By: Kaja Elmer
In Williams v. Security Plan Fire Ins. Co., No. 16-CA-714 (La. App. 5 Cir. 5/31/17), the Plaintiff sustained damage to the roof of her home as a result of Hurricane Isaac in August 2012. She made a claim to her insurer, Security Plan Fire Insurance Company, (“Security”) and it sent an insurance agent to inspect her home soon after the hurricane. The agent—who was not a licensed insurance adjuster—concluded that her property damage did not exceed her policy deductible of $1,000.00.
In his inspection, the agent simply observed the roof from the ground and did not use a ladder or access the roof. After his inspection, he submitted a proof of loss form along with photographs to Security. He did not get a response from anyone at Security regarding his opinion on the extent of damage to the Plaintiff’s home. According to Security, an insurance adjuster reviewed the documents provided by the agent and adjusted the Plaintiff’s claim, concluding that the deductible had not been met.
Less than two years after Hurricane Isaac, a general contractor and licensed public insurance adjuster came to the Plaintiff’s home to do unrelated repair work and noticed the apparent storm damage on the roof. When the contractor learned that the Plaintiff had made a claim after Hurricane Isaac and that her claim was denied, the contractor contacted Security and offered to let Security come re-inspect the roof before he made repairs. Security refused.
At trial, the Plaintiff was awarded $16,081.23 “for damages under the insurance contract”; statutory penalties of double the amount of damages, in the amount of $32,162.46; and $12,864.98 in attorneys’ fees. The trial court found that the damage to the roof occurred as a result of Hurricane Isaac in August 2012, was sufficient to warrant a roof replacement and the failure by Security to properly adjust the claim was arbitrary and capricious. However, the trial court found that the Plaintiff had failed to set forth sufficient evidence of mental distress or inconvenience to warrant general damages, and thus rejected that part of the Plaintiff’s claim.
On appeal, Security did not seek to overturn the award for damages under the contract, or the finding that Security’s actions were arbitrary and capricious. Rather, Security simply challenged the trial court’s calculation of penalties and attorneys’ fees under the Louisiana Insurance Code, specifically La. R.S 22:1973 and La. R.S. 22:1892.
The Fifth Circuit agreed that the trial court had miscalculated the statutory penalty award based on the Louisiana Supreme Court’s decision in Durio v. Horace Mann Insurance Company, 11-0084 (La. 10/25/11), 74 So. 3d 1159.
Under La. R.S. 22:1973(A), if an insurer has breached its duty of good faith and fair dealing, a mandatory award of any damages sustained as a result of the breach is imposed. In Section (B) of the same statute, in addition to the damages under Section (A), discretionary penalties can be awarded, in an amount not to exceed two times the damages sustained or $5,000.00, whichever is greater.
In Durio, the Louisiana Supreme Court held that “damages sustained” in Section (B) were the same “damages sustained as a result of the breach” in Section (A). Thus, under Durio, Section (B) does not encompass contractual damages due or awarded under the statute—but only damages that stem from the breach of the duty of good faith and fair dealing.
Because the trial court had explicitly rejected an award of consequential or special damages based on the Plaintiff’s mental distress or inconvenience, the Fifth Circuit held that the maximum penalty that could be awarded pursuant to La. R.S. 22:1973 was $5,000.00. The trial court, in contrast, had improperly calculated the penalty as twice the Plaintiff’s contractual damages.
However, this finding did not end the Fifth Circuit’s inquiry, because another section of the Insurance Code, La. R.S 22:1892, provides for a penalty in the amount of “fifty percent of damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater….” when an insurer has failed to timely pay a claim. Under that provision, the penalty due to the Plaintiff would be $8,040.61—half of the contractual damages award.
An insured may only recover under either La. R.S. 22:1973 or La. R.S. 22:1892, not both. See Calogero v. Safeway Ins. Co., 99-1625 (La. 1/19/00), 753 So. 2d 170, 174. In this case, the mandatory penalty under La. R.S. 22:1892 exceeded the discretionary penalty permitted under La. R.S. 22:1973. Thus, the Fifth Circuit applied the mandatory penalty and amended the trial court judgment to grant a penalty in the amount of $8,040.61.
Finally, the Fifth Circuit also briefly addressed the issue of attorneys’ fees, which the trial court awarded in the amount of $12,864.98. The Court found that there was no evidence in the record that the trial court had considered the required factors in awarding statutory attorneys’ fees, because there was no evidence introduced regarding attorneys’ fees. The Court, therefore, vacated the award of attorneys’ fees and remanded the issue to the trial court for an evidentiary hearing to determine reasonable attorneys’ fees in accordance with the applicable factors.
Kaja Elmer is an associate in Lugenbuhl's New Orleans office and focuses her practice on general liability coverage, oil and gas liability coverage and environmental and toxic tort insurance coverage. View her profile to learn more about her experience or visit our Insurance practice section to learn more about our firm’s expertise and services. Information specific to Lugenbuhl's bad faith claims team and expertise is available here.
The content of this article is not intended to serve as an exhaustive review of the laws, statutes or issues related to insurance litigation, bad faith claims and penalties and attorneys' fees, and it is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.