The last few years have brought unprecedented hurricane seasons in the Gulf South, with Louisiana’s coastal communities bearing much of the impact. Those storms brought property damage; that property damage brought insurance claims; and those insurance claims brought an onslaught of bad faith lawsuits against insurers. If history is any indication of what the future holds, bad faith claims are unlikely to slow any time soon, especially as insurers continue adjusting claims in the aftermath of 2021’s Hurricane Ida. Thus, it is of utmost importance that insurers familiarize and then re-familiarize themselves with Louisiana’s bad faith laws, and what they can do to prevent future claims of bad faith.
Louisiana has two primary bad faith statutes: La. Rev. Stat. § 22:1892 and La. Rev. Stat. § 22:1973. Both statutes penalize insurers for bad faith practices in handling and adjusting claims, but with separate goals in mind.
- Section 22:1892 establishes a timeframe in which insurers must pay claims after receiving satisfactory proof of loss, and penalizes an insurer for failing to timely pay a claim that is due. This statute ensures that an insurer fully apprised of the facts behind the claim does not arbitrarily or capriciously deny a claim.
- Section 22:1973 was enacted to codify an affirmative duty of good faith and fair dealing an insurer owes to its insured, and lists certain conduct that constitutes breach of this duty.
Liability under the Bad Faith Statutes
Under Section 22:1892, an insurer must initiate loss adjustment within 14 days after notification of loss by the claimant, or within 30 days if there is catastrophic loss (unless extended by the commissioner). This means that an insurer must take substantive and affirmative steps to accumulate facts about the loss; simply opening a claims file is insufficient. Additionally, within 30 days of receipt of satisfactory proof of loss (i.e., information that is sufficient to fully apprise the insurer of the insured’s claim), an insurer must (1) make a written offer to settle a claim, and (2) unconditionally tender a reasonable amount. The statute also requires insurers to make payment within 30 days after written agreement or settlement. Section 22:1892 imposes penalties and attorney’s fees if the insurer fails to timely pay a claim, as outlined above, when the failure is found to be arbitrary, capricious, or without probable cause. “Arbitrary, capricious or without probable cause” is synonymous with “vexatious,” which is defined as “unjustified, without reasonable or probable cause or excuse and is not based on a good faith defense.” Penalties under the statute are either 50% of the damages on the amount found to be due under the insurance contract or $5,000.00, whichever is greater.
Section 22:1973 further solidifies the importance of timely adjusting, settling, and paying claims by making an insurer’s failure to do so a breach of its duty of good faith and fair dealing. In this context and under this statute specifically, an insurer may be liable for bad faith damages and penalties if it (1) fails to pay a settlement within 30 days after an agreement is reduced to writing, (2) fails to pay an amount of any claim due to any person insured by the contract within 60 days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause, or (3) fails to pay claims pursuant to R.S. 22:1893 when the failure is arbitrary, capricious, or without probable cause. Section 22:1973 does not provide for attorney’s fees, but it does allow an insured to recover damages sustained due to an insurer’s breach of its duty of good faith and fair dealing, as well as discretionary penalties.
Recovery under both La. Rev. Stat. § 22:1892 and La. Rev. Stat. § 22: 1973:
Section 22:1892 provides for penalties and attorney’s fees for an insurer’s bad faith, while Section 22:1973 provides for damages sustained as a result of such a breach and discretionary penalties. While an insured can bring a bad faith claim under both statutes, it may not recover penalties under both statutes. Rather, penalties will be awarded under the statute that affords the higher award. And as the law presently stands, damages under section 1973 must be awarded even if penalties are assessed under section 1892; and attorney’s fees must be awarded under section 1892, even if penalties are assessed under section 1973.
Key Takeaways:
- Insurers must initiate loss adjustment within 14 days after notification of loss by the claimant, or within 30 days if there is catastrophic loss.
- Make a written offer to settle a claim within 30 days of receipt of satisfactory proof of loss, unless there is a reasonable basis to defend the claim.
- Unconditionally tender a reasonable amount, including any amount not in dispute, within 30 days of receipt of satisfactory proof of loss, unless there is a reasonable basis to defend the claim.
- Pay a settlement within 30 days after an agreement is reduced to writing.