On December 4th, 2015 Special Olympics Louisiana held its annual “Over the Edge” fundraiser. Participants RAPPELED down 25 stories of NOLA’s Benson Tower, RODE in a helicopter and SWAT trained with Louisiana’s finest at the Jefferson Parish Sheriff’s Training Facility. Devin Fadaol and Bartt Bourgeois participated in the activities for the firm; additionally, the firm manned several volunteer positions under the guidance of Shannon Hanken, the firm’s administrator and a Special Olympics Louisiana committee member. The firm is a regular sponsor of Special Olympics Louisiana and is proud of what it does for the community.
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Attorney Devin Fadaol and staff member Bartt Bourgeois will be rappelling down Benson Tower on Friday, December 4, 2015 for Special Olympics Louisiana’s fund raiser, “Over the Edge”.
On Saturday, June 6, 2015, a jury in Clinton, Louisiana, returned a defense verdict for Ford Motor Company following a nearly 2-week long trial in an airbag non-deployment case involving fatal injuries. In reaching the verdict, the jury rejected plaintiff’s allegation that Ford defectively designed the supplemental restraint system in a 1995 Ford Mustang. Ford was represented at trial by Keith W. McDaniel and Quincy T. Crochet, of McCranie, Sistrunk, Anzelmo, Hardy, McDaniel & Welch, LLC and by Michael W. Eady of Thompson, Coe, Cousins & Irons, LLP. Read Article
U.S. Court of Appeals, 5th Circuit Rules that additional Sworn Proof of Loss was Necessary to Support a Supplemental Claim Under the National Flood Insurance Program. Absent a signed sworn proof of loss, no payment was owed to the Insured.
Mr. and Mrs. Ferraro sued Liberty Mutual to recover flood insurance proceeds under the National Flood Insurance Program (NFIP) after their home was damaged by Hurricane Isaac. The Ferraros submitted an original signed sworn proof of loss that included a handwritten note “Will send supplement later.” The Ferraros later sought supplemental damages from Liberty Mutual, but did not provide a second sworn proof of loss. Summary Judgment was granted by the district court in favor of Liberty Mutual holding that a second sworn proof of loss was necessary to support a claim under the NFIP. Summary Judgment was affirmed by the United States Court of Appeals for the Fifth Circuit on August 6, 2015. Ferraro v. Liberty Mut. Fire Ins. Co., No. 14-30944.
The Ferraro case is interesting because Liberty Mutual knew that the Ferraros intended to supplement their original proof of loss. The Ferraos hired a public adjuster and submitted that adjuster’s report to Liberty Mutual but did not submit a signed sworn proof of loss form. A Liberty Mutual adjuster told the Ferraros that no additional forms were necessary to support their claims. Liberty Mutual did not make payment on the supplemental claim based upon the public adjuster’s report of additional damages because the insureds failed to submit a second signed proof of loss.
The Ferraros filed suit against Liberty Mutual seeking payment for property damage, loss of use, depreciation, mold and damage remediation, debris clean-up and removal, cost of compliance and all other available damages. Liberty Mutual filed for summary judgment arguing that the Ferraros were barred from litigation because they did not comply with the Standard Flood Insurance Policy (“SFIP”) prerequisite for filing suit under 44 C.F.R/ pt 61 app. A(1), art.VII. For claims relating to Hurricane Isaac, policyholders were required to provide a complete, signed sworn proof of loss within 240 days of the loss. The district court noted that the NFIP program requires strict compliance and that the failure to provide the second proof of loss barred the Ferraros’ suit.
The appellate court agreed with the district court that the SFIP made strict compliance with the proof of loss requirement a condition precedent to suit. “An insured’s failure to provide a complete, sworn proof of loss statement, as required by the flood insurance policy, relieves the federal insurer’s obligation to pay what otherwise might be valid claim.” Gowland v. Aetna, 143 F.3d 951, 954 (5th Cir. 1998). The Ferraros argued that a second sworn proof of loss was not necessary because they were merely supplementing a claim rather than making a new claim. The issue of whether an insured must submit an additional proof of loss to recover an additional amount on a preexisting claim was a question of first impression in the Fifth Circuit Court of Appeals. The Fifth Circuit was persuaded by opinions from the First and Eighth Circuit Courts of Appeals that had considered similar circumstances, and held that an insured’s failure to strictly comply with the SFIP’s provisions, including the proof of loss requirement, relieves the federal insurer from the obligation to pay the non-compliant claim. The handwritten note “Will send supplement later” and the public adjuster’s report did not comply with the SFIP’s regulatory proof of loss requirement.
