Insurance Dispute Lawyer Blog

The Berniard Law Firm would like to wish everyone a Happy Holiday.

Regular posting will resume in 2012! Have a happy, and SAFE, holiday season!

Uninsured/Underinsured Motorist (UM) coverage is designed to protect a policyholder against injury or loss inflicted by another driver who has inadequate insurance or no insurance coverage at all. Louisiana statute provides that "an insurer owes to his insured a duty of good faith and fair dealing," which includes fairly and promptly settling claims with the insured. La. R.S. 22:1220. An insurer who breaches this duty is liable for damages that result from the breach. In order to establish a cause of action for penalties and or attorney fees, a plaintiff must show that (1) the insurer received sufficient proof the of loss; (2) the insurer failed to tender payment within 30 days; and (3) the insurer's failure to pay is "arbitrary, capricious, or without probable cause." La. R.S. 22:658. Louisiana courts have held that “arbitrary, capricious, or without probable cause" is "synonymous with 'vexatious,'” and that a “vexatious refusal to pay” means it is “unjustified, without reasonable or probable cause or excuse.” The courts impose penalties on an insurer when the facts of the situation “negate probable cause for nonpayment," but tend to avoid them when an insurer can point to "a reasonable basis to defend the claim and acts in good-faith reliance on that defense.” Pointedly, it is well settled that "bad faith should not be inferred from an insurer's failure to pay within the statutory time limits when ... reasonable doubt exists." Instead, penalties are appropriate when the insurer refuses to tender a reasonable payment in an amount over which "reasonable minds could not differ."

Louisiana's Third Circuit Court of Appeal recently applied this jurisprudence in the case of Mitte v. Progressive Security Insurance Co.. On April 20, 2004, Dyna Mitte was severely injured when her vehicle was hit by an underinsured driver in Lafayette Parish. Mitte had UM coverage through Progressive and filed a claim after receiving only $32,000 from the other driver's insurance company. Progressive made pre-trial tenders to Mitte that amounted to $393,624. Mitte then filed suit seeking penalties and attorney fees on the basis of those tenders that she alleged were "inadequate and untimely." A jury found that the tenders made by Progressive were not adequate and awarded Mitte $1.6 million. However, the jury declined to award her penalties and attorney fees. Mitte appealed, arguing that the jury erred in failing to find that Progressive was arbitrary or capricious.

Mitte's assignment of error was based in part on her argument that because the jury awarded a large sum compared to the tenders made by Progressive, Progressive was necessarily arbitrary or capricious. The court rejected this argument, stating that Progressive was not required to "meet some percentage of the total claim awarded [Mitte] to avoid penalties and attorney fees." Rather, Progressive "needed to tender only a figure over which reasonable minds could not differ." Further, the record included several factual disputes described by Progressive's adjuster at trial. For instance, there was uncertainty over whether Mitte made a claim for lost earning capacity and also as to whether a gastric bypass surgery was related to the auto accident. Thus, although the jury ultimately concluded that Progressive undervalued Mitte's general damages "by a fairly large extent," there was a reasonable factual basis for the jury's finding that Progressive was neither arbitrary nor capricious. Because the court could not find that the jury's determination was manifestly erroneous, it affirmed the trial court's judgment.

Continue reading "Exploring the Standard for Recovering Penalties From an "Arbitrary and Capricious" Insurer" »

When one is successful on a claim against an insurance company the payment of the claim is expected to be prompt. Any delay in payment could result in the court imposing a penalty against the insurance company. In most, if not all, cases this penalty takes the form of court costs and attorney's fees. But if an insurance company challenges a policy claim in court, and then loses, does that time when payment was refused constitute delay? The answer to this question is 'it depends.'

