The Boom That Went Boom

How an insurer’s neglect turned a relatively minor property damage claim into an oversized problem

The firm recently witnessed the consequences of an insurer’s failure to properly understand its obligations to a third- party claimant under Louisiana law. The case provides useful lessons for all insurance companies exposed to property damage claims in Louisiana.

The firm’s client, a stevedoring company in New Orleans, needed repairs to the boom of one of its cranes. The boom was removed from the crane and loaded onto a third-party carrier’s tractor-trailer for transport to a repair shop in Baton Rouge, about 80 miles away. But the tractor-trailer overturned as it was leaving the Port of New Orleans, damaging the boom and requiring significant repairs before the boom could safely be put back in use.

The trucking company’s cargo insurers appointed an adjusting company in Oklahoma and an appraiser in Mississippi to adjust the boom damage claim. The appraiser inspected the boom and gathered estimates for the repairs, indicating repeatedly to the stevedore that the insurer would authorize repairs once he had the necessary repair estimates. But the appraisal process dragged out, and it took four months before the appraiser submitted his appraisal of the accident-related damage to the adjusters in Oklahoma. The stevedore, as well as the crane repair shop handling the repairs, then made numerous requests to the trucking company’s insurer, through its appraiser and adjustor, for authorization to proceed with the proposed repairs. But the insurer never responded to those requests and ultimately stopped communicating with both the stevedore and repair shop altogether. Finally, six months after the accident, faced with prolonged silence from the trucking company’s insurers, the client proceeded with the recommended repairs in order to get its boom repaired and its crane back in service.

In addition, because the crane was out of service for an extended period due to the accident, the stevedore client was required to rent a substitute crane so that its daily business operations would not be drastically affected, at a cost of $30,000 per month. The client began asking the trucking company’s insurers about payment for the rental crane shortly after the accident and continuously submitted rental invoices to the trucking company and its insurers. The insurers’ policies expressly excluded coverage of loss of use damages, but the insurers never disclosed that pertinent fact to the stevedore. As a result, the stevedore, thinking its rental expenses were covered, cooperated with the trucking company’s insurers even while those insurers were dragging out the appraisal process.

After having dealt with months of inaction on the insurers’ part, the stevedore/client filed suit against the trucking company and its insurers. In addition to claims for the physical damage to the boom and its loss of use, the client alleged bad faith claims against the trucking company’s insurers under two Louisiana statutes, La. R.S. 22:1892 and La. R.S. 22:1973. Although those statutes primarily address an insurer’s obligations to its own insured, both statutes also impose on an insurer certain obligations to third-party claimants.

Section 1892 requires, inter alia, that a tortfeasor’s insurer shall make a third- party claimant a written offer to settle a property damage claim within 30 days of receiving satisfactory proof of the loss. If the insurer arbitrarily fails to make the requisite settlement offer, it shall be liable for a penalty equal to 50% of the amount the insurer is found to owe, plus reasonable attorneys’ fees.

Section 1973 penalizes an insurer for, inter alia, misrepresenting pertinent facts and/or policy provisions to a third-party claimant. Importantly, for the purposes of Section 1973, the Louisiana Supreme Court has interpreted “misrepresentation” to include an insurer’s failure to disclose material facts or policy provisions. An insurer who breaches that statute can be liable for damages caused by its misrepresentation or non-disclosure, and also a penalty of up to two times the damages awarded under the statute.

The boom case was tried to a Louisiana state court jury. The jury found that the accident-related damage to the boom was only about $67,000, and the loss of use from the accident was $60,000. Both of those awards were reduced by the stevedore’s 20% comparative fault. But the jury also found that the trucking company’s insurers breached their statutory duties to the stevedore client under both of the bad faith statutes, R.S. 22:1892 and R.S.22:1973. The jury specifically found that the insurers breached Section 1973 by misrepresenting and/or failing to disclose pertinent facts and/or policy provisions, and the insurers breached Section 1892 by arbitrarily failing to make the stevedore a timely written settlement offer. These findings tacked on more than $400,000 in additional damages, penalties and attorneys’ fees, increasing the judgment in this modest property damage claim to more than $500,000. The case then settled after trial on terms favorable to the stevedore client.

This case contains valuable lessons for all insurers handling claims in Louisiana. To be sure, the trucking company’s insurers had behaved badly – actively misleading the claimant and withholding critical information about their policies. But the insurers’ mistake arose from their failure to understand that Louisiana law imposes certain duties on insurers toward third-party claimants, and an insurer can pay a hefty price if it fails to understand and comply with those duties.