Willwoods Court held the insurer possessed “undisputed written proof” of additional damages beyond its original tender. Id. The unconditional tenders made prior to the umpire’s ruling “caused the trial court and the Fifth Circuit to question the insurer’s belief as to a contested amount of monies due.” Long, 52 So.3d at 263.

The Long court found Willwoods distinguishable. Unlike in Willwoods, the Long insurer did not tender payments to the insured during the completion of the appraisal process, which unlike Willwoods, “provides credence that the amount owed to [the insured] was disputed.” Id. at 264. The insured argued the insurer should have tendered a payment to him during the appraisal process. However, according to the court, “complying with a contracted and self-invoked appraisal process fails to provide evidence or factual proof of vexatious, arbitrary, capricious, or conduct without probable cause.” Id.

However, subsequent decisions have held Long does not stand for the proposition that an insurance company’s compliance with an appraisal clause precludes a finding that the insurance company acted arbitrarily, capriciously, or without probable cause. Radosta v. Lexington Ins. Co., CIV.A. 13-4441, 2014 WL 1513424, at *6 (E.D. La. Apr. 16, 2014). In other words, compliance with the appraisal clause does not prevent a court from finding an insurer was arbitrary, capricious or without probable cause. Id.; see also LeBlanc v. Allied Tr. Ins. Co., 2:21-CV-01928, 2022 WL 4597863, at *4 (W.D. La. Sept. 29, 2022) (finding a genuine issue of material fact for trial regarding bad faith penalties even though the insurer paid the full amount of the appraisal award); Jackson v. Garrison Prop. & Cas. Ins. Co, 2:21-CV-01364, 2022 WL 2196739 (W.D. La. June 16, 2022) (finding only remaining claim to be tried was for bad faith penalties and attorney fees after insurer paid the total appraisal award).

The amendments clarify that payment of an appraisal award is not, in and of itself, evidence of bad faith, but does not insulate an insurer from statutory penalties. This appears consistent with prior law.