Illinois Union Insurance Company v. Louisiana Health Service and Indemnity Company

Filing 231

ORDER: IT IS HEREBY ORDERED that Blue Cross's 115 Motion for Summary Judgment on Bad Faith and Illinois Union's 117 Motion for Summary Judgment on Bad Faith are DENIED. Signed by Judge Nannette Jolivette Brown on 6/12/2017. (mmv)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ILLINOIS UNION INSURANCE COMPANY

CIVIL ACTION

VERSUS

NO. 16-6604

LOUISIANA HEALTH SERVICE AND
INDEMNITY COMPANY

SECTION: “G”(2)

ORDER
Pending before the Court are Defendant Louisiana Health Service and Indemnity Company
d/b/a Blue Cross and Blue Shield of Louisiana’s (“Blue Cross”) “Motion for Summary Judgment
on Bad Faith”1 and Plaintiff Illinois Union Insurance Company’s (“Illinois Union”) “Motion for
Summary Judgment on Bad Faith.”2 Having reviewed the motions, the memoranda in support and
in opposition to each motion, the record, and the applicable law, the Court will deny both motions.
I. Background
A.

Factual Background
1.

The Policy at Issue

On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue
Cross.3 This matter involves the rights and obligations of Illinois Union under a Managed Care
Organization Errors and Omissions Liability Policy (“the Policy”) that it issued to Blue Cross for

1

Rec. Doc. 115.

2

Rec. Doc. 117.

3

Rec. Doc. 1.

1

the policy period of May 25, 2007, to January 1, 2009.4 In relevant part, the Policy states that
Illinois Union “shall pay on behalf of any insured any Loss which [Blue Cross] is legally obligated
to pay as a result of any Claim that is first made against the Insured during the Policy
Period . . . . ”5 Loss is defined to include “Defense Expenses and any monetary amount that an
Insured is legally obligated to pay as a result of a Claim . . . .”6 The Policy states that loss does not
include, inter alia: “fees, amounts, benefits, obligations or coverages owed under any contract with
any party . . ., health care plan or trust, insurance or workers compensation policy or plan or
program of self insurance;” “non-monetary or equitable relief or redress in any form;” and “matters
which are uninsurable” under Louisiana law.7 Additionally, the Policy contains a consent to settle
clause requiring the insured to obtain the insurer’s written consent before settling a claim, as well
as a cooperation clause requiring the insured to provide the insurer with “all information, assistance
cooperation that the Insurer reasonably requests.”8
2.

The Underlying Action

In this action, Illinois Union seeks a declaration as to the extent of its obligation to Blue
Cross with respect to a settlement reached by Blue Cross with Omega Hospital, LLC (“Omega”)
in a separate lawsuit filed by Omega against Blue Cross in state court (“the Omega Lawsuit” or
“the underlying action”). 9 In the Omega Lawsuit, Omega alleged that Blue Cross engaged in

4

Id. at 3.

5

Rec. Doc. 118-5 at 8.

6

Id. at 9.

7

Id. at 10. The parties do not dispute that Louisiana law applies to the instant dispute.

8

Id. at 16.

9

Rec. Doc. 1 at 1.

2

“systematic, sophisticated, and intentional conduct to avoid paying Omega” for services rendered
to patients who were owed benefits, obligations, or coverage under Blue Cross health care plans.10
Specifically, Omega alleged five causes of action: (1) violation of Louisiana’s Unfair Trade
Practices Act (“LUTPA”); (2) fraud; (3) negligent misrepresentation; (4) detrimental reliance; and
(5) unjust enrichment.11
Illinois Union alleges that Blue Cross settled the underlying action without Illinois Union’s
consent in violation of the Policy’s requirement that Blue Cross obtain Illinois Union’s written
consent to settle in order to obtain coverage.12 Illinois Union further alleges that even if Blue
Cross’s unilateral settlement did not violate the Policy’s written consent requirement, coverage is
precluded under the Policy because contractual damages of this kind do not constitute covered
“loss” under the Policy.13
B.

Procedural Background
On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue

Cross.14 On July 7, 2016, Blue Cross filed a counterclaim against Illinois Union for a declaration
that Illinois Union must indemnify Blue Cross for costs incurred to defend and settle the Omega
Lawsuit.15 Blue Cross also brings counterclaims for breach of contract and statutory bad faith
pursuant to Louisiana Revised Statute § 22:1973.16

10

Id. at 2.

