Louisiana Insurance Law Newsletter – August 2020
In this issue, we discuss cases involving an intentional-act exclusion found inadequate; a reservation of rights letter found inadequate; the construction contract anti‑indemnity statute; and of course UM waivers.
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Intentional Act Exclusion
In a violent altercation involving neighbors, there were not surprisingly two different versions of events. The insured’s version was that, after the insured called for the police, he was beaten and kicked by three men; that when the men began to attack him again, he pulled out a “pocket-knife”; and that after being knocked to the ground and beaten again, he stabbed three times one of the assailants, who died. The decedent’s father sued for wrongful-death damages. Homeowner’s insurer, Louisiana Farm Bureau Mutual Insurance Company, contested both defense and coverage under the policy’s intentional-act exclusion. The exclusion stated the policy did not apply to damages:
Resulting from intentional acts or directions by you or any insured. The expected or unexpected results of those acts or directions are not covered.
The exclusion did not contain a self-defense exception.
Arguing that even under the insured’s version of events its intentional-act exclusion applied, Farm Bureau moved for summary judgment. The trial court granted the motion, dismissing Farm Bureau. On appeal, the Louisiana Third Circuit Court of Appeal reversed, finding there were genuine issues of material fact as to what the insured intended.
Written by Judge Cooks, the court’s opinion emphasized that a grand jury had refused to indict the insured (which was irrelevant to the motion before the court) and quoted with approval Inzinna v. Walcott, 868 So.2d 721 (La. App. 1 Cir. 2008), where the First Circuit stated that “the instinct of self-preservation is primordial” and that “[t]he subjective intent of the insured is the critical issue in determining whether an intentional acts exclusion applies.” The Third Circuit then concluded: “Likewise, a jury may conclude that George ‘acted spontaneously and instinctively to a sudden physical encounter, without time to form the requisite intent’ to stab Drey.”
The decision seems questionable. If the court believes that an intentional-act exclusion lacking a self-defense exception is contrary to Louisiana public policy, it should say so. However, whether an act was intentional is different from whether the person committing the act intended a specific result. And when someone stabs another person three times, even in self‑defense, the acts are clearly intentional—and it seems clear that the person with the knife intended at the very least to inflict some injury on the person he was stabbing. Indeed, in a concurring opinion, Judge Perret first noted that, under the policy exclusion, “it does not matter whether O’Neil intended to stab Drey Wise,” but then stated that “a determination of whether Mr. O’Neil, in brandishing his knife, was acting intentionally or was reacting to an affront ‘without time to form the requisite intent to commit a specific act’ is necessary in this case” and was a credibility determination that should be left to a jury. Wise v. O’Neil, 201610639 (La. App. 3 Cir.).
Reservation of Rights
In a qui tam lawsuit alleging that an insurance agency and its president fraudulently issued surety and performance bonds to companies that falsely claimed to be owned by disabled veterans, the professional-services insurer, Westport Insurance Corporation, provided a defense under a reservation of rights. The reservation letter stated in pertinent part:
Westport Insurance Corporation also reserves the right to file a declaratory relief action for the determination of its duty to defend and/or indemnify, including the right to request reimbursement for any defense costs or indemnity paid for uncovered costs.
Two years after reservation letters were sent, Westport sent a declination letter to the insureds, stating that after further review the policies did not provide coverage and that a defense would no longer be provided.
On a motion for summary judgment filed by the plaintiff insureds in their coverage lawsuit, the court found that Westport could not unilaterally withdraw its defense because its reservation letter did not reserve the unilateral right to withdraw a defense, only the right to seek a declaratory judgment that a defense was owed. However, in its ruling, the court gave Westport the opportunity to file a motion for leave to file a counterclaim seeking declaratory judgment. Osprey Consulting, Inc. v. Westport Insurance Corp., 5AG-19-03092 (D. Md. 6/10/20), 2020 WL 3073326.
Electronic UM-Waiver Form
Plaintiff applied for and signed her automobile insurance application electronically. After an accident, she sought UM coverage from her insurer, Liberty Personal Insurance Company. Liberty contended that plaintiff had rejected full UM coverage and selected economic-only UM coverage.
The electronic application included a selection paragraph, which allowed the applicant to select coverage for Bodily Injury, Property Damage, Medical Payments, Uninsured Motorist Economic Only, Uninsured Motorist Property Damage, Collision Deductible, Other Than Collision Deductible, Transportation Expense Coverage, and Towing & Labor. Following the selection provision was a paragraph stating that, under Louisiana law, the policy would be issued with full UMBI coverage with the same limits as those for liability coverage, though the applicant could select lower limits of UMBI coverage or Economic Only UMBI, or could reject UMBI coverage.
