Opinion ID: 1808850
Heading Depth: 1
Heading Rank: 14

Heading: Arbitrary, Capricious, Without Probable Cause

Text: Lafayette argues that the trial court erred in finding that Lafayette's conduct in handling plaintiff's claims was arbitrary, capricious, and without probable cause because Lafayette initiated loss adjustment within thirty days, disputed the flood claim in good faith, disputed the business personal property claim in good faith, disputed the lost rents claim in good faith, and disputed the building damages claim in good faith. This Court discussed arbitrary and capricious conduct in relation to R.S. 22:658 in the case of Reed v. State Farm Mut. Auto Ins. Co., 03-0107, (La.10/21/03), 857 So.2d 1012, where we said: The conduct prohibited in R.S. 22:658(A)(1) is virtually identical to the conduct prohibited in R.S. 22:1220(B)(5): the failure to timely pay a claim after receiving satisfactory proof of loss when that failure to pay is arbitrary, capricious, or without probable cause. The primary difference is the time periods allowed for payment. Furthermore, R.S. 22:658 and R.S. 22:1220 are penal in nature and must be strictly construed. One who claims entitlement to penalties and attorney fees has the burden of proving the insurer received satisfactory proof of loss as a predicate to a showing that the insurer was arbitrary, capricious, or without probable cause. It logically follows from this burden that a plaintiff who possesses information that would suffice as satisfactory proof of loss, but does not relay that information to the insurer is not entitled to a finding that the insurer was arbitrary or capricious. The sanctions of penalties and attorney fees are not assessed unless a plaintiff's proof is clear that the insurer was in fact arbitrary, capricious, or without probable cause in refusing to pay. The statutory penalties are 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 doubts exist. Both R.S. 22:658 and R.S. 22:1220 require proof that the insurer was arbitrary, capricious, or without probable cause, a phrase that is synonymous with vexatious. This court has noted that vexatious refusal to pay means unjustified, without reasonable or probable cause or excuse. Both phrases describe an insurer whose willful refusal of a claim is not based on a good-faith defense. 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 ... Because the question is essentially a factual issue, the trial court's finding should not be disturbed on appeal absent manifest error. However, when the record does not support the trial court's determination on this issue, the trial court's decision will be reversed. Reed, 857 So.2d at 1020-21. With regard to the initiation of loss adjustment, Lafayette asserts that it first received notice of plaintiff's claim on October 5, 2005; that it assigned an adjuster that same day; that the adjuster called plaintiff on October 9, 2005, but was unable to speak to him; that the adjuster spoke to plaintiff later in October and made arrangements to inspect the property on November 1, 2005; that the property was inspected on November 1, 2005; and that evidence of each of these facts was presented to the jury. Plaintiff largely agrees with this sequence of events, except that plaintiff's son testified that he had provided notice to Lafayette of the claim during the first two weeks of September, 2005. Based on these facts, the jury was not manifestly erroneous in accepting plaintiff's son's testimony and concluding that Lafayette failed to initiate loss adjustment within thirty days after receiving notice of the claim. Lafayette, after its initial inspection, found that most of the damage to the property was not covered under the policy due to lack of maintenance, and disrepair. Lafayette estimated plaintiff's damages at $3,307.09. Lafayette had inspected the building in 1994, 2001, 2002, and 2003, each time finding that the property was well maintained. Further, Lafayette's own engineer did not feel that the property was poorly maintained or in disrepair, and Lafayette misrepresented the engineer's findings in a letter to plaintiff, stating that the engineer had concluded that the majority of the damages were pre-existing and caused by a lack of maintenance. Despite plaintiff sending numerous estimates and invoices to Lafayette, the insurer refused to reconsider its damage estimate. Finally, Lafayette failed to tender the undisputed portion of plaintiff's lost rents. Based upon the evidence presented, the jury was not manifestly erroneous in concluding that Lafayette's actions were vexatious, and thus arbitrary, capricious, and without probable cause.