The Ferraros maintained that they relied to their detriment on the assurance from a Liberty Mutual adjuster that no additional forms were necessary. The Court of Appeals did not consider this argument on appeal because it was not raised in the opposition to summary judgment before the district court. It is uncertain whether Liberty Mutual’s adjuster could have waived the SFIP’s condition precedent for a sworn proof of loss. The Court did not consider the claim of detrimental reliance because the Ferraros did not bring the defense in the trial court and had no reasonable explanation as to why that defense was not raised in the trial court.
August 27, 2015
Rachel Guttmann, an attorney at McCranie, Sistrunk, Anzelmo, Hardy, McDaniel & Welch, will be a mentor and presenter at the Y’Heard Me? Music Business Summit to be held on September 12, 2015, from 12 pm to 3 pm at the Ellis Marsalis Center in Musicians’ Village in New Orleans. Ms. Guttmann will speak to New Orleans musicians about the application of copyright law to their businesses as artists, performers, and creators. The event is a joint initiative between McCranie Sistrunk Anzelmo Hardy McDaniel & Welch, The Google Community Leaders Program, The Ellis Marsalis Center, Good Work Network, The Recording Academy™ Memphis Chapter, MaCCNO, The Backbeat Foundation, The City of New Orleans Office of Cultural Economy, Guitar Center: GC Pro, the Loyola Music Industry Studies Program and the Tipitina’s Foundation. YHeardmeflyer (1)
Sidney Hardy published in FDCC Quarterly, Volume 64.4. Protecting Intellectual Property and Trade Secrets in the United States Read article
SUPREME COURT OF LOUISIANA
DANNY KELLY V. STATE FARM FIRE & CASUALTY CO.
“BAD FAITH” UNDER R.S. 22:1973 FOR FAILURE TO SETTLE A CLAIM
In an opinion issued May 5, 2015, the Louisiana Supreme Court answered two questions that were certified to the Court by the United States District Court of Appeals for the Fifth Circuit:
(1) Can an insurer be found liable for bad-faith failure-to-settle a claim under LSA-R.S. 22:1973(A) when the insurer never received a “firm offer of settlement”?
(2) Can an insurer be found liable under LSA-R.S. 22:1973(B)(10 for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage?
Kelly v. State Farm Fire & Cas. Co., 582 Fed. Appx. 290, 296 (5th Cir. 2014).
The Court’s responses to these questions is significant because it clarifies the application of a key statute, as relates to an insurer’s obligation to keep its insured advised of significant developments in the claim process and litigation as well as the insurer’s potential exposure when it does not settle a case within policy limits.
The Court considered one of the two “bad faith” statutes, Louisiana Revised Statute 22:1973. The relevant language of LSA-R.S. 22:1973 is:
(A) An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has 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. Any insurer who breaches these duties shall be liable for any damage sustained as a result of the breach.
(B) Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer’s duties imposed in Subsection A of this Section:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue.
The facts of the underlying case are as follows. Danny Kelly was injured on November 21, 2005 in a motor vehicle accident with Henry Thomas, who had liability insurance with State Farm. State Farm’s policy limit was $25,000.00. Thomas and Kelly were driving in opposite directions when Thomas turned left and struck Kelly’s vehicle. Kelly and a witness reported to the police that Thomas failed to yield to oncoming traffic, but Thomas maintained that he was free from fault. Kelly suffered a fractured femur, was hospitalized for six days and incurred medical bills totaling $26,803.17. Kelly, p. 3.
