Below is a brief of the Louisiana Bag, Inc. opinion rendered by the Louisiana Supreme Court in 2008. I cite to the case frequently in my practice because it is advantageous to policyholders. In the decision the Court recognizes that anytime a carrier declines to pay an insurance claim where it has been put on notice of the claim and there is not a legitimate dispute as to coverage, the bad faith penalties are triggered. In 2008 the penalties were 25% of the undisputed amount found to be due. Since then, however, the legislature has increased the penalty to 50%, in addition to attorney fees and other damages. The bad faith penalties serve to incentivize carriers to do the right thing by timely paying claims and giving policyholders financial recourse in case they don’t.
Louisiana Bag Company, Inc. and Lapac Manufacturing, Inc. v. Audubon Indemnity Company, 999 So. 2d 1104 (La. 2008), decision by Supreme Court of Louisiana
FACTS: Plaintiffs Louisiana Bag Company, Inc. and LaPac Manufacturing, Inc. (“Louisiana Bag”) were insured under a commercial property insurance policy issued by Defendant Audubon Indemnity Company (“Audubon”). On April 20, 2003, a fire destroyed Louisiana Bag’s manufacturing plant and warehouse facilities. Louisiana Bag thereafter reported its loss to Audubon.
On October 8, 2003, Louisiana Bag received a $ 500,000 check from Audubon. On October 30, 2003, Louisiana Bag received checks for $ 1,678,590 and $ 87,719, bringing their total payments from Audubon to $ 3,266,309. On February 19, 2004, Louisiana Bag received a supplemental check for $ 12,500 for debris removal, bringing their total claim payment to $ 3,278,809. On October 30, 2003, Louisiana Bag filed suit in the Fifteenth Judicial District Court against Audubon, asserting its entitlement to unpaid policy limits as well as penalties and attorney fees for Audubon’s failure to comply with the statutory time limits pursuant to La. R.S. § 22:658.
The trial court cited several factors that made Audubon’s delay reasonable in its eyes, including (1) a blanket coverage question, (2) Audubon’s request that Louisiana Bag fill out and return Audubon’s proof of loss forms,(3) a slab re-use issue, and (4) Audubon’s decision to await a copy of the insurance policy.
The trial court, granted judgment in favor of Audubon, finding that Louisiana Bag failed to prove that the Audubon’s failure to provide timely payment was arbitrary, capricious or without probable cause.
Audubon filed appeal. The court of appeal reversed, ruling that Audubon was provided with satisfactory proof of loss of the damage sustained to the building, its contents and stock at least by the end of August of 2003. Finding that all payments should have been tendered within thirty days of this date, the court of appeal found that Audubon failed to make timely payment for the policy limits for Louisiana Bag’s building, stock, contents, and EDP losses, and that such failure was arbitrary and capricious. The court of appeal also found that Audubon had a duty to tender the undisputed portions of the claim in a timely manner regardless of any unresolved debris and personal effects claims. Consequently, the court of appeal assessed Audubon a penalty of twenty-five percent of the remaining and unpaid policy limits. The Audubon petitioned for a writ of certiorari.
Audubon argued that its delay in payment was not arbitrary, capricious or without probable cause. The supreme court found that, for each class of loss, Audubon raised an issue that it asserted created a reasonable dispute as to the extent of the Louisiana Bag’s loss sufficient to justify a legitimate delay in payment. Nonetheless, Audubon had a duty under penalty to pay the undisputed portion of the claim within the statutory time period. The Audubon’s failure to tender money within the statutory time period subjected it to penalties under La. Rev. Stat. Ann. § 22:658 on the difference between the amount paid or tendered and the amount found to be due.
Audubon could not avoid the payment of penalties for its delay in tendering payment within the statutorily mandated time period by reason of its interpretation of the coverage afforded by its policy. Audubon’s three month delay in assessing the slab’s condition should not accrue to the Audubon’s favor. Audubon’s delay in requesting its own policy should not mitigate in its favor. The Supreme Court held that the court of appeal correctly applied the manifest error standard in overturning the trial court. The judgment of the court of appeal was affirmed.
LEGAL QUESTION: Whether an insurer, who fails to tender the undisputed portions of a claim within the thirty-day time period provided by La. R.S. § 22:658, has acted in a manner that is arbitrary, capricious or without probable cause?
DECISION: Yes, an insurer, who fails to tender the undisputed portions of a claim within the thirty-day time period provided by La. R.S. § 22:658, has acted in a manner that is arbitrary, capricious or without probable cause
REASONING: Regardless of any disputed amounts in a claim for which there are substantial, reasonable and legitimate questions as to the extent of its insurer’s liability or of the insured’s loss, an insurer must still pay any undisputed amount over which reasonable minds could not differ. Any insurer who fails to pay said undisputed amount has acted in a manner that is, by definition, arbitrary, capricious or without probable cause. Audubon had a duty under penalty to pay the undisputed portion of the claim within the statutory time period.
An insurer need only fail to tender one undisputed portion of the claim to be subject to penalties on the difference between the amount paid or tendered and the amount found to be due, La. Rev. Stat. Ann. § 22:658. The Audubon’s failure to tender money within the statutory time period subjected it to penalties under La. Rev. Stat. Ann. § 22:658 on the difference between the amount paid or tendered and the amount found to be due.