On July 1, 2024, the widespread changes to Louisiana insurance law took effect after Governor Jeff Landry signed Senate Bill No. 323 into law as “Act No. 3” (hereafter, the “Act”). With the first anniversary of the Act rapidly approaching, this blog will summarize the old and the new with particular emphasis on the most significant impacts on claims-handling procedures in Louisiana amid the near-constant barrage of revisions and reforms to statutes. We will also provide insights and comments on the aftermath of the Act with an eye toward what is next on the list for reform in Louisiana.
Out With the Old
Prior to July 1, 2024, Louisiana Bad Faith Jurisprudence was comprised of two relevant statutes: La. R.S. § 22:1892 and La. R.S. § 22:1973. Former La. R.S. § 22:1973 codified insurers’ duty of good faith and fair dealing. Within the duty of good faith and fair dealing, Former La. R.S. § 22:1973 imposed an affirmative duty to adjust claims fairly and promptly and to make reasonable efforts to resolve claims through settlement, regardless of whether payment would be made to the insured, a claimant or both.
Perhaps most notably, Former La. R.S. § 22:1973 enumerated six prohibited acts which, if knowingly committed, would constitute a violation of the statutory requirements by the insurer including:
- Misrepresenting pertinent facts or policy provisions.
- Failure to pay a settlement within 30 days after an agreement is reduced to writing.
- Denying coverage or attempting to settle a claim on the basis of an application which the insurer knows was altered without notice to, or knowledge or consent of, the insured.
- Misleading a claimant on an applicable prescriptive period (statute of limitations).
- Failing to pay the amount of any claim due by the contract within 60 days after receipt of “satisfactory written proof of loss” – when such a failure is “arbitrary, capricious, or without probable cause.”
- Failing to pay claims pursuant to La. R.S. § 22.1893 (regarding immovable property), when such a failure is “arbitrary, capricious, or without probable cause.”
If an insured proved a knowing violation of La. R.S. § 22:1973, the insurer could be required to pay the amount owed under the policy, damages caused by the insurer’s violation of the statute and a penalty of up to 200% of the damages that the insured or claimant incurred as a result of the insurer’s breach of its duties. Such damages were separate and distinct from the amounts owed under the policy but could extend to anything for which the insured could establish a causal link.
With the foregoing mind, it is important to understand that even though La. R.S. § 22.1973 was technically repealed by the Act, the majority of these provisions were re-incorporated through amendments found at La. R.S. § 22.1892(I). This begs the question, can we really say La. R.S. § 22.1973 was “repealed”?
In With the New
It may seem like common sense but suffice it to say: the requirement that insurers engage with insureds in good faith is not going away. So, what did the Act add to this framework?
A. Modification of the Penalties
Although La. R.S. § 22.1892(I) codifies acts that, if knowingly committed or performed, qualify as a breach of the insurer’s duties, the original provisions regarding penalties were not re-incorporated into the Act. Instead, the insured may seek to hold the insurer be liable for “any proven economic damages sustained as a result of the breach” or, for immovable property claims, penalties in an amount not to exceed fifty percent of the damages sustained or $5,000, whichever is greater. In either case, such penalties are in addition to any amounts actually incurred due to the breach and attorneys’ fees and costs resulting from the breach.
Where the insured is asserting a breach based solely on the insurer’s failure to pay by the deadline, penalties will only be award to the extent it is found that the breach was arbitrary, capricious or without probable cause. An insured may seek up to 50% damages on the amount found to be due from the insurer, plus any proven economic damages sustained as a result of the breach or $1,000, whichever is greater.
In the event a partial payment or tender was made previously, an insured may only be entitled to 50% of the difference between the amount paid and the amount found due, plus reasonable attorneys’ fees and costs, and any proven economic damages sustained as a result of the breach.
