Betty Jean Pharis Morrison v. Alexandria Commons, LLC

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

09-652

BETTY JEAN PHARIS MORRISON, ET AL.

VERSUS

ALEXANDRIA COMMONS, LLC, ET AL.

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 226,200
HONORABLE DONALD T. JOHNSON, DISTRICT JUDGE

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ELIZABETH A. PICKETT
JUDGE

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Court composed of Elizabeth A. Pickett, J. David Painter, and James T. Genovese,
Judges.

AFFIRMED.

Fred A. Pharis
Pharis Law Offices
831 DeSoto Street
Alexandria, LA 71301
Counsel for Plaintiffs/Appellees:
Betty Jean Pharis Morrison
Samuel Jean Morrison

Charles V. Musso Jr.
Plauche, Smith & Nieset
P. O. Box 1705
Lake Charles, LA 70602
Counsel for Defendants/Appellants:
First Mercury Ins. Co.
Jorge Dino

PICKETT, JUDGE.

The defendants, First Mercury Insurance Company and its insured, Jorge Dino

(referred to jointly as First Mercury), appeal a judgment of the trial court awarding

the plaintiffs, Betty Jean Morrison, individually and on behalf of her minor son,

Benjamin Duane Morrison, and Samuel Jean Morrison, penalties and attorney’s fees

for First Mercury’s bad faith in processing the settlement executed between the

plaintiffs and the defendants. We affirm the judgment of the trial court.

FACTS

The facts in this case were succinctly set out by the trial court in its Written

Reasons for Judgment, and we adopt them as our own:

Plaintiffs filed suit against Alexandria Common, LLC, Alexandria
Lincoln Road, LLC, Partner’s Commercial Roofing, Inc. and Zurich-
American insurance for injuries Betty Jean Pharis Morrison sustained
from an accident that occurred on May 29, 2006.

A trial was set for October 14, 2008. The parties agreed to a
settlement in which First Mercury Insurance was required to pay
$190,000.00. The settlement was confected on September 19, 2008.
The settlement was to be funded no later than October 20, 2008. The
plaintiffs assert that First Mercury Insurance Company did not pay or
fund the settlement within 30 days of the agreement. The payment was
made on October 28, 2008. The plaintiffs state that because the
settlement was contingent on all parties complying with the agreement,
the additional sums [sic] of $80,000 paid by Zurich Insurance could not
be timely negotiated. The plaintiffs assert that they sent repeated
reminders to First Mercury to make the payment timely. Counsel for the
plaintiffs was contacted by counsel for First Mercury on October 16,
2008, who stated that the payment was going to be delayed one day and
requested extra time. Counsel for plaintiffs refused and warned that a
motion would be filed to enforce the settlement. First Mercury replied
that there was not going to be any additional effort to make sure the
check was on time because plaintiffs would not waive its [sic] statutory
insurance settlement enforcement rights.

As a result, the plaintiffs filed a motion for damages for bad faith
handling of [the] settlement alleging that defendant, First Mercury
Insurance Company, failed to pay the settlement within 30 days after it
was reduced to writing. First Mercury asserts that the handling of the

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settlement was not in bad faith[,] and the plaintiffs are not entitled to
penalties or attorney’s fees.

The trial court found in favor of the plaintiffs and awarded the following

amounts:

(1) $27,359.14 in penalties and $2,500.00 in attorney’s fees to the plaintiffs

under La.R.S. 22:658 [now La.R.S. 22:1892];

(2) $10,000.00 in general damages in favor of Betty Jean Morrison individually

and on behalf of her minor son, Benjamin Duane Morrison (i.e., $5,000.00 each); plus

$5,000.00 in favor of Samuel Jean Morrison, all under La.R.S. 22:1220 [now La.R.S.

22:1973] ; and

(3) $5,000.00 in penalties to the plaintiffs under La.R.S. 22:1220.

The trial court also ordered that legal interest run on all amounts, excluding attorney’s

fees, from the date of the filing of the motion and that interest run on the $2,500.00,

awarded as attorney’s fees, from the date of the signing of the judgment.

