Class Action Basics: What Are They and When Are They Certified?

Limited liability companies (“LLCs”) are usually formed with the goal of protecting its members from personal liability for the actions of the LLC. Under Louisiana law, there is a “presumption” that the members of an LLC are not personally responsible for the liabilities of the LLC. However, a recent Third Circuit decision highlights how an LLC member may be exposed to personal liability for performance of a contract when the LLC’s name is not displayed on the contract.

In Bourque v. Bergeron, 2021-108 (La. App. 3 Cir. 12/1/21), 331 So. 3d 1089, the plaintiff filed suit against his contractor seeking damages from allegedly defective work. The contractor filed a motion to dismiss the claims against him individually, arguing that he was acting on behalf of his LLC and therefore had no personal liability. In support of his motion, the contractor introduced evidence that: (1) the contractor was the sole member of the LLC; (2) the required contracting license was in the name of the LLC; and (3) plaintiff’s checks were deposited into the LLC’s financial accounts.

The plaintiff argued that he contracted with the contractor individually, and the contractor did not represent that he was acting on behalf of an LLC. The proposal and invoices listed a business name, but did not indicate the business was an LLC. The trial court granted the contractor’s motion, finding the evidence showed the plaintiff was dealing with the LLC, and not the contractor individually.

On appeal, the Third Circuit recognized the general rule that an LLC member is not personally liable for acts committed by the LLC. However, it found an LLC member can be personally liable when they fail to disclose that the member is contracting on behalf of the LLC. The court noted that the proposal/invoice did not reflect the LLC’s involvement – it only included a business name along with the contractor’s individual name and address. Simply including a business name was not sufficient to alert plaintiff he was contracting with an LLC as opposed to an individual with a tradename. The Third Circuit reversed the trial court’s dismissal of the personal liability claims, finding issues of fact as to whether the contractor disclosed that he was acting on behalf of the LLC, which opened the door for potential personal liability for the LLC member.

This case shows that LLC members can create personal liability if they do not express that the LLC is the true party to the contract.

The nation’s first suit seeking a declaration of coverage under a commercial property policy for business interruption and extra expenses incurred as a result of COVID-19 was filed in a Louisiana state court on March 20, 2020. Since then, similar suits have been filed across the nation by restaurants, casinos, dentists, dive shops, movie theatres, repertory theatre companies, etc. Clearly, the same coverage issues raised in the Louisiana case will be litigated throughout the nation.

The suit in Cajun Conti, LLC, et al v. Certain Underwriters at Lloyd’s, London, et al, Suit No. 2020-02558, was filed on March 16, 2020, in the Civil District Court for the Parish of Orleans, State of Louisiana. Plaintiffs, doing business as Oceana Grill, a restaurant in the French Quarter, allege coverage should be declared to exist because: 1) the property policy is an “all risks” policy such that all risks are covered unless the insurer can clearly and specifically establish an exclusion from coverage; 2) the policy does not contain any exclusion “for losses from a virus or global pandemic;” 3) the virus has “physically impact[ed] public and private property” as it “physically infects and stays on the surface of objects or materials, ‘fomites,’ for up to twenty-eight days;” 4) such “contamination … [is] a direct physical loss needing remediation;” and, alternatively and in addition, 5) the current and future state orders limiting its operations serve to trigger the civil authority provisions of its policy.

A key issue in Cajun Conti as well as in the other COVID-19 business interruption coverage litigation will be whether the existence of the novel coronavirus constitutes a “direct physical loss or damage” under the intendment of an all risks property policy. The Cajun Conti plaintiffs cite to Widder v. Louisiana Citizens Prop. Ins. Corp., 2011-0196 (La. App. 4 Cir. 8/10/11), 82 So.3d 294, writ denied, 2011-2336 (La. 12/2/11) for the premise that the existence of a hazardous condition that renders the insured property unusable or uninhabitable is sufficient to constitute a “physical loss or damage” sufficient to trigger coverage. Notably, in Widder, the actual presence of inorganic lead in the insured property was confirmed to exist and coverage was therefore available. Because policyholders have the burden to establish the existence of “physical loss or damage,” reliance on Widder may require the Cajun Conti plaintiffs to establish coronavirus was actually present in their property or that its presence otherwise caused their property to be unusable or uninhabitable. Presence in the community may not be sufficient to prove the coronavirus made the insured property uninhabitable or unusable.

One of the items of proof required for the triggering of coverage under the civil authority provisions of a commercial property policy is that the alleged business loss was caused by an action by the civil authority that prohibited access to the insured premises. Relying on out-of-state jurisprudence, one Louisiana federal court has determined this factor requires proof that access to the insured premises be “actually and completely prohibited,” which is not satisfied if the access is merely “limited or hampered.” Kean, Miller v. National Fire Ins. Co. of Hartford, C.A. No. 06-770 (M.D. La. Aug. 29, 2007), 2007 WL 2489711, *4-*6. The state orders expressly referenced in the Cajun Conti suit would appear not to satisfy this standard as they served only to limit occupancy and required earlier closures. Even the subsequent stay-at-home orders [Proclamation Number 33 JBE 2020 and 41 JBE 2020, issued respectively on March 22, 2020 and April 2, 2020], may likely be insufficient to satisfy this requirement as they do not expressly mandate closure of restaurants, but simply require restaurants to “reduce operations to continue minimum contact with members of the public,” expressly allow for curbside delivery, drive-thru, and delivery services, and only prohibit the consumption of food and beverages on site.

The specific facts of each business interruption claim and the terms of the relevant policy should be considered in every occasion. Yet, these suits may face problems of proof generally. For now, we expect the novel suits to continue.

John has been practicing over 30 years and is a Senior Partner with firm where he serves on the Management Committee. He has devoted attention to non-profit boards dedicated to assisting at risk children. He enjoys time with his three children and grandchildren. He also enjoys tennis and hiking.

Nancy B. Gilbert is a partner with Keogh Cox in Baton Rouge, Louisiana. She is a puzzle-solver by nature, and specializes in providing clear and in-depth analysis of complex litigation issues.

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.