Commercial Restoration, LLC v. Nanaki, LLC

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

24-251

COMMERCIAL RESTORATION COMPANY, LLC

VERSUS

NANAKI, LLC

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APPEAL FROM THE
THIRTY-THIRD JUDICIAL DISTRICT COURT
PARISH OF ALLEN, NO. 2021-71
HONORABLE JUDI F. ABRUSLEY, DISTRICT JUDGE

*****************

CHARLES G. FITZGERALD
JUDGE

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Court composed of Shannon J. Gremillion, Van H. Kyzar, and Charles G. Fitzgerald,
Judges.

REVERSED IN PART;
AFFIRMED AS AMENDED.

John W. Joyce
Stephen R. Klaffky
Barrasso Usdin Kupperman Freeman & Sarver, LLC
909 Poydras Street, Suite 2350
New Orleans, Louisiana 70112
(504) 589-9700
Counsel for Third Party Defendant/Appellant:
AmGUARD Insurance Company

Wells T. Watson
Baggett McCall, LLC
Post Office Box 7820
Lake Charles, Louisiana 70606-7820
(337) 478-8888
Counsel for Third Party Plaintiff/Appellee:
Nanaki, LLC

Michael Reese Davis
Hymel, Davis & Petersen, LLC
10602 Coursey Boulevard
Baton Rouge, Louisiana 70816
(225) 298-8118
Counsel for Third Party Plaintiff/Appellee:
Nanaki, LLC

Kevin Sloan
Gauthier Murphy & Houghtaling, LLC
3500 North Hullen Street
Metairie, Louisiana 70002
(504) 456-8600
Counsel for Third Party Plaintiff/Appellee:
Nanaki, LLC

FITZGERALD, Judge.

This is a Hurricane Laura case. AmGuard Insurance Company appeals a final

judgment awarding its insured Nanaki LLC policy limits, bad-faith penalties and

fees, and consequential damages.

ISSUES

On appeal, AmGuard presents the following issues:

1. Whether Nanaki, which owed a duty to mitigate, can
recover damages for estimated costs of mitigation it never performed.

2. Whether Nanaki can recover full replacement cost value
for property not repaired or replaced where the policy states: “We will
not pay on a replacement cost basis for any loss or damage . . . [u]ntil
the lost or damaged property is actually repaired or replaced[,]” and can
recover the replacement cost of all furniture, fixtures, and equipment
based on unsupported testimony that “more than half” was damaged.

3. Whether Nanaki can recover more business income than it
would have earned but for the property damage under a policy that
covers only “actual loss of Business Income” and defines business
income as the net income “that would have been earned or incurred if
no physical loss or damage had occurred[.]”

4. Whether AmGUARD had satisfactory proof of loss and
acted in bad faith when it had conflicting reports of the scope of
damage, proposed a solution Nanaki’s adjuster considered reasonable,
repeatedly requested material information that Nanaki withheld, and
received false and misleading information instead.

5. Whether the district court manifestly erred in finding
AmGUARD caused lost profits when Nanaki spent only 3% of the $2.5
million paid by AmGUARD to restore the property and in awarding an
amount not proven with reasonable certainty, and erred as a matter of
law in failing to deduct the avoided expenses of operating the hotel
while it was closed.

FACTS AND PROCEDURAL HISTORY

Nanaki is owned by Paul Singh and his wife. At all relevant times, Nanaki

owned the Days Inn & Suites hotel in Kinder, Louisiana. The Days Inn consists of

two buildings with 129 guest rooms. On August 27, 2020, the hotel was badly

damaged by Hurricane Laura.

AmGuard issued an all-risk, replacement-cost policy to Nanaki which covered

the damages to the Days Inn caused by Hurricane Laura. The policy limit for

Building 1 was $3,247,296.48, and the policy limit for Building 2 was

$1,916,541.24. The insurance policy contained Business Personal Property (BPP)

and contents limits of $250,000.00 for each building. It also had a $50,000.00 limit

for Other Structures. Finally, it covered Business Interruption with no limit for a

period of one year plus thirty days.

