WIENER, Circuit Judge:
Plaintiffs-Appellees Dale and Shirley Dickerson sued Defendant-Appellant Lexington
I. FACTS AND PROCEEDINGS
Dale and Shirley Dickersons' home in Marrero, Louisiana, was extensively damaged by Hurricane Katrina in August 2005. There was evidence of flooding throughout the first floor; Dickerson estimated that the water had risen to a level of approximately two feet inside his house. There was also evidence of extensive damage from wind and rain.
The Dickersons held a homeowner's insurance policy issued by Lexington. That policy's four classes of coverage for wind damage and the limits of each were:
Like many homeowner's policies, the Dickersons' policy did not cover flood damage. They held federal flood insurance issued through a different carrier, which coverage paid $108,342 on their Katrina-related claim: $62,042 for damage to their home and $46,300 for damage to its contents.
The Dickersons notified Lexington of their wind damage claim under their homeowner's policy in mid-September 2005, and a Lexington insurance adjuster inspected the property on October 1. The adjuster wrote a report in November 2005, but also wrote a second report that he sent to Lexington on February 4, 2006.
Dickerson sued Lexington, claiming that it had breached the contract by failing to pay; and, additionally, that Lexington had breached its statutory duty of good faith through its unjustifiable failure to pay promptly and in full.
Lexington's response to Dickerson's lawsuit was that it had made a good faith effort to settle the claim, but that its adjusters had returned with conflicting information and had determined that the bulk of the home's damage was caused by flooding, thus falling outside the Dickersons' policy coverage. Lexington also contended that Dickerson had breached the insurance contract by failing to mitigate the damage to his home that had been caused by an improperly secured roof tarp and by failing to submit an itemized list of the damaged contents.
After a one-day bench trial conducted in July 2007, the district court held for Dickerson on all claims and entered a judgment for $122,362. The amount of the judgment included $50,000 in penalties under § 22:1220. Separately, the court awarded Dickerson attorneys' fees of $53,105, bringing the total award to $175,467.
Lexington timely appealed, contending that (1) there was insufficient evidence for a fact-finder to conclude that wind, rather than flooding, caused the subject damage to Dickerson's home and contents, (2) the trial court improperly calculated the value of the contents of Dickerson's home in violation of the terms of the insurance policy, (3) there was insufficient evidence to support a finding that Lexington had acted in bad faith, (4) § 22:1220 does not authorize recovery of mental anguish damages, (5) alternatively, there was insufficient evidence to support a determination that Lexington's bad faith actions had caused Dickerson mental anguish, and (6) attorneys' fees are impermissible under the applicable version of § 22:658.
A. Applicable Law and Standard of Review
When sitting in diversity, we apply the substantive law of the state.
In the appeal of a bench trial, we review findings of fact for clear error
B. Evidence of Wind Damage
On appeal, Lexington asserts that there was insufficient evidence presented at trial to support the finding that wind, rather than flooding, caused most of the damage to Dickerson's home. As wind damage is covered by Dickerson's homeowner's policy but flood damage is not, Lexington would not be liable for any damage attributable to flooding.
Under Louisiana law, the insured must prove that the claim asserted is covered by his policy.
Dickerson's trial expert, a New Orleans general contractor, testified that wind and rain from the storm caused approximately 70 percent of the damage. The same percentage results when the estimated total value of damage to the home and its contents is reduced by the amount that Dickerson's flood insurer paid following Katrina, although Dickerson's expert also testified that he had not known the total amount that the flood insurance had paid until after he came up with his own estimate of the breakdown between the two causes of damage.
Lexington did not submit a competing percentage. Instead, it offered the testimony of its own adjuster who provided the court with estimates of rebuilding costs. Dickerson contended at trial that those costs were too low because they did not reflect inflated post-Katrina prices for materials and labor. Lexington also attempted to deconstruct Dickerson's expert's estimate by identifying individual components of the damage and assigning their cause to either flood or wind. For example, because flooding damaged the electrical wiring, Lexington maintained that the entire replacement cost of the wiring system throughout the house could be attributed to flooding. Dickerson's expert conceded that some of the figures in his estimate could be attributed entirely to flood damage, but insisted that he had accounted for that in calculating the 70-30 ratio.
