Judicial Interest Rate for Louisiana Hits a 17-Year High

Legal malpractice claims in Louisiana are governed by a peremption period that cannot be interrupted or suspended. La. R.S. 9:5605(A) provides that a legal malpractice claim must be brought one year from the date of the alleged malpractice, or within one year from the date the alleged malpractice should have been discovered. However, even when a claim is filed within one year of discovery, it must be filed within three years of the date of the alleged malpractice. If a party fails to assert a legal malpractice claim before the peremption period expires, the right to bring the claim is lost.

The Louisiana Supreme Court holds that “peremption commences to run in a legal malpractice case when a claimant knew or should have known of the existence of facts that would have enabled him to state a cause of action for legal malpractice.” In Crosby v. Waits, Emmett, Popp & Teich, LLC, the court recently examined the types of circumstances that should inform a plaintiff that an act of alleged malpractice occurred, which would trigger the peremptive period in which the plaintiff’s claim must be filed.

The plaintiff in Crosby owned 75% of a company and was in the process of buying out the minority stakeholder. The company was involved in litigation at the time. Initially, the minority stakeholder maintained all of the recovery and risk related to the suit. In April 2016, an attorney advised the plaintiff to accept an offer to split the recovery and risk in the suit 50/50 as part of the sale. The plaintiff then accepted the 50/50 offer. The litigation concluded after the sale, in February 2018, and resulted in an adverse judgment for which the plaintiff was responsible pursuant to the 50/50 agreement.

The plaintiff filed suit on February 12, 2019, within one year of the verdict in the underlying litigation, and claimed that its attorney committed malpractice when he advised that plaintiff accept the offer to split the recovery and risk in the suit. Specifically, it was alleged the attorney failed to examine the nature of the litigation or discover that the seller’s employees were aware the suit bore serious risk. The plaintiff’s representative testified that he did not keep track of the litigation and therefore could not have known the attorney engaged in the alleged malpractice until the jury rendered its verdict in the underlying suit.

However, the minority stakeholder testified that he knew the 50/50 offer was a bad deal for the plaintiff. Another employee testified he thought the risk of loss in the underlying suit was apparent to everyone involved. The court agreed. Based upon the evidence presented, “it should have been obvious to all concerned that the 50/50 option was favorable” to the minority stakeholder, who was adverse to the plaintiff’s interest.

The court held that the plaintiff should have known its attorney may have committed an act of malpractice when he advised it to accept the 50/50 split before the underlying litigation concluded. Accordingly, suit was not filed within one year of when the plaintiff should have known the alleged act of malpractice occurred. The plaintiff’s claims that it lacked such knowledge could not stand up to conflicting evidence. Thus, the claim was peremepted, and the plaintiff’s suit was dismissed.

Case References:

Crosby v. Waits, Emmett, Popp & Teich, LLC, 2022-0395 (La. App. 4 Cir. 11/21/22), 352 So. 3d 145.

Jenkins v. Starns, 2011-1170, p. 15 (La. 1/24/12), 85 So.3d 612, 621.

For decades, Louisiana law provided a claimant or injured person an uncommon opportunity (1) to directly name an insurer in a lawsuit, and (2) to make the jury aware of the presence of insurance. This was known nationally as the “Louisiana Direct Action Statute.” This statute, embodied in LSA—R.S. 22:1269, has long been a topic of debate.

The Louisiana Legislature recently amended the “direct action statute” in Act 275 and declared that the injured person “shall have no right of direct action against the insurer” unless at least one of the exceptions applies: the insured files for bankruptcy, the insured is insolvent, service cannot be made on the insured, a tort cause of action exists against a family member, uninsured motorist claims, the insured is deceased, or when the insurer issues a reservation of rights or coverage denial (but only for the purpose of establishing coverage). The Act further provides that the insurer shall not be included in the caption of the case. And, the existence of insurance is not to be disclosed unless the Louisiana Code of Evidence requires it. This new legislation is effective August 1, 2024.

But, the Act also provides for new provisions that allow for the joinder of an insurer after settlement or in connection with a final judgment. The Act further includes specific provisions enacted to provide notice to an insurer of an action and outlines the procedures and timelines for how insurers assert reservation of rights or a denial of coverage.

The revisions to LSA—R.S. 1269 represent a significant change in how lawsuits involving insurance companies will proceed.

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.