11

Rec. Doc. 1-2 at 8–11.

12

Id. at 9.

13

Id. at 10.

14

Rec. Doc. 1.

15

Rec. Doc. 11.

16

Id.

3

On April 11, 2017, Blue Cross filed its currently pending motion for summary judgment
on bad faith.17 On April 18, 2017, Illinois Union filed an opposition to the motion.18
On April 11, 2017, Illinois Union filed its currently pending motion for summary judgment
on bad faith.19 On April 18, 2017, Blue Cross filed an opposition to the motion.20 With leave of
Court, Illinois Union filed a reply in further support of the motion for summary judgment on April
28, 2017.21
II. Parties’ Arguments
A.

Blue Cross’s Motion for Summary Judgment on Bad Faith
Blue Cross moves for summary judgment in its favor with respect to Count III of its

counterclaims seeking damages resulting from Illinois Union’s bad faith handling of Blue Cross’s
claim and bad faith denial of coverage of the settlement in the underlying action pursuant to
Louisiana Revised Statute § 22:1973.22
1.

Blue Cross’s Arguments in Support of the Motion for Summary Judgment

First, Blue Cross argues that Illinois Union failed to indemnify Blue Cross for damages
resulting from covered claims.23 According to Blue Cross, it was a “foregone conclusion” that
Illinois Union would deny coverage for the settlement of the underlying action.24 Blue Cross

17

Rec. Doc. 115.

18

Rec. Doc. 141.

19

Rec. Doc. 117.

20

Rec. Doc. 148.

21

Rec. Doc. 174.

22

Rec. Doc. 115-1 at 17.

23

Id. at 11.

24

Id.

4

represents that Illinois Union’s claims handler admitted in her testimony that she did not consider
whether the damages in the underlying action represented something other than benefits owed
under a health insurance plan. 25 Blue Cross also asserts that the the head of Illinois Union’s
medical risk claims department, Anthony Pizzonia (“Pizzonia”), admitted that: damages awarded
under LUTPA do not constitute benefits owed under a contract; damages sought under fraud or
detrimental reliance were separate from benefits owed under a contract; and negligent
misrepresentation may be a covered cause of action.26 According to Blue Cross, Illinois Union
failed to conduct “even the most rudimentary coverage analysis,” and the admissions of Illinois
Union’s employees are sufficient to establish bad faith claims handling as a matter of law.27
Next, Blue Cross argues that Illinois Union withheld its written consent to the settlement
in the underlying action in bad faith.28 According to Blue Cross, Illinois Union’s refusal to grant
consent where Blue Cross faced significant risks in the underlying action was unreasonable and
left Blue Cross free to settle the case.29
Next, Blue Cross contends that despite Illinois Union’s decision at the outset of the
underlying action to deny coverage, Illinois Union nevertheless continued in bad faith to demand
Blue Cross’s cooperation. 30 Blue Cross asserts that Illinois Union’s decision not to set an
indemnity reserve at any time since being notified of Blue Cross’s claim, as well as Illinois Union’s

25

Id. (citing Rec. Doc. 115-9 at 2).

26

Id.

27

Id. at 12.

28

Id.

29

Id. at 13.

30

Id.

5

claims handler’s statements, indicate that Illinois Union always intended to deny coverage. 31
However, Blue Cross argues that Illinois Union continued to press Blue Cross for cooperation.32
According to Blue Cross, Illinois Union’s failure to unequivocally convey its denial of coverage
constitutes a misrepresentation of pertinent facts, which is expressly prohibited by Louisiana
Revised Statute § 22:1973.33 Moreover, Blue Cross contends, Illinois Union’s failure to inform
Blue Cross of its intention to deny coverage and to allow Blue Cross to settle the underlying action
constitutes a failure by Illinois Union to treat Blue Cross’s interests with the same consideration
as its own, as required by Louisiana law. 34 According to Blue Cross, even if Illinois Union
believed that some portion of the underlying claims were excluded from coverage, this did not
entitle Illinois Union to assert a blanket denial of coverage.35
Next, Blue Cross argues that Illinois Union’s requests for privileged defense and liability
analyses related to the underlying action, as well as Illinois Union’s admission that it intended to
supply its coverage counsel with privileged communications regarding the underlying action,
constitute evidence of bad faith conduct.36 Blue Cross further contends that Illinois Union failed,
in bad faith, to split its claims file between liability and coverage issues.37
Next, Blue Cross argues that Illinois Union failed to fulfill its affirmative duty under
Section 22:1973 to adjust claims fairly and promptly and to perform a diligent, independent

31

Id. (citing Rec. Doc. 115-9 at 2).

