This newsletter issue contains several decisions outside Louisiana dealing with the duty to settle and the duty to defend, particularly the former. We are seeing more often claims that the insurer breached a duty to settle because it failed to take affirmative steps to settle, even though there was no settlement demand. We also have several Louisiana coverage opinions and as lagniappe a few non-coverage decisions that should be of interest to liability insurers.
Duty to Settle (Mississippi)
In Hemphill v. State Farm Mut., 805 F.3d 535 (10/16/15), the United States Fifth Circuit Court of Appeals finds that under Mississippi law a liability insurer does not have a duty to settle without a settlement demand by the claimant.
Here, after initial prevarications about who was driving the Hemphill car insured by State Farm and which driver ran the stop sign, it was clear that Patrick Hemphill had been the driver and had run the stop sign, and that a passenger in the Taylor vehicle was rendered a paraplegic because of the accident. The State Farm policy had $50,000 per person and $100,000 per accident limits. On February 1, 2009, the accident occurred. On August 10, 2009, the Taylor claimants filed suit. On August 12, 2009, State Farm made settlement offers of $50,000 and $20,000 to the two plaintiffs. And on September 1, 2009, State Farm offered each plaintiff its $50,000 policy limit. Plaintiffs rejected the offer. At the trial, a jury awarded damages of $2,862,920, and the insured sued State Farm for bad faith under several claims.
The federal district court granted summary judgment to State Farm. Affirming the judgment, the Fifth Circuit, under Mississippi law, found that:
- As noted above, a liability insurer does not have a duty to settle without a settlement demand by a claimant. The court noted that any court language that in “dangerous cases it is the duty of the insurance carrier to initiate settlement demands on its own” in a 1988 Mississippi Supreme Court decision was dictum that has never been followed.
- Assuming for argument that an insurer has a duty to disclose its policy limits to the claimant, that duty is met when the policy limits are verbally dis<closed, and there is no duty to disclose the limits in writing by sending a copy of the insurance-policy declarations page.
- Assuming for argument that an insurer has an obligation to advise its insured of his potential excess exposure and his right to retain independent counsel, any failure by State Farm here did not cause any damages because the insured knew of his excess exposure and had quickly hired independent counsel.
Duty to Settle (Florida)
In Florida, when there is no settlement demand by the claimant, how far does the insurer’s duty to settle go?
In a case with bizarre facts, a car driven by Zisa was attempting to pass a car driven by Middleton when the Zisa car hit three pedestrians in the southbound passing lane. The March 4 accident happened at night in a marked passing-zone on a roadway with a 45-mile-per-hour speed limit. When Zisa first tried to pass, Middleton sped up, causing Zisa to return to his northbound lane. The accident happened when Zisa was attempting a second time to pass. The pedestrians were wearing dark clothing and had no flashlights. The investigating police officer found the pedestrians were responsible for the accident. The car driven by Middleton did not hit any of the pedestrians.
Middleton had been driving with consent her girlfriend’s car. Liberty insured the car. On May 7, an investigator working with plaintiff’s lawyer contacted the girlfriend’s mother, Liberty’s named insured, who advised that Middleton had done nothing wrong and falsely stated that she had no insurance coverage. In fact, under the mother’s policy, Liberty covered the car with limits of $10,000 per person and $20,000 per accident.
Shortly after being contacted by the investigator, the mother, the named insured, contacted Liberty, advising that the car had not been involved in an accident, but that an investigator had called her about her daughter and the car’s driver being witnesses to an accident. Liberty took no action.
On August 21, plaintiff filed a wrongful death suit against the two drivers, Middleton’s girlfriend, and the girlfriend’s mother. On October 5, shortly after service, the mother advised Liberty of the lawsuit. On October 7, Liberty received a copy of the lawsuit. On October 9, Liberty initiated settlement discussions, offering the policy limits to all claimants with a mediator to determine at settlement conference the allocation of the proceeds. The claimants rejected all settlement overtures, even returning settlement checks that Liberty had later sent.
At trial, a jury somehow found the deceased claimant was only 55 percent at fault, Middleton was 38 percent at fault, and Zisa was seven percent at fault. (It is not clear how Middleton was at fault and more important how any fault caused the accident.) After trial, Middleton assigned his rights against Liberty to the plaintiff, who then sued Liberty for insurer bad faith.
