A Matter of Control: Vicarious Liability in Construction Projects

Louisiana insurance law recognizes a practical problem faced by many: the need to obtain alternative transportation when the car won’t start. Under La. R.S. 22:1296, any insurance on your personal vehicle must also extend to vehicles that are used as “temporary substitute autos.”

The statute provides that a car’s status as a “temporary substitute auto” depends on how the term is defined in the particular auto policy at issue. However, some rules typically apply to determine whether the auto is a “temporary substitute.” First, the use must be temporary, i.e. limited in duration. Second, the car must be a substitute for the auto insured under the policy and used for the same purpose. Third, policies typically limit coverage to substitute vehicles that the driver does not own.

Some policies also limit coverage by requiring that the substitution be needed for a purpose identified in the policy, such as the breakdown, repair, or destruction of the covered auto.

While the statute generally defers to the definition of “temporary substitute auto” provided in the policy, sometimes courts will overrule the insurer’s definition. For instance, in State Farm Mutual Automobile Insurance Company v. Safeway Insurance Company, 50-098 (La. App. 2 Cir. 9/30/15), 180 So.3d 450, the relevant policy defined a “temporary substitute auto” as a substitute for the owned auto when the owned auto was “being serviced or repaired by a person engaged in the business of selling, repairing, or servicing motor vehicles.” The case involved a motor vehicle accident that occurred while the policy holder operated a borrowed vehicle but before she brought her usual vehicle to a mechanic.

Citing the terms of the policy, the insurer denied coverage on grounds that the policy required the “temporary substitute auto” not only take the place of the driver’s usual vehicle, but also that the driver take the car to a mechanic before coverage would extend to the substitute vehicle. However, the court found this requirement to be against the public policies behind La. R.S. 22:1296 and found coverage under the policy extended to the borrowed vehicle.

In the wake of Hurricane Ida, the Louisiana Department of Insurance (LDI) implemented a mediation program to assist policy holders with disputed insurance claims. Effective October 18, 2021, the program was implemented to assist in the prompt and reasonable settlement of disputed insurance claims.

The program is open to all authorized property and casualty insurers, as well as all surplus line insurers for personal lines residential insurance claims up to $50,000.00. Both the insurer or policyholder can submit a written request for mediation; the opposing party is free to accept or deny the invitation. If initially denied, the parties are free to later opt to participate.

If both parties agree to mediation, a mediator will be assigned and within 30 days a mediation will be scheduled at a local Mediation & Arbitration Professional Systems (MAPS) or Perry Dampf Dispute Solutions location in the Baton Rouge or New Orleans area. The initial mediation session allows for 90-minutes; however, parties are allowed to continue the mediation beyond the initial session at the agreement of the mediator.

The mediation program is free to all policyholders and a $600 fee is assessed to the insurer for the first 90-minute mediation session. If the parties and mediator agree to continue the mediation beyond the initial 90-minute session, additional fees will be assessed for the mediator’s services. The parties are to determine among themselves who will be responsible for the additional costs.

The parties are required to provide all relevant documentation to the assigned mediator and a detailed explanation of the claim and any obstacles to resolution. The policyholder can represent themselves or through counsel. They are even encouraged to bring knowledgeable individuals such as adjusters, appraisers, or contractors.

If a resolution is reached, even just partial, both parties will reduce the agreement to writing and sign the agreement. The insurer will be required to furnish any required payment to the policyholder within ten (10) days of signing the agreement. If the parties only reach a partial agreement, they will be permitted to continue to use the mediation services and schedule future mediation dates.

At this time, the program is scheduled to continue through June 30, 2022.

All claims against professional designers are perempted (extinguished) under La. R.S. 9:5607 five years after the project is completed with an exception for fraud. In cases of fraud, an otherwise untimely lawsuit can go forward. For this reason, plaintiffs often allege fraud when the claim may be perempted. This scenario was present in the recent First Circuit decision in Markiewicz v. Sun Constr., L.L.C, 2019-1590 (La. App. 1 Cir. 9/18/20), 2020 WL 5587265. The decision helps to explain when a designer’s alleged conduct falls outside of ordinary negligence based upon the standard of care and becomes fraudulent.

Broadly, fraud is designed as “a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other.” La. C.C. art. 1953. Fraudulent intent or intent to deceive is a necessary element of a fraudulent misrepresentation. Therefore, fraud cannot be predicated on a mere mistake or negligence, however gross.

In Markiewicz, the plaintiff homeowners filed a class action lawsuit in 2006 arising from flooding of their neighborhood. Ten years later, plaintiffs added as defendants the engineers involved in the design of the drainage system, including the engineers who prepared the surveys for the development. Absent fraud, the newly added claims would be untimely. Plaintiffs alleged that the engineers fraudulently provided incorrect or misleading survey certificates, despite their knowledge that the certificates were incorrect.

The engineers filed a motion for summary judgment on peremption because more than five years had passed from the completion of their services. The engineers argued that plaintiffs could not prove fraud under facts of the case such that the fraud exception would not apply.

The Markiewicz court ruled for defendants. Although there was a dispute as to whether the engineers’ measurements were erroneous, the court found that plaintiffs failed to prove that the services were fraudulent. The plaintiffs provided no evidence that the engineers were aware of any discrepancy in preparing the surveys or that they knowingly misrepresented the surveys. As such, the court found that the fraud exception did not apply, and plaintiffs’ claims against the engineers were perempted. Through its analysis, the Markiewicz court made clear that labelling allegedly negligent conduct as fraudulent is insufficient to defeat a supported motion. While fraud may be established by circumstantial evidence, including highly suspicious facts and circumstances, the court found the record devoid of such facts.