KELLY V. STATE FARM FIRE & CASUALTY COMPANY: PRACTICAL EFFECTS RESULTING FROM AN EXPANSION OF INSURERS’ BROAD GOOD-FAITH DUTY

Abstract

In Kelly v. State Farm Fire & Casualty Co., the Louisiana Supreme Court examined an insurer’s statutory duty to adjust an insurance claim in good faith. The court settled disputes regarding two issues: (1) whether an insurer can be found liable for a bad-faith failure-to-settle claim when the insurer never receives a firm settlement offer and (2) whether an insurer can be found liable for failure to disclose facts unrelated to the insurance policy’s coverage. After a careful review of the relevant statutes and case law, the Louisiana Supreme Court answered both questions affirmatively. While the court’s decision in Kelly clearly seeks to protect insureds by expanding insurers’ good-faith duty, the decision has the potential to lead to disquieting practical effects on insurance- related litigation in Louisiana. Specifically, the decision expands the duty of insurers by placing an affirmative duty on them to make reasonable efforts to evaluate and attempt to settle from the outset of the claim. Moreover, insurers are left with little guidance as to what information they are obligated to present to the insured. This lack of guidance is likely to result in the transmittal of unnecessary information, which in turn is likely to directly result in increased costs of litigation. The loss of profits which accompanies increased litigation costs is likely to be offset by an increase in insurance premiums for Louisiana insureds. The following section presents the facts of the lawsuit, the procedural history leading to the Louisiana Supreme Court’s decision, and the court’s ultimate holding. Section III discusses the legal background, including the pre-existing disagreements among the Louisiana appellate courts. Section IV outlines the Louisiana Supreme Court’s analysis utilized to arrive at its decision. Lastly, Section V examines the effects the court’s decision will have on both pre-existing and future law and policy.