Interpreting Louisiana law, the Fifth Circuit determined that damages for mental anguish were properly awarded based on the insurer's bad faith. See Dickerson v. Lexington Ins. Co., 2008 WL 5295389 (5th Cir. Dec. 22, 2008).
The insured's home was extensively damaged by Hurricane Katrina. He held a homeowner's policy issued by Lexington. The insured also had flood coverage and was paid $108,342 for the Katrina flood damage. The wind damage claim was submitted to Lexington in September 2005. Five months later, Lexington issued a check for only $11,335.
The insured sued, claiming Lexington had breached the contract and had acted in bad faith by failing to pay promptly and in full. In May 2007, after suit was filed, Lexington sent another adjuster who found the home had suffered far more wind damage than Lexington previously thought. A month before the bench trial, Lexington sent another check for $103,756.
The insured prevailed on all claims at the bench trial. The court entered a judgment which included damages for bad faith and a recovery of $25,000 for mental anguish.
Lexington appealed to the Fifth Circuit. Recall the Fifth Circuit has issued several post-Katrina decisions, interpreting policy provisions favorable to the insurers. See Leonard v. Nationwide Mut. Ins. Co.,499 F.3d 419 (5th Cir. 2007); Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346 (5th Cir. 2007); Broussard v. State Farm Fire & Cas. Co., 523 F.3d 618 (5th Cir. 2008).
Here, the Fifth Circuit found in favor of the policy holder. The court noted under Louisiana law, the insurer owes its policy holders a duty of good faith in settling claims. Enumerated breaches of the statute included failing to pay a claim within 60 days following receipt of satisfactory proof of loss if the failure is arbitrary, capricious and without probable cause. By way of comparison, an insurer breaches Hawai`i's Unfair Claim Settlement Practices Act when failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements are completed. Haw. Rev. Stat. 431:13-10 (a)(11)(E).
Lexington did not make any payments until five months after the initial inspection. Further, it was not until the eve of trial and more than a year and a half after Katrina struck that Lexington finally acknowledged that the property had suffered substantial wind damage and made a substantial payment.
A review of Louisiana cases demonstrated mental anguish damages had regularly been awarded for breach of the duty of good faith. Testimony established that a year and a half of fighting with Lexington caused the insured's mental health to deteriorate. He became increasingly withdrawn and short-tempered. Instead of living in a trailer provided by FEMA, the insured chose to live an the bathtub showroom of a store and showered with a garden hose while standing on a wooden pallet in an unheated back room. Although there was no expert or medical testimony to support a claim of mental anguish, the Fifth Circuit confirmed the award because the district court was best positioned to make credibility determinations.
