SURVEY OF COVERAGE AND BAD FAITH LAW IN JURISDICTIONS AFFECTED BY HARVEY, IRMA, AND MARIA 1

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1 HARVEY, IRMA, AND MARIA COVERAGE AND LITIGATION ISSUES PRESENTED BY CATASTROPHIC HURRICANES ABA Insurance Coverage and Litigation Committee CLE Conference, Tucson, AZ, March 1, 2018 SURVEY OF COVERAGE AND BAD FAITH LAW IN JURISDICTIONS AFFECTED BY HARVEY, IRMA, AND MARIA 1 FLORIDA I. INSURANCE COVERAGE BASICS a. Causation On December 1, 2016, the Florida Supreme Court published its opinion in Sebo v. American Home Assurance Company, 208 So. 3d 694 (Fla. 2016) finally answering the question of whether an efficient proximate cause analysis or the concurrent causation doctrine applies to claims where the policyholder seeks coverage on claims where there is the possibility of multiple concurrent losses but at least one of the losses is covered under their policy. The claim arose from alleged damage to the policyholder s roof resulting from Hurricane Wilma, in combination with construction defects and rainstorms. The Florida Supreme Court held in favor of the policyholder, holding that the concurrent causation doctrine applies when multiple perils, some covered, some not, contribute to the damage alleged by the insured. It is important to note that the Policy in question did not include any anti-concurrent causation language (for example, where an excluded peril contributes directly or indirectly to cause a loss, then coverage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. ) Inclusion of the anti-concurrent causation language would dictate a different result. b. Breach of Duties (Notice and Cooperation) In Florida different presumptions arise depending on which duty has been breached. If the insured breaches the notice provision, prejudice to the insurer will be presumed, but may be rebutted by a showing that the insurer has not been prejudiced by the lack of notice. Bankers Ins. Co. v. Macias, 475 So. 2d 1216 (Fla. 1985). In a breach of cooperation clause case, however, the insurer must show a material failure to cooperate which substantially prejudiced the insurer. Id. "[P]rompt" and other comparable phrases, like "immediate" and "as soon as practicable," do not require instantaneous notice. Instead, Florida courts have interpreted these phrases to mean that notice should be provided "with reasonable dispatch and within a reasonable time in view of all of the facts and circumstances of the particular case." Laquer v. Citizens Prop. Ins. Corp., 167 So. 3d 470 (Fla. 3d DCA 2015). 1 Prepared by Andrea DeField, Hunton & Williams LLP, Miami, FL; Vincent Morgan, Pillsbury Winthrop Shaw Pittman LLP, Houston, TX; Anna D. Torres, Torres Law Group, West Palm Beach, FL; Matt Woolf, Baker Donelson Bearman Caldwell & Berkowitz PC, New Orleans, LA. 1

2 c. Proof of Loss Florida courts have consistently interpreted proof of loss obligations coupled with similar no-action clauses to be conditions precedent. Strict compliance is not typically required, and substantial compliance with the proof of loss requirement will likely prevent forfeiture of coverage. See, Allstate Floridian Ins. Co. v. Farmer, 104 So.3d 1242 (Fla. 5th DCA 2012). However, Insured s failure to provide insurer with POL within 60 days after fire constituted a material breach of the policy s condition precedent thus barring recovery and relieving the insurer of its obligations under contract. Starling v. Allstate Floridian Ins. Co., 956 So.2d 511 (Fla. 5th DCA 2007). An insurer shall furnish, upon written request of any person claiming to have a loss under an insurance contract issued by such insurer, forms of proof of loss for completion by such person, but such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion. Fla. Stat d. Examination Under Oath An insured's refusal to comply with a demand for an examination under oath is a willful and material breach of an insurance contract which precludes the insured from recovery under the policy. Goldman v. State Farm Fire Gen. Ins. Co., 660 So.2d 300 (Fla. 4th DCA 1995). e. Policy Interpretation [I]nsurance contracts are construed according to their plain meaning. Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005). A policy provision or exclusionary provision should be enforced based upon its terms if it is clear and unambiguous. Hagen v. Aetna Cas. & Sur. Co., 675 So. 2d 963, 965 (Fla. 5th DCA 1996). A court may not rewrite contracts, add meaning that is not present, or otherwise reach results contrary to the intentions of the party. Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979). The lack of a definition of an operative term in a policy does not necessarily render the term ambiguous and in need of interpretation by the courts. State Farm Fire & Casualty Co. v. CTC Development Corp., 720 So. 2d 1072, 1076 (Fla. 1996). However, where policy language is subject to differing interpretations, the term should be construed liberally in favor of the insured and strictly against the insurer. Id. II. OTHER CLAIM HANDLING RULES Insurer s duty to acknowledge communications regarding claims; investigation, Fla. Stat Prompt acknowledgement of claims. Fla. Admin. Code Ann. R. 69O III. LITIGATION CONSIDERATIONS 2

