Some jurisdictions impose specific requirements on insurance companies regarding timely payment of undisputed amounts or amounts due after a settlement agreement is reached. Some jurisdictions impose penalties for failure to pay undisputed amounts or amounts due pursuant to a settlement agreement within a specified period of time. In Instant Replay Sports, Inc. v. Allstate Insur. Co., 2012 La. App. LEXIS 1103 (La.App. 1 Cir. 09/05/12), the Louisiana First Circuit Court of Appeal determined that the insurer violated a Louisiana statute setting forth the requirements associated with payment of amounts due pursuant to a settlement agreement.
At the time of Hurricane Katrina, Instant Replay Sports, Inc. (“Replay”) was insured by Allstate under a Business Customizer Insurance policy, and suffered a loss, the specifics of which are not apparent from the opinion. It is unclear from the opinion whether Allstate denied Replay’s claim in total or whether there was a dispute as to loss measurement over a disputed amount. Replay filed suit in Louisiana state court against Allstate and others in 2006. After a two-day mediation, on September 11, 2009, Allstate and Replay entered into a preliminary written settlement agreement. At the time of the mediation, the Small Business Administration (“SBA”) had filed a lien on the property owned by Replay, which all parties were aware of. Rather than specify that settlement proceeds were to be paid to both Replay and the SBA as payees, the preliminary settlement agreement provided that Replay would be the payee of settlement proceeds and Replay would be solely responsible for paying the lien to the SBA. The preliminary settlement agreement specified that the parties would draft a more detailed settlement agreement and release to be signed by all parties.
On September 24, 2009, Allstate’s counsel sent a proposed final settlement agreement and release to Replay’s counsel indicating that the checks would be made payable to Replay and the SBA. Replay’s counsel requested that Allstate not issue the checks to both payees, but Allstate did so. The checks were rejected by Replay on the basis that SBA was made a payee. On the same day, Allstate received a letter from the SBA indicating that $75,900 would fully satisfy the lien that SBA had on the property. On October 28, 2009, Allstate then re-issued the checks to Replay, one in the amount of $75,900 to both Replay and the SBA, and the remainder of the checks were made out solely to Replay. On November 13, 2009, the parties entered into a mutual release and final settlement agreement.
On October 13, 2009, Replay filed an action to enforce the settlement agreement and for penalties under LSA-R.S. 22:1973 for Allstate’s failure to pay the settlement within thirty days, based upon Allstate’s inclusion of the SBA as payee on the checks. Replay and Allstate filed cross motions for summary judgment. The trial court denied Replay’s motion and granted Allstate’s motion, finding that under the circumstances Allstate did not act in bad faith by including the SBA as payee on the checks. Replay moved for a new trial, which was denied. Replay appealed the trial court’s judgments, and the appellate court reversed.
Section B.2. of Louisiana Revised Statutes 22:1973 provides that if an insurer knowingly fails to pay a settlement within 30 days after an agreement is reduced to writing, this constitutes a violation of Section A of the statute, which provides that an insurer owes a duty of good faith and fair dealing to its insured, and that any insurer “who breaches these duties shall be liable for damages sustained as a result of the breach.” Section C provides for penalties assessed against the insurer for penalties “in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.” After finding that statutes governing an insurer’s failure to timely pay are penal in nature and must be “strictly construed,” the Louisiana First Circuit determined that because Allstate did not make the payments as set forth in the original agreement within 30 days because it included the SBA on the checks, Allstate violated LSA-R.S. 22:1973 as a matter of law. The court of appeal remanded the case for assessment of penalties.
The dissent stated that because the original agreement provided that a more formal settlement and release was to be drafted, and because Allstate’s proposed settlement and release provided that payments would be made to both SBA and Replay,
I do not believe that it could be found that Allstate knowingly failed to make payments within 30 days of the agreement.
Replay illustrates the importance of strict adherence to statutes regarding the settlement of insurance claims, and the importance of considering all parties who may have an interest in settlement proceeds before entering into a settlement agreement.