BEVERLY SMITH VS. CITADEL INSURANCE COMPANY AS SUCCESSOR TO GRAMERCY INSURANCE COMPANY AND GOAUTO INSURANCE COMPANY
No. 2019-CC-00052
SUPREME COURT OF LOUISIANA
October 22, 2019
271 So. 3d 203
JOHNSON, Chief Justice
ON SUPERVISORY WRIT TO THE 19TH JUDICIAL DISTRICT COURT, PARISH OF EAST BATON ROUGE
FOR IMMEDIATE NEWS RELEASE NEWS RELEASE #45
FROM: CLERK OF SUPREME COURT OF LOUISIANA
The Opinions handed down on the 22nd day of October, 2019, are as follows:
BY JOHNSON, C.J.:
2019-CC-00052 BEVERLY SMITH VS. CITADEL INSURANCE COMPANY AS SUCCESSOR TO GRAMERCY INSURANCE COMPANY AND GOAUTO INSURANCE COMPANY (Parish of East Baton Rouge)
For the above reasons, we hold an insurer‘s duty of good faith owed to its insured under
AFFIRMED.
Chief Judge Susan M. Chehardy of the Court of Appeal, Fifth Circuit, appointed as Justice pro tempore, sitting for the vacancy in the First District.
Retired Judge Michael Kirby appointed Justice ad hoc, sitting for Clark, J.
Weimer, J., concurs in the result and assigns reasons.
SUPREME COURT OF LOUISIANA
We granted this writ application to determine whether a first-party bad faith claim against an insurer is a delictual action subject to a onе-year prescriptive period, or whether it is a contractual claim subject to a ten-year prescriptive period. Finding the bad faith claim arises as a result of the insured‘s contractual relationship with the insurer, we hold it is subject to a 10-year prescriptive period.
FACTS AND PROCEDURAL HISTORY
This litigation arises from a suit filed by plaintiff, Beverly Smith, against Darlene Shelmire and her insurer, GoAuto Insurance Company (“GoAuto“),2 as a result of an automobile accident on July 27, 2010. On February 26, 2015, following a trial on the merits, the district court entered judgment in favor of plaintiff against Ms. Shelmire and GoAuto in an amount in excess of the insuranсe policy limits. The judgment was noticed and mailed to all counsel on March 5, 2015. GoAuto devolutively appealed that judgment, but Ms. Shelmire did not file an appeal. The court of appeal ultimately affirmed the district court‘s judgment on March 10, 2016. Thereafter, Ms. Shelmire assigned her rights to pursue a bad faith action against GoAuto to Ms. Smith.
Through her assignment of rights, Ms. Smith filed the instant suit against GoAuto on March 10, 2017, and amended her petition on September 27, 2017, asserting a bad faith claim based on GoAuto‘s violation of its duties under
Following a hearing, the district court overruled GoAuto‘s exception of prescription, reasoning in part:
The Court, after consideration of the arguments of counsel, along with what‘s been submitted to the Court, and the Court‘s review of the jurisprudence on the issue, finds that the nature of the duty of the insurer to its insured or the assignee of the insured is a contractual duty; and - - and, therefore, the claim for breach of contractual duties the insurer owes to an insured under 22:1973 is subject to the ten-year prescriptive period. Court‘s going to deny the exception.
DISCUSSION
As an initial matter, we briefly address GоAuto‘s argument that Ms. Smith does not have a cause of action. Citing King v. Illinois Nat. Ins. Co., 08-1491 (La. 4/3/09), 9 So. 3d 780, GoAuto argues the right to file a lawsuit is a strictly personal right, creating a strictly personal obligation, and thus cannot be assigned pursuant to
An appellate court has the right to consider an issue even though there was no assignment of error in that regard. See
La. C.C.P. art. 2164 , comment (a) (“an appellate court [has] complete freedom to do justice on the record irrespective of whether a particular legal point or theory was made, argued, or passed on by the court below.“); Georgia Gulf Corp. v. Board of Ethics, 96-1907 (La. 5/9/97), 694 So. 2d 173, 176; Safeway Insurance Co. of Louisiana v. State Farm Mut. Auto. Ins. Co., 36,853 (La. App. 2 Cir. 3/5/03), 839 So.2d 1022, 1027; Wheeler v. Kelley, 28,379 (La. App. 2 Cir. 11/7/95), 663 So. 2d 559, 561, writ denied, 95-2721, 664 So. 2d 404 (La.1995).