32

Id. at 14.

33

Id.

34

Id.

35

Id. at 15.

36

Id. (citing Rec. Doc. 116-9 at 2).

37

Id.

6

investigation of the claims in the underlying action.38 Blue Cross asserts that Illinois Union’s
employees acknowledged that they failed to independently review and evaluate each of the
individual claims asserted against Blue Cross in the underlying action.39 According to Blue Cross,
Illinois Union repeatedly claimed that it needed additional information despite the fact that its
claims representative never engaged in any independent investigation of the underlying action.40
Blue Cross asserts that Pizzonia testified that he never attempted to access the state court’s docket
to obtain relevant documents from the underlying action and that he acknowledged receipt of the
summary judgment motions in the underlying action but never read them.41 Accordingly, Blue
Cross contends that it is entitled to summary judgment on its counterclaim for bad faith under
Section 22:1973.
2.

Illinois Union’s Opposition to Blue Cross’s Motion for Summary Judgment

In opposition, Illinois Union argues that disputes exist as to: (1) whether Illinois Union
denied coverage; and (2) whether Illinois Union always intended to deny coverage for the claims
asserted against Blue Cross in the underlying action.42 Illinois Union contends that while Illinois
Union issued reservation of rights letters to Blue Cross advising that Illinois Union was reserving
its right to deny coverage, it never advised Blue Cross that coverage was denied.43 According to
Illinois Union, a reservation of rights letter does not constitute a denial of coverage.44

38

Id. at 16.

39

Id. (citing Rec. Doc. 116-9 at 2).

40

Id. at 17.

41

Id. (citing Rec. Doc. 115-9 at 2).

42

Rec. Doc. 141 at 2.

43

Id.

44

Id. (citing Mosadegh v. State Farm Fire and Cas. Co., 330 F. App’x 65 (5th Cir. 2009)).

7

As to witness testimony, Illinois Union asserts that Pizzonia actually testified that Illinois
Union did not deny coverage but reserved its rights and continued to investigate.45 Illinois Union
points to the testimony of Pizzonia, in which Illinois Union represents that he stated that Illinois
Union was never looking to deny coverage.46 Likewise, Illinois Union argues that the claims
handler in this case stated that she asked Blue Cross for an assessment of damages in an attempt
to find coverage if there was any.47
Illinois Union next argues that the opinions of Blue Cross’s expert on bad faith are
conclusory and not based in fact.48 As an example, Illinois Union contends that bad faith cannot
be inferred from its decision not to establish an indemnity reserve amount, because Pizzonia
explained in his deposition that Illinois Union was never provided with sufficient information to
establish an indemnity reserve amount.49 Moreover, Illinois Union argues that Blue Cross’s in
house counsel testified that he could not recall whether Blue Cross set its own reserves for the
Omega suit.50 Illinois Union further contends that Blue Cross offers no credible evidence of any
misrepresentation by Illinois Union and cannot carry its burden to show that Illinois Union acted
arbitrarily.51
Illinois Union next argues that it has asserted a coverage position based on a good faith
dispute as to the applicability of coverage for the claims in the underlying action and that it cannot

45

Id. (citing Rec. Doc. 141-2 at 74).

46

Id. (citing Rec. Doc. 141-2 at 275).

47

Id. at 4–5 (citing Rec. Doc. 117-11).

48

Id. at 5.

49

Id. (citing Rec. Doc. 141-2 at 192).

50

Id. at 6 (citing Rec. Doc. 117-5).

51

Id.