In Louisiana Bag Co. v. Audubon Indemnity Co., the court held that if an insurer errs in interpreting its own insurance contract, then the insurance company will be held liable for the delay in payment resulting from the trial. This delay justifies the incurrence of penalties for attorney's fees. If, however, the policy dispute revolves around facts rather than contract interpretation, then the "timely payment" provision is stayed during the trial. This was the situation of Maxley v. Universal Casualty Co. where Maxley's car insurance policy through Casualty covered loss from both theft and fire. When Maxley's car was stolen and set on fire, he filed for his claim. However, Maxley had left his car unlocked with the key in it. The policy through Casualty had an exception that nullified any claim if there was no evidence of forcible entry. The issue went to court with Casualty claiming it owed nothing under the policy because the theft was not through a forcible entry, and Maxley contesting payment was due under the fire provision of the policy rather than the theft. Maxley, in essence, argued that the exclusion provision for no evidence of forced entry was irrelevant because his car would have been recovered if it had not been for the fire.

The court found for Maxley, who then sought attorney's fees for Casualty's failure to make timely payment. The Third Court of Appeal upheld the denial of Maxley's claim, stating that Maxley's reliance on Louisiana Bag was misplaced. While Louisiana Bag relied on policy interpretation, Maxley's case relied on a true disputation of the facts. It would be senseless to require the insurance company to pay the claim only to the have the claim payment rescinded if the facts were found in favor of the insurance company. This finding upholds efficiency in the industry as it is easier to withhold payment until truly due than it is to always make payment, then try to recoup it if made erroneously.

When going to court over a contested policy claim, it is important read through your policy contract. If, according to the policy, it is unambiguous that you are entitled to payment, then attorney's fees may also be charged against the insurance company for failing to pay in a timely manner. However, most insurance claims that wind up in court do so because there are questions of material fact relating to the policy. So ask yourself: is the insurance company contesting what happened to the item covered, or how the policy covers it?

The above question is simply a starting point in determining whether or not payment has been erroneously withheld. Insurance claims are complicated and require the expertise of a licensed, practicing attorney. If you have any questions regarding your insurance claim, contact the Berniard Law Firm.

The terms in a contractual agreement between parties can have the effect of changing entire meanings of contracts. This is especially true in more complex litigation and more complex business agreements. If a business agreement requires the participation of multiple partners or parties, an ambiguously defined contract can have the effect of increasing the amount of litigation which will occur every time there is a legal dispute between any or all of the parties. The clear practical effect of writing clear-cut and well defined contracts is that, in the long run, there will be less of a chance that any dispute will require a long, drawn-out litigation process which has the effect of draining the wallets of all the parties involved.

This is most important where one or more of the parties is a single individual with limited resources, and in some situations, is represented by smaller firms that have much less financial resources compared to bigger business entities with more resources and financing at their disposal. As a legal practice, any person that becomes part of a contractual agreement should clearly define any type of ambiguous terminology in an effort to save the agreement from getting the definitional application of common law or practice. Never is this more necessary than when an individual is pushed up against an insurance agency that holds their financial future in their hands. The importance of defining a contract can be clearly seen in the case of Federal Insurance Company v. New Hampshire Insurance Co.

Both Federal and New Hampshire insurance companies became involved in litigation because they both insured Thomas and Betts Corporation (hereinafter T&B). T&B made a product which contributed to an explosion at an aluminum processing plant in Gramercy, Louisiana, leaving employee Wayne Robinson with injuries. Ultimately, Mr. Robinson sued T&B, which had liability insurance from both Federal and New Hampshire. Thus, when the suit began, Federal and New Hampshire's policies kicked into effect. New Hampshire was the "first insurer" for T&B. Federal, on the other hand, was T&B's second layer excess insurer. On the eve of the trial, Mr. Robinson came to an agreement with T&B which had the effect of potentially extinguishing the law suit. T&B was going to pay Mr. Robinson $5 million dollars in damages for his unfortunate bodily injuries, and an additional $1.2 million in consideration for a potential breach of contract claim by another plaintiff company against Mr. Robinson. Subsequent to this settlement, New Hampshire notified Mr. Robinson that it was going to pay him the $5 million, but that it would not pay him the $1.2 million promised by T&B. When Mr. Robinson then received a letter from the plaintiff company, he sent the notice to Federal to show the demand made of him. Federal ended up giving Mr. Robinson $990,000 for the potential breach of contract claim against Mr. Robinson. The pertinent part of the agreement between T&B and Mr. Robinson is as follows:

"Thomas and Betts and Its Insurers agree to hold harmless, indemnify and defend Wayne Robins, et al, The Fields law Firm and Cleo Fields for any amount owed to AXA, Kaisers Subrogated Property Reinsurers, Caleb Didriksen and the Didriksen Law Firm, not to exceed 1.2 million dollars."

Eventually, Federal sought the $990,000 from New Hampshire arguing that the amount should have been given to Mr. Robinson as part of T&B's policy with New Hampshire. New Hampshire argued that this amount was not within T&B's policy with it. The pertinent part of T&B's policy with New Hampshire was that New Hampshire, "becomes legally obligated to pay by reason of liability imposed by law or assumed by [T&B] under an Insured Contract because of Bodily Injury." This seems simple enough, however there was no definition of "legally obligated to pay." In the world of contracts, the contracting parties have the ability to define things in any manner they see fit. These definitions should, however, be included in the contract itself in the index of terms. When a contract does not define any of the material terms, the terms should be filled in by the court. In this case, the court decided that since the phrase was not defined, it should be filled in with what was commonly used in Louisiana. It Louisiana, it was well settled that the use of the phrase was for damages arising out of tortious actions and not from a contractual obligation. Therefore, on the face of the assertion, Federal would be out of luck because it sought money from New Hampshire for money it gave Mr. Robinson due to a breach of contract. Even though the court sided with Federal for other reasons, Federal would have been dealt a strict blow because it did not read the policy between T&B and New Hampshire clearly enough to see that the term was not defined.

Therefore, before taking any action any party should clearly read any existing agreement between relevant parties and should make sure any contract it signs has clearly defined terms that will not lead to unnecessary litigation which will only serve to drain resources.

Continue reading "The Importance of Defining Terms in a Contract" »

When an insurance company provides coverage to a business, the contract typically includes a duty to defend the inured business against any coverage claims. If an insurer refuses to provide the insured with claim defense, then the insured business may sue the insurance company for indemnification of defense fees. However, a question often arises as to how much an insurance company is required to pay for indemnification. This issue was brought to light in a recent Supreme Court of Louisiana case when insurance company Continental was sued for indemnification by a manufacturing company, T&L.

When an insurance company is sued for indemnification, several options exist for a defense. One defense, which was used in the Continental case, is policy exclusion. Under this defense, the insurance company claims that the individuals seeking damages from the insured business fall outside the policy coverage and thus outside the realm requiring the insurer to defend the insured business. In the Continental case, for example, Continental refused to defend T&L against claims brought by T&L employees because certain time frames of T&L's policy did not cover injuries sustained by employees.

One way to defeat a policy exclusion defense is to prove that the insurance company waived its right to the defense. Typically, a waiver occurs when an individual, or in this case a company, has an existing right, knowledge of its existence, and an intention to relinquish that right. However, even if there is no intention to give the right up, conduct that creates a reasonable belief that the right has been relinquished will constitute a waiver of that right. Therefore, if an insurance company undertakes a defense on behalf of its insured against claims that the insurance company knows do not fall under the insurance policy, and does not reserve its rights to withdraw defense, then it is likely that the insurance company has waived its right to a policy exclusion defense. This means that if the insurance company was to back out of the defense it would be held liable for indemnification to the insured because the insured relied on the insurer's actions to defend them.