In the bad-faith action, Liberty filed a summary-judgment motion, contending that it had breached no insurer duty. Using Florida law, the federal court noted that the insurer had an overall duty of good faith to settle valid claims when possible. The court added that in the typical bad-faith case, the insurer rejects a time-limited settlement offer. However, case law in Florida exists that an insurer has an affirmative duty to initiate settlement negotiations when “liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely.”
Here, the court granted Liberty’s summary-judgment motion, finding that liability was hardly “clear.” The court stated that insurers do not have a duty to initiate settlement negotiations “whenever an insured is involved in a crash and has some potential liability” because in every accident case the possibility exists that the insured might be possibly at fault. Welford v. Liberty Ins. Corp., 3:15-CV-333 (N.D. Fla. 6/2/16).
Duty to Defend (Montana)
Groff’s estate sued Weitzel, alleging that Weitzel, who provided home-care services to the elderly Groff, stole Groff’s assets over a course of several years. Does Weitzel’s homeowner’s insurer owe Weitzel a defense? The district court said yes, finding that the petition allegations suggested a claim for false imprisonment and “personal injury” coverage under the policy. But the Montana Supreme Court says no, finding that the petition did not allege that Groff was being restrained against his will and thus did not allege false imprisonment. Fire Insurance Exchange v. Weitzel, 383 Mont. 364 (5/17/16).
Automobile Insurance—”Use” of Auto
Driving a delivery truck, Roberts was making a delivery for his employer to an oil refinery. The plaintiff, a security guard at the refinery, was inspecting the vehicle, when Roberts closed the truck’s rear door, injuring plaintiff. The plaintiff sued automobile liability insurer State Farm and the vending company’s CGL insurer American Empire. The CGL policy contained the standard auto exclusion, which excluded injury “arising out of the ownership, maintenance, use or entrustment to others of any . . . ‘auto’ . . . owned or operated by . . . any insured.”
The Louisiana Fourth Circuit Court of Appeal affirms summary judgment to the CGL insurer, agreeing that the auto exclusion applied. The court noted that CGL policies may provide coverage when automobiles are not being used for ordinary locomotion or transport purposes, but “for purposes usually associated with the type of business activity risks normally covered” by CGL policies. However, here, the delivery truck was being used solely for transportation and locomotion purposes, the truck’s engine was still running, and Roberts only stopped the truck briefly to allow the plaintiff to inspect the cargo compartment. Morrow v. State Farm Mutual Auto. Ins. Co., 2015-0578 (6/29/16).
UM—Workers’ Compensation Exclusion
Forgey was injured in a car accident because of Maynor’s sole fault. Forgey received workers’ compensation benefits from Commerce, which filed an intervention in the tort action to recover benefits and expenses paid. Arch was the UM insurer for plaintiff’s employer, which covered the car that Forgey was driving. State Farm was Forgey’s personal UM insurer. Forgey and Arch moved for summary judgment that Arch owed no reimbursement to Commerce and that Forgey did not need Commerce’s consent to settle with Arch; and the trial court agreed, granting both motions.
The Arch UM policy contained these exclusions for workers’ compensation payments:
This insurance does not apply to any of the following:
. . .
3. Workers’ Compensation
Any obligation for which the “insured” or the “insured’s” insurer may be held liable under any workers’ compensation, disability benefits or unemployment compensation law or any similar law.
. . .
This insurance does not apply to:
1. The direct or indirect benefit of any insurer or self-insurer under any workers’ compensation, disability benefits or similar law.
Citing an earlier Second Circuit case, Tolbird v. Wyble, 892 So.2d 103 (12/15/04), Commerce argued that it was entitled, if not to reimbursement of past payments, to a future credit for future payment. However, affirming the trial court, the Louisiana Second Circuit states “that there is no statutory prohibition against an employer contracting with its UM insurer to exclude compensation reimbursement,” and the policy exclusions prevail over statutory law giving the workers’ compensation insurer a general right of reimbursement.
Insurers – Body Shops
Under La. R.S. 22:1892(D)(1), an insurer cannot require as a condition for payment that automobile repairs be done at a particular repair shop. The statute provides for a $500 penalty for violation. Medine’s Collision Center sued two Progressive insurers under R.S. 22:1892(D)(1), alleging that the body shop had sent correspondence to customers stating that the plaintiff’s charges were excessive and would not be paid by those insurers. Can a body shop obtain penalties under the statute? The Louisiana First Circuit Court of Appeal says no, finding that under the statute only an insured or third-person claimant can recover penalties. Medine’s Collision Center, LLC v. Progressive Direct Ins. Co., 2015-1661 (7/12/16).
