Law360, Los Angeles (May 07, 2015, 11:12 PM ET) -- The Louisiana Supreme Court has ruled that an insurer can be found liable for bad faith for failing to settle a claim even if it never received a firm settlement offer, ruling on questions certified by the Fifth Circuit in an auto accident victim's coverage suit against State Farm Fire & Casualty Co.
In a May 5 decision, the state high court held that a firm settlement offer isn't necessary for a policyholder to sustain a bad faith failure-to-settle claim against an insurer under a Louisiana statute, as the insurer's duties to the insured can be triggered by "information other than the mere fact that a third party has made a settlement offer."
The court further found that an insurer also can be found liable under another statutory provision for misrepresenting or failing to disclose facts that aren't related to an insurance policy's coverage.
The legal questions answered by the Louisiana Supreme Court arose in a suit that car accident victim Danny Kelly brought against State Farm, which insured the other driver involved in the crash.
"This clearly establishes all Louisiana insurers owe an affirmative duty to adjust claims fairly and promptly and to make reasonable effort to settle claims with the insured or the claimant and must not engage is misrepresentation of pertinent facts," said Frank Tomeny III of Tomeny Law Firm APLC, who represented Kelly. "We hope this decision will be a wake up call to State Farm and all insurers who do not fairly and promptly make reasonable efforts to adjust claims fairly and end the practice of withholding the policy limits from third party claimants."
An attorney for State Farm did not immediately respond to a request for comment Thursday.
Kelly was injured in November 2005 in a car accident involving Henry Thomas, who was insured by State Farm. Kelly suffered a fractured femur and incurred medical bills of more than $26,800, according to court documents.
Kelly's attorney wrote to State Farm in January 2006, saying he would recommend releasing the insurer and Thomas from liability in exchange for a settlement payment and sought a response within 10 days, court papers said. State Farm in March offered to settle for the $25,000 policy limit, but Kelly rejected that offer and sued Thomas, according to court documents.
After Kelly rebuffed State Farm's offer, the insurer sent Thomas a letter informing him of his potential personal liability and advising him to retain independent counsel. However, the insurer didn't mention the January 2006 letter, its settlement offer, or the total of Kelly's bills, according to court documents.
At trial, Thomas was found liable and hit with a judgment of more than $176,000. State Farm paid out its policy limit, court papers said.
Thomas assigned the right to pursue a bad faith action against State Farm to Kelly in exchange for Kelly's promise not to enforce the judgment against Thomas' assets, court papers said. Kelly then sued State Farm for bad faith practices under Louisiana law, both for failing to accept his settlement offer and for failing to notify Thomas of the January 2006 letter.
The district court granted State Farm's motion for summary judgment on the "failure to notify" claim, saying the insurer had no duty to notify Thomas when it received the letter, but allowed Kelly to proceed with his claim that State Farm failed to settle in bad faith. The lower court later changed course and granted full summary judgment in State Farm's favor.
On appeal, the Fifth Circuit initially affirmed in part and reversed in part the district court's ruling, but subsequently granted both parties' rehearing petitions and asked the Louisiana Supreme Court to weigh in on two legal questions.
In its opinion, the Louisiana Supreme Court focused its analysis on the question regarding the requirements for a bad faith failure-to-settle claim on whether "an insurer’s affirmative duty to make a reasonable effort to settle claims is triggered only by receipt of a firm settlement offer."
The relevant statute doesn't make any mention of a firm settlement offer, the court said, and adopting State Farm's proposed wording would amount to a "wholesale rewriting" of the statute, the high court said.
In addition, the high court found "no practical reason why the insurer’s obligation to act in good faith should be made subject to the tenuous possibility that an insurer will receive a firm settlement offer."
"Instead, the insurer’s obligation to act in good faith is triggered by knowledge of the particular situation, which knowledge '[t]he insurer has an affirmative duty' to gather during the claims process," Justice John L. Weimer wrote for the court.
The high court found that an insurer can be held liable for misrepresenting or failing to disclose facts unrelated to a policy's coverage because the relevant statutory provision prohibits the misrepresentation of "pertinent facts," without any restriction to facts "relating to any coverages."
Kelly is represented by Frank Tomeny III of Tomeny Law Firm APLC and by Lee A. Archer.
State Farm is represented by Henry Gerard Terhoeve and Stephen Dale Cronin of Guglielmo Marks Schutte Terhoeve & Love.
United Policyholders is represented by Michael deBarros of Kean Miller LLP.
The Complex Insurance Claims Litigation Association is represented by Laura A. Foggan of Wiley Rein LLP.
The case is Danny Kelly v. State Farm Fire & Casualty Co., case number 2014-CQ-1921, in the Supreme Court of Louisiana.
--Editing by Jeremy Barker.
Frank Tomeny Makes National News with LA Case for Insureds
Posted on May 10, 2015