La. 4th Cir. Reverses Plaintiff’s Award of Penalties from Alleged Failure to Pay Settlement Agreement Within Statutory Period

La. R.S. 22:1973B(2) assesses penalties to an insurance company who fails to pay a settlement within 30 days after an agreement is written. In a recent case, Smith v. Bambino, the Fourth Circuit discussed when and under what circumstances will commence the 30-day period.

Th defendant, Bambino, who was driving in New Orleans with the plaintiff, Smith, crashed with another vehicle on January 13, 2007. Smith sued Bambino, his insurer, Erie Insurance Company, and her UM carrier for the injuries she allegedly suffered from the accident. The parties attended mediation, where they executed a “Memorandum of Settlement Agreement” (“memorandum”) on October 19, 2009. Bambino and Erie paid Smith $85,000 approximately 50 days later. After receiving the settlement funds, Smith executed a “Receipt, Release and Agreement to Indemnify,” which released Bambino and Erie from liability. Consequently, the trial court granted Smith’s motion to dismiss with prejudice plaintiff’s claims against Bambino and Erie.

Subsequently, however, Smith filed a motion to assess penalties for late payment of settlement funds. The trial court rendered judgment in favor of Smith, awarding her the $5,000 in penalties she sought. The defendants appealed the judgment to the Louisiana Fourth Circuit (“Court”). On appeal, the Court vacated the lower court’s judgment and dismissed the plaintiff’s claim for penalties with prejudice.

The Fourth Circuit first addressed whether the defendants violated La. R.S. 22:1973B(2). The memorandum stipulated that the parties agreed to enter into a formal settlement agreement within a reasonable period of time. According to Smith, the 30-day period began on the date the memorandum was executed. The Court disagreed, finding that the language in the memorandum contemplated another writing, the formal settlement agreement. Moreover, the language indicated that the formal agreement would be entered into within a reasonable time. Since neither party submitted evidence on what would be a reasonable delay, the Court declared that the 30-day period would run from the date of execution of the formal settlement agreement or until a “reasonable period of time” expired. Therefore, the Court found that the defendants complied with La. R.S. 22:1973B(2).

The Court then addressed the validity of the release. The defendants argued they were not liable for the penalty since it was covered by the release. Smith challenged the legality of the release, contending that she executed it under economic duress as she was undergoing a financial hardship. Smith’s lawyer submitted as evidence an affidavit he signed, which stated that defendants’ counsel would not release the settlement funds if Smith reserved her right to claim penalties. Additionally, the affidavit averred that Smith indicated to him that she had “necessary circumstances” and had no option but to accept the settlement funds that were 20 days late. The defendants filed timely objections to the affidavit, arguing it as inadmissible hearsay. Hearsay, an out-of-court statement offered to prove the truth of the matter asserted, is inadmissible evidence unless an exception applies. The Court agreed with the defendants since Smith could not point to any exception to the hearsay rule. Since Smith did not have any admissible evidence to support her claim for economic duress, the release was legally binding.

Louisiana law guarantees, through penalties, that plaintiffs will be paid settlement funds in a timely manner. Smith v. Bandino shows that plaintiffs must be mindful of what constitutes a formal settlement agreement under this law. Issues like this demonstrate why hiring the proper attorney can keep you from filing a frivolous claim.

Contact Information