Published by The Pellegrin Firm November 3, 2019

In a ruling dated October 22, 2019, the Louisiana Supreme Court found that the prescriptive period for bringing claims under La. R.S. 22:1973 for breach of the duty of good faith to an insured is 10 years. The case is Smith v. Citadel Ins. Co., docket No. 2019-CC-00052 in the supreme court. This resolves a circuit split in the Louisiana appellate courts and confusion in federal courts as to which prescriptive period to apply to the statute, which doesn’t state a prescriptive period.

In the present case, the case arose from an insurance company’s failure to settle a car accident case within limits, leading to an excess judgment against the insured. The insured assigned her bad faith claim to the plaintiff. The supreme court found the claim could be validly assigned. The district court overruled the insurance company’s exception of prescription and the first circuit court of appeal refused to exercise its supervisory jurisdiction. The supreme court granted writs to settle the issue.

The court found that the statute, passed in 1970, was merely the codification of a pre-existing obligation on the part of the insurance company that arises from the contract of insurance, as well as the fiduciary obligation of the insurance company to act in the best interests of the insured. Under Louisiana law, both breach of fiduciary duty and breach of contract are subject to 10-year prescriptive periods.

The supreme court suggested that policy concerns weigh in favor of a 10-year prescriptive period. Allowing longer for an insured to investigate insurance company bad faith discourages bad behavior on the part of insurance companies, encourages settlements, and prevents meritless bad faith suits that must be brought too soon less they be waived forever.