Louisiana Supreme Court Reduces Insurer Citizens’ Late Payment Penalty

By Stephanie K. Jones | October 19, 2012

The Louisiana Supreme Court has relieved the state’s property insurer of last resort of the burden of paying a $125,000 penalty for late payment of a claim settlement stemming from Hurricane Gustav in 2008.

Instead, Louisiana Citizens Property Insurance Corp. must pay only $5,000 for failing to pay in a timely manner settlement funds in a case that was “was settled through mediation for $250,000, inclusive of penalties and fees,” according to the Court’s written opinion.

The case, In Katie Realty Ltd.  v. Louisiana Citizens Property Insurance Corporation (NO. 2012-C-0588),), centered on whether a written settlement constitutes a “satisfactory proof of loss under the provisions of La. Rev. Stat. § 22:1892(A)(1) sufficient to trigger the penalties set forth in La. Rev. Stat. § 22:1892(B)(1),” Justice Knoll explained in the written opinion.

The Court determined the written settlement does not constitute satisfactory proof of loss sufficient to trigger the higher penalty set by the district court in the case and approved by the court of appeals. The Supreme Court justices did, however, “render judgment awarding plaintiff $5,000 in statutory penalties for Citizens’ failure to timely pay the settlement funds in accordance with the provisions of La. Rev. Stat. § 22:1973(B)(2) and (C).”

Following Hurricane Gustav, the plaintiff filed a damage claim on property she owned in Houma, La., for which she held a commercial property insurance policy through Citizens. Damage quotes on the property totaled $192,423.98. The claim was received by Citizens on Oct.24, 2008, the Court documents state.

On Dec. 4, 2008, the plaintiff filed a petition in court alleging the insurer failed to pay the claim “despite receiving this satisfactory proof of loss as required under La. Rev. Stat. § 22:1892(A)(1).”

“Citizens filed various exceptions and defenses and generally denied liability for plaintiff’s claim. On July 16, 2010, the parties submitted the matter to mediation and signed a written settlement agreement. According to the agreement, Citizens was to pay the amount of $250,000, plus court costs up to $1,000, within thirty days “from today,” July 16, 2010. The settlement amount included payment for Citizens’ arbitrary and capricious conduct in the handling of plaintiff’s claim,” Justice Knoll wrote.

The settlement funds were finally received by the plaintiff on Aug. 31, 2010, 45 days after the settlement agreement was finalized. Under Louisiana statute, insurers are required to pay within 30 days claims for which a satisfactory proof of loss has been received.

If the insurer fails to pay the claims within the 30 days and “such failure is found to be arbitrary and capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured … as well as reasonable attorney fees and costs,” under one state statute.

Citizens argued that its failure to pay the claim in a timely manner should only be subject to a penalty of $5,000 and no attorney fees, as stated in a separate statute.

Justice Knoll explained that “the District Court rendered judgment in open court on October 8, 2010, ordering Citizens to pay a penalty in the amount of fifty percent of $250,000, i.e., $125,000, inclusive of attorney fees. In rendering its decision, the District Court noted: (1) there was no evidence in the record that Citizens requested more time to pay; (2) there was no evidence offered as to why the money was paid late; and (3) plaintiff’s attorney had to remind Citizens to pay the settlement money.

“The court further explained: ‘a plaintiff can certainly view this as … a callous indifference to an insured. Plaintiff’s had to fight every way of this case to get every penny that he is entitled to. That’s why laws were enacted by the Louisiana State Legislature, to stop this type of thing from going on.’”

The First Circuit Court of Appeals affirmed the lower court’s judgment in an unpublished opinion.

The Supreme Court acknowledged that it is undisputed that Citizens did not pay the claim on time as required by law. The question before the Court, then, was which statute to apply when determining the penalty for Citizens’ misconduct be applied.

Ultimately, the Court found that “a penalty award of $5,000 is appropriate and warranted. Accordingly, in the interest of justice and judicial economy, we render judgment awarding plaintiff $5,000 in penalties for Citizens’ proven misconduct.”

 

 

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