The day after the hurricane, Nanaki filed its claim with AmGuard. Nanaki

then attempted to mitigate damages by hiring Commercial Restoration Company

LLC (CRC). On September 30, 2020, Nanaki entered a Restoration & Rebuild

Agreement with CRC to restore the hotel to its pre-hurricane condition. But two

days later, Nanaki—concerned about the cost of the potential repairs—requested that

CRC stop work. CRC’s bill for a few days’ work was $166,477.97. CRC ultimately

filed suit against Nanaki for payment of this sum. 1

Within a week of terminating CRC, Nanaki hired public adjuster Pinnacle

Limited. Pinnacle recommended a second mitigation company, Rainbow

International. And in mid-September 2020, Nanaki entered a mitigation contract

with Rainbow designated a Not to Exceed Agreement. Rainbow agreed to remove

sheetrock, insulation, and drywall from “all areas of building” and complete

“dehumidification and air movement to bring interior to dry standard: for a sum not

to exceed $594,000.00.”

However, Rainbow stopped working in November 2020. Paul Singh

explained that Rainbow initially underestimated the magnitude of the damages. A

1
In response, Nanaki filed a third party demand against AmGuard. The judgment from this
incidental action is now before us on appeal.
2

few months into the job, Rainbow requested a change in work scope. It then issued

a 230-page mitigation estimate of $1,139,376.76.

Turning now to AmGuard’s adjustment of Nanaki’s claim. On September 5,

2020, Engle Martin & Associates inspected the damage to the Days Inn. Engle

Martin was an independent adjusting firm hired by AmGuard. Four days after

inspecting the property, Engle Martin submitted a preliminary report to AmGuard

with a final estimate of damages expected within two weeks. The initial report

estimated building damages of $1,000,000.00 and business interruption of

$400,000.00. The report then stated: “Due to the severity and size of the loss, we

are requesting authority to engage a building consultant to thoroughly

investigate the loss property and provide a detailed repair recommendation and

estimate of repairs.” (Emphasis in original). Finally, the report recommended that

AmGuard advance $100,000.00 to Nanaki to assist with mitigation. This sum was

paid to Nanaki as a building advance on September 16, 2020. AmGuard, however,

fired Engle Martin before it completed its final estimate.

The adjustment of Nanaki’s claim was then handled by AmGuard estimating

supervisor Corey Massaro, who took over the claim from Engle Martin on

September 11, 2020. Massaro inspected the property on September 24, 2020,

October 14, 2020, and December 2, 2020. After his first inspection, Massaro

obtained an estimate for roof replacement in the amount of $162,506.73. Two weeks

later, AmGuard advanced this sum to Nanaki.

Meanwhile, on October 7, 2020, Nanaki adjuster Pinnacle provided Massaro

with an estimate of $353,633.82 for BPP damages. One day later, Pinnacle

supplemented the estimate by adding $81,628.07 for new mattresses. Seven days

after that, AmGuard advanced $50,000.00 to Nanaki towards BPP coverage.

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Around this time, Massaro hired Hillman Consulting LLC, an industrial

hygiene firm, to measure and map areas of elevated moisture throughout the hotel.

Hillman provided a report to AmGuard on October 13, 2020. The report noted

elevated moisture and apparent microbial growth in many areas of the hotel and

made recommendations for drying and removal.

Ten days later, on October 23, 2020, Pinnacle provided Massaro with an

estimate of loss of $1,923,331.64 for Building 1 and $1,661,262.44 for Building 2

(or $3,584,594.08 for both buildings). The estimate consisted of 588 pages and

entailed gutting both buildings. Although the estimate did not include the cost of

demolition or removal, Pinnacle had estimated $1,025,000.00 for that work four

days earlier.

On December 2, 2020, Massaro inspected the hotel for a final time. One week

later, he emailed Pinnacle an estimate of damages styled “repair scope and

summary.” Massaro concluded that the net sum due Nanaki—not including prior

payments—totaled $1,792,831.91. Thus, as of December 9, 2020, AmGuard

acknowledged that Nanaki was owed at least that amount in unpaid coverage. Eight

days later, AmGuard issued a building advance to Nanaki of $500,000.00.

In early February 2020, Nanaki and Pinnacle parted ways. According to

Singh, Nanaki lacked the funds to continue paying Pinnacle.

Nonetheless, on February 23, 2021, Massaro provided Pinnacle with a formal

proof of loss. Here, Massaro estimated that the net sum due Nanaki was

$1,764,243.97, not including the $812,506.73 previously advanced. There was even

a note in AmGuard’s claim file dated February 24, 2021, stating that the

“undisputed” sum due Nanaki was $1,764,243.00.