8

be found to be in bad faith as a result.52 Illinois Union asserts that Blue Cross mischaracterized
the claims handler’s testimony as to Blue Cross’s claim.53 In context, Illinois Union argues, it is
clear that the claims handler did not disregard Omega’s causes of action but rather needed more
information than what was presented in Omega’s petition in order to make a coverage
determination. 54 Illinois Union argues that Blue Cross’s reliance on Pizzonia’s testimony is
similarly misplaced.55
Illinois Union next argues that the facts and circumstances of the mediation in the
underlying suit do not support a finding of bad faith.56 According to Illinois Union, its refusal to
fund the settlement was not arbitrary or capricious, but instead reflects its position that Blue Cross
had not provided sufficient information to warrant more than a contribution on a cost of defense
basis.57 Illinois Union asserts that Blue Cross’s in house counsel testified that Blue Cross intended
to settle the underlying action regardless of Illinois Union and that settlement authority was
authorized at a Blue Cross emergency board meeting within two weeks of the mediation.58 Illinois
Union contends that its offer to contribute $500,000 in defense costs was made in good faith in
light of the outstanding coverage issues and Blue Cross’s representations that it had been
negotiating with its own money.59 Illinois Union avers that Blue Cross improperly focuses on only

52

Id.

53

Id. at 7.

54

Id. (Rec. Doc. 117-11 at 57).

55

Id.

56

Id. at 10.

57

Id.

58

Id. at 11 (citing Rec. Doc. 117-5; Rec. Doc. 141-4).

59

Id.

9

one factor, i.e. the potential for excess liability, to the exclusion of other considerations identified
by the Louisiana Supreme Court in identifying bad faith claims.60
Next, Illinois Union contends that it did not engage in bad faith discovery.61 Illinois Union
argues that it never denied or intended to deny coverage and that Pizzonia testified that Illinois
Union requested factual information from Blue Cross, not privileged information.62 Illinois Union
notes that none of Blue Cross’s representatives objected to Illinois Union’s requests and that
Illinois Union did not retain coverage counsel until March 2016, after the underlying action had
been ongoing for five years.63
Illinois Union next argues that it acted reasonably to split its claims file.64 Specifically,
Illinois Union states that Pizzonia testified that Illinois Union did not split its claims file until the
mediation because there was no perceived conflict between Illinois Union and Blue Cross until
that time.65 Moreover, Illinois Union avers, it fulfilled its affirmative adjustment duties under
Section 22:1973. 66 Illinois Union contends that it diligently sought information about the
underlying action and its potential coverage obligations but that Blue Cross failed to provide
substantive information about Blue Cross’s potential liability.67
Finally, Illinois Union objects to the admissibility of Blue Cross’s expert report of James

60

Id. at 11–12 (citing Kelly v. State Farm Fire & Cas. Co., 169 So.3d 328 (La. 2015)).

61

Id. at 12.

62

Id. (citing Rec. Doc. 141-2 at 80).

63

Id. at 13.

64

Id.

65

Id. (citing Rec. Doc. 141-2 at 76).

66

Id. at 14.

67

Id.

10

Schratz on summary judgment.68 Illinois Union objects to the report, because it asserts that Blue
Cross has not established: (1) that the coverage afforded by an insurance policy or whether an
insurer acted in bad faith are properly the subject of expert interpretation; (2) that Schratz is
qualified as an expert; (3) that Schratz’s opinions are reliable; and (4) that Schratz’s testimony will
provide helpful information to the Court in determining the instant legal issue.69 Additionally,
Illinois Union contends that the expert report is irrelevant and constitutes hearsay.70
B.

Illinois Union’s Motion for Summary Judgment on Bad Faith
1.

Illinois Union’s Arguments in Support of the Motion for Summary Judgment

In support of its motion for summary judgment, Illinois Union asserts that the insured has
the burden of proving that an insurer acted in bad faith.71 To meet its burden, Illinois Union states
that Blue Cross must show that Illinois Union violated Section 22:1973 either by: (1) failing to
adjust Blue Cross’s claim fairly and promptly; or (2) failing to make a reasonable effort to settle
the claim.72 Additionally, Illinois Union asserts that Blue Cross must show that Illinois Union’s
conduct was arbitrary and capricious.73
Illinois Union argues that it had a reasonable basis for its reservation of rights.74 Illinois
Union notes that Illinois Union’s claims handler testified that the initial complaint in the

68

Id. at 15.

69

Id.

70

Id. at 16.

71

Rec. Doc. 117-1 at 6 (citing Matthews v. Allstate Ins. Co., 731 F.Supp.2d 552, 567 (E.D. La. 2010)).

72

Id. (citing Kelly v. State Farm Fire & Cas. Co., 169 So.3d 328, 340 (La. 2015)).

73

Id. at 7 (citing Dickerson v. Lexington Ins. Co., 556 F.3d 290, 299 (5th Cir. 2009)).

74

Id. at 8.