Finally, there was a section instructing “Please indicate below the uninsured motorist coverage you wish on your policy,” with a chart reflecting the various types of UMBI coverage and amounts that could be selected. The application did not explain the difference between UMBI coverage and Economic Only UMBI coverage.
When deposed, plaintiff testified that she wanted and thought she was getting full UM coverage.
Affirming partial summary judgment on the validity of the UM Economic Only selection, the Louisiana Fifth Circuit Court of Appeal noted that the 2008 revision to the original UM form removed the option for insureds to select full UMBI coverage with the same limits on their liability coverage, stating:
The princip[al] change in the 2008 revision involved removing the option for the consumer to select full UMBI coverage with the same limits as their liability coverage. The law says that such a selection is presumed, and therefore the consumer needs only make an affirmative selection if they wish to have a lower limit. In theory, this change makes the form more accurately reflect the language of the statute. However, Louisiana consumers now see a form that contains only options for how they may reduce or reject the coverage they have by default.
This problem may become even more acute with the proliferation of electronic form submissions. In the growing trend of on-line commerce, where patrons make choices based on what an insurer has stated in its on-line presence, insurers should clearly define the choice given to potential customers, so that they can make an informed and knowing selection. Without an insurance agent present to answer questions, consumers must work even harder to ensure they are making an informed decision. Using a form that states all options, including UMBI coverage as a matter of law in the application submitted, could make the on-line platform more efficient and would result in a patron’s procurement of what was actually desired.
The court then contrasted Louisiana’s form with Florida’s UM form, stating that
[r]emoving the equal coverage option from the form is at best counter-intuitive and at worst deceptive. Public policy would be better served if the full UM coverage option was returned to the form.
The Fifth Circuit Court of Appeal reluctantly affirmed the partial summary judgment, adding though “we are constrained to follow Louisiana statutory and jurisprudential law, we consider it problematic.” Further, the court found that the use of e-signatures rather than e-initials on the application did not invalidate the selection. Jackson v. Liberty Personal Insurance Company, 20-13 (La. App. 5 Cir. 7/2/20).
A corporate insured executed UM waiver forms in 2011, 2012, 2013 and 2014. The 2011 waiver form was clearly valid. However, in the 2012, 2013 and 2014 forms, the insured’s representative failed to initial the blanks showing she had rejected UM coverage or selected UM coverage at lower limits. The insured’s employee was badly injured in an accident in 2014.
Zurich, the employer’s automobile insurer, argued that there was no UM coverage because the 2012, 2013 and 2014 UM forms were invalid under Duncan v. U.S.A.A. Ins. Co., 950 So.2d 544 (La. 2006), the 2011 waiver form was valid, and a valid UM selection form remains in effect until there is a new valid selection form. However, the court held that Zurich provided full UM coverage at the time of the 2014 accident because the insured on the last selection form had to properly reject UM coverage for the policy not to provide UM coverage. Baack v. McIntosh, 19-657 (La. App. 3 Cir.).
Motor Carrier Transportation and Louisiana Construction Contract Anti-Indemnity Statute
In Salathe v. The Parish of Jefferson Through the Department of Sewerage, 19-303 (7/15/20), Jefferson Parish (“the Parish”) hired Fleming to do sewer-main work. Fleming signed a construction contract containing indemnity and additional-insured clauses running in favor of the Parish. During the job, Fleming’s employee Salathe was injured, Salathe sued the Parish for tort damages, and the Parish sought coverage as an additional insured from Fleming’s general commercial liability and excess insurers. The insurers argued that the insurance provision in the construction contract was invalid under Louisiana’s anti-indemnity statute for motor-carrier transportation contracts and construction contracts, La. R.S. 9:2780.1. The Parish argued that the anti-indemnity statute did not apply to contracts by public bodies because of a provision in the Louisiana Public Works Act, La. R.S. 38:2216(g), which prohibits indemnity by public entities in public contracts, except for insurance policies. The Louisiana Fifth Circuit Court of Appeal found that the anti-indemnity statute does apply to insurance provisions in public contracts, noting that the anti-indemnity statute was passed after the Public Works Act and states it applies “[n]otwithstanding any provision of law to the contrary and except as otherwise provided in this Section.” The Fifth Circuit noted the Louisiana First Circuit Court of Appeal had reached a different result on this issue in Jeff Mercer, L.L.C. v. State, Dept. of Transp. and Development, 174 So.3d 1180 (La. App. 1 Cir. 2015), writ denied 179 So.3d 618 (La. 2015).