Wegener v. Lafayette Ins. Co., 10-0810 (La. 3/15/11), 60 So. 3d 1220, 1232, n. 11. We also recognize that an exception of no cause of action can be noticed by an appellate court on its own motion.
[W]e must emphasize that Kelly does not seek to recover directly for his own damages. Instead, Kelly has been assigned [the insured‘s] causes of action, as might have been available to [the insured], for State Farm‘s actions which allegedly subjected [the insured] to the judgment in excess of [the insured‘s] insurance policy limits. Therefore, the causes of action asserted by Kelly are not those of a third-party claimant, but rather those of an insured.
Kelly, 169 So. 3d at 334, 335 n. 24. Thus, we find Ms. Shelmire‘s right to file a lawsuit against GoAuto could be validly assigned to Ms. Smith pursuant to
As a final preliminary matter, we reject Ms. Smith‘s argument that this court need not reach the legal issue of whether a ten-year or a one-year prescriptive period applies in this case. According to Ms. Smith, her suit was timely even if filed undеr a one-year prescriptive period because she brought suit within one year of the accrual of her cause of action. Ms. Smith contends her cause of action did not accrue until GoAuto‘s asserted policy defense was finally resolved when the court of appeal affirmed the district court‘s judgment on March 10, 2016. We disagree. In this case, judgment was entered on February 26, 2015. The notice of judgment was mailed on March 5, 2015.
We now move on to consider the primary legal issue before this court—the proper prescriptive period applicable to a first-party bad faith claim against an insurer. Questions of law are reviewed de novo, with the judgment rendered on the record,
Ms. Smith brought a bad faith claim against GoAuto pursuant to an assignment of rights from the named insured. Thus, the causes of action asserted by Ms. Smith are those of an insured. Louisiana courts have long recognized thаt an insurer owes its insured a duty of good faith. See, e.g., Roberie v. S. Farm Bureau Cas. Ins. Co., 250 La. 105, 194 So. 2d 713 (La. 1967) (recognizing the responsibility of a liability insurer to deal in good faith with a claim against its insured); Davis v. Maryland Cas. Co., 133 So. 769 (La. App. 2nd Cir. 1931) (recognizing an insurer‘s duty to respond to settlement offers in good faith). In Holtzclaw v. Falco, Inc., this court explained:
It is generally accepted that an insurer must carefully consider the interests of its insured, instead of only consulting its own self-interests, when handling and settling claims in order to protect the insured from exposure to excess liability. While the nature of the insurer‘s obligations toward the insured is not clearly defined, this Court has recognized that a liability insurer owes its insured a minimum duty to act in good faith and to deal fairly. Some Louisiana court of appeal decisions indicate the imposition of a greater duty based upon a combined requirement to act in good faith and to use reasonable care and skill in settlement of claims. Language in one appellate opinion and a scholarly writing suggest the insurer should be regarded as a fiduciary or a mandatary responsible not only for unfaithfulness in management of claims but also for his fault or neglect.
355 So. 2d 1279, 1283–84 (La. 1977). The insurer‘s duty to act in good faith includes the duty to deal fairly in handling claims. Smith v. Audubon Ins. Co., 95-2057 (La. 9/5/96), 679 So. 2d 372, 376. Additionally, this court has stated that “... in every case, the insurance company is hеld to a high fiduciary duty to discharge its policy obligations to its insured in good faith—including the duty to defend the insured against covered claims and to consider the interests of the insured in every settlement.” Pareti v. Sentry Indem. Co., 536 So. 2d 417, 423 (La. 1988).
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 damages 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.
(2) Failing to pay a settlement within thirty days after an agreement is reduced to writing.
(3) 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.
(4) Misleading a claimant as to the applicable prescriptive period.
(5) Failing to pay the amount of any сlaim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause.
(6) Failing to pay claims pursuant to R.S. 22:1893 when such failure is arbitrary, capricious, or without probable cause.