3 a. Statute of Limitations for Hurricane-Related Insurance Claims A claim, supplemental claim, or reopened claim for loss or damage caused by windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within 3 years after the hurricane first made landfall or the windstorm caused the covered damage. Fla. Stat (Effective 6/1/11). An action for breach of a property insurance contract, 5 years, with the period running from the date of loss. Fla. Stat (2)(e) (Effective 6/1/11). b. Attorneys Fees. Attorneys fees: An insured that prevails in an action against an insurer under a policy is entitled to attorneys fees. Fla. Stat The payment of a previously denied claim following the initiation of an action for recovery, but prior to the issuance of a final judgment, constitutes the functional equivalent of a confession of judgment. Johnson v. Omega Ins. Co., 200 So. 3d 1207, 1215 (Fla. 2016). c. Bad Faith First-party bad faith claims in Florida are governed entirely by statute (Fla. Stat ). Florida does not recognize any common law bad faith causes of action in first-party claims. The Florida Bad Faith statutory scheme provides for two types of claims: a statutory violation by an insurer, and a claim of bad faith refusal to settle. d. Prerequisites to Bad Faith Action The filing of a Civil Remedy Notice is a condition precedent to bringing an action under Fla. Stat The insurer is allowed 60 days to cure the violation. (Fla. Stat (3)). A cause of action in court for violation of section (1)(b)1 is premature until there is a "determination of liability and extent of damages" owed on the first-party insurance contract. Vest v. Travelers Ins. Co., 753 So. 2d 1270, (Fla. 2000). A statutory first-party bad faith action is premature until two conditions have been satisfied: (1) the insurer raises no defense which would defeat coverage (an issue for the judicial process rather than the appraisal process), or any such defense has been adjudicated adversely to the insurer; and, (2) the actual extent of the insured's loss must have been determined. State Farm Fla. Ins. Co. v. Seville Place Condo. Ass'n, 74 So. 3d 105, 108 (Fla. 3d DCA 2011), citing Blanchard v. State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55 (Fla. 1995). However, liability need not always be established by breach of contract; an appraisal award may constitute a favorable resolution of an action for insurance benefits. Cammarata v. State Farm Fla. Ins. Co., 152 So. 3d 606, 612 (Fla. 4th DCA 2014). 3

4 LOUISIANA I. INSURANCE COVERAGE BASICS a. Policy Interpretation & Burden of Proof In interpreting insurance policies, Louisiana courts apply the general rules of interpretation of contracts set forth in the Louisiana Civil Code. 2 Words and phrases used in an insurance policy are to be construed using their plain, ordinary, and generally prevailing meaning unless the words have acquired a technical meaning. 3 When determining whether a policy affords coverage for an incident, the insured bears the burden of proving the incident falls within the policy s terms. 4 The insurer, on the other hand, bears the burden of proving the policy limits or exclusions. 5 Any ambiguities within the policy are construed in favor of the insured to effect coverage. 6 The ambiguity should be construed in favor of coverage only if the ambiguous policy provision is susceptible to two or more reasonable interpretations. 7 In addition to the burden of proving coverage, when seeking to recover under an insurance contract, the insured has the burden of proving every fact essential to the insured s cause of action. 8 b. Causation Louisiana has adopted the efficient proximate cause doctrine to resolve coverage issues when covered and uncovered risks combine to cause a direct loss in some contexts. 9 While the Louisiana Supreme Court has not addressed the applicability of the efficient proximate cause doctrine in the context of an all-risk policy, 10 it has adopted the efficient proximate cause doctrine to resolve coverage issues in the context of windstorm policies Cadwallader v. Allstate Ins. Co., (La. 6/27/03), 848 So. 2d 577, 580 (citing Carbon v. Allstate Ins. Co., , p. 4 (La. 10/20/98), 719 So.2d 437, 439). 3 Id.; see La. Civ. Code art Doerr v. Mobil Oil Corp., (La. 12/19/00), 774 So. 2d 119, 124, opinion corrected on reh g, (La. 3/16/01), 782 So. 2d 573 (citation omitted). 5 Id.; see Tunstall v. Stierwald, (La. 2/26/02), 809 So. 2d 916, Id. 7 Sher v. Lafayette Ins. Co., (La. 4/8/08), 988 So. 2d 186, 194, on reh'g in part (July 7, 2008). 8 Tunstall, 809 So. 2d at 921 ( In an action under an insurance contract, the insured bears the burden of proving the existence of the policy and coverage. ). 9 Louisiana courts generally interpret direct or direct physical loss as being synonymous with proximate cause. Seacor Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675, 682 (5th Cir. 2011)( [W]e rely on Louisiana law, which equates direct loss to proximate or efficient cause. ); Arias Benn v. State Farm Fire & Cas. Ins. Co., 495 F.3d 228, 231 (5th Cir. 2007) ( Louisiana law equates direct loss with proximate cause; an insurance policy, however, may limit or otherwise define direct loss. ); see Milton v. Main Mutual Ins. Co. of Ill., 261 So.2d 723 (La. App.4 Cir. 1972). 10 See In re Katrina Canal Breaches Litig., 495 F.3d 191, 222 n. 28 (5th Cir. 2007). 11 See Lorio v. Aetna Ins. Co., 255 La. 721, 232 So.2d 490, 493 (1970); see also Roach Strayhan Holland Post No. 20, Am. Legion Club, Inc. v. Continental Ins. Co. of N.Y., 237 La. 973, 112 So.2d 680, 683 (1959) ( [I]t is sufficient, in order to recover upon a windstorm insurance policy not otherwise limited or defined, that the wind was the proximate or efficient cause of the loss or damage, notwithstanding other factors contributing thereto. ). 4

