Governor Issues 2025 Insurance Reforms

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.

It seems intuitive that people have an obligation to avoid potentially harmful conditions that are open and obvious. Nevertheless, treatment of open and obvious conditions in Louisiana law has proved tricky because many cases did not apply a uniform analytical framework. In Farrell v. Circle K Stores, Inc. and the City of Pineville, the Louisiana Supreme Court recently offered needed guidance on the appropriate analysis for open and obvious conditions.

The plaintiff stopped at a gas station and decided to walk her dog in a nearby grassy area. To get to the grassy area, Farrell had to cross a pool of water that was “approximately the length of a tractor-trailer.” Farrell attempted to jump across the narrowest part of the pool, but slipped and fell. She sued for damages arising from her injuries. The defendants moved for summary judgment on the grounds that the condition was open and obvious. The trial court and court of appeal denied the defendants’ motion. However, the Louisiana Supreme Court reviewed the matter and reversed.

In finding that the condition was open and obvious, the court began its analysis by outlining the elements that a plaintiff must establish to recover for damage arising from a defect under Louisiana Civil Code articles 2315, 2316, 2317 and 2317.1:

• That the defendant owed plaintiff a duty to conform its conduct to a specific standard;
• That the defendant breached the duty owed;
• That the defendant’s conduct was the cause-in-fact of the plaintiff’s injuries;
• That the defendant’s conduct was the legal cause of the plaintiff’s injuries; and,
• That the plaintiff suffered damages.

The court also highlighted the requirement under La. R.S. 2317.1 that plaintiff show the defendant knew or should have known of the condition before the injury occurred.

The court noted that some courts had assessed whether a condition was open and obvious in the context of whether the defendant owed the plaintiff a duty, while other courts had assessed whether a condition was open and obvious in the context of whether the defendant had breached the duty that was owed. In Farrell, the court found a duty was owed under the code articles referenced above. It clarified that whether a condition was open and obvious should be considered during analysis of whether the duty was breached, pursuant to Louisiana’s “risk/utility” test. This test requires consideration of whether the condition presented an unreasonable risk of harm, which considers whether the condition had any social utility; the likelihood and magnitude of harm the condition presented; the cost of preventing the harm; and the nature of the plaintiff’s conduct, including whether plaintiff’s conduct was socially useful or inherently dangerous.

Specifically, whether a condition is open and obvious should be considered in determining the likelihood of harm and magnitude of harm to an objectively reasonable person. The court further advised that the specific nature of the condition should be considered, such as its location and size. In contrast, a plaintiff’s particular and subjective knowledge of the condition is not relevant in determining whether defendant has breached a duty.

The Farrell court applied this analysis to the facts. It found that the pool served no useful purpose. No evidence existed regarding the cost to eliminate the risk. With respect to Farrell’s conduct, the court found that walking a dog was not dangerous by nature and may have an important social function, but this did not weigh heavily in the analysis. However, with respect to whether the condition as open and obvious, the court considered the location of the pool at the edge of the parking lot, the size of the pool, and the fact that it was apparent to all who encountered it. Thus, the condition was open and obvious, and the likelihood of and magnitude of the harm was minimal.

The court concluded that these factors collectively showed the condition was not unreasonably dangerous. The defendants did not breach their duty to plaintiff, and summary judgment should have issued for the defendants. In so holding, the Supreme Court provided clarifying guidance on analysis of open and obvious conditions under Louisiana law.

Case Reference:

Farrell v. Circle K Stores, Inc. and the City of Pineville, 2022-000849 (La. 3/17/23), --- So.3d ----, 2023 WL 2550503.

Louisiana’s New Home Warranty Act (“NHWA”) provides remedies to homeowners forcertain construction defects once the new home construction is complete. La. R.S. 9:3141 et seq. These protections can prove crucial to a homeowner’s ability to remedy defects that appear in their home, but the statutes providing these remedies establish strict guidelines that must be followed for the protections to apply. This generally post sets forth some of the key protections and obstacles/defenses that often arise. However, each specific claim should be considered under its own facts.

PROTECTIONS

The NHWA provides specific protections to homeowners. Each protection expires if not advanced within a set time-period.

Noncompliance/Defects- The NHWA protects against “any defect due to noncompliance with the building standards or other defects in materials or workmanship not regulated by building standards.” La. R.S. 9:3144(A)(1). This category includes defective construction or materials used in the construction. Even seemingly minor issues such as cracked plaster, yellowing paint, and “rubbing off” of new paint can give rise to a valid claim for recovery under this portion of the NHWA. See Bynog v. MRL, LLC, 05-122 (La. App. 3 Cir. 6/1/05), 903 So.2d 1197. Deviations from the “plans and specifications” for a home may also be recoverable. See Thorn v. Caskey, 32-310 (La. App. 2 Cir. 9/22/99), 745 So.2d 653.

Because this first protection is so broad, it also provides the shortest time-period to assert a claim: one year from the “warranty commencement date,” which is either the date legal title to the home is conveyed to its initial purchaser or the date the home is first occupied, whichever occurs first. La. R.S. 9:3142(7).

Plumbing/Electrical/HVAC- The NHWA also protects the homeowner from defects in the plumbing, electrical, heating, cooling, and ventilating systems. These protections exclude equipment or appliances. A homeowner must bring a claim under this second category within two years of the warranty commencement date. La. R.S. 9:3144(A)(2).

Major Structural Problems- the NHWA allows recovery for major structural defects up to five years following the warranty commencement date. La. R.S. 9:3144(A)(3). For instance, recovery was allowed for a failing foundation under this provision in Campo v. Sternberger, 15-53 (La. App. 5 Cir. 11/19/15),179 So.3d 908.

PITFALLS

The most obvious – and probably most prevalent – pitfall is the timeliness of the claim. Courts do not hesitate to dismiss a claim if it is not timely filed.

The NHWA also requires that the homeowner give the builder written notice (via certified mail) of the defect before the homeowner attempts a repair, or before filing suit under the NHWA. La. R.S. 9:3145(A). This notice must be sent to the builder within one year after the homeowner has knowledge of the defect. Therefore, the one-year “clock” may begin to run when the homeowner gains knowledge of the problem even if the NHWA provides a longer time-period to advance the claim.

A failure by the homeowner to give timely notice can also diminish the claim even if it is brought within the deadlines. Under La. R.S. 9:3144(B)(4)(c), any damages caused by the homeowner’s failure to give the builder notice of the defect are not recoverable. In that circumstance, builders often contend that the severity of the problem could have been lessened had they been made aware.

RECOVERABLE DAMAGES

With some exceptions, damages under the NHWA are limited to the actual damages incurred by the homeowner, including attorney fees and court costs arising out of the builder’s violation. La. R.S. 9:3149. The actual damages cannot exceed the reasonable cost of repair or replacement necessary to cure the defect. If there are multiple defects across the home, damages are limited to the original purchase price of the home.

Consequential damages such as pain and suffering, mental anguish, or loss of use are generally not recoverable. See La. R.S. 9:3144(B); Iteld v. Four Corners Const., L.P., 12-1504 (La. App. 4 Cir. 6/5/13), 157 So.3d 702. However, there may be exceptions to this general rule under certain factual circumstances beyond the scope of this post.

CONCLUSION

The NHWA provides important remedies to homeowners. But, the New Home Warranty Act is complex and balances the competing interests of the homeowners and the builders. For this reason, a failure to follow the notice and timeliness requirements will often defeat the claim.

John Grinton, is a partner at Keogh Cox whose practice areas include commercial and construction litigation. When he is not practicing law, John spends most of his time with his wife and son, and their two dogs.