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To Arbitrate or Not to Arbitrate: LA Supreme Court Rejects Federal Court Position

Published on: December 10, 2024

Hurricanes Laura and Delta caused substantial damage in Louisiana, resulting in extensive litigation that continues to develop. In a July 8, 2024 blog post, we reported that the U.S. Fifth Circuit Court of Appeals, in Bufkin Enterprises, LLC v. Indian Harbor Ins. Co., affirmed that equitable estoppel applied to allow domestic insurers to compel arbitration under the New York Convention even where the insured dismissed the foreign insurers with prejudice. Click here to read more.

New case law from the LA Supreme Court warrants supplementation of our prior blog post. The Police Jury of Calcasieu Parish (“Calcasieu”) filed suit in federal court to recover alleged underpaid and untimely insurance claim payments. Various domestic insurers moved to compel arbitration pursuant to arbitration clauses found in two foreign insurers’ policies. The foreign policies required all claims be submitted to arbitration in New York under New York law. The insurers relied upon Bufkin Enterprises, LLC v. Indian Harbor Ins. Co., and Calcasieu moved to certify questions to the LA Supreme Court.

The U.S. District Court for the Western District of LA certified questions to the Louisiana Supreme Court to address this issue. In Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co., the Louisiana Supreme Court held:

  1. Arbitration is prohibited by statute. The case involved the interpretation of La. R.S. 22:868, as amended in 2020. Generally, La. R.S. 22:868(A) prohibits the use of arbitration clauses in insurance policies. The Court held this prohibition is rooted in public policy because compulsory arbitration clauses deprive courts of jurisdiction over actions against insurers. The Court noted it historically has held arbitration clauses within insurance policies are unenforceable, and it did not deviate from its historical position.
  1. As a matter of first impression, an insurance policy with a political subdivision is a “public contract” within meaning of the statute banning any provision in public contracts which requires a suit or arbitration proceeding to be brought in a forum or jurisdiction outside of the state. It was undisputed that Calcasieu is a political subdivision of this state. Also, it was undisputed the Defendants contracted with Calcasieu to provide insurance coverage for approximately 300 properties that Calcasieu owned for the benefit of the public. No private actors involved. Thus, the Court found, “The Defendants’ insurance policies clearly covered public properties owned by Calcasieu, purchased with public funds––taxpayer dollars. As such, we easily find insurance contracts with political subdivisions, like the policies at issue, are public contracts within the meaning of La. R.S. 9:2778.” Thus, the statute precludes arbitration or venue outside of LA, or the application of foreign law, in claims involving the State and its political subdivisions.
  1. A domestic insurer may not use equitable estoppel to enforce arbitration via a foreign insurer's policy. Citing its disagreement with the Federal Court’s ruling in Bufkin Enterprises, L.L.C. v. Indian Harbor Ins., the Court held “[E]quitable estoppel is not available under these circumstances because it conflicts with the positive law of La. R.S. 22:868, which prohibits the use of arbitration clauses in Louisiana-issued insurance policies. As such, domestic insurers may not employ this common law doctrine to compel arbitration through the clause of another insurer's policies, as it clearly contravenes La. R.S. 22:868(A)(2). A contrary finding would (1) violate Louisiana's positive law prohibiting arbitration in Louisiana-issued insurance policies; and (2) invite domestic insurers’ misuse a doctrine of ‘last resort’ to ceaselessly rely on insurance policies of foreign insurers to compel arbitration.”

References:

Police Jury of Calcasieu Parish v. Indian Harbor Insurance Co., 2024 WL 4579035 (La.), 9, 2024-00449 (La. 10/25/24).

Bufkin Enterprises, L.L.C. v. Indian Harbor Ins. Co. 96 F.4th 726 (5th Cir. 2024).

