Opinion ID: 530580
Heading Depth: 1
Heading Rank: 3

Heading: gypsum's claims

Text: 22 Both Gypsum and Dravo contended that the indemnity provisions of paragraph 13 of the Agreement require the other to indemnify it for any liabilities incurred by reason of work performed under the Agreement. The question of the interpretation of the indemnity clause in the Agreement need not be reached, however, as we have determined that the district court did not err in its interpretation of Paragraph 12 requiring insurance coverage, and the amount of damages payable to Jimmie Lee Woods is within the Liberty policy limits. 23 Gypsum also contends that the district court erred in refusing to impose penalties against Liberty for its refusal to defend or indemnify Gypsum. Under Louisiana law, an insurer who wrongfully denies a claim must pay statutory penalties. LSA R.S. 22:658 states in pertinent part: 24 A. All insurers issuing any type of contract, ... shall pay the amount of any claim due any insured, ... within sixty days after receipt of satisfactory proofs of loss from the insured, employee or any party in interest. 25 B. (1) Failure to make such payment within sixty days after receipt of such proofs and demand therefore, when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of ten percent damages on the total amount of the loss, payable to the insured, ... together with all reasonable attorney fees for the prosecution and collection of such loss,.... 26 The provisions of this statute apply where the insured has been sued for liability by a third party. The statute also applies where the insurer has wrongfully refused to defend its insured in a liability suit. See Little v. Kalo Laboratories, 424 So.2d 1065 (La.App.2d Cir.1982), writ denied, 430 So.2d 79 (La.1983); Heimbaugh v. Fed. Ins. Co., 281 So.2d 839 (La.App. 1st Cir.1973); Frederick v. Electro-Coal Transfer Corp., 548 F.Supp. 83 (E.D.La.1982). 27 In this case, all parties have stipulated that demand was made on Liberty, so the only issue before the court is whether Liberty's refusal to defend or indemnify was arbitrary, capricious or unreasonable. The district court found that it was not, and we decline to reverse that decision. 28 Although some Louisiana courts have found an insurer's denial to be arbitrary or capricious when the insurer incorrectly interprets coverage, Boudreaux v. Fireman's Fund Ins. Co., 654 F.2d 447 (5th Cir.1981); Frederick v. Electro-Coal, supra; Chrysler Credit Corp. v. Dairyland Ins. Co., 491 So.2d 402 (La.App. 1st Cir.1986), writ denied, 494 So.2d 1178 (La.1986); Steadman v. Pearl Assurance Co., 242 La. 84, 134 So.2d 884 (1961), it is not apparent from the statute that the Louisiana legislature intended insurers to pay penalties whenever they err in their interpretation of coverage. In several cases, where there were serious questions concerning the underlying law or the facts which would trigger coverage, the Louisiana courts have not imposed penalties, despite a finding that the insured was covered by the policy in question. See Rudloff v. Louisiana Health Services and Indemnity Corp., 385 So.2d 767 (La.1980); Valladares v. Monarch Ins. Co., 282 So.2d 569 (La.App.4th Cir.1973); Cotlar v. Gulf Ins. Co., 318 So.2d 923 (La.App. 4th Cir.1975). 29 Liberty argues that the language of Section 658 relates to claims made by a named insured against its insurer, and as Gypsum is not a named insured in the Liberty policy, the statute should not apply. While it is not necessarily dispositive that Gypsum was not specifically a named insured, this case may be distinguished from those where an insurer wrongly interpreted its policy because this case arguably did not involve a policy interpretation, but an interpretation of the contract between Gypsum and Dravo. Because the language in the Agreement was not policy language written by Liberty, its refusal to defend or indemnify can be seen as less arbitrary than if the language governing coverage had been created by the insurer. After all, Dravo, who purchased the insurance also argued against coverage. 30 Because the statute is penal in nature it should be strictly construed, and should not be invoked merely because an insurer is cast in judgment under the policy. See, e.g., Headrick v. Pennsylvania Millers Mut. Ins. Co., 257 La. 1101, 245 So.2d 324, 326 (1971); Crawford v. Al Smith Plumbing, 352 So.2d 669, 673 (La.1977). The statute requires that the insurer's denial be arbitrary or capricious in order to impose penalties. It should not be invoked where the insurer had a reasonable basis for denying coverage or defense. See McGrew v. State Farm, 385 So.2d 1276, 1284 (La.App.1980). We will give some deference to the interpretation of a Louisiana statute by an experienced Louisiana District Judge. Accordingly, we do not find the district court's determination that Liberty acted in good faith and was not arbitrary and capricious to have been erroneous.