Insurer Not Waive Defenses by Payment of Prior Claim, Says Supreme Court
The Louisiana Supreme Court recently held that an insurer’s waiver of its defenses in a prior claim does not waive the insurer’s defenses in a subsequent claim.
Years ago, the Louisiana Supreme Court ruled that an insurer waives its right to assert coverage defenses by assuming and continuing its insured’s defense after the insurer has facts suggesting a right to deny coverage. Steptore v. Masco Constr. Co., 643 So.2d 1213 (La. 1994). In the well-known Steptore decision, the Supreme Court held that “when an insurer, with knowledge of facts indicating noncoverage under the insurance policy, assumes or continues the insured’s defense without obtaining a nonwaiver agreement to reserve its coverage defense, the insurer waives such policy defense.” Id. at 1217.
In the Supreme Court’s recent decision in Forvendel v. State Farm Mutual Automobile Insurance Co., 2017-2074 (La. 6/27/18), the plaintiff was injured in a 2013 automobile accident. He recovered the limits of his own uninsured motorist coverage from State Farm. The plaintiff, who lived with his mother, also sought to recover from her UM policy. State Farm denied this claim under Louisiana’s anti-stacking statute, La.R.S. 22:1295. This statute generally prohibits recovery from two UM policies. However, at trial, the plaintiff offered evidence concerning a 2007 automobile accident in which State Farm allowed him to recover benefits under both his own policy and his mother’s policy. However, State Farm introduced evidence that the payment from both policies for the 2007 accident was made in error.
The trial court ruled in favor of the plaintiff. In reasons for judgment, the trial court wrote that “State Farm previously interpreted the agreement between the parties to cover plaintiff under his mother’s UM policy, and this fact can be considered by the Court in interpreting the agreement between the parties in effect at the time of the 2013 accident.” The court of appeal affirmed.
Recognizing that “we have not had occasion to address this precise issued,” the Supreme Court reversed the lower courts. The Court distinguished the facts in the subject case from those in Steptore. “Steptore involved a waiver based on the actions of the insurer during the course of a single proceeding. In sharp contrast to those facts, the plaintiff in the instant case is seeking to rely on the insurer’s actions which occurred in connection with a prior 2007 claim to find a waiver occurred in the context of the current 2013 claim.”
In finding no waiver occurred, the Supreme Court cited the decision of the U.S. Fifth Circuit Court of Appeals in American International Specialty Lines Ins. Co. v. Canal Indemnity Co., 352 F.3d 254 (5th Cir. 2003). In American International, the Fifth Circuit ruled that “an insurer does not, by virtue of making a payment on a claim, waive the right to assert coverage defenses to a subsequent claim.” The Fifth Circuit relied on Louisiana Civil Code Articles 2299 through 2305 in reaching its decision. The articles govern recovery of payments made to another in error.
Applying the reasoning of the Fifth Circuit to the dispute before it, the Supreme Court held that “any purported waiver by State Farm of its defenses with regard to the 2007 claim cannot constitute a waiver with regard to the current claim.” The Court added that “[a]ccepting plaintiff’s argument would result in the absurd conclusion that State Farm is forever precluded from raising the anti-stacking defense in any future claim filed by plaintiff.”
This decision by the Louisiana Supreme Court is favorable for insurers. Considering the penalties and other pressures that insurers face to encourage them to promptly pay claims, a mistaken payment, or a decision to pay a claim in a close case, should not bind an insurer in a subsequent claim.