Additionally, First Mercury was cast with all costs.

First Mercury appeals arguing the following assignments of error:

(1) The Trial Court erred in finding that the settlement did
not contain an unsatisfied suspensive condition and was not
contingent upon approval of the workers’ compensation settlement
by the Workers’ Compensation Court.

(2) The Trial Court erred in finding that First Mercury
Insurance Company knowingly failed to pay the settlement within 30
days after it was reduced to writing.

(3) The Trial Court erred in finding that First Mercury
Insurance Company violated the provisions of La.R.S. 22:658 by
failing to pay medical expenses due to a third party within 30 days
and awarding penalty and attorneys fees for said violation.

(4) The Trial Court erred in awarding a $5,000.00 penalty to the
two loss of consortium claimants.

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(5) The Trial Court erred in awarding $15,000.00 in general
damages under Louisiana R.S. 22:1220.

LAW AND DISCUSSION

In its written reasons for judgment the trial court set out the applicable law and

discussed its application to the case sub judice as follows:

Louisiana Revised Statute provides two pertinent statutes
applicable to this case.

Louisiana R.S. 22: 1220 provides,

A. An insurer, including but not limited to a
foreign line and surplus line insurer, owes to
his insured a duty of good faith and fair
dealing. The insurer has an affirmative duty
to adjust claims fairly and promptly and to
make a reasonable effort to settle claims with
the insured or the claimant, or both. Any
insurer who breaches these duties shall be
liable for any damages sustained as a result of
the breach.

B. Any one of the following acts, if knowingly
committed or performed by an insurer,
constitutes a breach of the insurer’s duties
imposed in Subsection A:
[. . . .]
2) Failing to pay a settlement within thirty
days after an agreement is reduced to writing.
[. . . .]
C. In addition to any general or special damages
to which a claimant is entitled for breach of
the imposed duty, the claimant may be
awarded penalties assessed against the insurer
in an amount not to exceed two times the
damages sustained or five thousand dollars,
whichever is greater. Such penalties, if
awarded, shall not be used by the insurer in
computing either past or prospective loss
experience for the purpose of setting rates or
making rate filings.

The plaintiffs allege that First Mercury breached this duty because
the payment was to occur on October 20, 2008 which was thirty days
after the settlement agreement was reduced to writing. The settlement

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was received on October 28, 2008, eight days later. First Mercury
argues that it did not violate the statute because it sent the settlement
draft for overnight delivery through DHL on October 17, 2008 directly
to the plaintiffs’ attorney[’s] office on October 18, 2008 or October 20,
2008. First Mercury contends that it did not know that DHL was not
making overnight deliveries in Alexandria, Louisiana, so the late
delivery was justified, not intentional as required by the statute.

Contrary[sic], the plaintiffs argue that the failure to pay was
arbitrary and capricious because on October 13, 2008, the plaintiffs’
attorney sent correspondence to First Mercury’s counsel warning that
the settlement deadline was approaching because of the defendant’s
reluctance and delay during the lawsuit by upsetting a planned
mediation in November 2007, cancelling a mediation in August 2008,
and indications that the defendant would wait until the last minute to
pay the funds.

In Sultana v. Jewelers Mutual Insurance, 860 So.2d 1112, 1119
(La. 2003), the defendant failed to pay the amount owed within thirty
days of settlement because of a clerical error in the defendant’s office.
After discovering the error, counsel for the defendant immediately
forwarded a settlement check. The defendant argued that Sultana did
not suffer actual damages as a result of the delay. The Louisiana
Supreme Court held [the defendant] cannot shield itself by hiding
behind its assertion that timely payment was not forthcoming because
of a clerical error.

Likewise, in this case, the defendant claims that the delay in
payment was a result of a clerical error on the part of a third party.
However, it is the determination of this Court that First Mercury had
ample time to pay the funds to the plaintiffs, but insisted on delaying
the payment to the last minute. This Court does not accept defendant’s
argument that it is DHL that caused the delay, not the defendant. The
problem with DHL could have been avoided had the defendant not
waited until October 18, 2008 to “overnight” the payment. According
to the[sic] La. R.S. 22: 1220 because of the defendant’s late payment,
the plaintiffs are entitled to a penalty of at least $5,000.00. Thus, this
Court casts the defendant with $5,000.00 in penalties.