Course and Scope of Employment – The Dangerous Life of a Sous-Chef
In a restaurant workplace that might make for a new cooking show, Garcia, the sous-chef at Eldorado Casino, saw Lewis stealing three snow-crab legs. Lewis was a pot washer employed by Full Services. Eldorado had contracted with Full Services to provide dishwashing services, and the contract stated that Eldorado would be the statutory employer of any Full Services employee.
Garcia reported what he had seen to Lewis’s supervisor, who fired Lewis. Supposedly cleaning out his work locker, Lewis removed an umbrella and brass knuckles, and returned to the kitchen where he attacked and seriously injured Garcia.
Garcia sued Eldorado as the statutory employer of Lewis. Reversing the trial court’s grant of summary judgment to Eldorado, the Louisiana Second Circuit Court of Appeal finds factual issues as to whether Lewis’s actions were employment-related. Using the Supreme Court’s four factors in LeBrane v. Lewis, 292 So.2d 216 (La. 1974), which involved a supervisor stabbing a fellow employee, the Second Circuit notes that the act occurred on the employer’s premises, during hours of employment, and while Lewis was in the process of being fired. The court added that the motive of the attacking employee is critical and may have caused Lewis’s conduct to be employment-rooted. Note that the action against the employer was limited to intentional acts under La. R.S. 23:1032. Garcia v. Lewis, 50,744 (6/22/16).
In workers’ compensation proceedings, injured worker Harris sued his employer, the City of Bastrop, and the judge ruled for Bastrop. However, after a final judgment in the action brought by Harris, Bastrop filed an action against Harris to recover an overpayment in benefits based on the adjuster’s incorrect calculation of benefits. The Louisiana Second Circuit Court of Appeal affirms the court’s summary judgment to Harris based on res judicata. Under La. R.S. 13:4231, parties need to bring all causes of action arising out of the occurrence or transaction in the first lawsuit if those causes existed at the time of the final judgment in the first litigation. In short, Bastrop needed to assert its overpayment claim in the action filed by Harris. And the court found that the exceptions in La. R.S. 13:4323—”exceptional circumstances,” a judgment without prejudice, and a judgment reserving the right to bring a second action—were absent. City of Bastrop v. Harris, 50,727 (6/22/16).
Massery v. Rouse’s Enterprises, LLC, 2016-0121 (6/29/16), falls in the category of how did the defendant lose. The plaintiff, leaving the refrigerated produce section of a Rouse’s supermarket, tripped over a mobile vegetable cart and fell. The cart was five to six feet wide. On each end, there was an upside-down U-shaped bar extending upward about five to six feet. And there were boxes on the cart.
An assistant manager was working at the cart. He had answered the plaintiff’s questions about the location of ginger—and at one point warned her about the cart and extended his right hand behind the plaintiff’s back to keep her from getting closer to the cart. When plaintiff turned away from the produce section, she somehow tripped on the vegetable cart.
Affirming the city court judgment, the Louisiana Fourth Circuit Court of Appeal finds that the assistant manager’s failure to relocate the cart away from plaintiff contributed to the accident, and that the plaintiff and the store each were 50 percent at fault.
La. R.S. 9:2772 creates a five-year preemption period to bring actions arising out of the construction or design of buildings or other immovable property. The time period begins running with “the date of registry in the mortgage office of acceptance of the work by owner”; or, if there is no recorded acceptance within six months of the date the owner has occupied the building, with the owner’s occupancy of the building.
In Thrasher Construction, Inc. v. Gibbs Residential, LLC, 2015-0607 (6/29/16), there were three certificates of substantial completion filed for different portions of the project. The owner sued a subcontractor more than five years before the filing of the first certificate, but within five years of the filing of the other certificates. The Louisiana Fourth Circuit Court of Appeal finds that acceptance of portions of a project can commence the five-year peremptive period; and that, where the subcontractor’s work was complete before, and concerned the work covered under, the first certificate, the owner’s action was untimely filed.
Richard Petre is a shareholder at Onebane, who practices in the Litigation Section. To read more about Richard, please click here.