De Novo Review Included Consideration of the Lower Court’s Ruling in a Bad Faith Claim

The Fifth Circuit Court of Appeals recently affirmed a district court’s ruling that granted summary judgment dismissing a bad faith claim against a workers’ compensation insurance carrier.  The claimant was injured while cleaning a beach.  The carrier denied compensation benefits, relying on the Longshore and Harbor Workers’ Compensation Act exclusion. The employer argued that it purchased an endorsement for “Street Cleaning” and that beach cleaning fell under the endorsement.  Although an auditor employed by the carrier stated multiple times that the claimant fell under the “Street Cleaning” endorsement, the carrier continued to deny coverage.

The employer sued the carrier. The carrier moved for summary judgment on the issue of coverage. The district court ruled in favor of the carrier on the coverage issue, but the appellate court ultimately reversed and ruled that the claimant was not injured on a covered situs.  The carrier then moved for summary judgment on the issue of bad faith.  The district court again ruled in favor of the carrier.  The employer appealed.

The employer argued that the appeal should be heard “de novo” and no weight should be given to the district court’s ruling.  The Fifth Circuit disagreed. The Court stated that the standard of review was “de novo” but they were still bound to apply Louisiana substantive law. Louisiana law provides that when the initial court to review an insurance dispute sides with the insurer, on a question of fact or law, that court’s decision, which later proves erroneous, creates a very strong presumption that the insurer did not act in bad faith. The district court’s ruling was affirmed.

Global Mgmt. Enter., L.L.C. v. Commerce & Indus. Ins. Co.