By mid-February 2021, Nanaki had retained counsel. Nanaki’s counsel, in

turn, responded to Massaro’s email of February 23, 2021, by sending a proof of loss

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of $7,779,237.01. Upon receiving this estimate, AmGuard transferred the claim to

its legal department, retained outside counsel, and Massaro had no further

involvement. But during the months that followed, AmGuard continued to withhold

from Nanaki the undisputed portion of the claim: $1,764,243.96. Ultimately, the

sum of $1,554,876.84 was paid to Nanaki on June 3, 2021. And the remaining sum

of $209,367.12 was paid on September 15, 2021. 2

Many months earlier, however, Nanaki had filed suit against AmGuard for

breach of contract, statutory penalties and fees, and consequential damages. A three-

day bench trial was held in July 2023. Oral reasons for judgment were given in

November 2023, and a written final judgment was signed by the trial court on

December 5, 2023. In relevant part, the judgment provides:

IT IS HEREBY ORDERED, ADJUDGED AND DECREED that
judgment is rendered in favor of Third-Party Plaintiff, Nanaki, LLC and
against Third-Party Defendant, AmGuard Insurance Company, as
follows:

Additional Structural Damages: $ 2,846,454.15
Penalties for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
structural damages: $ 1,686,356.18
Attorney’s Fees for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
structural damages and on related penalties: $ 1,686,356.18

2
To summarize, AmGuard estimated damages in the amount of $2,576,750.69 and paid
these funds to Nanaki as follows:

Date Amount Coverage
9/16/2020 $ 100,000.00 Building advance
10/15/2020 $ 50,000.00 Business personal property
10/16/2020 $ 162,506.73 Building advance
12/17/2020 $ 500,000.00 Building advance
6/3/2021 $ 525,174.09 Building supplement
6/3/2021 $ 1,029,702.75 Building supplement
9/15/2021 $ 50,000.00 Appurtenant structure
9/15/2021 $ 54,683.56 Business personal property
9/15/2021 $ 104,683.56 Business personal property
Total $ 2,576,750.69

5

Penalties for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
Mitigation damages: $ 569,688.38
Attorney’s Fees for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
Mitigation damages and on related penalties: $ 569,688.38

Additional Business Personal Property
(BPP) damages: $ 225,894.77
Penalties for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
BPP damages: $ 192,630.95
Attorney’s Fees for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
BPP damages and on related penalties: $ 192,630.95

Lost Business Income (BI) damages: $ 256,799.00
Penalties for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay BI
damages: $ 128,399.50
Attorney’s Fees for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay BI
damages and on related penalties: $ 128,399.50

Penalties for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
“Other Structures” damages: $ 25,000.00
Attorney’s Fees for bad faith under La. R.S.
22:1892 for arbitrary failure to timely pay
“Other Structures”: damages and on related
penalties: $ 25,000.00

Consequential Damages under La. R.S.
22:1973: $ 1,116,546.00

TOTAL: $ 9,649,843.94

AmGuard now appeals this judgment, asserting five assignments of error:

1. The district court erred in awarding Nanaki damages for
the cost of mitigation it never performed.

2. The district court erred in awarding Nanaki full
replacement cost value for damaged property and contents Nanaki has
not repaired or replaced.

3. The district court erred in awarding business income loss
that was not based on the actual loss sustained during the coverage
period.

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4. The district court erred in finding AmGUARD received
satisfactory proof of loss and acted in bad faith when the extent of
damage was unknown, AmGUARD made reasonable efforts to obtain
information and adjust the claim, and Nanaki withheld information and
submitted false and misleading information.

5. The district court erred in awarding Nanaki $1,116,546 in
consequential damages absent causation and despite clear evidence that
the amount was inflated and failed to deduct avoided expenses as
required by law.

LAW AND ANALYSIS

Questions of law are reviewed de novo. Domingue v. Bodin, 08-62 (La.App.

3 Cir. 11/5/08), 996 So.2d 654. Under this review standard, an appellate court simply

determines whether the trial court was legally correct.

Findings of fact, on the other hand, are reviewed under the manifest error

standard. “It is well-settled that a court of appeal may not set aside a trial court’s or

a jury’s finding of fact in the absence of manifest error or unless it is clearly wrong.”

Rabalais v. Nash, 06-999 (La. 3/9/07), 952 So.2d 653, 657. This review standard

also applies to mixed questions of law and fact. Lakefront Mgmt. Auth. v. J & J

Partners, L.L.C., 21-102 (La.App. 4 Cir. 11/10/21), 331 So.3d 434, writ denied, 21-

1855 (La. 2/15/22), 332 So.3d 1188.

Before going further, a short summary of the evidence adduced at trial will be

useful.

Summary of the Record Evidence

At trial, Nanaki called the only engineering expert to testify. Nanaki called

the only contracting expert who estimated damages. Nanaki introduced the only

mitigation estimate. And Nanaki introduced the only BPP estimate.