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Uninsured Motorist Coverage: Making Smart People Feel Dumb

I have met smart, sophisticated “business” people whose eyes glass over when they try to explain their understanding of “UM” coverage. The picture becomes murkier when discussing “economic-only UM,” a form of UM coverage many people purchase without even knowing it. Through many years and conversations, I have come to conclude that there is a general fogginess that obscures this entire subject with many, if not most, people. This blog is an effort to improve understanding on the subject.What is “UM” Coverage?“UM” signifies “uninsured motorist” insurance coverage, but is more properly described as “uninsured/underinsured” motorist coverage. A person, family, business, or group purchases UM coverage to respond to damages caused in an accident by someone who has either no insurance or not enough to cover the loss. You purchase UM insurance to protect yourself or those connected to you. Without UM, you are gambling that the person who caused the accident (the “tortfeasor”) will have insurance coverage, and enough coverage, to respond to the injuries and damages they have caused.Why UM?This question is simply answered in a two-part response:#1- The roads are dangerous-Unless you are a crop duster or an undercover agent, the most dangerous thing you will likely do on any given day is to drive on a public road, even more so in the age of “smartphones” and distracted-driving.#2- Many drivers lack sufficient liability coverage- An unhealthy portion of drivers have either no insurance on insufficient insurance coverage to address an accident involving severe injuries or damages. The State of Louisiana requires motorists to obtain at least the minimum insurance of $15,000 “per person,” $30,000 “per accident,” and $25,000 to address property damage. If you do not purchase UM, you are trusting that these limits will be enough, as they might be in a minor accident. But what if the injuries are severe or you have multiple passengers in your car, van, or suburban?Often, the same people who reject UM, will buy “collision” coverage on their car to make sure they are not left paying for a car note after the car is destroyed in an accident. In this limited way, you can think of UM insurance as collision coverage on you, your family, passengers, or employees.While perfect statistics are not available, many drivers on the road have no insurance. Frequently, drivers will obtain minimum limits insurance through a “premium finance” arrangement, but will have stopped paying the premiums (thereby losing coverage) by the time of an accident.What is “Economic-Only” UM?In Louisiana, UM coverage will be afforded to you unless you “waive” the coverage under La. R.S. 22:1295. Louisiana residents are presented with a form that allows them to waive or select UM coverage. They are also allowed to select “economic-only” UM. People often choose this option because it is cheaper, but economic-only UM coverage will only pay for economic damages such as lost wages, medical bills, funeral costs, and other monetary damages. Economic-only UM will not pay money to compensate for pain and suffering/mental anguish, scarring and disfigurement, or other non-economic damages.FAQS

  • Can UM protect me from a hit-and-run driver? Yes.
  • What if another driver’s negligence caused the accident, but there was no physical contact with that driver’s vehicle and they fled? In this scenario, UM may be available under La. R.S. 22:1295(1)(f); however, you will need to identify an “independent and disinterested witness” to establish the actions of the unidentified driver.
  • Will UM protect me if I am at fault in an accident? No. The law would consider that a “moral hazard” and invite unscrupulous individuals to cause an accident in hopes of recovering under the policy they purchased.
  • Will UM protect me if I am a pedestrian? It may, depending upon the terms of your insurance policy.
  • What if an object falls from a vehicle and causes an accident? UM may be available in this circumstance. The ultimate answer may depend upon whether the “falling object” had come to rest before the accident. Rener v. State Farm Mut. Auto. Ins. Co., 99-1703 (La.App. 3 Cir. 4/05/2000), 759 So.2d 214, 215.

CONCLUSIONRational people may decide to reject UM to save money; and this decision may be the right one if they have health insurance, short-term disability, long-term disability, or others such protections. However, people often make such decisions with less than full information. Hopefully, you will make the smart choice.

