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2018 HCR 89 Prescription of Bad Faith LOUISIANA STATE LAW INSTITUTE PAUL M. HEBERT LAW CENTER, ROOM w127 UNIVERSITY STATION BATON ROUGE, LA 70803-1016 OFFICE OF THE DIRECTOR (225) 57802O0 FAx: (225) 578-0211 EMAIL: [email protected] January 28. 2019 Representative Taylor Barras Speaker of the House of Representatives P.O. Box 94062 Baton Rouge, Louisiana 70804 Senator John A. Alario. Jr. President of the Senate P.O. Box 94183 Baton Rouge, Louisiana 70804 RE: HOUSE CONCURRENT RESOLUTION NO.89 OF THE 2018 REGULAR SESSION Dear Mr. Speaker and Mr. President: The Louisiana State Law Institute respectfully submits its report to the legislature relative to prescription of bad faith insurance claims. Sincerely-. GuyH Director cc: Representative Walt Leger, III Representative Raymond E. Garofalo, Jr. email cc: arvc2is.lI.IsDavid R. Poynter Legislative Research Library Secretary of State. Mr. R. Kyle Ardoin adminiiisos.louisiana.gov LOUISIANA STATE LAW INSTITUTE PRESCRIPTION COMMITTEE REPORT TO THE LEGISLATURE IN RESPONSE TO HCR NO. 89 OF THE 2018 REGULAR SESSION Relative to prescription of bad faith insurance claims Prepared for the Louisiana Legislature on January 28, 2019 Baton Rouge, Louisiana LOUISIANA STATE LAW INSTITUTE PRESCRIPTION COMMITTEE Neil C. Abramson New Orleans W. Raley Alford, III New Orleans Andrea B. Carroll Baton Rouge L. David Cromwell Shreveport Keith B. Hall Baton Rouge Special Advisor Guy Holdridge Baton Rouge Benjamin West Janke New Orleans Christine Lipsey Baton Rouge Melissa T. Lonegrass Baton Rouge Patrick S. Ottinger Lafayette Darrel James Papillion Baton Rouge Sally Brown Richardson New Orleans Emmett C. Sole Lake Charles Robert P. Thibeaux New Orleans Dian Tooley-Knoblett New Orleans John David Ziober Baton Rouge * * * * * * * * * * * * Ronald J. Scalise, Jr., Reporter Mallory C. 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Specifically, House Bill No. 720 of the 2018 Regular Session proposed the addition of a provision to R.S. 22:1892 and 1973 stating that “[n]otwithstanding any other provision of law, an insured’s action pursuant to this Section is subject to a liberative prescription of ten years. This prescription commences to run at the time of each bad faith act in violation of this Section.” The bill was not reported favorably from the House Civil Law and Procedure Committee. During the same Session, however, the legislature adopted a study resolution, House Concurrent Resolution No. 89 of the 2018 Regular Session, which asked the Law Institute to study “the laws of prescription as they apply to violations of the duty of good faith and fair dealing to persons insured by insurance companies,” as well as the history of bad-faith claims and how they are treated “both across the nation and within Louisiana.” The Law Institute was tasked with reporting its findings and recommendations to the legislature “no later than February 1, 2019.” In fulfillment of above request, the Law Institute’s Prescription Committee conducted its own independent research and also considered submissions by various interested parties, including position papers from United Policyholders and on behalf of the American Insurance Association, the Property Casualty Insurers Association, and the National Association of Mutual Insurance Companies. The Committee also heard oral presentations and received submissions from various attorneys representing interested parties. I. Background As a general matter, the laws regulating the insurance industry in Louisiana include a variety of specific statutes pertaining to various types of insurance coverage, such as health, life, and many others. Moreover, despite Louisiana’s general aversion to punitive damages, there are no fewer than five “penalty” statutes that exist to provide “remedies to insureds whose insurance claims are improperly handled or to whom payment is unreasonably delayed.”1 These are so- 1 WILLIAM SHELBY MCKENZIE & H. ALSTON JOHNSON, III, INSURANCE LAW AND PRACTICE, in 15 LA. CIV. L. TREATISE § 11:1 (4th ed.). 1 called “bad faith” denials of coverage by an insurer. Two specific provisions – R.S. 22:1892(A) and 1973 – govern “the vast majority of jurisprudence” in this area2 and appear to be the crux of the resolution for study. According to commentators, “[u]nder La. R.S. 22:1973 and 22:1892 all insurers issuing any type of insurance, other than those specified in Louisiana Revised Statutes, have a duty of fair dealing and good faith to insureds to ‘adjust claims fairly and promptly and to make reasonable efforts to settle claims with insureds.’”3 Regrettably, these two statutes are not necessarily consistent and were not enacted at the same time. 4 The first, R.S. 22:1892 dates from 1958 and has been subsequently amended about a dozen times, most recently in 2018. Although it does not specifically impose an obligation of good faith and fair dealing, R.S. 22:1892 does impose an obligation on an insurer to pay claims within a specified period of time. Paragraph (A)(3) of the statute further imposes penalties upon an insurer who fails to comply with the act. Currently, the relevant part of the statute provides as follows: A. (1) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, 1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest. The insurer shall notify the insurance producer of record of all such payments for property damage claims made in accordance with this Paragraph. (2) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, R.S. 22:1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any third party property damage claim and of any reasonable medical expenses claim due any bona fide third party claimant within thirty days after written agreement of settlement of the claim from any third party claimant. (3) Except in the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim and of a claim for reasonable medical expenses within fourteen days after notification of loss by the claimant. Failure to comply with the provisions of this Paragraph shall subject the insurer to the penalties provided in R.S. 22:1973. (4) All insurers shall make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim. (emphasis added). * * * The second statute at issue, R.S. 22:1973, was enacted by Act No. 38 of the 1990 Regular Session. Unlike R.S. 22:1892, R.S. 22:1973 does impose an explicit obligation of “duty of good 2 Id. 3 JAMES S. HOLLIDAY, JR. ET AL., LA. PRAC. CONSTR. LAW § 16:7. 4 MCKENZIE & JOHNSTON, supra note 1, at § 11:1. 2 faith and fair dealing” on the insurer in favor of the insured. Specifically, R.S. 22:1973 states as follows: A. An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.
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