The policyholder’s Louisiana home sustained extensive damage during Hurricane Katrina due to flooding, wind and rain. His homeowner’s insurance policy provided coverage for damage caused by wind and rain, but excluded damage caused by flooding. He submitted a claim and his insurer retained an adjuster to inspect the property. One month after the inspection, the adjuster issued his report to the insurer and three months later, he issued an amended report that allegedly corrected errors in the initial report. One month later, the insurer issued a check for $11,335 to the insured in payment of his claim. The insured thought that he should received more money on his claim and he sued his insurer, alleging breach of the insurer’s statutory duty of good faith by its failure to promptly and fully pay the claim. Over the next several months, the insurer issued additional payments totaling approximately $105,000. The lawsuit went to trial and resulted in a judgment in favor of the insured in the amount of $175,467 including damages for mental anguish, civil penalties, and attorneys’ fees. The insurer appealed the district court judgment.
The Fifth Circuit Court of Appeals affirmed the district court’s decision in part and reversed in part. The Fifth Circuit deferred to the district court’s determination regarding the allocation of damage caused by wind and rain versus flooding and the lower court’s assessment of the amount of damage to the home’s contents. The appellate court also agreed that the insured proved that the insurer acted in bad faith in violation of Louisiana bad faith statute based on its arbitrary and capricious withholding of payments owed to the insured. The Fifth Circuit affirmed the lower court’s $25,000 award for mental anguish, concluding that the Louisiana bad faith statute allows for the recovery of damages for “any damages sustained as a result of the breach [of the duty of good faith],” including damages for mental anguish. Further, the Fifth Circuit reversed the lower court’s award of attorneys’ fees because the post-Katrina amendment to the Louisiana bad faith statute that authorizes an award of attorneys’ fees became effective after the insured submitted his proof of loss to his insurer. The Fifth Circuit, however, remanded the attorneys’ fee issue to the district court to consider whether attorneys’ fees should be awarded because the insurer made partial payment after the statute was amended to allow for such recovery.