5 Anti-concurrent clause (ACC) provisions are often employed to avoid application of the doctrine, and the Fifth Circuit and Eastern District of Louisiana have upheld ACC clauses as unambiguous. 12 The Fifth Circuit addressed the issue in Leonard v. Nationwide Mut. Ins. Co., 13 finding the ACC at issue was unambiguous and led to the conclusion that the ACC clause eliminated both perils, covered and excluded, if they occurred concurrently. Despite the fact that Fifth Circuit s decision in Leonard applied Mississippi law, subsequent decisions live on in the Circuit's consideration of ACC clauses arising under Louisiana law. 14 However, the Louisiana Supreme Court has not squarely addressed the correct application of ACC clauses under Louisiana law, and Louisiana appellate courts have not formed a clear consensus on the issue. 15 For example, the Louisiana Fourth Circuit recently adopted the Mississippi Supreme Court s interpretation of ACC clauses, finding that ACC clauses do not operate to remove from coverage [] damages that would have otherwise been covered as a result of the initially covered loss. In that respect, we agree with the Corban court that it cannot be seriously disputed that if a covered peril causes damages, coverage for that damage is not changed by any subsequent cause or event. 16 The court then stated that a factual determination must be made regarding whether the damages ultimately suffered by an insured are attributed to an initially covered loss, or whether the damages are more properly attributed to an excluded peril. 17 In light of the existing Louisiana state court opinions, the question remains open whether the efficient proximate cause doctrine would circumvent the application of ACC clauses in policies under Louisiana law. 12 See Arcement v. GeoVera Specialty Ins.--Servs., Inc., No. CIV.A , 2015 WL , at *5 (E.D. La. Jan. 12, 2015) (discussing the federal court decisions on ACC and efficient proximate cause); see also Arctic Slope Reg'l Corp. v. Affiliated FM Ins. Co., 564 F.3d 707, 712 (5th Cir. 2009) ( In this situation, the ACC clause operates exactly as it was intended, and it is not ambiguous. The clause eliminates application of an efficient proximate cause rule, whereby a jury could be called upon to determine the relative contribution of the covered and the excluded perils, by excluding coverage altogether. ); Ngyuen v. Atl. Cas. Ins. Co., No. CIV.A , 2008 WL , at *2 (E.D. La. Apr. 28, 2008) (noting that while the Louisiana Supreme Court has not yet ruled on the validity of the ACC, courts in the Eastern District of Louisiana have found such clauses to be clear and to exclude damage caused by flooding) F.3d 419, 431 (5th Cir. 2007). 14 Arcement, 2015 WL , at *5 (citing Stewart Enterprises, Inc. v. RSUI Indem. Co., 614 F.3d 117 (5th Cir 2010); Arctic Slope Regional Corp., 565 F.3d 707). 15 Arcement, 2015 WL , at *6; see Landry v. Louisiana Citizens Prop. Ins. Co., , p. 17 (La. App. 3 Cir. 8/28/07), 964 So.2d 463, 47 ( [F]lood water exclusions in windstorm policies do not contractually operate to negate an insurer s obligation to fully indemnify an insured when a determination is made that the efficient or proximate cause of the total loss was wind and rain.... This has been the jurisprudence of the courts in this State, including the Louisiana Supreme Court, for well over sixty years. ); but see Landry v. Louisiana Citizens Prop. Ins. Co., (La. 5/21/08), 983 So. 2d 66, 83 (vacating the portion of court of appeal s judgment discussing efficient proximate cause doctrine). 16 Orleans Par. Sch. Bd. v. Lexington Ins. Co., (La. App. 4 Cir. 8/28/13), 123 So. 3d 787, Id. 5

6 c. Duties after Loss and Consequences of Failure to Comply i. Notice Under Louisiana law, the general rule is that breach of a notice provision in an insurance policy will not allow an insurance company to avoid liability under the policy unless it can show that it was prejudiced by the delay in receiving notice. 18 This jurisprudential rule arises out of third-party liability cases, but the rationale has been applied in the first-party property context. 19 Louisiana courts have described the effect of a liability policy provision requiring notice of a claim to the insurer as follows: The function of the notice requirements is simply to prevent the insurer from being prejudiced, not to provide a technical escape-hatch by which to deny coverage in the absence of prejudice nor to evade the fundamental protective purpose of the insurance contract to assure the insured and the general public that liability claims will be paid up to the policy limits for which premiums were collected. Therefore, unless the insurer is actually prejudiced by the insured s failure to give notice immediately, the insurer cannot defeat its liability under the policy because of the non-prejudicial failure of its insured to give immediate notice of an accident or claim as stipulated by a policy provision. 20 Federal courts applying Louisiana law, however, have found that an insured s failure to give prompt notice may result in denial of coverage under the policy without a demonstration of prejudice. 21 When prompt notice of a covered occurrence is a condition precedent to recovery under an insurance policy, and the insured fails to give such notice, the claim is no longer covered by the policy, regardless of whether the insurer can demonstrate prejudice. 22 If notice is not a condition precedent to recovery, however, the insurer may avoid liability only if it can show that it was prejudiced by the insured s failure to give timely notice. 23 Whether a notice provision is a condition precedent to recovery depends on the language of the policy Homestead Ins. Co. v. Zar, 18 F.3d 936 (5th Cir. 1994) (citing Barnes v. Lumbermen's Mutual Casualty Co., 308 So.2d 326, 330 (La.Ct.App.1975)). 19 See id. 20 State ex rel. Div. of Admin., Office of Risk Mgmt. v. Nat'l Union Fire Ins. Co. of Louisiana, (La. App. 1 Cir. 2/11/11), 56 So. 3d 1236, 1246, writ denied, (La. 6/3/11), 63 So. 3d 1023 (quoting Miller v. Marcantel, 221 So.2d 557, 559 (La. App. 3rd Cir.1969)). 21 See D & L Marine Transp., Inc. ex rel. TLC Marine Servs., Inc. v. Suard Barge Serv., Inc., No. CIV. A , 2003 WL , at *4 (E.D. La. Oct. 14, 2003) ( [T]he Fifth Circuit, applying Louisiana law, has concluded that a sophisticated insured's failure to satisfy a policy provision making timely notice an express condition precedent results in forfeiture of coverage, regardless of whether the insurer can demonstrate prejudice. (citations omitted). 22 XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F. Supp. 3d 728, (E.D. La. 2014) (quoting Gulf Island, IV v. Blue Streak Marine, Inc., 940 F.2d 948, 955 (5th Cir.1991)). 23 XL Specialty Ins. Co., 57 F. Supp. 3d at (E.D. La. 2014) (citing Gulf Island, 940 F.2d at 956); see Barnes v. Lumbermen's Mut. Cas. Co., 308 So. 2d 326, 328 (La. Ct. App. 1975)( [Insurer] cannot escape liability for the claim asserted in this action unless it has been prejudiced either in fact or as a matter of law by the delay in notice. ). 24 XL Specialty Ins. Co., 57 F. Supp. 3d at 761 (E.D. La. 2014) (citation omitted). 6

