Opinion ID: 2487054
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Heading: Calculation of Penalties under La. R.S. 22:1220

Text: This issue is a question of law involving the correct interpretation of Section (C) of La. R.S. 22:1220. Thus, we review the matter de novo, and render judgment on the record, without deference to the legal conclusions of the courts below. This court is the ultimate arbiter of the meaning of the laws of this state. Red Stick Studio Development, L.L.C. v. State of Louisiana by and Through the Department of Economic Development, 2010-0193 (La.1/19/11), 56 So.3d 181, 187; Cleco Evangeline, LLC v. Louisiana Tax Commission, 2001-2162 (La.4/3/02), 813 So.2d 351, 355. La. R.S. 22:1220 provides, in pertinent part: A. An insurer . . . owes to his insured a duty of good faith and fair dealing. The insurer has 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. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach. B. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer's duties imposed in Subsection A: (5) Failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause. C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater. (Emphasis added) Horace Mann argues the trial court erred in calculating La. R.S. 22:1220 penalties by doubling contractual amounts due under the insurance contract, rather than calculating the penalties based solely on the consequential damages sustained as a result of a breach of duties under La. R.S. 22:1220. Ms. Durio argues Horace Mann's position improperly restricts La. R.S. 22:1220, and application of statutory penalties to all amounts due, including contractual damages as well as consequential damages, is consistent with the intent, purpose and policy underlying La. R.S. 22:1220. This Court provided a detailed summary of guidelines for statutory interpretation in Sultana Corp. v. Jewelers Mutual Ins. Co., 2003-0360 (La.12/3/03), 860 So.2d 1112: The function of statutory interpretation and the construction given to legislative acts rests with the judicial branch of the government. Principles of judicial interpretation of statutes are designed to ascertain and enforce the intent of the Legislature in enacting the statute. The fundamental question in all cases of statutory construction is legislative intent and the reasons that prompted the Legislature to enact the law. When a law is clear and unambiguous and its application does not lead to absurd consequences, it shall be applied as written, with no further inquiry made in search of the legislative intent. The meaning and intent of a law is determined by considering the law in its entirety and all other laws concerning the same subject matter and construing the provision in a manner that is consistent with the express terms of the statute and with the obvious intent of the lawmaker in enacting it. The statute must therefore be applied and interpreted in a manner that is logical and consistent with the presumed fair purpose and intention the Legislature had in enacting it. Courts should give effect to all parts of a statute and should not adopt a statutory construction that makes any part superfluous or meaningless, if that result can be avoided. Furthermore, the object of the court in construing a statute is to ascertain the legislative intent and, where a literal interpretation would produce absurd consequences, the letter must give way to the spirit of the law and the statute construed so as to produce a reasonable result. The starting point in the interpretation of any statute is the language of the statute itself. (Internal citations removed). Sultana, 860 So.2d at 1115-16. Examining La. R.S. 22:1220 in light of these guidelines, we agree with Horace Mann that the lower courts' application of the statute was erroneous. While this issue is res nova in this Court, we note that since its enactment in 1990, it appears Louisiana circuit courts consistently applied La. R.S. 22:1220(C) by calculating penalties based solely on consequential damages, or awarding $5,000.00 if no such damages were proven. [7] However, this recently changed in Neal Auction Co. v. Lafayette Ins. Co., 2008-0574 (La.App. 4 Cir. 4/29/09), 13 So.3d 1135, 1147, when a panel of the Fourth Circuit awarded a penalty of double the total damages (including damages due under the insurance contract) pursuant to La. R.S. 22:1220. Relying on Neal Auction, the Fourth Circuit again doubled contractual damages in awarding La. R.S. 22:1220 penalties in Wegener v. Lafayette Ins. Co., 2009-0072 (La.App. 