Kelly v. State Farm Fire & Cas. Co.

• Decision Date: 05 May 2015
• Docket Number: No. 2014–CQ–1921.,2014–CQ–1921.
• Citation: 169 So.3d 328
• Parties: Danny KELLY v. STATE FARM FIRE & CASUALTY COMPANY.
• Court: Louisiana Supreme Court

169 So.3d 328

Danny KELLY

v.STATE FARM FIRE & CASUALTY COMPANY.

No. 2014–CQ–1921.

Supreme Court of Louisiana.

May 5, 2015.

Opinion

WEIMER, Justice.

Invoking Louisiana Supreme Court Rule XII,¹ the United States Court of Appeals for the Fifth Circuit certified to this court two questions of law. Both questions relate to claims that an insurer is liable for subjecting its insured to a court judgment in excess of insurance policy limits. The certified questions are:

(1) Can an insurer be found liable for a bad-faith failure-to-settle claim under Section 22:1973(A) when the insurer never received a firm settlement offer?

(2) Can an insurer be found liable under Section 22:1973(B)(1) for misrepresenting or failing to disclose facts that are not related to the insurance policy's coverage?

Kelly v. State Farm Fire & Cas. Co., 582 Fed.Appx. 290, 296 (5th Cir.2014). The specific sections of La. R.S. 22:1973 referenced provide:

(A) An insurer, including but not limited to a foreign line and surplus line 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 of this Section:

(1) Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue.

We accepted certification² and, for the reasons set forth below, answer the questions as follows: 1) A firm settlement offer is unnecessary for an insured to sustain a cause of action against an insurer for a bad-faith failure-to-settle claim, because the insurer's duties to the insured can be triggered by information other than the mere fact that a third party has made a settlement offer; 2) An insurer can be found liable under La. R.S. 22:1973(B)(1) for misrepresenting or failing to disclose facts that are not related to the insurance policy's coverage because the statute prohibits the misrepresentation of “pertinent facts,” without restriction to facts “relating to any coverages.”

FACTS AND PROCEDURAL HISTORY

The certified questions stem from the claims handling by State Farm Fire & Casualty Company [State Farm] following an automobile accident. The facts of this case have been presented by the court of appeals, which observed that, except where specifically indicated, the parties did not dispute the court's narrative.³ Accordingly, to place the certified questions into perspective, we draw largely from the court of appeals' factual and procedural narrative.

Danny Kelly (“Kelly”) was injured on November 21, 2005, during an automobile accident with Henry Thomas (“Thomas”), who had liability insurance with State Farm. Thomas and Kelly were driving in opposite directions, when Thomas turned left and struck Kelly. Both Kelly and a witness told police that Thomas had failed to yield to oncoming traffic, but Thomas maintained he was not at fault. Kelly was taken to a hospital by ambulance and treated for a fractured femur. He remained hospitalized for approximately six days. The cost of his medical care totaled $26,803.17.

On January 6, 2006, Kelly's attorney mailed a letter to State Farm regarding Kelly's injury. The letter included copies of Kelly's hospital records and stated:

Please find enclosed a copy of Danny Kelly's Medical Summary with attached medical records/reports and bills concerning his hospital treatment for the above referenced incident involving your insured. I will recommend release of State Farm Insurance Company and your insured, Henry Thomas, Jr., for payment of your policy limits.

Please give me a call in the next ten (10) days to discuss this matter. State Farm did not respond to the letter.⁴ Kelly's attorney, however, conversed with State Farm representatives on March 8 and March 22, 2006. During the March 22 conversation, a State Farm representative offered to settle the case for $25,000, the policy limit,⁵ and sent Kelly's attorney a letter memorializing the offer. Kelly's attorney responded that the offer was rejected and later filed suit against Thomas. The same day State Farm received word that the offer was rejected, it sent Thomas a letter informing him of the possibility of personal liability and suggesting that he retain independent counsel. The letter from State Farm did not mention the January 2006 letter from Kelly's attorney, State Farm's offer to Kelly, or the amount of Kelly's medical bills.

Kelly's lawsuit against Thomas proceeded to a trial, in which Thomas was found liable for the accident and cast in judgment for $176,464.07, plus interest. State Farm paid Kelly the policy limit of $25,000.