7 ii. Examination Under Oath Compliance with other insurance policy provisions may be considered conditions precedent to recovery under the policy that must be fulfilled before an insured may proceed with a lawsuit. [F]ailure of an insured to cooperate with the insurer has been held to be a material breach of the contract and a defense to suit on the policy. 25 Such failure may be manifested by a refusal to submit to an examination under oath or a refusal to produce documents. 26 Examination under oath and production of requested documents thus may also be conditions precedent to coverage prior to filing of a lawsuit. 27 However, the insurer bears the burden of demonstrating actual prejudice from the insured s lack of cooperation. 28 And, courts have generally limited these conditions to the time period prior to filing of a lawsuit. 29 iii. Proof of Loss Under Louisiana law, a satisfactory proof of loss is only that which is sufficient to fully apprise the insurer of the insured s claims. 30 Proof of loss need not be in any formal style as long as the insurer receives sufficient information to act on the claim. 31 Proof of loss is intended to advise an insurer of the facts of the claim and often takes the form of an estimate of damages prepared on behalf of the insured. The Louisiana Supreme Court has found, for instance, that a settlement agreement would not be sufficient proof of loss. 32 The Court made clear that proof of loss means proof of the amount of any claim due any 25 Hamilton v. State Farm Fire & Cas. Ins. Co., 477 F. App'x 162, 165 (5th Cir. 2012) (citiation and internal quotation marks omitted). 26 Id. 27 Lee v. United Fire & Casualty Comp., 607 So. 2d 685, 688 (La. App. 4 Cir. 1992); Kerr v. State Farm Fire and Cas. Co., 511 F. Appx. 306, (5th Cir. 2013); Assaf v. Allstate Indem. Co., No , 2011 WL , at *3 (E.D.La. July 27, 2011); Hamilton, 2011 WL , at *2 (finding insured claims properly dismissed provided an intransigent refusal to comply with the cooperation clause at issue); Mosadegh v. State Farm Fire and Cas. Co., No , 2008 WL , at *1 2 (E.D.La. Oct. 14, 2009), aff'd, 330 F. Appx. 65 (5th Cir.2009); Honore v. AIG Prop. Cas. Ins. Agency, Inc., 2014 WL , at *1 2 (M.D.La. Sept. 15, 2014); see also Brantley v. State Farm Ins. Co., 37,601 (La. App. 2 Cir. 1/28/04), 865 So. 2d 265, (finding trial court did not err in dismissing plaintiffs claims for recovery for property damages under the policy where plaintiffs failed to submit to examination under oath, failed to provide sufficient proof of loss or financial records, and allowed the house to remain vacant for more than 30 days immediately prior to the loss). 28 Id. 29 See, e.g., Marquette v. S. Fid. Ins. Co., No. CIV.A , 2015 WL 94712, at *2 (E.D. La. Jan. 7, 2015) (collecting cases). 30 Louisiana Bag Co., Inc. v. Audubon Indem. Co., , p. 23 (La.12/2/08), 999 So. 2d 1104, 1119 (quoting McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1089); see Maloney Cinque, L.L.C. v. Pac. Ins. Co., (La. App. 4 Cir. 1/25/12), 89 So. 3d 12, Id.; see Sevier v. U.S. Fid. & Guar. Co., 497 So.2d 1380, 1384 (La.1986). See La. R.S. 22:878 (providing that insurers requiring completion of proof of loss form shall provide form to those claiming loss but shall not have responsibility as to completion of forms). 32 Katie Realty, Ltd. v. Louisiana Citizens Prop. Ins. Corp., (La. 10/16/12), 100 So. 3d 324,

8 insured arising under its contract of insurance issued by an insurer, the operative word being claim. 33 iv. Appraisal Louisiana courts have consistently upheld and enforced appraisal provisions in insurance policies. 34 Louisiana statutorily requires inclusion of an appraisal clause in standard fire insurance policies. 35 While it has been argued that appraisals are the equivalent of arbitration agreements, the Louisiana Supreme Court has not yet made such a determination. Louisiana forbids any sort of condition in an insurance contract that would deprive the courts of jurisdiction of an action against the insurer, as set forth in Louisiana Revised Statutes 22:868: A. No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state... shall contain any condition, stipulation, or agreement... (2) Depriving the courts of this state of the jurisdiction of action against the insurer. Louisiana courts have held that arbitration agreements are violative of Revised Statutes 22:868, and are, therefore, unenforceable if contained in an insurance policy. 36 The same may not be true of appraisal provisions. Although the Louisiana Supreme Court has not squarely addressed the validity of appraisal provisions, 37 various Louisiana and federal courts applying Louisiana law have acknowledged that appraisal provisions are distinct from arbitration agreements and do not contravene La. R.S. 22:868 by divesting courts of jurisdiction. 38 Thus, the appraisals and resulting awards remain subject to the court s jurisdiction and its scrutiny. The courts may, for 33 Id. at ; see also Durio v. Horace Mann Ins. Co., (La. 10/25/11), 74 So.3d 1159; Sevier v. U.S. Fid. & Guar. Co., 497 So. 2d 1380 (La. 1986); McDill, 475 So. 2d 1085; Hart v. Allstate Ins. Co., 437 So. 2d 823 (La. 1983). 34 See Davis v. Safeco Ins. Co. of Am., No. CIV.A BAJ, 2014 WL , at *4 (M.D. La. Aug. 12, 2014)(collecting cases); Dore v. Shelter Mut. Ins. Co., (La. App. 1 Cir. 11/1/13)( Appraisal provisions are enforceable in Louisiana. ). 35 La. R.S. 22:1311(A), (F). 36 See Doucet v. Dental Health Plans Mgmt. Corp., 412 So.2d 1383, 1384 (La. 1982); see also Courville v. Allied Professionals Ins. Co., (La. App. 1 Cir. 4/12/17), 218 So. 3d 144 (finding compulsory arbitration provision contrary to La. R.S. 22:868 s anti-arbitration policy ). 37 See Green Project, Inc. v. Evanston Ins. Co., No. CV , 2008 WL , at *3 (E.D. La. Oct. 8, 2008)( [T]he Louisiana Supreme Court has not squarely addressed the validity of appraisal provisions in the wake of section 629. ). 38 Dufrene v. Certain Interested Underwriters at Lloyd's of London Subscribing to Certificate No , (La. App. 5 Cir. 3/27/12), 91 So. 3d 397, 400 ( Appraisal clauses, such as the one in this case, are enforceable under Louisiana law, but they do not deprive a court of jurisdiction over the matter ); see St. Charles Parish Hospital Service Dist. No. 1 v. United Fire and Casualty Co., 681 F.Supp. 2d 748, 753 (E.D.La. Jan. 13, 2010); Newman v. Lexington Ins. Co., No , 2007 WL , at *2 (E.D.La. Apr. 4, 2007); Fourchon Docks, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., No , 1988 WL 32938, at *8 (E.D.La. Apr. 6, 1988); Girard v. Atlantic Mut. Ins. Co., 198 So. 2d 444, 446 (La. Ct. App. 1967). 8