At trial, the question of flood versus wind damage essentially turned on witness credibility, as the quantity and quality of the evidence adduced by each party was similar. The district court, as the finder of fact in a bench trial, is best positioned to evaluate the credibility of the witnesses. On this record, a reasonable fact finder could conclude that Dickerson's expert offered the more credible analysis of the damage to the home and the cost of rebuilding it. Finding no clear error, we defer to the determination of the district court and affirm.
C. Value of the Home's Contents
The contents coverage limit on Dickerson's policy, Coverage C, is $76,500. The district court valued Dickerson's damaged and destroyed contents at approximately $114,000.
Lexington contends that the district court misinterpreted the language of Coverage C. According to Lexington, the trial court's award of $20,495
The policy reads:
To us, the language is quite clear: It permits recovery of only the actual cash value of an item until such time as the insured furnishes the insurer a receipt for replacement of that item. The actual cash value of an item is its depreciated value; presumably the replacement cost is higher. The insured is not entitled to the full replacement value of an item until he proves that he has, in fact, replaced that item.
According to Lexington, the district court erroneously calculated the amount owed to Dickerson under Coverage C by using the replacement value rather than the actual cash value, resulting in an excessive award for which Dickerson had never provided the required substantiation. Lexington argues that, by using the replacement value instead of the actual cash value, the district court over-estimated the compensable value of Dickerson's possessions and awarded him too much. As evidence that the district court employed the wrong value, Lexington claims that the district court's $114,000 baseline value represented the replacement value of the contents of the home rather than the actual cash value; Lexington does not expressly address the $114,000 figure in its brief. Lexington also seems to rely on its approval of only $77,765 in contents coverage of the total that Dickerson submitted as evidence that the district court got it wrong; yet it neither offers an explanation for what this figure represents nor contends that this is the total replacement value of Dickerson's possessions.
We are unable to determine the bases of Lexington's claim of error and, regardless, find the contention that the district court relied on the replacement value rather than the actual value to be a distinction without a difference. Even assuming that
D. Bad Faith of the Insurer
Under § 22:1220, an insurer owes its policyholders a duty of good faith in settling claims. Breach of the duty exposes an insurer to liability for damages, discretionary penalties, and attorneys' fees via § 22:658.
A plaintiff has the burden of proving that his insurer (1) received satisfactory proof of loss, (2) failed to pay within the required time, and (3) acted in an arbitrary and capricious manner.
Lexington makes two assertions in this context. First, it contends that the district court erred by requiring it to prove that it acted in good faith because it is the plaintiff who must prove that the insurer acted in bad faith. Second, Lexington contends that the evidence offered by Dickerson was insufficient to prove that Lexington acted arbitrarily and capriciously. We address Lexington's assertions in turn.
1. Burden of Proof
We review de novo the district court's assignment of the burden of proof.
First, the statutes in question do not require proof that the insurer intentionally harmed the plaintiff. In this respect, the district judge merely stated a fact. In support of its insistence that Dickerson had to prove that Lexington acted in bad faith, Lexington cites Holt v. Aetna Casualty & Surety Company, in which the court stated, "[t]o prevail on a claim of breach of duty, the insured must prove that the insurer knowingly committed actions which were completely unjustified, without reasonable or probable cause or excuse."