On January 6, 2006, Kelly’s attorney mailed a letter to State Farm that included copies of Kelly’s hospital records and bills, and stated that he “will recommend release of State Farm Insurance Company and your insured, Henry Thomas, Jr., for payment of your policy limits”. Kelly’s attorney requested that State Farm call him within ten days to discuss the matter. State Farm did not respond to the letter. However, Kelly’s attorney did speak with State Farm representatives on March 8 and March 22, 2006. During the March 22, 2006 phone call, State Farm offered to settle the case for $25,000.00 (policy limits) and sent a letter confirming the offer. Kelly’s attorney rejected the offer and later filed suit. When State Farm received word that the $25,000.00 offer was rejected, it wrote to Thomas informing him of the potential for excess uninsured liability and suggested that Thomas retain independent counsel. State Farm’s letter to Thomas did not mention the January 2006 letter from Kelly’s attorney, State Farm’s offer to Kelly to pay policy limits or the total amount of Kelly’s medical bills that exceeded the policy limits. Kelly, p. 3-4.
Kelly’s suit against Thomas proceeded to trial. Thomas was held liable for the accident and a judgment of $176,464.07, plus judicial interest, was entered against Thomas. State Farm paid its policy limits of $25,000.000. Thomas entered into an agreement with Kelly, assigning his right to pursue a bad faith action against State Farm to Kelly in exchange for Kelly’s agreement not to enforce the judgment against Thomas’ personal assets. Kelly filed suit against State Farm under the “bad faith” statutes making a claim on the basis of State Farm (1) failing to notify Thomas of Kelly’s January 2006 letter and (2) failing to accept Kelly’s 2006 settlement offer. Kelly maintained that State Farm’s acts and omissions rose to the level of a breach of State Farm’s duties under the law and policy contract. Keep in mind that Kelly was assigned Thomas’ rights against State Farm so that Kelly stood in the shoes of Thomas and had the same rights as the insured.
When the United States Court of Appeals for the Fifth Circuit certified the two questions to the Louisiana Supreme Court, it recognized the absence of instructive case law on some points and the conflict of case law on other points, casting “serious doubt” on the federal appellate court’s prior jurisprudence on certain issues relevant to the certified questions. Kelly, p. 8-9.
The Louisiana Supreme Court answered the certified questions as follows (See Kelly opinion at p. 2):
(1) A firm settlement offer is unnecessary for an insured to sustain a cause of action against an insurer for a bad-faith failure-to-settle claim, because the insurer’s duties to the insured can be triggered by information other than the mere fact that a third party has made a settlement offer.
The Court considered the wording of LSA-R.S. 22:1973(A) together with the existing case law, and determined that the Louisiana legislature codified within R.S. 22:1973(A) a jurisprudentially-recognized cause of action in favor of insureds for an insurer’s bad faith failure to settle a claim. Kelly, p. 13. The availability of a cause of action for an insured to recover from a judgment in excess of policy limits is well-established in Louisiana. Kelly p. 14. An insurer is obligated to deal in good faith with a claim against its insured. Insurers have been held liable by both state and federal courts for an excess judgment when the insurer failed to deal in good faith with a claim against its insured. Id.
In the Kelly/Thomas matter, State Farm took the position that it had not received a firm settlement offer because the January 2006 letter only stated that Kelly’s attorney would recommend a settlement. The Supreme Court looked to LSA-R.S. 22:1973(A) and noted the broad duty of the insured, “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.” Kelly, p. 17. The Court noted that an “affirmative duty” required the taking of positive actions to comply with the legal standard. Id. The Court determined that the statute does not require a “firm settlement offer” as was suggested by State Farm. The Court narrowed the certified question to consider “whether an insurer’s affirmative duty to make a reasonable effort to settle claims is triggered only by receipt of a firm settlement offer”. Kelly, p. 20. The Court found that the clearest indicator of the answer to the query was the absence of language in the statute requiring “a firm settlement offer”. Id. Further, neither the insurer nor the insured has control over whether a settlement offer will be submitted, but the insurer has undertaken the obligation to protect its insured. The insurer is held to a high fiduciary duty to discharge its policy obligations in good faith and must consider the interests of the insured in every settlement. Id. The insurer’s obligation to act in good faith is triggered by the insurer’s knowledge of the particular situation; the insurer has an affirmative duty to gather information about the particular situation of each claim during the claims process by conducting a thorough investigation and considering the evidence developed when determining whether to litigate or settle. Kelly, p. 21.