However, it is important to make a distinction between waiver and breach of duty to defend in the insurance context. While a waiver involves an insurer relinquishing its rights to deny coverage under a policy, a breach of a duty to defend expressly denies coverage under a policy. In essence, the two are complete opposites. If an insurance company waives its right to deny coverage, then the insurance company, if they withdraw from defense, is likely to be forced to indemnify the insured for all defense costs for all claims. On the other hand, as was the holding in the Continental case, a breach of a duty to defend falls under contract law, and would find the insurance company liable for reasonable defense costs. In addition, if the breach was made in bad faith, statutory penalties will be imposed upon the insurer. Liability for such claims is also allocated on a pro rata basis between all insurance policies. This lowers the costs incurred upon insurers, which, for Continental, decreased from over four million dollars to just shy of two-hundred thousand dollars.

If your business is at odds with an insurance company over policy claim defense, be sure to consider whether or not the insurance company has waived its right to a policy exclusion defense. If the insurer has, then it is likely that the insured will be able to recoup costs paid to all claimants. If, on the other hand, the insurer has simply breached a duty to defend, you may only be able to recoup reasonable defense costs.

Even if you find this article helpful, insurance law is a complicated matter that should not be approached without consultation from a practicing insurance attorney.

Continue reading "Limits of Insurer Indemnity Clarified in Parish of St. Bernard Case " »

Insurance policies routinely include provisions that are intended to limit the scope of the insurer's coverage in the event of a claim by the policyholder. For instance, most homeowner's insurance policies exclude coverage for fire damage that results from the policyholder's deliberate arson. Commercial premises insurance policies, which commonly also include coverage for loss of business income, can carry similar limitations. The recent case of Berk-Cohen Associates, L.L.C. v. Landmark American Insurance Company in the U.S. Court of Appeals for the Fifth Circuit provides an instructive example of how insurance policies are "construed using the general rules of interpretation of contracts" by the courts.

Berk-Cohen Associates, L.L.C., as the owner of the Forest Isle Apartments in New Orleans, maintained an insurance policy to cover the complex with the Landmark American Insurance Company. The policy covered property damage but specifically did not cover losses at Forest Isle "caused directly or indirectly by Flood.” In the case of a covered cause of loss, such as wind damage or fire, the policy insured Berk-Cohen against both the property damage and the resulting lost business income. However, the scope of the income protection excluded any income that would have been earned directly as a consequence of any "favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses." In other words, Berk-Cohen could not profit by a widespread calamity that was also the source of a property damage claims. Forest Isle suffered a series of misfortunes, including a tornado, a vehicle strike, and--most significant--damage from Hurricane Katrina. Following the hurricane, Landmark compensated Berk-Cohen for damages caused by wind but not flood. Concerning Berk-Cohen's claim for lost business income, Landmark argued that it was not responsible for the increased rents that resulted from the extensive flooding around the city because flood damage was excluded from the policy. Accordingly, Landmark "declined to increase its calculation of lost business income to the extent that any foregone income arose from flooding." Berk-Cohen initiated litigation and, following a bench trial, the district court held that, notwithstanding the flood damage exclusion in the policy, Landmark should have considered the business conditions attributable to flooding in other buildings when computing the business income that Berk-Cohen lost as a result of the wind damage to Forest Isle. On appeal, the Fifth Circuit upheld the district court's opinion. It noted that the “Covered Cause of Loss” that gave rise to Berk-Choen's property damage claim was wind. Consequently, the policy language prohibited Berk-Cohen from recovering for lost business income as a result of wind damage suffered by customers or other competing businesses. But, "any increase in customers’ demand or reduction in competitors’ supply due to flooding at other properties is a permissible factor in calculating lost business income." (Emphasis supplied.) The court refused to permit Landmark to exclude coverage for flood damage by the policy language while at the same time invoking the same source of damage to reduce Berk-Cohen's business income recovery. To do so would "extend[] the flood exclusion beyond its function," since the policy specifically permits the income calculation to consider "favorable business conditions." Accordingly, the court "decline[d] to use a limitation on coverage"--that is, flooding--"to alter the calculation of damages for a covered loss"--the lost income. The Fifth Circuit concluded that the "policy ... excludes coverage for flood damages at the Forest Isle property. The flood exclusion does not, however, prevent Berk-Cohen from recovering lost business income due to the favorable business conditions arising from flood damage to other buildings."