Rebuild Damages

Engineer Charles Norman was the only expert to testify about the forces of

Hurricane Laura on the Days Inn. Norman explained how the hurricane’s

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combination of wind, rain, and drop in barometric pressure bludgeoned the hotel.

He noted that the Days Inn was on the east side of the eye, placing it on the “dirty”

or worst side. He further noted that the wind-driven rain entering the hotel was

classified as Category 3 water, which is the most contaminated water cited by the

American National Standards Institute. According to Norman, this necessitated the

removal of all materials in the hotel except the studs and concrete.

AmGuard, on the other hand, argued that the damage to the Days Inn was not

caused by a hurricane. Indeed, AmGuard’s expert climatologist said so at trial. But

this opinion was contradicted by AmGuard’s other evidence. For example,

AmGuard adjuster Massaro testified that “it was clear there was a hurricane.”

AmGuard adjuster Engle Martin likewise found that the damage to the Days Inn was

due to wind and rain caused by Hurricane Laura. In addition, AmGuard’s internal

Large Loss Notice of September 11, 2020, acknowledged that there was wind

damage to the Days Inn exterior from Hurricane Laura with heavy interior water

intrusion to the second-floor rooms and secondary water intrusion to the first floors.

In the end, the trial court found that the hotel’s damage was caused by Hurricane

Laura.

Engineer Norman also testified about the structural damage to the Days Inn.

Norman explained that the rafters (trusses) were pulled apart by the hurricane. In

his opinion, all trusses needed to be replaced, along with the sheathing. The trusses,

he explained, were broken and uneven, making the “new” roof look like “its ribs

were sticking out.” According to Norman, you cannot just replace a few trusses

because they are “married” to one another. He then explained how trusses are

manufactured before they are installed. The trusses are meant to handle downward

loads, not twisting as happened during Hurricane Laura.

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Norman also explained that the doors of the hotel aged probably twenty years

in twenty hours. He testified about damage to the lightweight concrete between the

first and second floors. He addressed the damage to the HVAC system. He also

addressed the exterior of the hotel. The windows, he explained, were no longer

functioning. According to Norman, windows are rated for three types of energy:

wind, water, and pressure. Hurricane Laura had all three. He recommended a total

gut of the buildings. He concluded that the Days Inn was a total loss due to

Hurricane Laura.

Next, Kermith Sonnier testified as Nanaki’s expert in the field of public

adjusting and contracting. Sonnier provided an estimate of damages dated April 29,

2023, which included Norman’s recommendations about structural damages.

Sonnier had extensive experience as a contractor and as an insurance adjuster,

including working many catastrophic events. Although AmGuard spent time

pointing to Sonnier’s first estimate, which was dated March 20, 2023, Sonnier

explained that that estimate did not include the structural damages identified by

Norman.

Sonnier’s final estimate provided as follows: his total estimate of damages to

Building 1 was $3,340,943.10 and Building 2 was $2,359,557.13 (or $5,700,500.23

combined). The estimate included the costs of removal or demolition. It also

included the costs to fix the structural damages. By contrast, Sonnier noted that

AmGuard’s estimate—which was Massaro’s estimate of December 9, 2020—did not

have any amounts for removal or demolition nor did it analyze or estimate the

structural damages. In the end, Sonnier testified that the Days Inn was a total loss

due to Hurricane Laura.

AmGuard called construction expert Dan Kessinger. Kessinger testified that

he did not do what he was hired to do in this case and that he did not follow his

9

typical methodology: although he tried to compare Sonnier’s final estimate with

AmGuard’s estimate, he admitted that Sonnier’s final estimate was not included in

his expert report. As such, Kessinger only provided a comparative analysis between

AmGuard’s estimate and Sonnier’s first (preliminary) estimate.

Mitigation/Removal Estimates

In this case, the term “mitigation” was used in two different ways. First,

mitigation was used to describe activities to preserve the hotel, such as the

installation of a temporary roof. And second, it was used to describe removal and

demolition: the part of the project where the materials are removed before

rebuilding.

As between the parties, only Nanaki provided mitigation/removal estimates:

Sonnier’s estimate contained approximately $1,200,000.00 in mitigation costs;

Nanaki adjuster Pinnacle estimated mitigation costs of $1,025,000.00; and Rainbow

estimated $1,139,376.76 in mitigation.

Sonnier explained that any estimate of building damages must include the

costs of removal. He further explained that mitigation companies use the term

“demo.” Xactimate, the pricing software for estimates, has codes for both. Yet

AmGuard never estimated these costs. AmGuard adjuster Massaro testified that he

was going to add an estimate for mitigation to his December 9, 2020 estimate but

never did.