9 example, settle a dispute involving the impartiality of an umpire or the binding nature of the appraisal award obtained. 39 While appraisal provisions are enforceable in Louisiana, a party to the policy can waive the right to invocation of appraisal by acting in a manner that is inconsistent with invocation of the provision. 40 Most often this occurs where the party moving to compel the appraisal has delayed the request for the appraisal. In determining whether the appraisal was timely demanded, the court looks first to the contract for any specified time to invoke appraisal. 41 Absent a contractual time limitation, an appraisal must be demanded within a reasonable time after a dispute as to the amount of loss arises. 42 d. Valued Policy Law Louisiana s original Valued Policy Law, first enacted in 1900, was intended to be a mandatory rule of public policy. 43 However, in 1991, the Louisiana legislature added provisions allowing insurers the option to dispense with the mandatory provisions on valuation under the Valued Policy Law (VPL), as the Louisiana Supreme Court explained: La. R.S. 22:695(A) provides in pertinent part that if an insurer places a value on covered property and uses that valuation to determine the premium charged the insured, in the case of total loss the insurer shall compute and compensate any covered loss of the property at that valuation unless a different method of loss computation is set forth in the policy and policy application in type of equal size. 44 The statute, now codified at La. R.S. 22:1318, provides: A. Under any fire insurance policy insuring inanimate, immovable property in this state, if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in the case of total loss the insurer shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy at such valuation without deduction or offset, unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefor, shall set forth in type of equal size, the actual 39 See St. Charles Par. Hosp., 681 F. Supp. 2d at 754 ( Courts find that [a]n appraisal award issued under an insurance policy is binding only if the appraisers have performed the duties required of them by the policy, which is the law between the contracting parties. ) (quoting Branch v. Springfield Fire & Marine Ins. Co. of Springfield, Mass., 198 La. 720, 4 So.2d 806, 809 (1941)); see also Prien Props., LLC v. Allstate Ins. Co., No , 2008 WL , at *2 (W.D.La. Apr. 14, 2008); Fourchon Docks, Inc., 1988 WL 32938, at *8. 40 Marquette v. S. Fid. Ins. Co., No. CV , 2015 WL , at *3 (E.D. La. May 19, 2015) (quoting Dwyer v. Fidelity Nat. Prop. and Cas. Ins. Co, 565 F.3d 284, 287 (5th Cir. 2009)) 41 Davis, 2014 WL , at * Marquette, 2015 WL at *3 (citation omitted). 43 Barbara Landry v. Louisiana Citizens Prop. Ins. Co., (La. 5/21/08), 983 So. 2d 66, Id.; see La. R.S. 22:1318 (formerly La. R.S. 22:695); Frught v. Lafayette Ins. Co., (La. 1/29/10), 27 So. 3d 270, 271 (In 2008, La. R.S. 22:695 was renumbered as La. R.S. 22:1318, but was otherwise left unchanged.). 9