Additionally, we disagree with Lexington's conclusion that the district court's statement was an assessment of which party must bear the ultimate burden of proof. In context, the better reading is that the district court believed that the plaintiff had borne his burden, so it sought Lexington's rebuttal. The exchange came after both sides had concluded their cases. Before it uttered the statements with which Lexington takes issue, the court cited examples of Dickerson's evidence of Lexington's having acted in bad faith. Although the insured has the burden of proof under §§ 22:1220 and 22:658, once he has made his case, the burden of persuasion shifts to the insurer to rebut the insured's showing. The timing
2. Sufficiency of the Evidence
Again, to demonstrate arbitrariness or capriciousness, Louisiana law requires a plaintiff to show that his insurer acted unjustifiably and unreasonably. The statute is not intended, however, to prevent insurers from disputing claims in good faith, including litigating such disputes.
Dickerson's bad faith claim hinges on the undisputed timing of Lexington's first inspection and payment. Dickerson had reported the damage to the insured property in mid-September of 2005, and Lexington had sent an adjuster to inspect the damage on October 1, a month after Katrina. A report based on this inspection was sent to Lexington no later than November, yet no payment was made. Another report was sent to Lexington (apparently by the same claims adjuster) on February 4, 2006. Although Lexington representatives took the position that the second report corrected a "mistake" in the November report, we have found no explanation in the record for why Dickerson could not have been compensated in the interim. Indeed, Lexington's attorney stated at trial that he had no explanation for the five-month delay. In its brief, however, Lexington states that its adjuster revised the first report to account for rising construction costs attributable to Katrina's aftermath. Dickerson did not receive the payment of $11,335 until March 2, 2006 — five months after the inspection and four months after Lexington received the inspection report.
Lexington insists that it had a good faith dispute with Dickerson over how much of the damage to the house and its contents was caused by flooding rather than by wind. The existence of such a dispute is not supported by the evidence. The insurer has pointed to nothing evidencing that it told Dickerson it was disputing his claim on the basis of flood damage; it offers no evidence of a dialogue with Dickerson over the quantum of the damage. Neither has Lexington provided evidence that its adjusters and engineers had difficulty assigning a portion of the damage to wind, and we have found no evidence in the record to indicate that Lexington informed Dickerson that it was making or could not make such a determination. Dickerson's daughter testified at trial that she and her brother repeatedly called Lexington about the insufficiency of the payment but never got a response. The second inspection of the home did not take place until June 2006, well after the long-delayed payment was made, and even then resulted in payment of only $2,274. Given the lack of evidence of a bona fide dispute and the fact that the extent of the flooding was self-evident, we cannot credit Lexington's contention that its payments totaling about $17,000 on damage valued at seven times that much (exclusive of the flood insurer's payment) was the result of a good faith dispute.
The district court applied the proper legal standard. It sought evidence of a basis for Lexington's delayed payments and later stalling, but could find none.
E. Mental Anguish Recovery Under § 22:1220
Insurance contracts in Louisiana, such as the policy at issue here, are regulated by both the Louisiana Civil Code and Title 22 of the Louisiana Revised Statutes. The Civil Code provides the general law of contracts, and Title 22 fills in the specifics
1. Permissibility of Mental Anguish Damages as a Matter of Law
Lexington contends that Civil Code Article 1998 bars recovery of mental anguish damages for breach of contract.
We have previously observed that § 22:1220 requires an insurer to act in good faith by fairly and promptly adjusting and paying claims. This statute identifies a half dozen per se breaches of the duty of good faith, including arbitrary or capricious failure to pay a claim within 60 days following receipt of satisfactory proof of loss.
We have not previously addressed the interaction of Civil Code Art. 1998 and § 22:1220. Neither has the Louisiana Supreme Court squarely addressed this issue. Lexington nevertheless contends that the recent Louisiana Supreme Court decision in Sher v. Lafayette Insurance Company resolved the issue.
Several other courts also have viewed the Sher decision as inconclusive with respect to mental anguish damages under § 22:1220.
At least two federal district courts in Louisiana have determined that Civil Code Art. 1998 does not bar § 22:1220 damages for mental anguish under insurance contracts, reasoning that § 22:1220 addresses a harm distinct from breach of contract: breach of the duty of good faith.