This case demonstrates that applying the "normal cannons of contract interpretation" can work to the benefit of the insured. As with any contract, the insurance company is bound by the plain meaning of the policy language, even if it means that excluding coverage for one claim will open the door to liability for another. The lesson here is that a knowledgeable and experienced attorney is invaluable to anyone who is involved in a dispute over insurance coverage.

Continue reading "Hurricane Damage at New Orleans Apartment Leads to Dispute Over Insurance Coverage Calculation" »

As previously discussed in Part I, the case of Charles Ebinger, et ux. v. Venus Construction Corporation, et al. focuses on the time period in which a claim for damages can be brought against a contractor and the time period in which a contractor may bring an indemnifying action against a subcontractor. This Part, however, focuses on the Louisiana Supreme Court's reasoning as to how it interpreted the applicable statute of limitations.

The Ebingers moved into their newly built home in April of 1997. On October 9, 2003, the Ebingers filed suit against Venus Construction alleging defects in the home's foundation had caused cracks in the drywall, tile, brick walls, and floor. Venus Construction filed its indemnity claim on September 22, 2006 against the engineer and subcontractor that supplied the foundation.

First the Court determined when the cause of action arose. The Court determined that "regardless of the length of the peremptive period, it [the peremptive period] began when the owners took possession of the house or filed an acceptance of the work." In this case, a certificate of occupancy issued on April 22, 1997, and therefore, that is when the peremptive period began. At the time the Ebingers moved into their home, the original statute was in place and thus the Ebingers would have ten (10) years to file a claim.

Second, the Louisiana Supreme Court looked at the language of the statutes to determine whether the superseding statutes were written to act retroactively or have prospective application. Though the peremptive period was ten years at the time the statute of limitations began to run, the legislature amended the governing statute in 1999, substituting 'seven' for 'ten' years as the peremptive period. Further, this Act stated "the provisions of this Act shall have prospective application only and shall apply to contracts entered into on or after the effective date of this Act." Thus, at this time, the Ebingers would still have a valid claim through the original ten year peremptive period because the amended statute had only prospective applicability, not retroactive applicability, as specifically written in the Act by the legislature. Next, the Court looked at the second revision of the Act in 2003 which substitute 'five' for 'seven' years and did not maintain the 'prospective application' language. The Court states that the legislature's actions in drafting a law are knowing and intentional, and thus, if the legislature meant for the 'prospective application' language to continue, then the legislature would have included it in the Act. However, because the legislature did not, the Court's interpretation is that the 2003 Amendment supersedes the original statute and makes the peremptive period five years, even for those causes of action that arose back when the ten and seven year periods were applicable.

Third, the Court examines Constitutional rights to Due Process and determines that the statute of limitations is a procedural law and as long as it does not disturb a vested legal right, a right that at the moment may be expressed, then the statute of limitations (peremptive period) may be applied retroactively. In the end, the Ebingers' claim is not perempted even though it was filed two months after the 2003 Amendment because the Ebingers' right to sue had vested the moment they attained the certificate of occupancy. However, as for Venus Construction, "the mere expectancy of a future benefit," for Venus Construction in this case the right to file a claim for indemnification, "does not constitute a vested right." Therefore, Venus Construction's right to file a claim for indemnification did not vest until a judgment was entered against Venus Construction, and thus the peremptive period has run for Venus Construction to file a claim for indemnification against the subcontractor.

Continue reading "Keeping Up with Your Louisiana Home's Construction Defects (Part II) - Understanding Statutes " »