The 5th Circuit Court of Appeals has ruled that a homeowners’ insurer is liable for bad faith damages, including mental anguish, for failing to promptly pay a claim related to Hurricane Katrina. The homeowners’ policy covered four classes of wind damage for total coverage of $300,000, but did not cover flood damage. The insurer paid about $11,000 five months after an initial inspection, and then paid another $2,000 about a year later. The company finally acknowledged that there was more extensive wind damage nearly two years after the storm.
The insured filed suit, alleging breach of contract and bad faith against Lexington Insurance Co., the insurer. The trial judge heard the case at trial without a jury and entered judgment for $175,467, including mental anguish for the delay. On appeal, the insurer claimed that mental anguish damages are not allowed for breach of contract claims. But the 5th Circuit cited a state statute in Louisiana that imposes a good faith duty to pay a claim within 60 days which specifies that any insurer who breaches its duty “shall be liable for any damages sustained as a result of the breach.” In the appellate court’s decision, it was stated:
Damages for mental anguish may be awarded [under state statute] for breaches of the duty of good faith. … The statute specifically refers to a breach of the duty of good faith; it does not refer to breach of contract. Furthermore, [the statute] is broadly worded, explicitly permitting liability for ‘any damages sustained,’ including, without limitation, ‘any general or special damage.’ … By authorizing ‘any damages,’ including ‘any general or special damages,’ the legislature pointedly permitted the award of mental anguish damages.
The 5th Circuit decision is a good one. Hopefully it will send a clear message to insurance companies which, either fail to pay legitimate claims or delay paying claims in a timely manner, that they can’t get away with this sort of thing.
Source: Lawyers USA
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