Opinion ID: 1564304
Heading Depth: 1
Heading Rank: 5

Heading: Arbitrary and Capricious Conduct of Progressive

Text: Despite plaintiffs allegation that Progressive was in bad faith in its failure to provide an unconditional tender, the jury found no arbitrary and capricious behavior on the part of the insurance company. The appellate court, as discussed above, reversed that finding, and awarded a penalty of $8,740.00 plus attorney fees and costs in the amount of $25,000. In order to establish a cause of action for penalties and/or attorney fees and costs under La. R.S. 22:658, a claimant must show that (1) an insurer has received satisfactory proof of loss, (2) the insurer failed to tender payment within thirty days of receipt thereof, and (3) the insurer's failure to pay is arbitrary, capricious or without probable cause. La. R.S. 22:658. [32] See also, Louisiana Bag Co., Inc. v. Audubon Indent. Co., 08-453, p. 11 (La.12/2/08), 999 So.2d 1104, 1112-1113. Similarly, La. R.S. 22:1220 provides that an insurer owes to his insured a duty of good faith and fair dealing, which includes an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. An insurer who breaches those duties is liable for damages sustained as a result of that breach. The statute further provides that a breach includes [f]ailing to pay the amount of any claim due any person insured by the contract within sixty (60) days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause. La. R.S. 22:1220. With regard to what constitutes arbitrary, capricious, or without probable cause, this court has held that the phrase is synonymous with vexatious. Reed v. State Farm Mut. Auto Ins. Co., 03-0107, p. 13-14 (La.10/21/03), 857 So.2d 1012, 1021 (citing Louisiana Maint. Serv.'s, Inc. v. Certain Underwriters at Lloyd's of London, 616 So.2d 1250, 1253 (La.1993)). Furthermore, a vexatious refusal to pay means unjustified, without reasonable or probable cause or excuse. Reed, 03-0107, p. 13-14, 857 So.2d at 1021. Both phrases describe an insurer whose willful refusal of a claim is not based on a good-faith defense. Id. This court has also stated that penalties should be imposed only when the facts negate probable cause for nonpayment. Louisiana Bag Co., Inc. v. Audubon Indent. Co., 08-453, p. 14 (La.12/2/08), 999 So.2d 1104, 1114 (citing Guillory v. Travelers Ins. Co., 294 So.2d 215, 217 (La. 1974); Crawford v. Al Smith P. & H. Serv., Inc., 352 So.2d 669, 673 (La.1977); McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1092 (La.1985)). Moreover, whether or not a refusal to pay is arbitrary, capricious, or without probable cause depends on the facts known to the insurer at the time of its action, and this court has declined to assess penalties when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense. Louisiana Bag Co., 08-453, p. 15, 999 So.2d 1104 at 1115 (citing Reed, 857 So.2d at 1021). More specifically, not only are the statutory penalties inappropriate when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense, especially when there is a reasonable and legitimate question as to the extent and causation of a claim, bad faith should not be inferred from an insurer's failure to pay within the statutory time limits when such reasonable doubt exists. Reed, 857 So.2d at 1021 (citing Rudloff v. Louisiana Health Services and Indemnity Co., 385 So.2d 767, 771 (La.1980) (on reh'g); and Block v. St. Paul Fire & Marine Ins. Co., 32, 306, p. 8 (La.App. 2 Cir. 9/22/99), 742 So.2d 746, 752). An insurer who does not tender unconditionally a reasonable payment, a figure over which reasonable minds could not differ, will be subject to penalties and attorney's fees. McDill v. Utica Mut. Ins. Co., 475 So.2d 1085 (La.1985). Finally, the question of arbitrary and capricious behavior is essentially a factual issue, and the trial court's finding should not be disturbed on appeal absent manifest error. Reed, 857 So.2d at 1021, citing Scott v. Insurance Company of North America, 485 So.2d 50, 52 (La. 1986). In this instance, plaintiff claims Progressive was arbitrary and capricious in its failure to make a second unconditional tender to the plaintiff. Our review of the record reveals that, following plaintiffs accident, on January 21, 2005, he sent a letter to both State Farm (the insurer of Jennifer Lee) and his own insurer (Progressive), indicating he sustained property damage and injuries caused by State Farm's insured, and attached the police report with statements from both drivers. Shortly after Progressive received notice of the accident, Molly Prejean of Progressive took plaintiff's recorded statement of the accident, which was transcribed on May 18, 2006. [33] Although the record does not specifically indicate when, at some point following the accident, plaintiff received $5,000 from Progressive in medical payment coverage, the full limit contained within his policy. [34] The record does not reflect any correspondence or communication between plaintiff and Progressive until February 10, 2006, at which time plaintiff sent to Progressive the bills and reports of several doctors, including Drs. Anseman, Domingue, Vreeland, and Pearce, with the bills totaling $11,957.00. On February 17, 2006, Progressive sent a letter to plaintiffs attorney at the time, offering $5,020.00 in exchange for a full and final release of plaintiffs UM/UIM claim, which Progressive indicated was being made after a careful review of all the medical information obtained to date. Attorney for plaintiff responded to Progressive's letter on February 22, 2006, stating his client was not in a position to settle his claim at that time, but that he is entitled to an unconditional tender under McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1092 (La.1985). On that same date, February 22, Progressive sent another letter to plaintiffs attorney, enclosing an unconditional tender in the amount of $5,020, which Progressive identified as a tender based on Progressive's evaluation of your client's claim to date. On