C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichеver is greater. 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.
In Theriot v. Midland Risk Ins. Co., 95-2895 (La. 5/20/97), 694 So. 2d 184, this court considered the proper interpretation and application of La. R.S. 22:1220 (now
While this court has never defined the precise basis of the duties owed by an insurer to its insured, we have held that they are fiduciary in nature and include the duty to discharge policy obligations to the insured in good faith, to defend the insured against covered claims and to consider the interests of the insured as paramount in every settlement. Pareti v. Sentry Indemnity Co., 536 So.2d 417, 423 (La.1988). It is generally agreed that an insurer‘s duties run primarily in favor of its insured as an outgrowth of duties that have their foundation in the contract between the parties. It is the relationship of the parties that gives rise to the implied covenant of good faith and
fair dealing. The relationship between the insurer and third-party claimant is neither fiduciary nor contractual; it is fundamentally adversarial. For that reason, a cause of action directly in favor of a third-party claimant against a tort-feasor‘s insurer is not generally recognized absent statutory creation.
In Kelly, supra, we again focused on the relationship between the insurer and the insured to explain the different application of
Although the duty of good faith owed by the insurer to the insured is codified in
Our decision is in line with the majority of jurisprudence from our state appellate courts and the federal courts which have considered the proper prescriptive period for actions under the insurance penalty statutes. In 1989, the First Circuit applied a ten-year prescriptive period to an insured‘s action against the insurer for penalties under La. R.S. 22:658 (now
However, in 1993, the First Circuit issued an opinion in Zidan v. USAA Property and Casualty Insurance Co., 622 So. 2d 265 (La. App. 1st Cir. 1993), writ denied, 629 So. 2d 1138 (La. 1993). In Zidan, the plaintiff (guest passenger) filed suit against the tortfeasor and his insurer, as well as the driver of the vehicle in which he was a рassenger and his insurer, Liberty Lloyds, a year and a day after the accident. The district court sustained Liberty Lloyds’ exception of prescription. On appeal, the plaintiff argued his claim was not prescribed because the doctrine of contra non valentem should apply based on Liberty Lloyds’ misrepresentation and concealment of coverage in violation of La. R.S. 22:1220 (now
More recently, the issue was considered by the Third Circuit in Fils v. Starr Indem. & Liab. Co., wherein the court held, on rehearing, that “the appropriate prescriptive period for bad faith claims arising out of a contract of insurance is the ten-year prescriptive period found in
An insured‘s claim for bad faith ordinarily is based upon the obligation that arises from the relationship between the insurer and insured. Plaintiff argues because bad faith claims are derived from contractual obligations and fiduciary duties owed by the insurer pursuant to the contract of insurance between the parties, they are appropriately governed
by the ten-year prescriptive period which governs contracts. ***
It follows, but for the existence of the insurance contract between [the insured] and [the insurer], there would be no claim. Likewise, all obligations of [the insurer] in this case originate and flow from the insurance contract.
***
Because any bad faith on an insurer‘s part is a breach of a contractual duty, it necessarily follows the cause of action is personal and subject to the ten-year prescriptive period found in
La. Civ. Code art. 3499 . Louisiana Civil Code Article 1759 provides that “[g]ood faith shall govern the conduct of the obligor and obligee in whatever pertains to the obligation.” Thus, the breach of the duty of good faith, which the insurer owes, is the breach of an obligation that flows from the insurance contract.