10 method of such loss computation by the insurer. Coverage may be voided under said contract in the event of criminal fault on the part of the insured or the assigns of the insured. B. Any clause, condition, or provision of a policy of fire insurance contrary to the provisions of this Section shall be null and void, and have no legal effect. Nothing contained herein shall be construed to prevent any insurer from cancelling or reducing, as provided by law, the insurance on any property prior to damage or destruction. * * * D. This Section shall apply only to policies issued or renewed after January 1, 1992, and shall not apply to a loss covered by a blanket-form policy of insurance. As used in this Section, the term fire insurance policy shall mean any property insurance policy, with the exception of builders risk policies of insurance, that provides coverage for the peril of fire, regardless of any other coverage provided by the policy. 45 While the statute allows insurers to opt out of the VPL mandatory valuation provisions, the codified VPL may not apply to all types of insurance policies. In Landry v. Louisiana Citizens Prop. Ins. Co., the Louisiana Supreme Court assumed that the VPL applied to a homeowner s policy at issue but declined to hold whether the VPL applies only to fire insurance policies. 46 In dicta, the Court opined that it appears to us that the legislative history of La. R.S. 22:695, combined with the definitions provided in La. R.S. 22:6(10) and (15), and the contrast of the language used in related statutes, reveals that the statute is intended to apply only to fire insurance policies, which may include coverage against other perils as allowed by La. R.S. 22:691 and is distinct from homeowners policies. 47 Some federal courts have held that the Louisiana VPL thus only applies to fire insurance. 48 Others decline to reach the issue, and some question the authority of Landry s dicta. 49 To date, the Louisiana Supreme Court has not yet clarified whether the VPL applies to policies other than those for fire insurance. Most recently, the Louisiana Supreme Court ruled on the propriety of a summary judgment applying the VPL to a homeowner s insurance policy, but the Court decided the matter on other grounds. 50 The Louisiana Supreme Court in its per curiam 45 La. R.S. 22: (La. 5/21/08), 983 So. 2d 66, Id. at 76, n Hibbets v. Lexington Ins. Co., No. CIV.A , 2009 WL , at *3 (E.D. La. June 12, 2009) ( Louisiana s VPL statute only applies to fire insurance policies. ); In re Katrina Canal Breaches Consol. Litig., 601 F.Supp.2d 809, (E.D.La. 2009); Watson v. Allstate Ins. Co., No. CIV.A , 2009 WL , at *3 (E.D. La. June 17, 2009); see also Crescent City Prop. Redevelopment Assoc., L.L.C. v. USAA Cas. Ins. Co., Civ. A. No. 2:06 cv 11420, 2009 WL , at *3 (E.D.La. Apr. 9, 2009). 49 See Gwin v. Liberty Mut. Ins. Co., No. CV , 2017 WL , at *5 (W.D. La. Aug. 17, 2017) (declining to reach the issue but noting that Louisiana courts previously applied the VPL to policies covering fire and property damage and that Landry comments are dicta); Davis v. Allstate Ins. Co., No. CIV.A , 2009 WL , at *3 n.4 (E.D. La. Jan. 15, 2009) (declining to reach the issue). 50 Frught v. Lafayette Ins. Co., (La. 1/29/10), 27 So. 3d 270,

11 decision reversed the court of appeal, finding summary judgment in favor of the insurer inappropriate as issues of fact existed relative to the language in the policy. 51 Although the Court quoted Landry with authority, the Court did not offer any explicit guidance on the applicability of the VPL to homeowner s insurance policies. 52 II. KEY COVERAGE CASES FROM PRIOR HURRICANES Early on in the litigation following Hurricane Katrina, insureds raised the question of whether property policies typically excluding coverage for water damage would cover water damage from the levee breaches that flooded the city of New Orleans. Property owners affected by the levee breaches filed various suits related to their insurance coverage, which suits were consolidated in the U.S. District Court for the Eastern District of Louisiana as In re Katrina Canal Breaches Consolidated Litigation. 53 In the consolidated litigation, the District Court considered the water exclusion issue in the context of various insurers motions to dismiss and motions for judgment on the pleadings. In opposition to these motions, plaintiffs in the consolidated cases alleged that the government entities negligent design, construction, and maintenance of levees contributed to the levee breaches, causing the flooding that damaged plaintiffs properties. The plaintiffs argued that the water exclusions in the all-risk policies were ambiguous because they did not clearly define whether coverage was excluded for loss due to human negligence or whether coverage was excluded only as to naturally occurring flooding. Ultimately, the district court held that the water exclusions of certain all-risk policies specifically, the term flood in the exclusions were ambiguous, construing the ambiguity in favor of the insureds. The district court denied all but two of the insurers motions the two insurers whose policies employed different language than the other all-risk policies. In particular, the first insurer s policy made clear that the water exclusion applied to flooding regardless of how it was caused; the second insurer s policy made clear that the water exclusion applied to losses caused by failure of levees. 54 The remaining all-risk policies did not specifically mention cause of the excluded event nor did they specifically define flood, which term was included in the definition of water damage. In considering the language of the all-risk policies, the court discussed (i) the general principle that all-risk policies extend to all risks except where expressly concluded, (ii) cases addressing exclusions for collapse and earth movement that found water exclusions ambiguous as to water hydrant bursts, and (iii) the meaning of the word flood and other cases where flood included water damage caused by negligent acts. 55 After undertaking an extensive analysis of the meaning of the word flood, the court found that the term was susceptible of two reasonable constructions: man-made (or non-natural) floods and natural floods. The court concluded that because the term flood could reasonably be interpreted to encompass both a 51 Id. 52 Idi 53 In re Katrina Canal Breaches Consolidated Litigation, 466 F.Supp. 2d 729 (E.D.2006), aff d in part, vacated in part, 495 F.3d 191 (5th Cir. 2007). 54 See id. at , Id. at 737, ,

