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Insurance Law Alert: Louisiana Amends Claims Handling Process for Insurers and Insureds

On May 7, 2024, Louisiana Governor Jeff Landry signed Senate Bill No. 323 into law as Act No. 3, which amended the Louisiana Bad Faith Statutes, La. R.S. 22:1892 and La. R.S. 22:1973. The amended bad faith statutes take effect on July 1, 2024.

Act No. 3 makes several notable changes to the current Louisiana bad faith statutes, La. R.S. 22:1892 and La. R.S. 22:1973. Importantly, ACT No. 3 repeals La. R.S. 22:1973, which allowed for recovery of consequential damages, including general and special damages, sustained by an insured as a result of an insurer’s breach of the duties previously enumerated in the statute. La. R.S. 22:1973 also provided for penalties of up to two times the consequential damages sustained by the insured and attorney fees pursuant to La. R.S. 22:1892.

A.        Amendment to La. R.S. 22:1892 for Non-Catastrophic Claims

For non-catastrophic claims, La. R.S. 22:1892 provides that an insurer shall make payment within thirty days after receipt of satisfactory written proofs of loss. The failure to make such payment within thirty days of satisfactory proof of loss shall subject the insurer to a penalty of fifty percent of the damage found to be due from the insurer, plus any proven economic damages sustained as a result of the breach, or in the event of a partial payment or tender, fifty percent of the difference between the amount paid or tendered, plus any proven economic damages, attorney fees, and costs, if the failure to pay is deemed “arbitrary, capricious, or without probably cause.”

B.        Insurers’ Duty of Good Faith and Fair Dealing  

La. R.S. 22:1892(I), as amended, provides that an insurer has an affirmative duty to adjust claims fairly and promptly. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer’s duties:

  • Misrepresentation of pertinent facts or insurance policy provisions related to coverage.
  • Failing 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.
  • Misrepresentation to a claimant of the applicable prescriptive period.
  • Failing to pay claims pursuant to La. R.S. 22:1893 when the failure is arbitrary, capricious, or without probable cause.

For claims involving immovable property, the penalty for violating these duties will be proven economic damages sustained as a result of the breach. For claims not involving immovable property, the insured/claimant may be awarded penalties not to exceed fifty percent of the damages sustained or five thousand dollars, whichever is greater, plus attorney fees and costs actually incurred due to the breach. 

C.        Amendment to La. R.S. 22:1892 for Catastrophic Claims

ACT No. 3 provides the most drastic changes to La. R.S. 22:1892 for catastrophic losses as follows. For catastrophic losses impacting “residential property,” ACT No. 3 provides an insurer sixty days after receipt of satisfactory written proof of loss to transmit payment of the amount of due to an insured. For immovable property “other than residential property,” ACT No. 3 provides an insurer ninety days after receipt of satisfactory written proof of loss to transmit payment of the amount due to an insured. Failure to comply with these deadlines will result in a penalty of fifty percent of the amount found to be due to the insured, or in the event a partial payment or tender has been made, fifty percent of the difference between the amount timely paid and the amount found due, plus proven economic damages, attorney fees, and costs, if the failure is found to be arbitrary, capricious, or without probable cause.

ACT No. 3 also provides for a “cure period notice” for catastrophic losses. The cure period notice provides that an insurer shall be given sixty days written notice of a violation of La. R.S. 22:1892. The written notice must provide sufficient notice of the facts and circumstances of the dispute.  An insurer in receipt of a cure period notice must then provide a response within sixty days. If an insurer pays the full amount sought in the notice within sixty days, together with any actual expenses incurred by the insured and attorney fees not to exceed twenty percent of the amount alleged to be due under the policy, there will be no further cause of action. If a partial payment is made within sixty days of the notice, the penalty on the partial payment, if any, will be reduced by half.

D.        Insured’s Duty of Good Faith and Fair Dealing (Reverse Bad Faith)

La. R.S. 22:1892, as amended by ACT No. 3, provides a duty of good faith and fair dealing for an insured and their representatives when submitting a claim for insurance coverage. Specifically, La. R.S. 22:1892 now provides that the following acts of an insured and/or their representative shall constitute a breach of the insured’s duty of good faith: (1) failure to comply with affirmative contractual obligations under the Policy; (2) misrepresentation of the pertinent facts or policy provisions; and (3) submission of an estimate or claim for damages that lacks a basis for coverage under the terms of the policy or lacks evidentiary support. While the breach of these duties does not create a cause of action for an insurer, the breach of these duties must be considered when determining whether an insured should be awarded penalties under La. R.S. 22:1892.

Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between Galloway and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions.

James Prather, Esq.
Offices: Mandeville, LA; New Orleans, LA
jprather@gallowaylawfirm.com | 985-674-6680

Joshua “Josh” Dierker, Esq.
Office: Mandeville, LA
jdierker@gallowaylawfirm.com | 985-674-6680