THE STATUS AND EVOLUTION OF FIRST- PARTY PROPERTY INSURANCE BAD FAITH CLAIMS AFTER HURRICANE KATRINA

Abstract

In nearly every respect, Hurricane Katrina represents a watershed for the Louisiana Gulf Coast region, the marker by which the people here divide time. For the body of case law establishing the rights of policyholders and obligations of insurers, including bad-faith insurance litigation, Katrina was especially transformative. As a result of the myriad of insurance claims related to Hurricanes Katrina and Rita there were a large number of cases litigated in both state and federal courts regarding almost every issue, especially in the area of the obligation of insurers to adjust claims. Property policy owners whose property sustained damage from Hurricanes Katrina or Rita have relied primarily on two statutes to state their bad faith claims. Title 22, section 1892 of the Louisiana Revised Statutes, formerly section 658, obligates insurers to pay claims within thirty days of receiving “satisfactory proof of loss” from the insured. If an insurer fails to pay upon receiving such proof and has engaged in behavior that is “arbitrary, capricious or without probable cause,” the insurer may incur a penalty of $1,000 or fifty percent of the undisputed amount owed to the insured, whichever is greater, and may pay reasonable attorney’s fees and costs. Title 22, section 1973 of the Louisiana Revised Statutes (formerly section 1220), meanwhile, imposes 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.” Failing to fulfill this responsibility may compel insurers to pay the greater of $5,000 or up to 200 percent of the damages sustained by its action. Other than a 2006 amendment to the predecessor of section 1892(B)(1), which elevated the potential penalty from twenty-five to fifty percent of the payment owed and inserted a right for the insured to recoup its attorney fees and costs, the operative language of these statutes predates Katrina. This Article traces the development of first-party bad-faith insurance law after Hurricane Katrina. Part II examines issues in section 1892, including interpretations of the meanings of “satisfactory proof of loss” and “arbitrary, capricious and without probable cause.” Part III focuses on section 1973 and how the phrase “damages sustained” has been interpreted, including its interplay with claims for “mental anguish.” The post-Katrina bad-faith cases further developed and defined the law regarding bad faith and provide a primer for insurers and insureds alike on the rights and obligations of parties to first-party property insurance policies in Louisiana.