12 naturally-occurring flood and a man-made flood, the term was ambiguous and would be construed in favor of insureds. 56 The exclusion thus would be limited to floods caused by natural occurrences and would not exclude coverage for insureds water damage allegedly caused by the third-party negligence of the government entities. On appeal, however, the Fifth Circuit determined that the flood exclusions in the plaintiffs policies were unambiguous in the context of the facts of the case, 57 rejecting the plaintiffs argument that the policies did not unambiguously exclude coverage for their loss because the term flood is ambiguous. At the outset, the Fifth Circuit noted that the fact that the policies did not define the word flood, or that it could have been worded more explicitly, does not make the term flood ambiguous. 58 To determine the scope of the exclusion, the Fifth Circuit ascertained the generally prevailing meaning of the word flood. 59 Examining various definitions of flood in dictionaries, treatises, and jurisprudence, the Fifth Circuit found that the generally prevailing meaning of the term flood would be an overflow of some body of water, regardless of the cause, that inundates land not usually covered with water: In light of these definitions, we conclude that the flood exclusions are unambiguous in the context of this case and that what occurred here fits squarely within the generally prevailing meaning of the term flood. When a body of water overflows its normal boundaries and inundates an area of land that is normally dry, the event is a flood. This is precisely what occurred in New Orleans in the aftermath of Hurricane Katrina. Three watercourses the 17th Street, Industrial, and London Avenue Canals overflowed their normal channels, and the levees built alongside the canals to hold back their floodwaters failed to do so. As a result, an enormous volume of water inundated the city. In common parlance, this event is known as a flood. 60 The Fifth Circuit addressed plaintiffs argument that the term flood was ambiguous as it could plausibly refer[] only to inundations of water with natural causes, not those with a nonnatural cause. 61 The Court found that plaintiffs support for this argument cases interpreting flood exclusions in the context of broken water mains, statutory canons of construction, and the reasonable expectation doctrine did not change the result; the term remained unambiguous. 62 Thus, the Fifth Circuit concluded that the policies water damage or flood exclusions were unambiguous, and that the event at issue was a flood within the terms generally prevailing meaning. Accordingly, the court concluded that [t]he flood is unambiguously excluded from coverage under the plaintiffs all-risk policies, and the district court s conclusion to the contrary was erroneous Id. at In re Katrina Canal Breaches Litig., 495 F.3d 191, 224 (5th Cir. 2007). 58 Id. at Id. at Id. at 214 (citations omitted). 61 Id. at Id. at

13 Not long after the Fifth Circuit s opinion, the Louisiana Supreme Court followed the Fifth Circuit s analysis in Sher v. Lafayette Ins. Co., 64 similarly holding that the term flood used in connection with an ACC clause was unambiguous: Because the use of the plain, ordinary and generally prevailing meaning of the word flood in the exclusion is reasonable and does not conflict with any statutory provision or public policy, Lafayette is entitled, through use of the term flood, to limit its own liability and impose and enforce such reasonable conditions upon the policy obligations that the insurer has contractually assumed. 65 In that case, the Louisiana Supreme Court determined that the exclusion applied and the plaintiff s damage was caused entirely by excluded flood damage. 66 III. LITIGATION CONSIDERATIONS a. Bad Faith Two statutes in the Louisiana Insurance Code set forth affirmative duties on insurers as to prompt and proper handling of claims. Louisiana Revised Statutes 22:1892 (formerly 22:658) and 22:1973 (formerly 22:1220) announce statutory penalties that may be imposed on insurance companies for improper handling of first-party property insurance claims. As a general matter, Louisiana courts consider these statutes penal in nature, and thus the courts strictly construe the statutes. 67 Moreover, to maintain an insurance bad faith claim under either Section 1892 or Section 1973, courts have found that a plaintiff must have a valid underlying claim upon which insurance coverage is based. 68 b. Section 1973: Duty of Good Faith and Fair Dealing Section A of La. R.S. 22:1973 provides the general duty of good faith and fair dealing and the 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. Section A also provides the mandatory award of any damages sustained as a result of the breach , p. 10 (La. 4/8/08), 988 So.2d 186, Id. 66 Id. 67 Durio v. Horace Mann Ins. Co., (La. 10/25/11), 74 So. 3d 1159, 1170; see also Willwoods Cmty. v. Essex Ins. Co., (La. App. 5 Cir. 4/13/10), 33 So. 3d 1102, ; Urology Clinic of New Orleans, Inc. APMC v. United Fire and Cas. Co., , p. 3 (La.App. 4 Cir. 9/10/08), 993 So.2d 803, Lee v. Sapp, (La. App. 4 Cir. 12/6/17) ( In order to maintain an insurance bad faith claim under either La. R.S. 22:1892 or La. R.S. 22:1973, a plaintiff must have a valid underlying claim upon which insurance coverage is based. ); Clausen v. Fid. & Deposit Co. of Maryland, (La. App. 1 Cir. 8/4/95), 660 So. 2d 83, ( [A] plaintiff attempting to base her theory of recovery against an insurer on these statutes must first have a valid, underlying, substantive claim upon which insurance coverage is based. ); Phillips v. Patterson Ins. Co., (La. App. 3 Cir. 4/3/02), 813 So. 2d 1191, 1195; Estate of Nicholson v. Farmers Ins. Co., 555 F. Supp. 2d 671, 676 (E.D. La. 2008). 69 La. R.S. 22:1973(A). 13

14 Section B of La. R.S. 22:1973 outlines causes of action against an insurer, the violation of which constitutes a breach of the duties set forth in Section A: (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 claim 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. 70 Louisiana courts have held that the five instances specified in section B are [the] exclusive causes of action under the statute. 71 c. Section 1892: Statutory Penalties and Attorneys Fees In order to establish a cause of action for penalties under La. R.S. 22:1892, a claimant must show that (1) an insurer has received satisfactory proof of loss, (2) the insurer failed to tender payment (or written offer of settlement) within thirty days of receipt thereof, and (3) the insurer s failure to pay is arbitrary, capricious, or without probable cause. 72 The statute sets forth various time limitations for payment and for initiation of loss adjustment: All insurers issuing any type of contract, other than those specified in R.S. 22:1811, 1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest. 73 All insurers issuing any type of contract, other than those specified in R.S. 22:1811, R.S. 22:1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any third party property damage claim and of any reasonable medical 70 Id. at (B)(1) (5). 71 Ross v. Republic Fire & Cas. Ins. Co., No. CIV.A , 2009 WL , at *3 (E.D. La. Sept. 22, 2009) (citation and internal quotation marks omitted). 72 La. R.S. 22:1892(A) (B); Guillory v. Lee, (La. 6/26/09), 16 So. 3d 1104, 1126; Durio, 74 So. 3d at Id. at (A)(1). 14