In each case, the factors to consider when evaluating a settlement opportunity include:
The determination of good or bad faith in an insurer’s deciding to proceed to trial involves the weighing of such factors, among others, as the probability of the insured’s liability, the extent of the damages incurred by the claimant, the amount of the policy limits, the adequacy of the insurer’s investigation, and the openness of communications between the insurer and the insured.
Kelly, p. 19, citing Smith v. Audubon Ins. Co., 95-2057 at 9-10 (La. 09/05/96), 679 So.2d 372, 377. Consideration of these factors will assist insurers in the determination as to whether the insurer has made a “reasonable effort to settle claims” as mandated by R.S. 22:1973(A) so as to protect the insured from excess liability.
(2) An insurer can be found liable under LSA-R.S. 22:1973(B)(1) for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage because the statute prohibits the misrepresentation of “pertinent facts” without restriction to facts “relating to any coverages.”
Prior to the certification of the question to the Supreme Court “whether an insurer can be found liable under LSA-R.S. 22:1973(B)(1) for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage”, differing answers to this question could be found in the appellate opinions of the Louisina state courts. To resolve the dispute, the Louisiana Supreme Court looked to the wording of the statute, particularly the use of the word “or” and took guidance from LSA-R.S. 1:9: “Unless it is otherwise clearly indicated by the context, whenever the term ‘or’ is used in the Revised Statutes, it is used in the disjunctive and does not mean ‘and/or’.” The Court intepreted the wording of the statute and the use of the word “or” in LSA-R.S. 22:1973(B)(1) to mean that an insurer can be liable for misrepresenting either (1) “pertinent facts” or (2) insurance policy provisions relating to any coverages at issue. The Court expressly overruled prior appellate decisions that held that a misrepresentation of “pertinent facts” must also relate to “any coverages at issue” to be actionable.
The interpretation and application of the wording of LSA-R.S. 22:1973(B)(1) not only opens the door for allegations of “bad faith” for misrepresenting policy provisions, but also allows a cause of action for “misrepresenting pertinent facts” not relating to coverage. In the Kelly case, the “misrepresentation” was actually a failure to advise the insured of the facts and circumstances related to the opportunity to settle the claim within the policy limits. An insurer can have liability for “a communication from the insurer that either states an untruth or fails to state the truth.”
SO WHAT EFFECT DOES THIS HAVE ON YOUR WORK?
Given the answers of the Louisiana Supreme Court to the two certified questions, above, there is cause for reflection upon the duties of an insurer to its insured, particularly when the value of the case, in comparison to the available policy limits, leaves the insured potentially open to an uninsured excess exposure in judgment. The Kelly opinion from the Louisiana Supreme Court is likely to be used by insureds and counsel for third party plaintiffs to encourage payment in settlement. I expect that insurers may see an increase in the assignment of the insured’s “bad faith” rights against an insurer.
It seems that the Court recognized the potential effect of its opinion, and in footnote 34, noted that “tight reins” must be kept on a cause of action against an insurer for its settlement practices, and that LSA-R.S. 22:1973 should be strictly construed. The Court also noted that:
A strict application of the statute does not contemplate gamesmanship, such as having “unrealistic offers….presented through ‘carefully ambiguous demands coupled with sudden-death timetables ‘” in order to “set up” the insurer for an excess liability judgment.
Kelly, p. 26, fn 34, citing Parich v. State Farm Mut. Auto. Ins. Co., 919 F.2d 906, 912 (5th Cir. 1990).
In my opinion, the Louisiana Supreme Court’s statements in Kelly will be viewed by many as fuel for the fire of “bad faith” threats against insurers. Insurers should conduct a thorough investigation of every claim and document the claim file to reflect the investigation and the consideration given to whether to litigate or settle a claim. Further, it is imperative that the insured is advised, in writing, of any offers or opportunities to settle a claim, as well as all other events and developments in the handling of the claim.
Should you have any questions regarding how the Kelly opinion affects your work, in general, or as relates to any particular claim, please do not hesitate to contact me.
