Insurance: “ACV,” Depreciation, or Both

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.

Winning or losing in court often comes down to who possesses the burden of proof. Like a driver at a four-way stop, a litigant has to know when it is their turn.

Civil Procedure Article 966, the "Summary Judgment Article," provides that the mover bears the burden of proof. The Louisiana Supreme Court recently addressed this burden in Dan Veuleman & Jody Veuleman v. Mustang Homes, LLC, 2013-C-190 (La. 4/5/13), - So. 3d - in the context of insurance coverage.

The general rule in Louisiana is that an insurer bears the burden of proving that a loss falls within a policy exclusion. In Veuleman, the insurer argued that the loss was excluded through a "work product" exclusion. However, the "work product" exclusion contained a "subcontractor" exception. The plaintiffs argued that the work was performed by a subcontractor and should for that reason be covered under the policy.

At the hearing, the insurer introduced its policy as evidence of the exclusion. However, it offered no evidence to show who performed the work at issue. The plaintiffs attempted to introduce an affidavit to establish that the work was performed by a subcontractor. The court of appeal rejected the affidavit as insufficient and concluded that the plaintiffs did not establish that their claims were spared from the work product exclusion.

The Louisiana Supreme Court disagreed. It stressed that the insurer, not the plaintiff, possessed the burden of proving that the policy exclusion applied. The Court stated that "[t]he insurer offered no proof to accomplish its burden." Id. at 1.　

The Veuleman Court held that the appellate court "erroneously shifted the burden of proof on the motion for summary judgment" to the plaintiffs and that the insurer had the burden to show that "the exception [to the exclusion] is not met." In keeping, the Court vacated the summary judgment and remanded the matter for further proceedings.

The Veuleman decision reminds that a litigant should be aware when it is their turn to go.

Under Louisiana law, unjust enrichment is a cause of action that is based in equity and provides that no one should be enriched at the expense of another. The elements of an unjust enrichment claim are: (1) an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the impoverishment; (4) an absence of justification or cause for the enrichment and impoverishment; and (5) no other available remedy at law. The Supreme Court recently addressed the fourth element regarding the absence of justification for the enrichment.

In H & O Invs., LLC v. Par. of Jefferson Through Sheng, a grass cutting contractor entered into a contract with the Parish for grass cutting in certain areas. The Parish separately contracted with a second contractor for weed control of the same areas. During the contract period, the grass cutting contractor notified the Parish that there was unanticipated weed growth and suggested that the weed control contractor was not properly applying the herbicide. The grass cutting contractor alleged that its work became more expensive because of the weed control contractor’s failure to perform its contractual obligation.

The grass cutting contractor sued the Parish alleging unjust enrichment. The Parish filed an exception of no cause of action, claiming that there was no claim for unjust enrichment because a contract existed between the parties. The Fifth Circuit disagreed and held that the contractor could bring a claim for unjust enrichment because there was no contractual claim between the contractor and the Parish, as both parties fulfilled their contract obligations.

The Supreme Court reversed, noting that a claim for unjust enrichment requires a showing that there was an “absence of justification or cause for the enrichment.” The Supreme Court held that when a contract exists between the parties, it serves as the law between them, and that contract is the legal cause or justification for the enrichment. Therefore, the contract between the contractor and the Parish was in fact the justification for the enrichment such that it could not be “unjust.” The Supreme Court dismissed the contractor’s suit against the Parish.

Reference:

H&O Invs., LLC v. Par. of Jefferson, 24-554 (La. App. 5 Cir. 12/18/24), writ granted, decision rev'd sub nom. H & O Invs., LLC v. Par. of Jefferson Through Sheng, 2025-00086 (La. 5/20/25), 408 So.3d 958.

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