11

underlying action did not contain enough information to make a coverage determination.75 Illinois
Union asserts that its requests for information and cooperation were not arbitrary, as the Policy
expressly requires that Blue Cross cooperate, and that Blue Cross’s counsel acknowledged a duty
of cooperation.76 Moreover, Blue Cross asserts that its claims handler testified that Illinois Union
sought information for the purpose of finding, not denying, coverage. 77 According to Illinois
Union, Pizzonia also testified that Illinois Union was seeking facts concerning liability issues and
substantiation of damages.78
Next, Illinois Union argues that the undisputed facts in the record indicate that it
affirmatively investigated the Omega claims in the underlying action.79 Illinois Union asserts that
it made 15 requests to Blue Cross regarding the underlying action and that it specifically requested
that Blue Cross carbon copy Illinois Union on substantive reports or provide defense counsel’s
analysis of liability, damages, and apportionment.80 Illinois Union contends that it also sought to
have teleconferences with Blue Cross regarding the underlying action.81 According to Illinois
Union, Blue Cross did not provide it with a liability/damages analysis until March 23, 2016, when
Blue Cross’s in house counsel wrote to Illinois Union opining that the case was “winnable” and
attaching a memorandum prepared by Blue Cross’s defense counsel.82 Illinois Union contends

75

Id. (citing Rec. Doc. 117-11).

76

Id. at 9 (citing Rec. Doc. 117-5 at 131).

77

Id. (citing Rec. Doc. 117-5 at 57, 169).

78

Id.

79

Id. at 10.

80

Id. (citing Rec. Doc. 117-44; Rec. Doc. 117-2).

81

Id. at 11 (citing Rec. Doc. 117-33).

82

Id. at 12 (citing Rec. Doc. 117-53).

12

that Blue Cross’s defense counsel’s opinion contradicted that of Blue Cross’s in house counsel, as
he advised in the memorandum that there was a risk of a jury verdict of $10 million or higher.83
When Illinois Union attempted to clarify the basis for Blue Cross’s in house counsel’s opinion,
Illinois Union asserts that Blue Cross simply provided a motion for summary judgment, which did
not assist in resolving any coverage issues.84
According to Illinois Union, only two days before the mediation, counsel for Blue Cross
and Illinois Union exchanged multiple emails regarding the scheduling of a conference call and
Illinois Union’s outstanding request for an evaluation of damages in the underlying action. 85
Illinois Union avers that Blue Cross counsel advised that she would follow up with her client but
that it never heard any further information. 86 Thus, Illinois Union contends that Blue Cross
requested Illinois Union’s attendance at a mediation with just five days’ notice with authority to
settle for policy limits, based on only a motion for summary judgment and correspondence from
Blue Cross presenting contradictory views of the underlying action.87 According to Illinois Union,
it offered to contribute $500,000 to the settlement on a cost of defense basis, which Blue Cross
refused, and Illinois Union rejected Blue Cross’s demand for the Policy limits.88
Illinois Union argues that its refusal to tender the Policy limits was not arbitrary or
capricious, but rather based on a reasonable coverage position.89 Illinois Union contends that all

83

Id. (citing Rec. Doc. 117-54).

84

Id. at 13.

85

Id. at 15 (citing Rec. Docs. 117-74, 117-76).

86

Id. (citing Rec. Doc. 117-75).

87

Id. at 15–16.

88

Id. at 16 (citing Rec. Doc. 117-78).

89

Id. at 17.

13

of the factors articulated by the Louisiana Supreme Court to evaluate an insurer’s reasonable
efforts to settle a claim weigh against a finding of bad faith here.90 Moreover, Illinois Union
asserts, it accepted and fulfilled its obligation to reimburse Blue Cross for its defense costs in
excess of the self-insured retention.91
Finally, Illinois Union argues that the specific allegations set forth in its counterclaim
regarding bad faith are not supported by the evidence. First, Illinois Union contends that Blue
Cross has offered no evidence that Illinois Union was dishonest in handling the underlying claim.92
Second, Illinois Union argues that there is no evidence that Illinois Union put its interests above
that of its insured, because Illinois Union asserts, it never denied coverage and acted in accordance
with the Policy.93 Third, Illinois Union argues that it participated in the mediation and complied
with its affirmative duty under Section 22:1973 to make reasonable settlement efforts.94 Fourth,
Illinois Union asserts that it filed the instant lawsuit for a facially valid purpose, i.e. to determine
the extent of its coverage obligations, if any.95 Fifth, Illinois Union asserts that it was reasonable
in refusing to tender the Policy limits.96 Sixth, Illinois Union argues that it made good faith efforts
to settle the claims against Blue Cross. 97 Seventh, Illinois Union argues that it did not deny

90

Id. (citing Kelly v. State Farm Fire & Cas. Co., 169 So.3d 328, 340 (La. 2015)).