BPP Estimates

Nanaki provided the only estimates for BPP. On October 7, 2020, Pinnacle

submitted an estimate of $353,633.82. Pinnacle updated that estimate on October 8,

2020, with $81,628.07 for mattresses. In contrast, Massaro testified that he had

estimated the contents but never added this sum to his report.

We now turn our attention to AmGuard’s assignments of error.

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AmGuard’s First Assignment of Error

AmGuard initially argues that the trial court erred in awarding Nanaki

$1,139,376.76 for mitigation work that it did not perform, plus that same amount in

penalties and fees. Nanaki, on the other hand, contends that this assignment should

be summarily dismissed because the trial court did not award any damages for

mitigation work. Although Nanaki is correct that the December 5, 2023 judgment

did not award mitigation damages, our analysis does not end here.

At the time of Hurricane Laura, La.R.S. 22:1892 (2019) provided in relevant

part:

A. (1) All insurers issuing any type of contract, other than those
specified in R.S. 22:1811, 1821, 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 proofs of
loss from the insured or any party in interest. The insurer shall notify
the insurance producer of record of all such payments for property
damage claims made in accordance with this Paragraph.

....

B. (1) Failure to make such payment within thirty days after
receipt of such satisfactory written proofs and demand therefor 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 in Paragraphs
(A)(1) and (4) of this Section, respectively, or failure to make such
payment within thirty days after written agreement or settlement as
provided in Paragraph (A)(2) of this Section 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, or
to any of said employees, or in the event 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.

Nanaki adjuster Rainbow estimated that it would cost $1,139,376.76 for

removal of materials and demolition. With that in mind, Nanaki’s argument for

11

summary dismissal ignores that these mitigation costs were built into Sonnier’s

estimate of building damages, which the trial court awarded as “Additional

Structural Damages.” The trial court then awarded bad faith penalties and fees for

AmGuard’s “arbitrary failure to timely pay structural damages[.]”

As a matter of law, penalties and fees cannot be assessed on amounts not

owed. Penalties only arise when an insurer fails to pay “the amount of any claim

due” and are calculated as fifty percent of “the amount found to be due from the

insurer to the insured.” La.R.S. 22:1892 (2019).

Here, mitigation costs are part of, not in addition to, the coverage for building

damages under the policy. Nanaki’s construction expert, Sonnier, acknowledged that

his estimate of building damages included mitigation costs. The trial court, as noted

above, used his estimate as the basis for its award of “Additional Structural

Damages.” Penalties and attorney fees were then awarded to Nanaki for AmGuard’s

untimely payment of building damages.

In sum, the trial court erred as a matter of law in awarding $569,688.38 in

penalties and $569,688.38 in attorney fees for “bad faith under La. R.S. 22:1892 for

arbitrary failure to timely pay Mitigation damages[.]” The amounts should have

been considered in its award of penalties and attorney fees for AmGuard’s untimely

payment of structural damages.

AmGuard’s Second Assignment of Error

AmGuard next asserts that the trial court erred in awarding Nanaki full

replacement cost value for building damages and BPP.

In support, AmGuard points to the policy language: “We will not pay on a

replacement cost basis for any loss or damage . . . [u]ntil the lost or damaged property

is actually repaired or replaced.” The policy then limits replacement cost value to

repairs or replacements “completed within one year from the date of loss or damages

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or the issuance of applicable insurance proceeds, whichever is later, or as soon as

reasonably possible thereafter.” Otherwise, actual cash value is used, meaning

replacement cost less depreciation.

According to AmGuard, there is no evidence that Nanaki replaced the

damaged property. Hence, the trial court erred as a matter of law in awarding

building coverage at replacement cost value and applying penalties and fees based

on replacement costs estimates.

Nanaki disagrees, arguing that it could not repair or replace the damaged

property due to AmGuard’s significant underpayment of its claim. Nanaki notes that

this exact issue was addressed in Mason v. Shelter Mutual Insurance Co., 16-135

(La.App. 3 Cir. 12/28/16), 209 So.3d 860. There, this court determined that an

insurance company could not, in bad faith, withhold funds and then claim the insured

is limited to actual cash value rather than replacement costs.