Furthermore, because of the defendant’s failure to pay the
settlement within thirty days as required by statute, the plaintiffs argue
that they should be awarded general or special damages without a
showing of actual damages.

The Court held “The language of the statute does not expressly
require that a claimant suffer damages before recovering penalties.
Moreover, if this requirement was so, the statute’s purpose more often
would be thwarted. Claimants may decide not to file claims against

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insurers if the disputed amount or the damages are not substantial. As
an end result, the misconduct which the legislature obviously intended
to curb or deter would thrive. Thus, we find if an insurer commits any
one of the acts enumerated in Section 1220 (B), penalties may be
imposed without a showing of damages.” Sultana v. Jewelers Mutual
Insurance, 860 So.2d 1112 (La. 2003).

In this case, the plaintiffs assert that Ms. Betty Morrison had
been under constant stress because of the lawsuit. At the hearing, Ms.
Morrison and her witness testified that she and her children had been
living below the poverty line because of her inability to work. She has
had to depend on her father to help with expenses as a result of her
injuries due to the accident. She testified that she and her children were
eagerly anticipating the disbursement of the settlement to help with
their living expenses and relieve her father from her financial burden.
When the settlement proceeds did not arrive on schedule, this exerted
more stress and disappointment.

Therefore, this Court awards the plaintiffs $15,000 in damages
($5,000 per plaintiff) as a result of the defendant’s failure to pay the
settlement in the time limit prescribed by statute.

Louisiana R.S. 22:658 provides in pertinent part:

A. (1) All insurers issuing any type of contract, other than
those specified in R.S. 22: 656, R.S. 22: 657, and Chapter
10 of Title 23 of the Louisiana Revised Statutes of 1950,
shall pay the amount of any claim due any insured within
thirty days after receipt of satisfactory proof[s] of [loss]
from the insured or any party in interest.

(2) All insurers issuing any type of contract... shall pay
the amount of any third party property damage [claim] and
of any reasonable medical expenses claim due any bona
fide third party claimant within thirty days after written
agreement of settlement of the claim from any third party
claimant.
[. . . .]
B. (1) Failure to make such payment within thirty days
after receipt of such satisfactory written proofs and
demand therefore or failure to make a written offer to
settle any property damage claim, including a third-party
claim, within thirty days after receipt of satisfactory proofs
of loss of that claim, as provided..., or failure to make such
payment within thirty days after written agreement or
settlement as provided in Paragraph A(2), when such
failure is found to be arbitrary, capricious, or without
probable cause, shall subject the insurer to a penalty, in

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addition to the amount of the loss, of fifty percent
damages on the amount found to be due from the insurer
to the insured, or one thousand dollars, whichever is
greater, payable to the insured, or to any of said
employees, or in the event of a partial payment or tender
has been made, fifty percent of the difference between the
amount paid or tendered and the amount found to be due
as well as reasonable attorney fees and costs. Such
penalties, if awarded, shall not be used by the insurer in
computing either past or prospective loss experience for
the purpose of setting rates or making rate filings.

First Mercury argues that in order to receive penalties under La.
R.S. 22:658, the plaintiff[s] must prove that First Mercury’s failure to
pay was arbitrary, capricious, or without probable cause.

Both La.R.S. 22:658 and La. R.S. 22:1220 require proof that the
insurer was arbitrary, capricious, or without probable cause, a phrase
that is synonymous with “vexatious.” “Vexatious refusal to pay means
unjustified, without reasonable or probable cause or excuse.” Reed v.
State Farm Mutual Ins., 857 So.2d 1012, [1021](La. 2003).

