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LINDA REED VERSUS LOUISIANA CITIZENS PROPERTY INSURANCE CORPORATION D/B/A LOUISIANA CITIZENS COASTAL PLAN

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NO. 2007-CA-1592 COURT OF APPEAL FOURTH CIRCUIT STATE OF LOUISIANA

CANNIZZARO, J., DISSENTS AND ASSIGNS REASONS

I respectfully dissent from the imposition of penalties against the defendant, Louisiana Citizens Property Insurance Corporation ("LCPIC"). Pretermitting the issue of the retroactivity of La. R.S. 22:658, it is my conclusion that LCPIC is immune from the assessment of statutory penalties. In support, I reassert and rely on the reasons articulated in my dissent in Orellana v. La. Citizens Property Ins. Corp., 07-1095, (La. App. 4 Cir. 12/5/07), 2007 WL 4446934, __ So.2d __, writ pending consideration, 08-0041. Under Louisiana law, it is undisputed an insured or claimant cannot recover penalties for an insurance carrier's failure to settle an insurance claim, except in the limited circumstances provided by statute. The penalty provision at issue in these proceedings is La. R.S. 22:658. In contrast, the cause of action for penalties in Orellana was premised on La. R.S. 22:1220. In Boudreaux v. State Farm Mutual Ins. Co., 04-1339, pp. 3-4, (La. App. 4 Cir. 2/2/05), 896 So.2d 230, 233, this court addressed the close relationship between the conduct prohibited in La. R.S. 22:658 and La. R.S. 22:1220: The prohibited conduct under these two statutes is virtually identical: "the failure to timely pay a claim after receiving satisfactory proof of loss when that failure to pay is arbitrary, capricious, or without probable cause." Reed v. State Farm Mutual Ins. Co., 03-0107, p. 12 (La. 10/21/03), 857 So.2d 1012, 1020 (citing Calogero v. Safeway Ins. Co. of La., 99-1625, p. 7 1

(La. 1/19/00), 753 So.2d 170, 174.). The primary difference between these two statutes is the different time periods allowed for payment-thirty days under La. R.S. 22:658 and sixty days under La. R.S. 22:1220. Id. Because these two statutes are penal in nature, they are to be strictly construed. [cites omitted] Based on the inherent similarities of these penal provisions, the same legal principles are pertinent to their respective applications. Thus, my reliance on my dissent in Orellana for the principle that LCPIC is immune from statutory penalties is appropriate under the facts. In the devastating aftermath of Hurricanes Katrina and Rita, the Louisiana Legislature sought to provide long-term economic stability and orderly growth and development to Louisiana, with an emphasis on the coastal areas. See, La. R.S. 22:1430. In order to effectuate such, it immediately responded to the resulting insurance crisis. Specifically, the Legislature acknowledged its obligation to

provide assistance to the innumerable Louisiana residents unable to procure homeowner's property coverage in the volatile insurance market. Id. Through the amendment and re-enactment of La R.S. 22:1430, et. seq., entitled "Louisiana Citizens Property Insurance Corporation," the Legislature created the LCPIC, a nonprofit insurance company operating in a statutory residual market. La. R.S. 22:1430. Most notably, the Legislature confirmed in its threshold purpose statement that ". . . it is essential for the corporation to have maximum financial resources to pay claims following a catastrophic hurricane. . ." [Emphasis added.] Id. In furtherance of such, the Legislature instituted several measures to safeguard LCPIC's monetary resources,1 which included enacting La. R.S. 22:1430.5,

As stated, the Legislature took several statutory measures to guard LCPIC's financial resources. For instance, LCPIC and the interest on its debt obligations were expressly exempted from federal income taxation. LCPIC is also mandated to take all efforts to maintain its tax-free status. La. R.S. 22:1430 and 22:1430.5. Further, LCPIC is prohibited from declaring liquidation or bankruptcy, and obligated to retain any profits or excess reserves so as to offset any deficit incurred in the operation of the plan. La. R.S. 22:1430.6(E); La. R.S. 22:1430.20; and La. R.S. 22:1430(D)(4).

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entitled "Immunity from Liability." It provides: A. There shall be no liability on the part of and no cause of action of any nature shall arise against the Louisiana Insurance Rating Commission or any of its staff, or against the governing board of the Louisiana Citizens Property Insurance Corporation or anyone acting on behalf of the corporation or the plans, or against any servicing carrier or carriers, or against any assessable insurer, or against any participating insurance producer, or against the Department of Insurance or its representatives, for any action taken by them in the performance of their duties or responsibilities under this Subpart. B. Such immunity from liability does not apply to: (1) Any of the persons or entities listed in Subsection A hereof for any willful tort or criminal act. (2) The corporation, or insurance producers placing business with one of the plans, for breach of any contract or agreement pertaining to insurance coverage. (3) The corporation with respect to issuance or payment of debt. (4) Any assessable insurer with respect to any action to enforce such insurer's obligations to the corporation under this Subpart. [Emphasis added.] Pursuant to Paragraph (A), the exemption from liability applies to, among others, LCPIC and anyone acting on its behalf during the performance of their duties or responsibilities. Particularly, Paragraph (B) enumerates the exceptions to the grant of immunity, which does not include an exception from the immunity exemption for the imposition of penalties. Undoubtedly, the Louisiana Legislature did not intend to have an exception from the grant of immunity for the assessment of penalties. La. C.C. art. 9 ("When a law is clear and unambiguous and its

application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the legislature."). Moreover, public policy dictates that the imposition of penalties under La. R.S. 22:658 would contravene the Legislature's intent in protecting LCPIC's financial resources for payment of claims in the event of a future natural disaster. See, Sultana Corp. v. Jewelers Mut. Ins. Co., 03-0360 (La. 21/03/03), 860 So.2d

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1112 ("Principles of judicial interpretation of statutes are designed to ascertain and enforce the intent of the Legislature in enacting the statute. . . The fundamental question in all cases of statutory construction is legislative intent and the reasons that prompted the Legislature to enact the law. [Cites omitted; emphasis added])." As stated, La. R.S.22:658, as well as 22:1220(C), are penalty provisions allowing for the punishment of an insurance carrier for arbitrary and capricious behavior. It is undisputed the penal nature of the monetary assessment is to discourage certain types of misconduct by an insurance carrier. Sultana Corp. v. Jewelers Mut. Ins. Co., 860 So.2d at 1118. Nonetheless, there would be no disincentive effect with the assessment of penalties against LCPIC. It is a nonprofit insurance carrier, and does not operate in the traditional insurance and investment market. Rather, it is involuntarily subsidized by every Louisiana licensed insurer writing commercial and residential property insurance. La. R.S. 22:1430. Therefore, in the event the majority's imposition of a monetary penalty on LCPIC is upheld, the penalty would result in a direct assessment and surcharge on all the insurance carriers operating in the state of Louisiana. These insurers would, in turn, be compelled to impose a surcharge premium against its Louisiana policyholders to cover its deficit. As I reasoned in Orellana, since LCPIC is indirectly financed by the citizens of Louisiana, they would ultimately suffer the long-term effects of the assessment of penalties through their insurance premium increases. Based on such, the imposition of penalties would undoubtedly be in direct contravention of the Legislature's intention of providing economic stability and relief. Like in

Orellana, while I recognize the validity of the majority's argument relative to the punitive value of the imposition of penalties, I find the overriding expense to the already emotionally and financially taxed citizens of Louisiana to be unacceptable. For these reasons, I conclude the majority's award of $35,100 in penalties to be inappropriate under the facts. 4



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