Like Mason, neither party disputes that the property remains largely

unrepaired or unreplaced. And like Mason, the trial court here found that AmGuard

acted in bad faith by arbitrarily withholding coverage amounts. As the trial court put

it:

[I]t’s clear the hotel is shut down . . . , and I think it’s all due on how
the claim was handled. And expecting Mr. Singh to get a hotel back up
and running on very little money, it’s always at the beginning of a[]
catastrophe that you need help that you need the money. Two (2) years
down the road hopefully it’s all taken care of you don’t need any money
then because you got it when you needed it. But if you have to sit there
and wait for it you will have to do like Mr. Singh did just close your
doors.

In sum, the record evidence shows that Nanaki was unable to complete repairs

or replace damaged property due to AmGuard’s significant underpayment of the

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claim. The trial court did not legally err by awarding replacement cost damages.

Nor was its decision manifestly erroneous. 3

AmGuard’s Third Assignment of Error

In its third assignment of error, AmGuard contends that Nanaki failed to prove

covered business income losses and that the trial court erred as a matter of law by

disregarding the policy language.

“[D]amages for loss of profits may not be based on speculation and

conjecture; however, such damages need be proven only within reasonable certainty.

Broad latitude is given in proving lost profits because this element of damages is

often difficult to prove and mathematical certainty or precision is not required.”

Maloney Cinque, L.L.C. v. Pac. Ins. Co., 11-787, p. 18 (La.App. 4 Cir. 1/25/12), 89

So.3d 12, 25, writs denied, 12-950, 12-973 (La. 7/2/12), 92 So.3d 345 (citations

omitted).

Trial courts are tasked as the gatekeepers and must carefully consider an

expert’s methodology. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579,

113 S.Ct. 2786 (1993); State v. Foret, 628 So.2d 1116 (La.1993). In this role, trial

courts are given great discretion, particularly in bench trials.

In a nutshell, AmGuard takes issue with the methodology of Robert Ehlers,

Nanaki’s expert, as it relates to 2020 income losses and the impact of COVID-19, as

well as his failure to specify the actual loss for that period. The policy language

provides for “actual loss of Business Income” during restoration. The policy defines

business income as “Net Income (net Profit or Loss before income taxes) that would

have been earned or incurred if no physical loss or damage had occurred[.]”

3
AmGuard makes other arguments to support its second assignment. But these arguments
are all based on the premise that Nanaki failed to provide sufficient evidence of the actual cash
value of the damaged property. Hence, the arguments are moot based on the trial court’s use of
replacement cost value.
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Nanaki notes that Engle Martin reported a potential business income loss of

$400,000.00, and AmGuard’s records in September 2020 stated that “[b]usiness

income is expected to be significant due to the insured location being next to a

casino.” Ehlers is a respected CPA whose methodology was explained in detail in

his trial deposition and accepted by the trial court. Importantly, his conclusions fall

within the scope of loss recognized by both parties.

More precisely, Ehlers applied a formula of net income plus continuing

expenses, minus revenue generated during the restoration period. The restoration

period was calculated from August 30, 2020 through August 29, 2021, followed by

an additional thirty days. Ehlers used four years of Days Inn historical data and tax

information to calculate a contribution margin. He then calculated projected gross

revenue, minus saved variable and fixed expenses to arrive at the projected business

income loss of $218,480.00 in business interruption/loss for the period of restoration

and $38,319.00 in extended business interruption.

Ehlers’s methodology and conclusions were accepted by the trial court in

calculating business income damages. His conclusions were also used as the basis

for penalties.

In sum, the trial court did not disregard the policy language in calculating

business income losses. Nor was the trial court clearly wrong in making these

findings of fact. This assignment is without merit.

AmGuard’s Fourth Assignment of Error

In this assignment, AmGuard asserts that the trial court erred in finding that it

(AmGuard) received satisfactory proof of loss and acted in bad faith when the extent

of damage was unknown, when it made reasonable efforts to obtain information and

adjust the claim, and when Nanaki withheld information and submitted false and

misleading information. We disagree.

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“The party claiming entitlement to penalties and attorney fees for bad faith

claims handling has the burden of proving: (1) the insurer received satisfactory proof

of loss; (2) the insurer failed to pay the claim within the applicable statutory period;

and (3) the insurer’s failure to pay was arbitrary[.]” Aghighi v. La. Citizens Prop. Ins.

Corp., 12-1096, p. 4 (La.App. 4 Cir. 6/19/13), 119 So.3d 930, 933, writ denied, 13-

1737 (La. 10/30/13), 124 So.3d 1102.

Satisfactory proof of loss is a flexible requirement to advise the insurer of the

facts of the claim. Sevier v. U.S. Fidelity & Guar. Co., 497 So.2d 1380 (La.1986).