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La. Supreme Court Rules 10-year Contract Prescription Applies to 1st Party Claims Against Insurer

In a first-party action obtained by assignment for excess liability against an insurer, the Louisiana Supreme Court in Smith v. Citadel Insurance,19-00052 (La. 10/22/19) ruled that the claim against the carrier is subject to the 10-year contract prescription period under La. law, stating:

“For the above reasons, we hold an insurer’s duty of good faith owed to its insured under La. R.S. 22:1973 does not exist separate and apart from an insurer’s contractual obligations. The duty of good faith is codified in La. R.S. 22:1973, but this duty is an outgrowth of the contractual and fiduciary relationship between the insured and the insurer, and the duty of good faith and fair dealing emanates from the contract between the parties. Thus, first-party bad faith claims against an insurer are governed by the ten-year prescriptive period set forth in La. C.C. art. 3499. Consequently, Ms. Smith’s first-party bad faith claim against GoAuto, brought pursuant to an assignment of rights from the insured, was subject to a 10-year prescriptive period and is not prescribed.”

The concurring justice noted that it was not necessary to engage in the protracted discussion concerning the duties of insurers relative to first-party claims. Nevertheless, the court offered an in-depth discussion of these duties.

Insight

Louisiana Supreme Court Uses Reason to Decide Case Involving Tragic Facts

Sometimes in law, the facts of a case may threaten to eclipse the legal issue. However, Louisiana law instructs the fact finder to see through the facts, and their sometimes tragic nature, and apply the law as written. As Aristotle once wisely said, “The Law is reason free from passion.”

In Kazan, et. al. v. Red Lion Hotels Corporation, et. al., 2021-CC-01820 (La. 6/29/22), the Louisiana Supreme Court recently ruled on a case with tragic facts, and its ruling provides an example of Aristotle’s description of law in action. In Kazan, a female patron was in the parking lot of a motel when a male patron approached her and used Kazan’s vehicle to abduct her from the premises. The car was later found submerged in a lake, and Kazan’s body was recovered from the water. The family filed a tort suit against several parties, including the motel’s owner and its insurer, the Great Lakes Insurance Company SE.

Great Lakes filed a motion for summary judgment and asked to be dismissed on grounds that coverage for the event was excluded from its policy. Specifically, the insurer argued that bodily injury caused by an “assault,” “battery,” or “physical altercation” was excluded under the policy’s terms. Great Lakes further argued that the kidnapping and ultimate death of the patron was excluded under the policy as bodily injury caused by an assault, battery, or physical altercation. The Louisiana Supreme Court agreed and reversed the decision of the trial and appellate courts.

Under Louisiana law, “[a]n insurance policy is a contract between the parties and should be construed using the general rules for the interpretation of contracts.” Id. at p. 3. “When the words of an insurance policy are clear and explicit and do not lead to absurd consequences, courts must enforce the language as written.” Id. at p. 3. “Courts lack authority to alter the terms of an insurance policy under the guise of interpretation and should not create an ambiguity where none exists.” Id. at p. 3.

With these basic rules in mind, the Court carefully reviewed the wording of the exclusion in the Great Lakes policy which stated as follows: “This insurance does not apply to ‘bodily injury,’ ‘property damage,’ or ‘personal advertising injury’ arising out of an ‘assault,’ ‘battery,’ or ‘physical altercation.’” “Physical altercation” was defined in the policy as “a dispute between individual [sic] in which one or more persons sustain bodily injury arising out of the dispute.” Citing Merriam-Webster’s dictionary, the Court defined the term “dispute” as “verbal controversy” or “quarrel.”

Based upon the evidence in the case, the Court found the female patron was involved in a “dispute” with her male attacker, and ultimately sustained bodily injury as a result of the dispute. Therefore, the patron was injured in a physical altercation, as defined under the specific terms of the Policy, and coverage for the event was excluded under the policy’s terms.

The Court noted as follows: “The facts of this case are undoubtedly tragic. Nonetheless, absent a conflict with statutory provisions or public policy, insurers are entitled to limit their liability by imposing reasonable conditions upon the policy obligations they contractually assume. That is what Great Lakes did in the insurance policy at issue here.” Despite the tragic facts presented in the case, in so holding, it appears the court agreed with Aristotle’s belief that the Law is Reason Free from Passion.

Tori S. Bowling

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