On May 5, 2015, in Kelly v. State Farm Fire & Cas. Co., 14-1921 (La. 5/5/15); 2015 WL 2082540, the Louisiana Supreme Court, in response to certified questions from the U.S. Fifth Circuit Court of Appeal, issued a unanimous decision reaffirming and clarifying the duties owed by insurers to their insureds. The Kelly Court concluded that:
- An insured has a cause of action against its insurer for a generalized breach of the duty of good faith and fair dealing; and
- An insurer has a duty to make a reasonable effort to settle claims with an insured and claimant before the insurer receives a “firm settlement offer”; and
- An insured has a cause of action against its insurer where its insurer misrepresents or fails to disclose facts that are not related to the insurance policy’s coverage.
Kelly is a significant win for insureds, as insurers have typically argued that extra-contractual liability to their insureds was only for knowingly (a) misrepresenting insurance policy provisions; (b) failing to timely pay a settlement; (c) denying coverage or attempting to settle a claim on the basis of an altered application; (d) misleading a claimant as to the applicable prescriptive period; (e) failing to timely pay the amount of any claim within sixty days after receipt of satisfactory proof of loss when such failure is arbitrary, capricious, or without probable cause; and (f) failing to pay claims when such failure is arbitrary, capricious, or without probable cause.
Kelly held that an insurer can be liable when it fails to reasonably explore settlement opportunities on behalf of its policyholder. Moreover, under Kelly, insurers can no longer claim that they can misrepresent pertinent facts outside of their insurance policy’s language with impunity. Thus, under a logical extension of Kelly, an insurer may also be liable to its insureds in multiple other instances, such as disregarding information in its own files so as to mischaracterize a claim; threatening to void or rescind an insurance policy without any reasonable basis therefor, or in retaliation for filing a claim; retaliating by increasing premiums; and compelling policyholders to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds.
Michael deBarros, Mark Mese, and Todd Rossi, of Kean Miller’s Insurance Coverage and Recovery Team represented United Policyholders, as amicus curiae in Kelly. United Policyholder’s amicus brief can be found here. Michael deBarros argued on behalf of United Policyholders.