By Arthur J. Chassaignac and Kathryn L. Briuglio

On May 7, 2024, Louisiana Governor Jeff Landry signed into law Senate Bill No. 323 as Act No. 3, thereby taking formal steps to attract homeowner insurers to the state and foster a market which provides affordable insurance policies for its residents.

The restructuring of La. R.S. 22:1892 and La. R.S. 22:1973, sponsored by State Senator Kirk Talbot and a part of Insurance Commissioner Tim Temple’s legislation package, was passed with the aim to create more competition and lead to lower rates for consumers. While critics claim that bills such as No. 323 do nothing to guarantee relief for Louisiana residents, proponents of the changes point to the ongoing coverage crisis following natural disasters such as Hurricane Ida in 2020-2021. They argue that the previous statutory scheme created an unattractive environment of risk, drove insurers from the state and caused premium rates to rise. With these issues in mind, the legislature made the following changes to the law:

Repeal of La. R.S. 22:1973

Act No. 3 repeals La. R.S. 22:1973 which allowed for insureds to recover consequential, general, and special damages resulting from an insurer’s breach of the duties enumerated in the statute. In addition, La. R.S. 22:1973 allowed for penalties of up to two times the consequential damages sustained by the insured, and attorney’s fees pursuant to La. R.S. 22:1892. The enumerated duties set forth in La. R.S. 22:1973 are now transferred to newly enacted 22:1892(I).

The Compromise of La. R.S. 22:1892

The previous structure of La. R.S. 22:1892 allowed for a penalty recovery of 50% or $1,000.00 (whichever is greater), plus “reasonable attorney fees and costs” on top of the original amount in dispute. Pursuant to Act No. 3, the original wording of 22:1892 will remain in place, and now incorporates the imposed duty of good faith and fair dealing on insureds and their representatives when filing an insurance claim. Newly imposed subsection J enumerates a list of acts which constitute a breach of said duties, such as:

• Failing to comply with affirmative contractual duties and obligations;
• Misrepresenting pertinent facts or policy provisions; and
• Submitting estimates or claims for damages that lack of a basis for coverage or evidentiary support.

While breach of these duties by the insured does not create a cause of action for the insurer, the breach of these duties must be considered in determining whether they should be awarded penalties and attorney’s fees under 22:1892 or 22:1892.2.

La. R.S. 22:1892 was also amended to require an insurer to issue payment within 30 days after receipt of satisfactory written proof of loss with respect to non-catastrophic claims. The insurer’s failure to issue payment within 30 days of receipt subjects the insurer to a penalty of 50% of the amount ultimately owed from the insurer, plus any proven economic damages sustained from the breach. In the event of a partial payment, the insured will owe 50% of the difference between the amount paid, plus any proven economic damages, attorney’s fees, and costs provided the failure is deemed to be “arbitrary, capricious, or without probable cause.”

An Insurer’s Duties Within La. R.S. 22:1892(I)

Newly enacted La. R.S. 22:1892(I) incorporates an insurer’s affirmative duty to adjust claims fairly and promptly as previously set forth in 22:1973. The new language requires that the following acts, “if knowingly committed or performed by an insurer,” constitute a breach of the insurer’s duties:

• Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue.
• 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.
• Misleading a claimant as to the applicable prescriptive period.
• Failing to pay the amount of any claim due to any person insured by the contract within 60 days after receipt of “satisfactory written proof of loss” from the claimant when such failure is “arbitrary, capricious, or without probable cause.”
• Failing to pay claims pursuant to La. R.S. 22:1893 (regarding immovable property) when such failure is arbitrary, capricious, or without probable cause.

For claims involving immovable property, the penalty for violating these duties is “proven economic damages sustained as a result of the breach.” For other claims, the insured may be awarded penalties up to 50% of the damages sustained, or $5,000, whichever is greater, plus attorney fees and costs incurred resulting from the breach.

Accounting for Disaster in La. R.S. 22:1892.2

The legislation also enacts significant changes to existing law as it pertains to catastrophic losses. The statute now defines “catastrophic loss” as a presidentially or gubernatorially declared emergency or disaster. Claimants will no longer be able to file a suit for “bad faith” penalties arising from a catastrophic loss to immovable property without first complying with the statute’s “cure period notice.” The notice period requires that an insurer must be given 60 days written notice that a violation occurred. The written notice must provide “sufficient notice of the facts and circumstances of the dispute,” and may include “actual expenses incurred including attorney fees not to exceed 20% of the amount alleged to be due under the policy.”

An insurer in receipt of notice is required to respond within 60 days. If the full amount is paid within 60 days, along with expenses and 20% in attorney’s fees, the insured’s cause of action will cease. If a partial payment is made within 60 days, then the possible penalty on the partial payment will be halved.

If notice is transmitted within the last 90 days of the prescriptive period, prescription will be suspended until 30 days from the insurer’s response. If suit is filed before notice, the suit is automatically stayed until 60 days after notice is received. The delay to answer is also extended until 30 days after the cure period. If an insurer pays the full amount demanded within 60 days, the prematurely filed suit will be dismissed at the insured’s cost.

If the alleged violation is not “cured” within the 60-day notice period and suit is filed, 22:1892.2 adopts the penalties and standards for satisfactory proof of loss set forth in the current version of 22:1892, with changes to the time delays as follows:

For catastrophic losses to residential property, an insurer has 60 days after receipt of satisfactory proof of loss to transmit payment of the amount due to an insured. The statute defines “residential property” as property with improvements for residential purposes pursuant to La. R.S. 47:2322.[1] For catastrophic losses to other immovable property, an insurer has 90 days after receipt of satisfactory written proof of loss to transmit payment of the amount due to an insured. The insurance commissioner may provide an additional 30-day extension for commercial policies insuring multiple locations.

The insurer’s failure to comply with these deadlines results in a 50% penalty of the amount determined to be owed to the insured, or if partial payment is made, 50% of the difference between the amount paid and the amount determined to be owed, plus proven economic damages, attorney’s fees, and costs – provided the failure is found to be arbitrary, capricious, or without probable cause.

Conclusion

It is the state legislature’s hope that, with this compromise intended to provide leniency to insurance companies that deal with vast influxes of claims following natural disasters while retaining protections for insureds, Louisiana will move towards being a more attractive jurisdiction for said companies. With less restrictive requirements, mutual obligations on the part of insureds and insurers, and additional time in which an insurer begins to potentially accrue penalties, lawmakers believe that more insurance companies will be willing to provide policies to the state’s residents and businesses – creating competition which incentivizes lower rates. Should Act No. 3 fail to provide the intended results, Governor Landry confirmed that Commissioner Temple has committed to restructuring the legislation.

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[1] Which is defines “residential property” as “single family dwellings, duplex, triplex, fourplex, apartment buildings, condominiums, and mobile homes used as a residence, whether on land, owned, rented, or leased.”