May 8, 2015
Shannon Howard-Eldridge to Speak on a Panel at the USLAW Network Client Conference in San Antonio, TX
McCranie Sistrunk Anzelmo Hardy McDaniel & Welch LLC Advisory Member Shannon Howard-Eldridge will speak on a panel at the USLAW Network Client Conference on Saturday, April 11th regarding “First Party Property Claims and Bad Faith Arising From Major Storm Events” The conference is being held April 9th-11th 2015 in San Antonio, TX. For more information: USLAW Network Client Conference
The term “race to the courthouse” may invoke notions of an attorney rushing to meet some court-imposed deadline or record a lien before another creditor. Rarely do we think of removal to federal district court in this context, but there is another type of “race to the courthouse” that can take place when an out-of-state defendant is served before a local in-state defendant is served.
Under 28 USC 1441(b):
Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought. (Emphasis added).
The so-called forum defendant rule prevents removal to federal district court based on diversity jurisdiction when there is a local in-state defendant in the lawsuit. The majority of cases involve disputes over whether the local in-state defendant is improperly (some prefer “fraudulently”) joined. Defendants will often argue gamesmanship on the part of the plaintiff in joining a local defendant just to defeat diversity jurisdiction. However, a literal interpretation of the phrase “joined and served” allows for removal to federal court, despite the presence of a forum defendant, if the forum defendant has not yet been served.
For example, assume that Acme, Inc. is sued in an unfavorable state court venue along with a local defendant named John Doe. The plaintiff is not a local or forum plaintiff. Also assume that there is no question regarding the amount in controversy exceeding $75,000.00, or that Acme, Inc. is completely diverse from the plaintiff. Acme, Inc. believes that the plaintiff named John Doe as a local forum defendant solely to prevent removal based on diversity jurisdiction. Acme, Inc. prefers to litigate in federal district court and discovers that plaintiff served Acme, Inc. but has not yet perfected service upon John Doe. Acme, Inc. immediately files a Notice of Removal on the basis that John Doe has not been served in the case. Under a textual interpretation of 28 USC 1441, removal is prohibited only when the local in-state defendant has been joined “and served.” Since the propriety of removal is evaluated at the time the removal petition is filed, Acme, Inc. is permitted to remove the case to federal district court since the forum defendant, John Doe, has not been served. Even if John Doe is served one day after removal, that fact will not divest the court of jurisdiction, nor will John Doe’s consent for removal be needed. Whether Acme, Inc. survives the forthcoming motion to remand depends upon the jurisdiction.
There is a split amongst the federal district courts regarding the interpretation of the language “and served.” Some courts strictly construe the removal statutes in favor of remand and rely on congressional intent rather than a textual interpretation of the statute. Generally, these cases stand for the position that removability cannot be based on the timing or sequence of service of process: Oxendine v. Merck and Co., Inc., 236 F.Supp.2d 517 (D.Md.2002); Sullivan v. Novartis Pharmaceuticals Corp. 575 F.Supp.2d 640 (D.N.J. 2008); and Vivas v. Boeing Co., 486 F.Supp.2d 726 (N.D. Ill. 2007).
Other jurisdictions allow a defendant to remove a case with complete diversity regardless of the presence of an un-served forum defendant. Removal is proper even if the forum defendant is served the day after Notice of Removal is filed: McCall v. Scott, 239 F.3d 808 (6th Cir. 2001) (a forum defendant that has not been served at the time of removal cannot defeat removal); Harvey v. Shelter, 2013 WL 1768658 (EDLA, 2013); Evans v. Rare Coin Wholesalers, Inc., 2010 WL 595653 (ED Texas, 2010); Brown v. Kyle, No. 3:01CV660BN (S.D.Miss. 2002); and, In re Bridgestone/Firestone, Inc., 184 F.Supp.2d 826, (S.D.Ind.2002)
There are not many cases available on the issue because the denial or grant of a motion to remand is not appealable. The best advice is to research your jurisdiction thoroughly to determine which side of the fence the courts fall on with this issue.
April 6, 2015
On Friday, February 6, 2015, a jury in Lake Charles, Louisiana, returned a defense verdict for Ford Motor Company following a two-week trial in a post-collision fire case, rejecting plaintiffs’ allegation that the brake master cylinder and reservoir assembly in decedent William Morvant’s 2002 Ford F-150 was defectively designed. Ford was represented at trial by Perry Miles and Lauren Wood of McGuireWoods, LLP in Richmond, Virginia, and by Keith McDaniel and Lance Williams of McCranie Sistrunk Anzelmo Hardy McDaniel & Welch, LLC in Covington, Louisiana. Read Article
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