June 21, 2006, counsel for plaintiff sent a letter to counsel for Progressive, setting forth plaintiffs pre-existing neck conditions from 1997 to 2000, and summarizing the findings of the recent MRI and DMX imaging, which counsel stated evidenced new injuries resulting from the instant accident. Counsel also indicated plaintiff has been unable to participate in some of his hobbies since the accident. Counsel again asked for an unconditional McDill tender. Also in this letter, counsel for plaintiff requested counsel for Progressive contact him to discuss setting the depositions of Sally Jones, Jennifer Lee, and Amy Young. On April 17, 2007, shortly after Dr. Anseman sent Progressive his medical records for plaintiff, Progressive deposed Dr. Anseman, who testified the subject accident caused new injuries, herniation at C6-7, and other related problems. On June 5, 2007, Jennifer Lee, passenger Amy Young, and Sally Jones were deposed. On July 3, 2007, counsel for plaintiff sent correspondence to counsel for Progressive concerning some amendments to discovery responses, as well as providing summaries and apparent inconsistencies of the recently taken depositions. Moreover, although counsel acknowledged the relatively small McDill tender received shortly after the accident, he requested another McDill tender. The letter indicated that failure to provide the tender within five days of receipt of the July 3 letter would result in plaintiffs amendment of his petition to allege arbitrary and capricious behavior on behalf of Progressive. Ms. Ciccone's testimony, to be discussed further below, indicates counsel for Progressive called counsel for plaintiff shortly following receipt of this letter to explain the concerns with causation and liability, and informing him that no tender could be made at that time. On July 20, 2007, plaintiff underwent Progressive's requested independent medical examination, performed by Dr. Vic Parmar, who testified the accident did not cause the disc herniation at C6-7. Shortly thereafter, on July 26, 2007, plaintiff amended his petition to add a bad faith claim against Progressive. [35] As previously mentioned, Kerry Ciccone was the claims representative at Progressive assigned to plaintiffs file, beginning in June or July of 2006. During her testimony at trial, she testified the reason another tender was not made to plaintiff was because of Progressive's belief that there existed liability and causation issues. More specifically, Progressive's review of the police report provided to it by the plaintiff included defendant Young's written statement that a Cox Communications cable van swerved into her lane, causing her to strike plaintiffs vehicle. If that were the case, Progressive would owe no tender to plaintiff. Concerning the causation issues, Ms. Ciccone testified it was difficult to tell if plaintiff sustained any injury as a result of this accident, based upon his recorded statement that he had prior neck and back injuries, as well as the differing opinions of the physicians (Drs. Anseman and Parmar) whose reports she was provided throughout her evaluation. [36] Ms. Ciccone also testified there was little correspondence and reporting in the claims file from the date of the accident to December, 2005, because plaintiff had informed Progressive he wished to close his claim. Concerning the increase in Progressive's reserves, Ms. Ciccone did confirm the reserves were increased periodically throughout this matter from $29,000 to $75,000 to $150,000 shortly before trial. However, she also testified the purpose of the reserves is a worst case scenario, and is based upon all information submitted by plaintiff to Progressive. Moreover, Progressive typically places the highest possible amount in reserves, to ensure that it is in compliance with the Department of Insurance. Furthermore, Ms. Ciccone testified the reserves that are set aside are not based upon an evaluation of the case and do not constitute authority for settlement of the case. [37] Based upon our thorough review of the record, we cannot say Progressive's actions rise to the level of arbitrary and capricious behavior that warrants an imposition of penalties and attorney fees in this matter. More specifically, as established above, Progressive possessed a good faith defense that there was a reasonable dispute concerning the extent of plaintiffs injuries resulting from the accident on January 14, 2005. Moreover, Progressive made an immediate tender of the $5,000 medical coverage payment, as well as a $5,020 unconditional tender in February, 2006, based upon its evaluation of plaintiffs case at that time. Although plaintiff sent various correspondence to counsel for Progressive in the two years following the accident, again, based upon the evidence establishing plaintiff's pre-existing complications with his neck with corresponding diagnostic tests that did not show a disc herniation until late in 2006, as well as the testimony of Ms. Ciccone establishing Progressive maintained a defense regarding causation, it cannot be said the jury committed manifest error in finding no arbitrary or capricious conduct on behalf of Progressive in this instance. The record does not reflect there was any undisputed amount, as contemplated by McDill, that Progressive was obligated to tender. Moreover, reasonable minds could have differed as to the value of plaintiffs claim, based upon the circumstances surrounding the cause of plaintiffs alleged injuries and related medical expenses, particularly the surgeries performed by Dr. Feldman in late 2007, which constituted a majority of plaintiffs medical bills. [38] Consequently, cognizant that when a statute authorizes the imposition of a penalty, it is to be strictly construed, [39] we find the jury could have reasonably concluded Progressive was not arbitrary and capricious in its actions, and thus, the appellate court was in error in reversing the jury's decision and awarding penalties and attorney fees to plaintiff. [40]