First Baptist Church of Iowa Louisiana v. Church Mutual Insurance Co. SI, 2:21-CV-02472, 2023 WL 4423531 (W.D. La. July 10, 2023)
The Western District Penalizes Insurance Company for Pattern of Systemic Bad Faith Handling of Claims under La. R.S. 22:1892.
By Christopher K. LeMieux and Mary Claire Kramer
In First Baptist Church of Iowa Louisiana v. Church Mutual Insurance Co. SI, the United States District Court for the Western District of Louisiana awarded statutory penalties to an insured due to an insurer’s bad faith in adjusting a hurricane claim. The facts in the instant case show multiple instances of bad faith, yet the Western District expanded its decision to include its observation that the insurer, Church Mutual (“CM”), has repeatedly mishandled claims and failed to resolve claims, establishing a pattern of systemic failure to resolve insurance claims through the Streamlined Settlement Process implemented by the Court. Thus, the Western District imposed higher penalties upon CM because of its pattern of repeatedly mishandled claims.
The instant case stems from a church’s damages following Hurricane Laura, which made landfall on or about August 27, 2020. On September 7, 2020, a church representative met with CM to notify them of the damage and begin the adjustment process. After a brief inspection, CM’s adjuster estimated that the claim exceeded $600,000 and notified the church that the claim would be handled by a different department as it was a large loss.
On October 12, 2020, CM advanced the church one payment totaling $100,000. On December 21, 2020, CM issued another payment for the remaining structures and additional damage to the main building in the amount of $102,075.48. Both payments were untimely, coming well after thirty days from proof of loss. Significantly, the Court found that the “immediate advice report,” dated September 8, 2020, estimating damages of approximately $630,000.00 before deductible, and signed by CM adjustors constituted satisfactory proof of loss. Thus, the thirty-day timeline started on September 8, 2020, making the October 12, 2020 payment untimely as it was 34 days from the date of receipt of proof of loss. Of note, the adjuster did not send this report or signed estimate to CM until September 22, 2020.
Throughout the course of the adjustment period, two civil engineers inspected the property and rendered individual reports, in addition to inspection by a Louisiana licensed adjuster and a construction consultant. The Court found that the only credible adjustment that it could rely upon was the one made by the licensed Louisiana adjuster. However, even still, the Court reduced the estimate prepared by the Louisiana licensed adjuster by amounts listed on repair invoices and trial testimony regarding miscalculations. The Court also noted that during the trial, CM’s testimony evidenced their constant errors during the adjustment period, such as using the wrong deductible, significant errors on the Statement of Loss, inaccurately dated claim notes, and a depleting reserve for the claim even though each adjustment reflected a loss of $630,000 or more.
Based on the testimony at trial which clearly evidenced CM’s mishandling of the claim, the Court held that the church’s total unpaid losses were $883,947.89. The Court also found CM liable for a 50% bad faith penalty pursuant to La. R.S. 22:1892 and the church’s attorneys’ fees, an amount equal to 30% of the claim.
Overall, this decision provides an added risk for insurers and a potential strategy for insureds. If an insurer has had several mishandled claims related to a particular loss, then they should be advised of this potential risk. On the other hand, as an insured, there is a potential for investigating other losses and handling by your insurer to maximize any bad faith penalties under La. R.S. 22:1892 that may apply.