The requirement is that the insurer obtains sufficient information to act on the claim,

regardless of how it obtains the information. Id.; see also Louisiana Bag Co. Inc. v.

Audubon Indem. Co., 08-453 (La. 12/2/08), 999 So. 2d 1104.

In a recent hurricane case, this court explained that “‘[a] personal inspection

of an insured’s property by an adjuster for the insurance company also constitutes

satisfactory proof of loss.’” Guillory v. Louisiana Farm Bureau Cas. Ins. Co., 22-

634, p. 10 (La.App. 3 Cir. 10/4/23), 371 So.3d 1202, 1211, writ denied, 23-1453 (La.

1/10/24), 376 So.3d 848 (quoting J.R.A., Inc. v. Essex Ins. Co., 10-797, pp. 32–33

(La.App. 4 Cir. 5/27/11), 72 So.3d 862, 881). The statutory timeline starts from the

initial inspection and not from any final report by the insurer. Aghighi, 119 So.3d

930.

Arbitrary, capricious, or without probable cause is synonymous with

vexatious, and a vexatious refusal to pay means an unjustified refusal to pay.

Aghighi, 119 So.3d 930. “The case law is clear, ‘if part of a claim for property

damage is not disputed, the failure of the insurer to pay the undisputed portion of the

claim within the statutory delay will subject the insurer to penalties on the entire

claim.’” Id. at 935 (quoting Maloney Cinque, 89 So.3d at 23).

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Here, the day after the hurricane, on August 28, 2020, Nanaki filed its claim

with AmGuard. On September 5, 2020, AmGuard’s first adjuster, Engle Martin,

inspected the damage to the Days Inn. Four days later, Engle Martin submitted a

preliminary report to AmGuard with a final estimate of damages to be submitted

within two weeks. But AmGuard fired Engle Martin before the submission of its

final estimate.

AmGuard’s Massaro took over the claim from Engle Martin on September 11,

2020. Massaro inspected the property on September 24, 2020, and October 14, 2020.

Then, on October 23, 2020, Nanaki adjuster Pinnacle provided Massaro with an

estimate of loss of $1,923,331.64 for Building 1 and $1,661,262.44 for Building 2

(or $3,584,594.08 for both buildings). Massaro, in turn, inspected the property for

a final time on December 2, 2020. Thereafter, on December 9, 2020, Massaro

emailed Pinnacle an estimate of damages styled “repair scope and summary.”

Massaro concluded that the net sum due Nanaki—not including prior payments—

totaled $1,792,831.91.

Two months later, on February 23, 2021, Massaro provided Pinnacle with a

formal proof of loss. Massaro estimated therein that the net sum due Nanaki was

$1,764,243.97, not including sums previously advanced. There was even a note in

AmGuard’s claim file dated February 24, 2021, stating that the “undisputed” sum

due Nanaki was $1,764,243.00. Yet AmGuard withheld these funds from Nanaki for

several more months. Ultimately, the sum of $1,554,876.84 was paid to Nanaki on

June 3, 2021. And the remaining sum of $209,367.12 was paid to Nanaki on

September 15, 2021.

Put simply, AmGuard received satisfactory proof of loss when its adjuster

Engle Martin inspected the Days Inn on September 5, 2020, and found substantial

damages. But AmGuard also received satisfactory proof of loss on multiple other

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occasions, including October 23, 2020, which is when Pinnacle provided Massaro

with a 588-page estimate of loss. The trial court homed in on this event, stating that

“[t]he notice of proof of loss . . . was submitted by Pinnacle to AmGuard back on

October 23, 2020.” The trial court found that this was the date that AmGuard

received satisfactory proof of loss. In doing so, the trial court found that the first

element of proof for statutory penalties was satisfied. The record supports this

finding.

Now to the second element of proof: that AmGuard failed to pay the claim

within the applicable thirty-day statutory period. The only monies that AmGuard

paid timely for building coverage were the $100,000.00 advance on September 16,

2020, and the $162,506.73 advance on October 16, 2020. The only BPP paid timely

was the $50,000.00 advance on October 15, 2020. And incredibly, for over six

months, AmGuard withheld $1,764,243.97 in undisputed funds from Nanaki. This

timeline is not disputed. Thus, the record supports the trial court’s finding that the

second element was satisfied.

Turning now to the third and final element of proof: that AmGuard’s failure

to pay was arbitrary. AmGuard withheld from Nanaki undisputed coverage amounts

totaling $1,764,243.97 for six months. This is not disputed. And this, in and of

itself, satisfies the third element of proof. Hence, the record supports the trial court’s

finding that the third element was satisfied.

