LOUISIANA CHANGES BAD FAITH LAW More Time Given to Insurers to Pay for Covered Claims
On May 7, 2024, Louisiana Gov. Jeff Landry signed SB 323, which repealed a major bad faith law and rewrote the prompt pay law. The new law gives insurance companies more time to respond to claims during catastrophes and arms them with tools to make claims against
the old law. Yet, previously, attorney’s fees and costs were not recoverable in former Article 22:1973, and now they are. 4. There is now a way for the insurer to shift risks to the insured by alleging that the insured has acted in bad faith — say, by submitting an “estimate or claim for damages that lacks a basis for coverage … or lacks a good faith evidentiary basis .” 1892(J)(2)(c). This is vague, and I would expect it would be claimed often by over-zealous defense attorneys. Our firm has handled many of these cases, and except for the provision allowing the insurer to allege breach, nothing in the new law should hinder the old law’s effectiveness. We are the first firm to have a trial verdict for a case covered by these changes affirmed by the 5th Circuit in New Orleans. In our case, the changes to the law would have improved our damage model and what we could have recovered as we would have been able to recover economic damages sustained by the church
their insureds. THE OLD LAW Here is a summary prior to the signing of SB 323:
because of a breach (we did not submit a 1973 claim). Exhibit A following this article is a chart of the new law.
THE NEW LAW Section 1973 has been repealed. In its place, language was added to section 1892 to incorporate the bad faith duty into its prompt pay framework. The new law borrows a notice period from Texas, creates a safe harbor for the insurer based on the notice period (excusing tardy payments), and adds a landmine that could eviscerate the penalties and fees the insurer owes its insured if the insured or their attorney overreach. For non-catastrophe claims, the law will work like the old law. But when the president or governor declares an emergency, new rules apply that give the insurer more time and ways to avoid penalties. TAKEAWAYS 1. A Notice letter (“cure period notice”) is now required for catastrophe claims. What is troubling is what constitutes a demand or notice — if it is a written notice from an attorney, it could mean that months and months of violations of the statute will be excused. In other words, if the policyholder delays hiring counsel and fails to provide a notice prior to, a Notice sent 18 months after the loss and paid within 60 days insulates the insurer from prompt pay penalties. 2. The duty of good faith and fair dealing, including the duty to adjust claims fairly, and four of the five prohibited actions from Section 1973 are incorporated into 1892. Breach of those duties still entitles the policyholder to damages, but now, instead of “any” damages, it says “any proven economic damages,” i.e., no mental anguish claims. 3. The penalty for violating this “statutory bad faith” case is now limited to contractual damages — 50% of the “amount due from the insurer to the insured” plus proven economic damages and reasonable attorney’s fees and costs. No penalty is applied to extra-contractual damages — this is another departure from
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