The Louisiana federal courts are split on the issue. The Federal District Court for thе Eastern District of Louisiana has applied a one-year prescriptive period to these claims, primarily relying on Zidan. In Brown v. Protective Life Insurance Co., 353 F.Supp. 2d 739, 743 (E.D. La. 2004), the court, citing Zidan, found an insured‘s claims against the insurer alleging fraudulent behavior under La. R.S. 22:1220 (now
Conversely, the United States District Court for the Western District of Louisiana has found that a claim against an insurer for breach of the duty owed to its insured is subject to a ten-year prescriptive period. In Aspen Specialty Insurance Co. v. Technical Industries, Inc., the court declined to follow the Zidan line of cases, noting Zidan involved a third-party claim, and concluded a ten-year prescriptive period applied to the bad faith claim against the insurer:
It is logical that the claim by a third party to an insurance contract against an insurer would be classified as a tort and subject to the one-year prescriptive period for delictual actions, but it is not logical that a first-party claim, that is, a claim by an insured against its insurer, would be classified as a delictual claim. A first-party claim arises out of the relationship created by the insurance contract and, therefore, is either contractual or quasi-contractual in nature. Indeed, Section 1973 “recognizes the jurisprudentially established duty of good faith and fair dealing owed to the insured, which is an outgrowth of the contractual and fiduciary relationship betweеn the insured and the insurer.” Both contractual and quasi-contractual claims are classified, under Louisiana law, as personal actions subject to a liberative prescription of ten years.
Aspen Specialty Ins. Co., 2015 WL 339598, *2 (W.D. La. 2015). See also Prudhomme v. Geico Ins. Co., 2015 WL 2345420 (W.D. La. May 14, 2015) (finding a first-party claim for bad faith under
The United States Fifth Circuit Court of Appeals has not expressly resolved the conflict in the federal courts. In Belanger v. GEICO Gen. Ins. Co., 623 F. App‘x 684 (5th Cir. 2015), the court applied a one-year prescriptive period to a first-party bad faith claim brought under La. R.S. 22:1220 (now
Other than the cases relying on Zidan, the body of jurisprudence addressing this issue favors application of a ten-year prescriptive period to first-party bad faith claims. We endorse this jurisprudence, and particularly the reasoning of the Third Circuit in Fils (on rehearing). The federal cases applying а one-year prescriptive period have repeatedly relied on Zidan, which is easily distinguishable and thus not directly applicable. As noted by the federal court in Aspen Specialty Ins. Co. and recognized by the court in Fils, Zidan involved a bad faith claim asserted by a third party, not the insured. There is no contractual relationship between a third party and an insurer.8
Finally, we note our holding in this case is not inconsistent with our earlier opinions in Durio v. Horace Mann Ins. Co., 11-0084 (La. 10/25/11), 74 So. 3d 1159, Wegener v. Lafayette Ins. Co., supra, or Manuel v. Louisiana Sheriff‘s Risk Management Fund, 95-0406 (La. 11/27/95), 664 So. 2d 81. In those cases, this court made general statements that the duties of an insurer under La. R.S. 22:1220 (now
In Durio, this court addressed the proper calculation of penalties under La. R.S. 22:1220 (now
In Wegener, this court considered whether
Finally, in Manuel, this court considered whether La. R.S. 22:1220 (now
[T]he statute provides a method by which insured and non-insured claimants can recover for damages caused by insurers. R.S. 22:1220 merely provides a means by which insured and third-party claimants can exercise their rights under insurance policies “executed for the benefit of all injured persons.” R.S. 22:655(D). Because of this public policy, La. R.S. 22:1220 is remedial in nature and applicable to all pre-existing insurance policies.
Manuel, 664 So. 2d at 85. Nothing in Manuel dictates we reach a different result in this case.
CONCLUSION
For the above reasons, we hold an insurer‘s duty of good faith owed to its insured under
DECREE
AFFIRMED.
BEVERLY SMITH VERSUS CITADEL INSURANCE COMPANY AS SUCCESSOR TO GRAMERCY INSURANCE COMPANY AND GOAUTO INSURANCE COMPANY
No. 2019-CC-00052
SUPREME COURT OF LOUISIANA
October 22, 2019
WEIMER, J., concurs.
ON SUPERVISORY WRITS TO NINETEENTH JUDICIAL DISTRICT COURT, PARISH OF EAST BATON ROUGE
WEIMER, J., concurs.
I concur in the result in this case. I write sеparately to question the majority‘s discussion of Ms. Smith‘s claim that her suit was filed within one year of the accrual of her cause of action, as I believe this discussion is dicta. Smith v. Citadel Insurance Company as Successor to Gramercy Insurance Company and GoAuto Insurance Company, 19-0052, slip op. pp. 4-5 (La. __/__/19). Because the majority correctly holds that the applicable prescriptive period is the ten-year period set forth in