B. “Reverse” Bad Faith – Or, New Good Faith Obligations for Insureds
In the amendments to the bad faith statutes, the Act essentially created a “Reverse Bad Faith” provision, obligating insureds and their representatives to also exercise a duty of good faith and fair dealing in submitting claims for coverage. However, this new provision does not create an independent cause of action. Practically speaking, this means the insured’s bad faith is akin to an affirmative defense in that evidence of the insured’s breach of good faith will only be put before a jury that is already considering whether to impose penalties on the insurer for breaching its duty to the insured. Subsection (J) provides a list of policyholder acts that would constitute such a breach including: (1) failure to comply with affirmative contractual duties; (2) misrepresenting pertinent facts or policy provisions; and (3) submitting estimates or claims for damages that lack a basis for coverage or evidentiary support.
C. New 60-Day “Cure Period Notice” in Cases of Catastrophic Losses
Most notably, the Act amends the bad faith statutes to create a new 60-day “Cure Period Notice” for insurers but this only applies to catastrophic loss claims involving immovable property. It is also worth noting that the amendments preclude Claimants from filing bad faith lawsuits seeking penalties and attorneys’ fees for claims arising out of catastrophic loss without first complying with a “cure period notice.” This triggering sequence for the cure period can be thought of as falling into three distinct procedural steps:
First: Receipt of a sufficient proof of loss stemming from a “Catastrophic Loss” which, as defined by the statute, is limited to a presidentially or gubernatorially-declared emergency or disaster. This triggers a carrier-side deadline to pay what is owed, depending on the type of property at issue. For residential property, the statutes impose a 60-day deadline to pay. On the other hand, immovable property that is not residential triggers a 90-day deadline, which can be extended to 120 days for commercial policies insuring multiple locations.
Second: In the event of a violation of the statutory deadline, the insured may be entitled to economic damages, a penalty of up to 50% of the amount ultimately found due, and attorneys’ fees and costs.
Third: Where an insured believes they are entitled to damages for their insurer’s failure to abide by the statutory deadline, the insured must provide written notice of the perceived violation either in a form transmitted by the department or by formal written demand with sufficient notice of the facts and circumstances in dispute. This written notice from a claimant triggers a 60-day “Cure Period,” wherein the insurer has 60 days to issue payment. If the insurer issues payment in full, plus attorneys’ fees and costs (not to exceed 20%), then the insured has no further cause of action for penalties. If the insurer issues a partial payment within the 60-day period, then the penalty on the amount paid is reduced by half—to the extent any penalties are ultimately awarded.
It is also important to note that the new 60-day Cure Period may suspend or briefly toll the insured’s prescription period, and/or an insurer’s time to answer a lawsuit filed prior to satisfying this condition precedent under the statutes.
Questions Raised
As a final note, because the amendments to the Act are both substantive and procedural in nature, additional questions may arise regarding whether the amendments will apply retroactively or prospectively to catastrophic loss claims. Generally, Louisiana courts have consistently applied laws on a prospective basis when the law is considered substantive, and where legislative intent does not contradict such prospective application. On the other hand, Louisiana procedural and interpretive laws have been applied both prospectively and retroactively absent clear evidence of the Louisiana Legislature’s contrary intent.
For example, on November 13, 2024, the Court of Appeals for the First Circuit of Louisiana reviewed whether the 2023 amendments to the Act barring class actions against property and casualty insurers applied to catastrophic loss claims that remained pending in the aftermath of Hurricane Ida. [1] In that case, the Court reiterated that the Act was silent as to legislative intent for either prospective or retroactive application and therefore, would depend on whether the issue before the Court was procedural or substantive in nature. In deciding the 2023 amendments applied on a retroactive basis, the Court explained that the ability to pursue claims in a class action is merely a procedural mechanism for the action, not a substantive right. As noted above, the amendments that went into effect on July 1, 2024 pertain to both procedural and substantive aspects of claims. Thus, Louisiana courts may find a need to revisit this issue in the near future.
Takeaways
While the first anniversary of the Act is rapidly approaching, we expect additional questions will arise as claimants, insureds, and insurers alike work to become more familiar with the revisions to Louisiana’s Bad Faith Jurisprudence. Accordingly, Cozen O’Connor stands ready to assist its clients in navigating any uncertainties in the law created by the amendments and further, to assist insurers as they work to implement the new timing and response requirements.
[1] Parria v. Louisiana Citizens Property Ins. Corp., Case No. 2024 CA 0263 (La. App. 1st Cir. 11/13/24).