The plaintiffs assert that First Mercury’s failure to pay was
arbitrary and capricious because the plaintiffs’ counsel was contacted
by counsel for First Mercury on October 16, 2008, who stated that the
payment was going to be delayed one day and requested an agreement
for extra time. When the request was denied, First Mercury’s counsel
stated that there was going to be no additional effort to make sure the
check was on time because the plaintiffs would not waive [their]
statutory rights of enforcement. The plaintiffs further contend that on
October 17, 2008, they were informed by email that the check would be
delivered on October 20, 2008. Moreover, on October 21, 2008, First
Mercury[’s] counsel stated that it would recommend that the money be
wire transferred if plaintiffs would waive their statutory rights, but
before any reply was made First Mercury retracted stating it could not
wire the money.

First Mercury also argues that the payment was not late because
the settlement was contingent upon approval by the worker’s
compensation judge of the settlement between the plaintiff and
Michael’s Stores, Inc. The condition did not occur until the judge
signed the order approving the worker’s compensation settlement.
Therefore, the time period to pay the settlement did not begin until
October 30, 2008.

This Court disagrees. The statute provides that the payment must
be made within thirty days of the written settlement agreement. The
payment did not occur until after that time period which ended on

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October 20, 2008. Based on the facts and correspondence between the
parties, this Court finds that First Mercury’s failure to pay the
settlement proceeds was arbitrary and capricious.

The plaintiffs argue they were required to pay $70,333.00 to
Michaels Stores as the workers compensation intervenor. The total
amount of the lien as of September 5, 2008 was $105, 351.79, with $82,
077.41 of that amount being medical expenses. One-third of the total
was reduced in the settlement for attorney’s fees. Therefore, one-third
of the $82,077.41 was for medical expense reimbursement, or $54,
718.27. Accordingly, 50% of that amount, $27,359.14, should be
awarded to the plaintiffs.

According to statute, the defendant is to be penalized fifty (50%)
percent of the amount of the damage or loss. Thus, this Court awards
the plaintiffs $27,359.14. Additionally, the plaintiffs are entitled to
attorney’s fees of $2,500.00 plus court costs.

On appeal, the defendants basically set out the same arguments they used at

the trial level. Since we find no error in the ruling of the trial court, we also find no

merit to the defendants’ arguments on appeal.

We find no merit to their argument that the required approval of the workers’

compensation judge constituted a suspensive condition which suspended the thirty-

day limit imposed by the statutes at issue. A workers’ compensation settlement

requires that the settlement amount be tendered at the time of the settlement. Hence,

the workers’ compensation judge could not “approve” the settlement until the funds

were tendered. Since the settlement funds were not tendered within the thirty-day

statutory mandate, this argument is without merit.

The defendants also argue that they were not arbitrary and capricious, but

acting in good faith in placing the settlement funds in the hands of DHL for, what

they believed to be, over-night, on-time delivery. Therefore, they argue, any

penalties awarded under La.R.S. 22:1220 were awarded in error. However, the law

does not support the defendants’ argument. In Louisiana Bag Co., Inc. v. Audubon

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Indemnity Co., 08-453, pp. 13-17 (La. 12/2/08), 999 So.2d 1104, 1114-16 (footnotes

omitted)(emphasis ours), the Louisiana Supreme Court stated:

Turning now to what is arbitrary, capricious or without probable
cause, this court has previously stated in Reed v. State Farm Auto. Ins.
Co., 03-0107 (La.10/21/03), 857 So.2d 1012, that the New Oxford
English American Dictionary defines an “arbitrary” act as one “ ‘based
on random choice or personal whim, rather than reason or system,’ ”
and capricious as “ ‘given to sudden and unaccountable changes in
behavior.’ ” Id. at 1020. The phrase “arbitrary, capricious, or without
probable cause” is synonymous with “vexatious,” and a “vexatious
refusal to pay” means “unjustified, without reasonable or probable
cause or excuse.” Id. at 1021. See also La. Maint. Servs., Inc. v.
Certain Underwriters at Lloyd’s of London, 616 So.2d 1250, 1253
(La.1993). Both phrases describe an insurer whose willful refusal of a
claim is not based on a good-faith defense. Reed, 857 So.2d at 1021.
See also La. Maint., 616 So.2d at 1253.

