While there have been several pre-trial rulings from Louisiana federal courts on Katrina-related insurance coverage issues, the first such trial in Louisiana federal court took place recently. On November 7, 2007, a jury in the Eastern District of Louisiana awarded $365,000 to Michael and Judy Kodrin from their homeowners’ insurer, State Farm Fire Insurance Company. The jury held that State Farm was liable under two Louisiana bad faith statutes for its failure to pay the Kodrins’ claim within 30 to 60 days from proof of loss, and a portion of the judgment awarded related to a finding that State Farm acted in bad faith. The question of whether State Farm would be required to reimburse the Kodrins for their attorneys’ fees was not decided by the jury, but was left to the trial judge. Two weeks after the jury’s verdict, Judge Barbier held that State Farm had to pay the cost of the Kodrins’ attorneys’ fees. Kodrin v. State Farm Fire Ins. Co., No. 06-8180 (E.D.La. Nov. 21, 2007). (For a copy of the court's order, click here). This is counter to the general American Rule regarding payment of legal fees, under which every party must pay its own legal fees.

Pursuant to Louisiana Revised Statute 22:658, a statute that allows for assessment of certain penalties for bad faith, at the time that Katrina damaged the Kodrins' home in 2005, an award of 25% of the amount due was to be awarded upon a finding of bad faith. At the time, the statute did not provide for the recovery of attorneys' fees. One year later, however, the Louisiana legislature amended the statute to allow for recovery of attorneys' fees and increased the “bad faith penalty” from 25% to 50% of the amount due. The question decided by the November 21, 2007 decision was whether the amended statute allowed the Kodrins to collect attorneys' fees in a bad faith action, even though their claim arose in 2005, one year before the statute was amended to allow for such an award.

In holding that the Kodrins were entitled to payment of their attorneys' fees from State Farm, the court recognized that under Louisiana law amendments to statutes are not retroactive and, on this basis, the amended bad faith statute could not be applied retroactively to conduct occurring before the effective date of the amendment. Despite this, because an insurer owes its insured a continuing duty to fairly evaluate and adjust a claim, the court held that State Farm should pay that portion of its insureds’ legal fees incurred more than 30 days after the effective date of the statute’s amendment, based on the fact that the bad faith conduct was held to have continued to occur after the amendment’s effective date.