15 expenses claim due any bona fide third party claimant within thirty days after written agreement of settlement of the claim from any third party claimant. 74 All insurers shall make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim. 75 [T]he insurer shall initiate loss adjustment of a property damage claim and of a claim for reasonable medical expenses within fourteen days after notification of loss by the claimant. 76 In the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim within thirty days after notification of loss by the claimant except that the commissioner may promulgate a rule for extending the time period for initiating a loss adjustment for damages arising from a presidentially declared emergency or disaster or a gubernatorially declared emergency or disaster up to an additional thirty days. 77 While Section (B) of the statute imposes penalties for failure to comply with the mandatory time limitations for payment after satisfactory proof of loss, Louisiana courts have also found that penalties were warranted under Section 1973 (rather than 1892) based on a failure to promptly initiate the claims adjustment process in accordance with the fourteen-day limitation. 78 In initiating loss adjustment, courts have found that the insurer must take some substantive and affirmative step to accumulate the facts that are necessary to evaluate the claim, which is more than simply opening a file. 79 Active correspondence and other steps taken to gather information to evaluate the claim have been considered sufficient to demonstrate prompt initiation of loss adjustment. 80 Insurers must also timely tender payment for any undisputed portion of the claim, even if other portions remain in dispute. Louisiana courts have found that if part of a claim for property damage is not disputed, the failure of the insurer to pay the undisputed portion of the claim within the statutory delay will subject the insurer to penalties on the entire claim. 81 To avoid the imposition of penalties under the statute, then, the insurer must unconditionally tender to the insured the undisputed portion of the insured s claim. 82 The third element of the claim under Section 1892 (and under Section 1973(B)(5)) requires proof that the insurer s failure to pay is arbitrary, capricious, or without probable 74 Id. at (A)(2). 75 Id. at (A)(4). 76 Id. at (A)(3). 77 Id. 78 See Rogers v. Commercial Union Ins. Co., (La. App. 3 Cir. 10/3/01), 796 So. 2d 862, 868 ( Because Continental failed to initiate loss adjustment within fourteen days after notification of loss, we conclude that the penalties provided in La. R.S. 22:1220 are applicable. ). 79 Id. (citations omitted). 80 See Phillips v. Osmun, (La. App. 3 Cir. 10/24/07), 967 So. 2d 1209, Maloney Cinque, L.L.C. v. Pac. Ins. Co., (La. App. 4 Cir. 1/25/12), 89 So. 3d 12, 23 (collecting cases). 82 Id. (citations omitted). 15

16 cause. With regard to what constitutes arbitrary, capricious, or without probable cause, the Louisiana Supreme Court has held that the phrase is synonymous with vexatious. 83 A vexatious refusal to pay means unjustified, without reasonable or probable cause or excuse. 84 Both phrases describe an insurer whose willful refusal of a claim is not based on a good-faith defense. Whether an insurer s behavior is arbitrary, capricious, or without probable cause or excuse is a factual question and depends on the facts known to the insurer at the time of its action. 85 The Louisiana Supreme Court has declined to assess penalties when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense. 86 It is also well-settled that statutory penalties are inappropriate when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense, especially when there is a reasonable and legitimate question as to the extent and causation of a claim[;] bad faith should not be inferred from an insurer s failure to pay within the statutory time limits when such reasonable doubt exists. 87 d. Statute of Limitations Generally, the statute of limitations (or prescriptive period in Louisiana) is ten years for any action on a contract. 88 Tort claims, on the other hand, are subject to a one-year prescriptive period. 89 While it is undisputed that bad faith claims asserted by third parties against insurers under Section 1973 are subject to the one-year prescriptive period, Louisiana law is less clear as to the relevant prescriptive periods for first-party claims under either Section 1973 or Some courts have found that, since no prescriptive period for a claim for penalties or fees is provided by statute, the relevant prescriptive period for such actions arising under Section 1892 is ten years. 91 As to Section 1973 or its predecessor, however, no Louisiana court has ever determined the prescriptive period applicable to a first-party claim, so the answer to that question remains uncertain. 92 Nevertheless, at least one federal court applying Louisiana law has determined that the ten-year prescriptive claim should apply to a first-party claim under Section Guillory v. Lee, (La. 6/26/09), 16 So. 3d 1104, 1127 (citing Reed v. State Farm Mut. Auto Ins. Co., , p (La. 10/21/03), 857 So. 2d 1012, 1021). 84 Id. (quoting Reed, , p , 857 So.2d at 1021). 85 Id. 86 Id. (quoting Louisiana Bag Co., , p. 15, 999 So. 2d 1104 at 1115). 87 Id. 88 See La. Civ. Code art. 3499; Roger v. Dufrene, 613 So. 2d 947, 948 (La. 1993) 89 See La. Civ. Code art See Belanger v. Geico Gen. Ins. Co., 623 F. App'x 684, 690 (5th Cir. 2015). 91 We Sell Used Cars, Inc. v. United Nat. Ins. Co., 30,671 (La. App. 2 Cir. 6/24/98), 715 So. 2d 656, ; Cantrelle Fence & Supply Co. v. Allstate Ins. Co., 550 So. 2d 1306, 1308 (La. Ct. App. 1989); see also Gordon v. State Farm Fire & Cas. Co., 895 F.2d 1036, (5th Cir. 1990) (noting that only Cantrelle at that time had addressed the prescriptive period of a claim arising under Section 1873 (formerly Section 658)). 92 Belanger v. Geico Gen. Ins. Co., 623 F. App'x 684, (5th Cir. 2015). 93 Aspen Specialty Ins. Co. v. Technical Indus., Inc., No. 6:12 CV 02315, 2015 WL (W.D.La. Jan. 22, 2015) (concluding that the prescriptive period for first-party claims under Section 1973 is ten years). 16