Car accidents have become so commonplace in our society that many states require automobile and accident insurance. If and when you find yourself in the unfortunate situation of being in a car accident, you expect the party at fault to foot the bill. That’s where insurance steps in. As insurance claims are one of the most litigated issues nationwide, the interpretation of insurance laws is not always so clear. The following case examines two specific issues that ultimately needed to be settled in the highest court in Louisiana.
In 2005, Danny Kelly and Henry Thomas were driving in opposite directions when Mr. Thomas turned left, crashing into Mr. Kelly. Mr. Kelly suffered injuries that put him in the hospital for nearly a week. Shortly after the accident, Mr. Kelly’s attorney contacted Mr. Thomas’s insurance company, State Farm, requesting payment. The letter included copies of Mr. Kelly’s medical bills, totaling $26,803.17. State Farm did not respond to the letter nor did the company inform Mr. Thomas of the amount of Mr. Kelly’s medical bills. After rejecting an offer from State Farm, Mr. Kelly filed a lawsuit against Mr. Thomas. Mr. Thomas was found to be at fault for the accident and the Trial Court entered a judgment against Mr. Thomas for $176,464.07. Mr. Thomas’s policy limit was only $25,000. Mr. Thomas and Mr. Kelly soon entered into an agreement where Mr. Kelly would receive Mr. Thomas’s right to file a lawsuit against State Farm in exchange for Mr. Kelly’s promise not to go after Mr. Thomas’s assets. Mr. Kelly filed a lawsuit against State Farm because Mr. Kelly thought State Farm acted in bad faith by failing to notify Mr. Thomas of Mr. Kelly’s initial letter containing the total amount of medical bills as well as for failing to respond to the request to pay those bills.
The parties spent years in litigation. Much confusion revolved around the proper interpretation of La. R.S. 22:1973. Eventually, the case made its way up to the Louisiana Supreme Court to determine whether State Farm could be found liable for a bad-faith failure-to-settle claim under Louisiana law when the insurer never received a firm settlement offer. In other words, must an insurer receive a firm settlement offer to be found liable under the statute? The statute requires the insurer to affirmatively adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant or both. Secondly, the Louisiana Supreme Court was asked to determine whether an insurer can be found liable for misrepresenting or failing to disclose facts not related to policy coverage.
The Louisiana Supreme Court clarified the statutes and expanded insurance companies’ duties to their insureds by finding a distinct cause of action against insurers for bad-faith failure-to-settle claims as well as a cause of action for failing to disclose or misrepresenting any pertinent facts regardless of whether those facts related to coverage issues. In answering the first question, the Court noted that the statute imposed on the insurer the requirement to adjust claims fairly and promptly and to make a reasonable effort to settle those claims. Thus, State Farm could be found liable for bad faith in failing to inform Mr. Thomas of the letter with the total medical bill even though the letter did not contain a firm settlement offer.
In answering the second question, the Court looked to other statutes and legislative materials in determining whether La. R.S. 22:1973 intended for “facts” to be connected only to coverage issues or could be interpreted as any pertinent facts. The Court concluded that an insurer can be found liable for misrepresenting or failing to disclose pertinent facts even if those facts do not relate to coverage. Compare with Talton v. USAA Cas. Ins. Co., 981 So.2d 696 (La. Ct. App. 2008).
The Louisiana Supreme Court’s job was not to determine whether State Farm acted in bad faith when it did not inform Mr. Thomas of the initial letter from Mr. Kelly’s attorney regarding the total medical bills. Those issues were sent back to the Louisiana Fifth Circuit Court of Appeal to decide. The Louisiana Supreme Court completed its task by espousing the proper interpretation of the relevant Louisiana statute, i.e., an insurer can be found liable for a bad-faith failure-to-settle claim notwithstanding whether the insurer received a firm settlement offer. Moreover, an insurer can be found liable for misrepresenting or failing to disclose facts regardless of whether those facts are related to coverage issues.
Despite their best efforts, legislators sometimes draft statutes that are open to multiple interpretations. This can lead to confusion in the courts and unpredictable court decisions where even the best attorneys will have difficulty being effective advocates. Our judicial system is structured in such a way as to deal with exactly this problem. When lower court judges cannot reach a consensus on a particular issue, the state supreme court (if state law) or the United States Supreme Court (if federal law) may step in and clarify the proper interpretation of the law. In the case of Danny Kelly and Henry Thomas that is exactly what occurred so that future cases that deal with this similar issue can be expediently and accurately settled.
Additional Sources: DANNY KELLY V. STATE FARM FIRE & CASUALTY COMPANY
Written by Berniard Law Firm Blog Writer: Stephanie Burnham
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