A state appellate court in Louisiana recently increased a trial court’s award against an insurer in connection with a Hurricane Katrina-related bad faith claim, finding that the trial court had misinterpreted the statutory penalties available to the plaintiff. Neal Auction Co. Inc. v. Lafayette Ins. Co., No. 2008-CA-0574 (La. Ct. App. 4th Cir., April 29, 2009).

When Hurricane Katrina struck the Louisiana coast on August 29, 2005, it damaged the New Orleans offices of the plaintiff, an entity that represents consignors at auction. Due to the storm, the plaintiff was allegedly forced to cancel an auction that had been scheduled to be held that October. The plaintiff’s insurer issued payment to the plaintiff for property damage, but denied its claim for lost income related to the canceled auction. The plaintiff subsequently sued its insurer in connection with the denial of coverage and prevailed in a jury trial. Among other findings, the jury found that the insurer committed bad faith by misrepresenting policy terms to its insured. The court awarded to the plaintiff a number of different categories of damages and statutory bad faith penalties, as well as interest.

On the defendant insurer’s appeal, the appellate court upheld much of the damages award and found that the trial court had misapplied Louisiana’s insurance bad faith statutes and the insurer owed even more than awarded by the trial court. According to the court, the trial court had improperly calculated statutory penalties by applying an amended statute that went into effect after the plaintiff provided the defendant with proof of loss. Under the older statutory schem in effect at the time of proof of loss, the insurer was liable for a penalty equal to twice the damage award, which came out to be $1.3 million -- nearly four times the statutory penalty awarded by the trial court. However, the appellate court also reversed an award of attorneys fees, finding that they were not available under the older statutory scheme.

Click here to read a copy of the appellate court’s decision.