A Federal Appeals Court has ruled that a jury shouldn’t have awarded money to a south Louisiana couple for their allegation that an insurance company acted in bad faith when it denied their homeowner claim after Hurricane Katrina. The ruling last month by the Fifth U.S. Circuit Court of Appeals vacates a portion of a November 2007 judgment against State Farm Fire and Casualty Co. The jury had awarded Michael and Judy Kodrin $356,000 in damages, penalties, and attorney’s fees. Their trial was the first in Louisiana against State Farm over damage from the August 2005 hurricane.
A three-judge panel from the 5th Circuit said the Kodrins weren’t entitled to bad-faith penalties, damages or attorney’s fees because the couple failed to prove State Farm “had no justification for denying their claim.” The panel instructed the trial court judge to recalculate the Plaintiffs’ award based on its ruling.
State Farm claims its homeowner policies cover damage from a hurricane’s wind, but not its rising water. The insurer contended that Katrina’s flood waters demolished the couple’s Port Sulphur home. The Appeals Court upheld a jury’s decision that State Farm owed the couple about $200,000 for Katrina’s wind damage. But the Fifth Circuit said the only evidence of bad faith presented by the Kodrins was State Farm’s denial and their expert’s testimony that wind caused the damage. The Court, in its opinion, said:
This is evidence that State Farm was wrong about the cause of damage, but without more, it is not evidence of bad faith. The Plaintiffs essentially ask this court to find bad faith any time an insurer denies coverage and a jury disagrees. This would unduly pressure insurers to pay out claims that they have reason to believe lie outside the scope of coverage, solely to avoid penalties later.
John Redmann, a Louisiana lawyer who represented the Kodrins, says the ruling could cost his clients up to about $250,000 that jurors and the trial judge had awarded for penalties, mental anguish and attorneys’ fees. It’s not known if State Farm presented evidence that the damages were caused by water and not by wind. Since the Plaintiffs had expert testimony by an expert engineer that wind caused the damage, it seems like State Farm would have needed a “reason” for its “denial.” Redmann is weighing his clients’ legal options, including asking the 5th Circuit to rehear the case.
Source: Associated Press
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