New Orleans Court of Appeal Determines Obligation of Insurance Company Does Not Increase From Providing Coverage to Both Parties

reserved_sign_wedding_decorations-1024x683Car accidents can be a problematic scenario for the parties involved emotionally and financially. This situation can become even more complicated when the insurance company provides coverage to both parties involved in the accident, and the injured party files a lawsuit against the insurance company, arguing that the injured party is a first-party claimant. The Fourth Circuit Court of Appeals for Louisiana recently addressed the issue. 

In August 2009, Mr. Sapp drove a vehicle down Prytania Street in New Orleans, Louisiana. Unfortunately, Mr. Sapp collided with the car driven by Mr. Lee. After the accident, Mr. Lee filed a lawsuit in the Orleans Parish of Louisiana against Mr. Sapp and State Farm Insurance Company. In the case, Mr. Lee alleged that the accident resulted in personal injuries. All the parties reached a settlement agreement seven years after the accident occurred.

The settlement agreement covered all claims from the accident in 2009, except for the exception of “Reserved Claims.” The agreement between the parties provided that “Reserved Claims” meant all claims of bad faith by Mr. Lee against State Farm Mutual Automobile Insurance Company. One month after the settlement agreement was entered, State Farm filed an exception. In this exception, State Farm sought to dismiss all reserved claims except one. This one was for Mr. Lee’s misrepresentation claim, pursuant to La. R.S. 22:1973(B)(1). The Trial Court ruled in favor of State Farm, sustaining the exception and dismissing all of Mr. Lee’s bad faith claims except for misrepresentation. Mr. Lee then appealed the decision of the Trial Court. 

The first issue for the Court of Appeal to determine was whether the lawsuit brought by Mr. Lee categorized him as a first-party claimant or a third-party claimant. A third-party claimant can only bring bad faith claims that are available under a valid third-party claimant statute. See Century Sur. Co. v. Belvins, 799 F.3d 366, 371 (5th Cir. 2015). On appeal, Mr. Lee argued that he was a first-party claimant because his insurance company was the same as Mr. Sapps. However, the Court of Appeal determined that Mr. Lee was not a first-party claimant. The Court of Appeal came to this conclusion because, if an insurance company provides coverage to both parties, courts have almost unanimously held that there should not be an increased duty on the insurance company when dealing with one of its clients in a third-party situation. Herrig v. Herrig, 844 P.2d, 487, 491 (Wyo. 1992). The Court of Appeal determined that Mr. Lee’s claims were third-party claims under Mr. Sapp’s insurance coverage, despite State Farm representing both parties. 

The next issue for the Court of Appeal to determine was what claims Mr. Lee could bring as a third-party claimant. For a plaintiff to maintain an insurance bad faith claim under La. R.S. 22:1892 or La. R.S. 22:1973, the basis of the plaintiff’s claim must be insurance coverage. See Clausen v. Fidelity & Deposit Co. of. Md., 660 So.2d 83, 85 (La. Ct. App. 1995). The Court of Appeal determined that Mr. Lee could not have any claims other than misrepresentation brought under La.R.S. 22:1973(B) Of this statute’s six subsections, only one subsection applied. The only subsection that did apply was regarding the claim of misrepresentation. The subsection concerning misrepresentation was reserved in the settlement process and therefore survived the motions fought in this appeal.

Next, the Court of Appeal determined that Mr. Lee could not bring any additional claims under La. R.S. 22:1892. The court came to this conclusion because the subsection of this statute that applied to get a bad faith claim was only available to first-party claimants, not third-party claimants. The Court of Appeal determined that the Trial Court was correct in dismissing all of Mr. Lee’s claims except for misrepresentation. Mr. Lee’s lawsuit only involved claims under the insurance coverage supplied by State Farm covering Mr. Sapp.

This case demonstrates the importance of a knowledgeable attorney that can navigate the complex legal issues involving a claim based on insurance. In addition, a knowledgeable attorney in such an advanced field can provide representation that will not waste a client’s time and money by bringing invalid claims. 


Written by Berniard Law Firm Blog Writer: Brandon Tuley

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