This is a more plausible reading of the statute. It is supported by the plain language of § 22:1220, whereas Lexington's proffered reading is not. The statute specifically refers to a breach of the duty of good faith; it does not refer to breach of contract. Furthermore, § 22:1220 is
We hold that Art. 1998 is, as a matter of law, inapplicable to § 22:1220 and does not bar the award of mental anguish damages under this statute: Damages for mental anguish may be awarded under § 22:1220 for breaches of the duty of good faith. With this established we must determine whether Dickerson adduced sufficient proof of mental anguish to support an award.
2. Sufficiency of the Evidence
The trial court awarded Dickerson $25,000 in general damages for mental anguish that he suffered from Lexington's arbitrary refusal to pay. Lexington contends that Dickerson did not offer sufficient evidence to support such an award.
Both Dickerson and his daughter, Cindy Bane, testified about his living situation following Hurricane Katrina. Bane testified that the year and a half of fighting with Lexington caused her father's mental health to deteriorate. Bane said that her father became increasingly withdrawn and short-tempered over the course of his ordeal. She noted that he has been living in the bathtub showroom of a store and showering with a garden hose while standing on a wooden pallet in an unheated back room. Dickerson testified that the stress caused a rash for which he eventually had to seek a doctor's care.
Lexington asserts that for an insured to succeed on a claim of mental anguish, the law requires more evidence than Dickerson offered. "[B]are allegations of depression and embarrassment"
There is no clear legal standard for what constitutes sufficient evidence of mental anguish in a case such as this. It was up
These cases are necessarily fact-specific, so outcomes vary.
For example, in Orellana, the fact that the plaintiff had to stand idle and watch his home deteriorate while his insurer refused to pay helped convince the court that mental anguish damages under § 22:1220 were proper.
Dickerson did not offer expert or medical testimony, but he did offer more than "bald assertions." His daughter's testimony of watching her father's mental state deteriorate and his becoming short-tempered and anti-social is more than bare or conclusional. The same holds for Dickerson's testimony that he suffered a rash from the stress, for which he did seek medical care. Although Lexington contends plausibly that Dickerson could have mitigated his suffering, the district court was best positioned to make credibility determinations of the witnesses, and it found the weight of the evidence tipped in favor of Dickerson. On review, we find no clear error in the district court's conclusions grounded largely in credibility determinations.
F. Applicability of § 22:658 Amendment Permitting Attorneys' Fees
Section 22:658(B)(1) permits the imposition of penalties against insurers who delay payment of claims in bad faith. A post-Katrina amendment to this statute that took effect on August 15, 2006 altered the statute in two significant ways: (1) Penalties were doubled from 25 percent to 50 percent of any amounts, in addition to the payment for the claim, determined to be due from the insurer,
Lexington argues that Sher forecloses the award of attorneys' fees in this case because the satisfactory proof of loss was submitted and payment was refused before August 15, 2006. We agree. The district court awarded Dickerson attorneys' fees and costs under § 22:658 in the amount of $53,105 in reliance on the "continuing breach" rationale, holding that Lexington could be liable for that part of the breach (the continued refusal to pay) that extended past August 15, 2006.
After Sher, Louisiana law clearly prohibits the continuing-breach rationale employed by the district court in this case, irrespective of any merit that it might have had at the time of decision. Dickerson filed his claim with Lexington in the fall of 2005, prior to the August 15, 2006 effective date of the amendment to § 22:658. Even though Sher post-dates the district court's judgment on attorneys' fees in this case,
We reverse that part of the judgment which awards attorneys' fees and remand it to the district court for further proceedings consistent with this opinion. We affirm the judgment of the district court in all other respects.
REVERSED and REMANDED in part; AFFIRMED in part.
LA. CIV.CODE ANN. ART. 1998.
At common law, claims of breach of the duty of good faith are distinct from claims of breach of contract. See, e.g., Med. Care Am., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 341 F.3d 415, 419 (5th Cir.2003).