In the wake of Hurricane Katrina, and all of the hurricane related damage claims that had to be adjusted and paid, there was a backlash in the Louisiana Legislature. The Legislature increased the penalties for failure to follow the provisions of the Louisiana Insurance Code to double the size of the penalties from 25% to 50%, in addition to payment of the amount of the loss, as well as the reasonable attorney fees and costs.
The statute, formerly LSA-R.S. 22:658, was reconstituted as LSA-R.S. 22:1892 in 2008.
By act No. 813 of the 2006 Legislature - Section 1, the statute was amended to raise the penalty from 25% to 50%. The provisions regarding reasonable attorney fees and costs were maintained in the statute.
The statute is set out below:
LSA-R.S. 22:1892 (formerly 22:658)
"22:1892. Payment and adjustment of claims, policies other than life and health and accident; personal vehicle damage claims; penalties, arson-related claims suspension
A.(1) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, 1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest. The insurer shall notify the insurance producer of record of all such payments for property damage claims made in accordance with this Paragraph.
(2) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, R.S. 22:1821, and Chapter 10 of Title 23 of the Louisiana Revised Statues of 1950, shall pay the amount of any third party property damage claim and of any reasonable medical expense claims due any bona fide thirty party claimant within thirty days after written agreement of settlement of the claim from any third party claimant.
(3) Except in the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim and of a claim for reasonable medical expenses within fourteen days after notification of loss by the claimant. In the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim within thirty days after notification of loss by the claimant. Failure to comply with the provisions of this Paragraph shall subject the insurer to the penalties provided in R.S. 22:1973.
(4) All insurers shall make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claims.
B.(1) Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefore or failure to make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4), respectively, or failure to make such payment within thirty days after written agreement or settlement as provided in Paragraph (A)(2), which such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a particular payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.
(2) The period set herein for payment of losses resulting from fire and the penalty provisions for nonpayment within the period shall not apply where the loss from fire was arson related and the state fire marshal or other state or local investigative bodies have the loss under active arson investigation. The provision relative to time of payment and penalties shall commence to run upon certification of the investigating authority that there is no evidence or arson or that there is insufficient evidence to warrant further proceedings.
(3) The provision relative to suspension of payment due to arson shall not apply to a bona fide lender which holds a valid recorded mortgage on the property in question.
(4) Whenever a property damage claim is on a personal vehicle owned by the third party claimant and as a direct consequence of the inactions of the insurer and the third party claimant's loss the third party clamant is deprived of use of the personal vehicle for more than five working days, excluding Saturdays, Sundays and holidays, the insurers responsible for payment of the claim shall pay, to the extent legally responsible, or reasonable expenses incurred by the third party claimant in obtaining alternative transportation of the entire period of time during which the third party claimant is without the use of his personal vehicle. Failure to make payment within thirty days after receipt of adequate written proof and demand therefore, when such failure is found to be arbitrary, capricious, or without probable cause shall subject the insurer to, in addition to the amount of such reasonable expenses incurred, a reasonable penalty not to exceed ten percent of such reasonable expenses or one thousand dollars whichever is greater together with reasonable attorney's fees for the collection of such expenses. ...
Acts 2006, No. 404 Sec. 1, effective August 15, 2006, in (A)(1), deleted "R.S. 22;" preceding "657," and added the last sentence. Acts 2006, No. 813 Sec. 1, effective August 15, 206 in (B)(1), substituted "fifty percent" for "twenty-five percent" twice and added "as well as reasonable...making rate filings."
All insurers should be aware that they must initiate the lost adjustment of a property damage claim and a claim for reasonable medical expenses within 14 days after notification of the loss by the claimant. The insurer shall pay the amount of any third party property damage claim and any reasonable medical expenses claimed due any bona fide third party plaintiff within 30 days after written agreement of the settlement.
The insurer also has to make a written offer to settle any property damage claim within 30 days after receipt of satisfactory proofs of loss.
Insurers writing policies in Louisiana need to be made aware of this 50% penalty and the time delays for dealing with claims on policies covered by the Insurance Code.
The changes are as a direct result of the massive number of Katrina related claims and the delays sustained in paying same.
An additional statute is LSA-R.S. 22:1973 (formerly 22:1220), which provides for a duty of good faith and fair dealing. Insurers and their counsel need to be aware of these penalties.