285 So.3d 1062
La.2019Background
- On July 27, 2010 an automobile accident led to a judgment entered February 26, 2015 against the insured (Shelmire) and her insurer GoAuto in excess of policy limits; notice mailed March 5, 2015.
- Shelmire did not appeal; GoAuto filed a devolutive appeal asserting coverage defenses; after the suspensive-appeal period expired the excess judgment became enforceable April 15, 2015.
- Shelmire assigned her rights to pursue a bad-faith claim under La. R.S. 22:1973 to Beverly Smith, who sued GoAuto on March 10, 2017 alleging first-party bad faith.
- GoAuto filed an exception of prescription arguing a first-party bad-faith claim is delictual and prescribes in one year; Smith argued it is contractual and prescribes in ten years (La. C.C. art. 3499).
- The district court overruled the exception; the court of appeal denied writs; the Louisiana Supreme Court granted review and affirmed that a ten‑year prescriptive period applies to first‑party bad‑faith claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper prescriptive period for a first‑party bad‑faith claim under La. R.S. 22:1973 | Bad‑faith claim is contractual (outgrowth of insurer–insured contract) and thus subject to ten‑year prescription | Bad‑faith claim is delictual and thus subject to one‑year prescription | Ten‑year prescriptive period applies (La. C.C. art. 3499) |
| Assignability of insured’s bad‑faith claim to a third party (Smith) | Assignment valid under La. C.C. art. 2642; assignee stands in insured’s shoes | Right to sue is strictly personal and not assignable (relying on King) | Assignment valid; insured’s cause of action can be assigned; King distinguishable |
| Accrual date for bad‑faith claim (relevance to prescription) | Claim accrued later (after appellate affirmance) so suit timely under one‑year | Claim accrued when judgment became executory (April 15, 2015) | Court held accrual occurred when insured was exposed to excess judgment (April 15, 2015); Smith’s suit would be untimely under a one‑year rule but timely under ten years |
Key Cases Cited
- Kelly v. State Farm Fire & Cas. Co., 169 So. 3d 328 (La. 2015) (recognizes assignment of insured’s causes and that §1973(A) vindicates insured’s contractual/fiduciary rights)
- Theriot v. Midland Risk Ins. Co., 694 So. 2d 184 (La. 1997) (§1973 recognizes duty of good faith as outgrowth of insurer–insured contractual/fiduciary relationship)
- Pareti v. Sentry Indem. Co., 536 So. 2d 417 (La. 1988) (insurer owes high fiduciary duty to insured; consider insured’s interests in settlements)
- King v. Illinois Nat. Ins. Co., 9 So. 3d 780 (La. 2009) (addressed assignability issue in different context; court here distinguishes King)
- Zidan v. USAA Prop. & Cas. Ins. Co., 622 So. 2d 265 (La. App. 1 Cir. 1993) (applied one‑year prescription to a third‑party bad‑faith claim; distinguished as involving a non‑insured)
- Fils v. Starr Indem. & Liab. Co., 263 So. 3d 1157 (La. App. 3 Cir. 2018) (on rehearing adopted ten‑year prescription for insured’s bad‑faith claims)
- Cantrelle Fence & Supply Co. v. Allstate Ins. Co., 550 So. 2d 1306 (La. App. 1 Cir. 1989) (applied ten‑year prescription to insurer penalty statute claims)
- Durio v. Horace Mann Ins. Co., 74 So. 3d 1159 (La. 2011) (discussed penalty calculation under statute but did not address prescriptive period)