In the end, the trial court found that “AmGuard dropped the ball in handling

Nanaki’s claim and that it [acted] arbitrarily and capriciously or without [probable]

cause in violation of the statutes.” The trial court rejected AmGuard’s excuses for

its failure to timely pay Nanaki’s claim and imposed bad faith penalties under

La.R.S. 22:1892. The trial court’s findings of fact were not manifestly erroneous.

AmGuard’s fourth assignment is therefore without merit.

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AmGuard’s Fifth Assignment of Error

The judgment awards lost profits under La.R.S. 22:1973 (2012), which

provides for consequential damages “as a result of” an insurer’s bad faith conduct.

In its final assignment, AmGuard makes two arguments against the trial court’s

award of consequential damages.

First, AmGuard argues that Nanaki’s lost profits were not caused by

AmGuard’s conduct when Nanaki used almost none of the $2.5 million paid by

AmGuard to restore the property. In response, Nanaki argues that its experts Sonnier

and Norman put to rest any questions about how the insurance proceeds were used.

Sonnier testified that there needs to be a comprehensive rebuild plan before using

the funds. As an example, he pointed to the $66,000.00 roof replacement paid for

with funds advanced from AmGuard. Because of the structural damage, the new

roof will have to be removed and replaced. These funds were thus wasted,

exemplifying the dilemma in which AmGuard placed Nanaki. Norman also

explained at trial that you cannot “piecemeal” a building of this sort. Norman

testified that you do not want to “start throwing money at this building” until you

have all your damages and enough money to fix it.

The trial court found that the hotel was forced to shut down due to AmGuard’s

bad faith handling of Nanaki’s insurance claim: it was impossible for Nanaki to

repair the hotel due to AmGuard’s significant underpayment of the claim. The trial

court’s finding as to causation—that AmGuard’s bad faith conduct caused the lost

profits—is reasonably supported by the record.

AmGuard’s second argument against consequential damages is that Nanaki

failed to prove its lost profits with reasonable certainty. More specifically, AmGuard

notes that Nanaki’s expert CPA, Ehlers, failed to deduct “fixed” expenses that

Nanaki would have needed to incur to generate income. AmGuard contends that this

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was an error of law, citing Morton M. Goldberg Auction Galleries, Inc. v. Canco,

Inc., 94-734 (La.App. 4 Cir. 1/31/1995), 650 So.2d 801. There, the fourth circuit

observed that “[t]he jurisprudence addressing business interruption losses has

established two rules, application of which depends on whether the business

continues to operate following the incident in question.” Id. at 804. When a business

ceases operation, as here, fixed costs must be deducted from projected revenue and

thus removed from lost profits. Id. “Deduction for fixed costs is appropriate when

the firm ceases operation following the delict because it has not incurred those costs.

If the court were not to deduct fixed costs, the plaintiff would receive a double

recovery.” Id. at 805. We agree.

The trial court here erred as a matter of law in failing to deduct fixed costs.

The trial court calculated lost profits of $1,116,546.00 for a period of 15.07 months

(September 29, 2021, through December 31, 2022). Yet based on our review of the

record, the fixed costs during this period would have totaled $500,590.24. 4 Hence,

the deduction of fixed costs results in lost profits of $615,955.76 (not

$1,116,546.00).

AmGuard also complains that the calculation of lost profits is based on

erroneous occupancy projections. We disagree. The trial court acted within its

discretion in using the occupancy projections given by Ehlers.

DISPOSITION

The trial court judgment of December 5, 2023, is reversed in part to the extent

that it awarded Nanaki LLC $569,688.38 in penalties and $569,688.38 in attorney

fees for AmGuard Insurance Company’s “bad faith under La. R.S. 22:1892 for

arbitrary failure to timely pay Mitigation damages[.]”

4
The fixed costs used for this calculation are taken from Ehlers’s Report of Consequential
Damages dated March 27, 2023, specifically from the schedule styled Trend Analysis and
Historical Income Statement Statistics.
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The judgment of December 5, 2023, is amended to reflect consequential

damages of $615,955.76.

The judgment is also amended to reflect TOTAL damages, penalties, and

attorney fees owed to Nanaki LLC in the amount of $8,009,876.94 (not

$9,649,843.94).

The judgment is affirmed in all other respects.

The costs of this appeal are assessed as follows: one-half to AmGuard

Insurance Company and one-half to Nanaki LLC.

REVERSED IN PART;
AFFIRMED AS AMENDED.

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