After the judgment was rendered against him, Thomas entered into a compromise agreement with Kelly. Thomas assigned his right to pursue a bad faith action against State Farm to Kelly in exchange for Kelly's promise not to enforce the judgment against Thomas' personal assets.

Kelly filed suit against State Farm, alleging State Farm was liable for bad faith practices under Louisiana law. State Farm removed the case to federal district court. The district court discerned two potentially actionable claims from the petition, which were described by the appeals court as: “(1) fail [ing] to notify Thomas of Kelly's January 2006 letter; and (2) fail[ing] to accept Kelly's January 2006 settlement offer.”⁶ State Farm filed a motion for summary judgment, seeking the dismissal of both claims.

On November 8, 2011, the district court partially granted State Farm's motion. The district court granted summary judgment in State Farm's favor on Kelly's first claim, holding that the January 2006 letter did not constitute a settlement offer and that State Farm did not have a duty to notify Thomas when the letter was received. The district court denied summary judgment on the second claim, however, stating that Kelly might be able to prove that State Farm's failure to settle his insurance claim constituted bad faith.

State Farm moved the district court for reconsideration on November 23, 2011, arguing that State Farm could be liable for bad faith failure to settle only if it failed to accept an actual offer and acted in bad faith. According to State Farm's argument, the district court's finding that the January 2006 letter did not constitute an offer necessarily precluded liability on Kelly's second claim. The district court agreed and revised its opinion to grant a full summary judgment in State Farm's favor. Kelly appealed the summary judgment dismissal of his two claims.

On appeal, a three-judge panel of the court of appeals affirmed in part and reversed in part.⁷ The court affirmed dismissal of what the court would later identify as the second claim (i.e., the duty to settle claim), reasoning that “[b]ecause Kelly's purported settlement letter and medical receipts did not constitute ‘a satisfactory proof of loss from the insured,’ Kelly cannot maintain a claim under § 22:1892(A)(1) as a matter of law.”⁸ However, the court reversed dismissal of the first claim (i.e., the duty to inform claim), explaining:

The only communication between State Farm and Thomas alleged here consisted of a single letter in which State Farm told Thomas that he might face personal liability and that he should consider seeking independent counsel. At no point did State Farm inform Thomas the extent to which Kelly's medical bills exceeded his policy limits, nor did State Farm tell Thomas that it had made a settlement offer that was rejected by Kelly. In short, State Farm sent a single, cursory communication to Thomas, and it cannot be said as a matter of law that this letter communicated the pertinent facts necessary for Thomas to determine what was in his best interest. Therefore, State Farm was not entitled to judgment as a matter of law on Kelly's claim under § 22:1973(B)(1).⁹

Both parties filed petitions for rehearing, which were granted. The appeals court withdrew its earlier opinion and issued another opinion certifying the two earlier-quoted “questions of Louisiana law on which there are no controlling precedents from the Supreme Court of Louisiana.”¹⁰

The appeals court divided its review of the pertinent jurisprudence into two categories, focusing only on “Thomas' claims [against State Farm] under Section 22:1973(A) and (B)(1).”¹¹ Accordingly, the first category of jurisprudence involved an interpretation of La. R.S. 22:1973(A), which in relevant part provides: “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.”

“Despite the broad wording of Section 22:1973(A), it does not give a third-party claimant the right to sue an insurer for a generalized breach of its duty of good faith and fair dealing.”¹² Theriot v. Midland Risk Ins. Co., 694 So.2d 184, 188–93 (La.1997). If Kelly were advancing a claim only on his own behalf, his claim under La. R.S. 22:1973(A) would have been barred under this court's ruling in Theriot because the claims by third parties are only actionable if the third party proves the “insurer ... has taken one or more of the prohibited actions specified in Section 22:1973(B).”¹³ Because Kelly was not advancing his own claims, but Thomas' claims assigned to him, Kelly had an available cause of action under La. R.S. 22:1973(A). See Stanley v. Trinchard, 500 F.3d 411 (5th Cir.2007). In the absence of a ruling to the contrary by this court, the appeals court determined it “must assume that an insured can pursue a cause of action against an insurer for a generalized breach of the duty of good faith and fair dealing” under La. R.S. 22:1973(A).¹⁴

The...