4 Cir. 3/10/10), 34 So.3d 932, judgment vacated, 2010-0810 (La.3/15/11) 60 So.3d 1220, [8] and Buffman, Inc. v. Lafayette Ins. Co., 2009-0870 (La.App. 4 Cir. 4/14/10), 36 So.3d 1004. [9] In line with these Fourth Circuit opinions, the Third Circuit in this case affirmed an award of La. R.S. 22:1220 penalties calculated by doubling all damages awarded, including contractual damages. Interestingly, different panels of the Fourth Circuit reached opposite conclusions in Audubon Orthopedic and Sports Medicine, APMC v. Lafayette Ins. Co., 2009-0007 (La.App. 4 Cir. 4/21/10), 38 So.3d 963, writ denied, 2010-1153 (La.10/8/10), 46 So.3d 1266, and Ferrara, Inc. v. Lafayette Ins. Co., 2009-1681 (La.App. 4 Cir. 8/4/10), 41 So.3d 663 (unpub.), writ denied, 2010-2021 (La.11/12/10), 49 So.3d 889. La. R.S. 22:1220 legislatively imposes a duty of good faith and fair dealing on insurers, and sets forth certain acts, which if knowingly committed by an insurer, constitutes a breach of that duty. Wegener, 60 So.3d at 1229. Section (A) provides for the mandatory award of any  damages sustained as a result of the breach  of the duty imposed. Section (C) provides that in addition to these damages, discretionary penalties can be awarded, limited to two times the damages sustained, or $5,000.00, whichever is greater. Considering the statute in its entirety and applying the words of the statute as written, the only logical reading is that the damages sustained in Section (C) are the same damages sustained as a result of the breach  in Section (A). A comparison of the wording of La. R.S. 22:1220 with La. R.S. 22:658 also supports our holding. Before La. R.S. 22:1220 was enacted in 1990, La. R.S. 22:658 already existed as a penalty provision in the Insurance Code. La. R.S. 22:658 provides that an insured is entitled to penalties if the insurer fails to pay a claim within thirty days after satisfactory proof of loss, and that failure is found to be arbitrary, capricious, or without probable cause. The statute subjects the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured. La. R.S. 22:658(B)(1). [10] Comparing the wording of La. R.S. 22:1220 to La. R.S. 22:658, it is clear that while La. R.S. 22:658 penalties are calculated based on amounts due under the insurance contract, penalties under La. R.S. 22:1220 are not. The wording of La. R.S. 22:658 specifically provides that the penalty is calculated based on the amount found to be due from the insurer to the insured in addition to the amount of the loss. Had the legislature intended that La. R.S. 22:1220 penalties be calculated based on the amount due under the contract, it would have easily and clearly stated so in the statute, as it did in La. R.S. 22:658. Further, as this Court recently noted, La. R.S. 22:1220 specifically refers to a breach of the duty of good faith and fair dealing, not a breach of the insurance contract. Wegener, 60 So.3d at 1230. The duties of an insurer under La. R.S. 22:1220 are separate and distinct from its duties under the insurance contract. Id. at 1229. Thus, a claim against an insurer for breach of the insurance contract and a claim against an insurer for breach of its duty of good faith and fair dealing under La. R.S. 22:1220 are two separate causes of action. Because it is a violation of the statute, not a breach of the insurance contract, which triggers the penalty provision, it would be inconsistent to hold that contractual amounts due pursuant to the terms of the contract should be included as damages sustained under La. R.S. 22:1220. Thus, following proper guidelines of statutory interpretation, and being mindful that statutes subjecting insurers to penalties are considered penal in nature and should be strictly construed, [11] we reverse the holdings of the lower courts, and find that La. R.S. 22:1220 penalties are determined with reference to La. R.S. 22:1220 damages only. A logical and consistent reading of the statute mandates a finding that contractual damages due or awarded under the insurance contract should not be used to calculate penalties under the statute. Rather, penalties are calculated by doubling the amount of damages attributable to the insurer's breach of duties imposed under the statute. In this case, Ms. Durio was awarded damages of $167,333.00 as a result of Horace Mann's breach of its duties under La. R.S. 22:1220. Penalties are calculated by doubling this amount, for a total of $334,666.00. Thus, the trial court's judgment is amended to reflect total penalties in this amount. [12]