In Cherry v. Audubon Insurance Company, the Court awarded bad faith penalties against the carrier because it failed to timely pay a covered claim. In that case, Ms. Reilly was insured with Audubon Insurance Company when part of her home caught fire on May 4, 2002. Within a few days of the loss, Ms. Reilly submitted a proof of loss to Audubon that included part of her contents claim. Ms. Reilly then hired Carr & Associates to prepared a dwelling estimate of $149,589.50 and a $196,229.14 contents estimate. Both estimates were provided to Audubon on October 10, 2002. When Audubon finally paid the $40,000 policy limit on contents, almost five (5) months had passed since Ms. Reilly had submitted her proof of loss.

Ms. Reilly filed a lawsuit against Audubon, in part, for failure to timely pay her contents claim in compliance with the applicable Louisiana statutes. On appeal, Audubon contended that the trial court erred in awarding Ms. Reilly $25,000 in bad faith penalties pursuant to the applicable Louisiana statute.

The prohibited conduct under these two statutes is virtually identical: 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 difference between the statutes is the time period permitted for payment. La. R.S. 22:658 requires payment within thirty days of receiving satisfactory proof of loss and La. R.S. 22:1220 requires payment within sixty days. Both statutes impose a penalty when the failure to pay is arbitrary, capricious or without probable cause.

With regard to the contents portion of her claim, the Court carefully evaluated the documentary evidence and testimony of various individuals. Although the contents estimate prepared for Ms. Reilly by Carr & Associates was not provided to Audubon until September 2002, it was clear that Ms. Reilly submitted to Audubon a “satisfactory” proof of loss for at least part of her contents claim by May 20, 2002, only 18 days after the fire. Even Mr. Allain, the adjuster for Audubon, stated that if Ms. Reilly had requested an advance, he probably would have been able to advance approximately $2,500 on the contents policy. He claimed, however, that the only way to pay a partial contents claim was if he had an inventory list and supposedly that was not received by Audubon until it got the Carr & Associates estimate in October 2002. Despite the fact that Audubon was aware that she was owed some money on her contents claim in May 2002, Audubon failed to make any payment to Ms. Reilly for her contents until October 28, 2002, more than the thirty (30) and sixty (60) day applicable time periods. It is important to consider that when Audubon finally made a payment on contents, it paid the full policy limit. The Court explained that Audubon was on notice of Ms. Reilly’s claim in May 2002 and should not have waited until about five (5) months later to make a payment. Audubon’s actions in delaying payment on a known, covered claim were in bad faith.

The Fourth Circuit Court of Appeals in Louisiana awarded Ms. Reilly $48,141.94 for the balance of her dwelling policy limits, $25,000 for bad faith penalties, forty percent attorneys’ fees and other damages not discussed in this post. Please keep in mind that rulings on these issues may be very different in other states.