This court has also stated that penalties should be imposed only
when the facts “negate probable cause for nonpayment.” Guillory v.
Travelers Ins. Co., 294 So.2d 215, 217 (La.1974). See also Crawford
v. Al Smith P. & H. Serv., Inc., 352 So.2d 669, 673 (La.1977); McDill
v. Utica Mut. Ins. Co., 475 So.2d 1085, 1092 (La.1985). An insurer’s
conduct depends on the facts known to the insurer at the time of its
action, and this court has declined to assess penalties “when the insurer
has a reasonable basis to defend the claim and acts in good-faith
reliance on that defense.” Reed, 857 So.2d at 1021 (citing Block v. St.
Paul Fire & Marine Ins. Co., 32,306 (La.App. 2 Cir. 9/22/99), 742
So.2d 746, 752, 754). Specifically, when there is a “reasonable and
legitimate question as to the extent and causation of a claim, bad faith
should not be inferred from an insurer’s failure to pay within the
statutory time limits when such reasonable doubts exist.” Id. (citing
Block, 742 So.2d at 752). In these instances, when there are substantial,
reasonable and legitimate questions as to the extent of an insurer’s
liability or an insured’s loss, failure to pay within the statutory time
period is not arbitrary, capricious or without probable cause.

....

In sum, an insurer need not pay a disputed amount in a claim for
which there are substantial, reasonable and legitimate questions as to
the extent of the insurer’s liability or of the insured’s loss. Reed, 857
So.2d at 1021. However, an insurer must pay any undisputed amount
over which reasonable minds could not differ. McDill, 475 So.2d at
1092. Any insurer who fails to pay said undisputed amount has acted
in a manner that is, by definition, arbitrary, capricious or without
probable cause, Hammett, 160 So. at 304-05, and will be subject to

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penalties. . . .

In the case before us, there is no disputed claim. Both sides agreed on the

amount of the plaintiffs’ damages in the settlement, and all that remained was for the

defendants to pay that amount.

The defendants further argue that the plaintiffs failed to prove damages and

that the trial court erred in awarding damages on the loss of consortium claims.

Proof of damages is not a prerequisite to the recovery of penalties under La.R.S.

22:1220; the trial court’s award of penalties is discretionary. Sultana Corp., 860

So.2d 1112. Additionally, La.R.S. 22:1220 does not limit the type of damages for

which penalties may be awarded. We find no error in the trial court’s awards.

As to the defendants’ argument that they acted in “good faith” in trusting

delivery of the settlement check to DHL, an insurer “cannot not shield itself from

potential liability for penalties by hiding behind its assertion that timely payment was

not forthcoming because of a clerical error [in this case picking the wrong means of

delivery].” Sultana Corp., 860 So.2d at 1119.

Finally, the defendants argue that La.R.S. 22:658 “is simply not applicable to

this case. Plaintiff cannot ‘piggy back’ her obligation to reimburse the worker’s [sic]

compensation intervenor into a failure to timely pay medical expenses to a third

party.” We disagree. The law is clear: “All insurers issuing any type of contract,

. . . , shall pay the amount of any third party property damage claim and of any

reasonable medical expenses claim due any bona fide third party claimant within

thirty days after written agreement of settlement of the claim from any third party

claimant.” La.R.S. 22:658(A)(2). Further, section (B)(1) (emphasis ours) provides:

Failure to make such payment within thirty days after receipt of
such satisfactory written proofs and demand therefor or failure to make

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a written offer to settle any property damage claim, including a
third-party claim, within thirty days after receipt of satisfactory proofs
of loss of that claim, as provided in Paragraphs (A)(1) and (4),
respectively, or failure to make such payment within thirty days after
written agreement or settlement as provided in Paragraph (A)(2), when
such failure is found to be arbitrary, capricious, or without probable
cause, shall subject the insurer to a penalty, in addition to the amount
of the loss, of fifty percent damages on the amount found to be due from
the insurer to the insured, or one thousand dollars, whichever is
greater, payable to the insured . . . .

Accordingly, for the reasons stated, the judgment of the trial court is affirmed.

All costs of this appeal are assessed to the appellants, First Mercury Insurance

Company and its insured, Jorge Dino.

AFFIRMED.

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