In March, a Lake Charles business owner was awarded $1.7 million after a jury determined his insurance company unreasonably withheld payments on his claim from Hurricane Laura.
It’s the first verdict of its kind to penalize a property insurer for its behavior toward an insured since the Category 4 storm that tore through southwest Louisiana nearly two years ago.
The judgment comes as Baton Rouge state lawmakers consider increasing the penalties that courts can impose on insurance companies that mistreat policyholders.
State law requires property insurers to make a settlement offer within 30 days of receiving “satisfactory proof of loss” on a claim. Failure to meet this deadline is considered an act of bad faith. As a penalty, the insurer must pay an additional 50% on top of untimely payments, as well as attorney fees and court costs.
So far, about 3,700 policyholders in Louisiana have sued saying their insurance companies acted in bad faith in how they handled claims from Hurricanes Laura and Delta. Further lawsuits are expected; policyholders have two years after a storm to file a lawsuit.
To manage the influx of litigation, the federal court for the Western District of Louisiana adopted a case management system that requires plaintiffs and defendants to hold informal settlement talks followed by formal mediation.
About half of the cases filed in southwest Louisiana have already been mediated, and of those, about 94% have been settled, according to Cade Cole, a court-appointed special master who negotiated more than 500 deals.
“Usually the carrier’s lawyer comes and says, ‘You know what, I looked at the file. We made some mistakes in this regard. We’re here to make things right,” Cole said.
When mediation fails, however, the next step is a jury trial.
That’s how Joey Odom, owner of a two-story, 15,000-square-foot office building in Lake Charles, ended up taking on his insurer, Scottsdale Insurance Group, in March.
When Odom filed his lawsuit in December 2020, Scottsdale had paid him $250,000.
But Odom said he owed more than $2 million. He based that figure on a four-volume, 910-page damage report written by a public surveyor three weeks after the storm, according to court records.
Odom’s attorneys argued that the public adjuster’s report – which was sent to Scottsdale in September 2020 – constituted “sufficient evidence of loss” and that any payment not made within 30 days of its submission violated the bad faith laws of Louisiana.
After a four-day trial in March, a jury sided with Odom and determined he owed his maximum police limit of about $2 million.
By then, Scottsdale had already paid Odom nearly $1.8 million on his claim. However, the jury decided that other than the initial outlay of $250,000, the other payments were untimely.
The court ordered Scottsdale to pay Odom a fine of $892,500. With attorney fees, court costs and the remaining balance of the policy, Odom’s total amount was $1.7 million.
Scottsdale, which did not return a request for comment, asked the court to reconsider the decision.
The lawsuit is the first bad faith case against an insurer to go to trial in Louisiana since Laura made landfall nearly two years ago, though it certainly won’t be the last.
Two consecutive years of catastrophic hurricane seasons have caused at least $22 billion in insured property damage in Louisiana. Over 750,000 insurance claims have been filed.
Another 144 cases are to go to trial in southwest Louisiana after failing to reach a mediated settlement, Cole said.
Still, it’s unclear how many of them will appear before a jury.
There were 117 other cases to be tried before Odom’s case was brought up. All set up on the courthouse steps, sometimes hours before going to court, Cole said.
Odom’s case offered a first glimpse of the risks insurance companies could face for taking their case to a jury. And there are indications that this is already playing into insurer decisions on whether to settle.
“It’s the canary in the coal mine,” said Galen Hair, an attorney with Hair Shunnarah Trial Attorneys, who has worked 800 cases in southwest Louisiana. He said several carriers had “become nervous” since the judgment and reopened settlement talks.
Some lawmakers believe existing bad faith penalties haven’t done enough to deter insurers from giving policyholders the run.
State Sen. Jeremy Stine, a Republican from Lake Charles, said that if the penalties were a deterrent, “I don’t think we would see that kind of outcry from landlords.”
More than 6,300 policyholders have filed complaints with the Louisiana Department of Insurance, claiming their insurance companies mistreated them in the aftermath of Hurricanes Laura, Delta, Zeta and Ida.
Stine filed Senate Bill 208 to increase the bad faith penalties to 100% of the unpaid debt after 60 days of non-payment, and 150% after 120 days.
A longer proposal to rewrite Louisiana’s bad faith laws, House Bill 976State Rep. Ed Larvardain III, a Democrat from Alexandria, would also increase penalties for bad faith, but only for claims arising out of a declared disaster or emergency.
Backed by Democratic Governor John Bel Edwards, the bill would increase the penalty to 100% of the unpaid debt after 30 days of non-payment, 150% after 180 days and 200% after one year.
Another set of proposals attempts to clarify what it means to provide “sufficient evidence of loss,” the threshold that triggers the bad faith countdown.
In most cases, this clock starts ticking when an office fitter receives the damage report from the fitter in the field. But this transfer can sometimes take months.
House Bill 558State Representative Matthew Willard, a Democrat from New Orleans, would require insurers to determine within 90 days of receiving a claim whether they have received “satisfactory proof of loss.”
Another proposal, House Bill 268President Pro Tem Tanner Magee, a Houma Republican, would require insurers to make payment to policyholders within 60 days of their initial inspection.
None of the proposals were submitted to a committee hearing.
Insurance industry lobbyists and Insurance Commissioner Jim Donelon, a Republican, argue that increasing bad faith penalties in Louisiana will cause insurers to raise their premiums or pull out of the Louisiana market altogether. .
Either way, they argue, the insured loses.
Jeff Albright, CEO of Independent Insurance Agents and Brokers of Louisiana, described insurers as “money in and money out” and said insurers would simply raise premiums for policyholders to claw back whatever they would lose in court.
Lobbyists also say tougher penalties will deter insurers from doing business in Louisiana.
At a legislative hearing in April, Albright circulated a list of residential and commercial property insurers who have decided to stop underwriting policies in Louisiana. The list included the four insurance companies that went bankrupt in the aftermath of Hurricane Ida.
“The market is hanging by a thread and we think there are credible indications – as this list shows – that if this legislature does anything really significant to harm insurance companies, its last insurer will turn off the lights,” Albright told lawmakers.
The carrier that faced the recent $1.7 million judgment, Scottsdale Insurance Company, is not renewing “a large portion” of its policies, Albright said, adding that the policies Scottsdale maintains are getting “price increases approaching 100% or more”.
Instead of increasing bad faith penalties, Donelon and Albright support a separate proposal from Stine, Senate Bill 209, which would double the amount of fines the insurance commissioner can impose on an insurer for unfair business practices over a six-month period, from $250,000 to $500,000. The proposal was approved by the Senate with unanimous support and is pending action in the House.
Two weeks ago, Donelon exercised that authority and offered fines totaling $764,750 to five carriers for their “unacceptable behavior” following Laura. Companies included United Property & Casualty; GeoVera; FedNat; House ; and Allied Trust.
The fines followed a “market conduct review,” in which Donelon investigators analyzed how carriers responded to a sample of complaints and claims. The report found that each of the carriers, to some degree, breached the 30-day deadline for paying claims after receiving sufficient proof of loss.
Donelon said another round of reviews were underway for driving after Ida.
But some supporters of increased penalties for bad faith question whether the fines will actually deter insurers from mistreating policyholders.
Eric Holl, executive director of Real Reform Louisiana, a group that supports tougher bad faith penalties for insurers, said: ‘These fines are absolutely nothing compared to the amount of money an insurance company can make by scamming someone.
Donelon said he believed the existing bad faith penalties were deterrent enough, adding that they were lucrative enough “to attract very many TV ads from lawyers and public experts eager to engage with these disgruntled policyholders.”