91

Id. at 18.

92

Id.

93

Id. at 18–19 (citing Rec. Doc. 117-78).

94

Id. at 19.

95

Id.

96

Id.

97

Id. at 20.

14

coverage but reserved its rights under the Policy. 98 Finally, Illinois Union contends that the
allegation that Illinois Union did not respond promptly to Blue Cross’s written or oral
communications regarding settlement demands and offers is disingenuous, because the sole
settlement demand that Blue Cross communicated to Illinois Union was at the mediation.99
2.

Blue Cross’s Arguments in Opposition to Illinois Union’s Motion

In opposition, Blue Cross argues that it has made a showing of bad faith based on the
testimony of Illinois Union’s employees, which demonstrates the lack of diligence exercised by
Illinois Union in adjusting Blue Cross’s claim in the underlying action. 100 Thus, Blue Cross
argues, Illinois Union must rebut Blue Cross’s showing and cannot do so by simply referencing
Blue Cross’s duty to cooperate.101 Blue Cross further contends that Illinois Union cannot establish
that it did not act in bad faith as a matter of law by showing that it took any positive action, as such
a low standard would contradict Louisiana case law establishing that an insurer must act with its
insured’s best interests in mind.102
Blue Cross next argues that Illinois Union did not have a reasonable basis for refusing to
fund the settlement in the underlying action.103 Blue Cross argues that Illinois Union employee
Pizzonia’s testimony that some of the claims in the underlying action may have been covered
stands in “stark contrast” to Illinois Union’s consistent denial of coverage.104 According to Blue

98

Id.

99

Id.

100

Rec. Doc. 148 at 8.

101

Id.

102

Id. (citing Kelly, 169 So.3d at 338).

103

Id. at 9.

104

Id. (citing 148-1).

15

Cross, the failure of Illinois Union to conduct a basic coverage analysis precludes a finding that
Illinois Union had a reasonable basis for reserving its right to deny coverage.105
Next, Blue Cross asserts that it provided regular status updates to Illinois Union throughout
the underlying action.106 Blue Cross also points to Illinois Union’s claims handler’s testimony that
she had teleconferences with Blue Cross to discuss the status of the claim and that they were
helpful.107 According to Blue Cross, Illinois Union’s failure to unequivocally convey its denial of
coverage, despite its intention to deny coverage, constitutes a misrepresentation of pertinent facts
prohibited by Section 22:1973.108
As to the duty to cooperate, Blue Cross asserts that it was not required to provide privileged
analyses of liability or damages to Illinois Union and at any rate, that Blue Cross informed Illinois
Union that it did not have any such analyses. 109 Moreover, Blue Cross contends that Illinois
Union’s communications to Blue Cross that there was no coverage for the claims asserted against
Blue Cross in the underlying action constituted a material breach of the policy and relieved Blue
Cross of its obligation to cooperate with Illinois Union.110 Blue Cross further argues that even if
its refusal to provide Illinois Union with privileged liability and damages analyses constituted a
breach of the cooperation clause, any such breach was not material and would therefore not relieve
Illinois Union from its obligations under the Policy.111

105

Id.

106

Id. at 10–11.

107

Id. at 11 (citing Rec. Doc. 148-3).

108

Id. at 11–12.

109

Id. at 12–13 (citing Rec. Doc. 148-22).

110

Id. at 14. (citing Rec. Doc. 148-3).

111

Id. at 14–15 (citing Williams v. Lowe, 831 So.2d 334, 336 (La. App. 5 Cir. 10/16/02)).

16

Next, Blue Cross argues that demanding information from an insured does not satisfy
Illinois Union’s affirmative duty to investigate and adjust claims in good faith.112 Blue Cross
maintains that the filings in the underlying suit were readily available to Illinois Union and that
Illinois Union had a duty to independently investigate the claims in the underlying action. 113
According to Blue Cross, Illinois Union had enough information to determine whether there was
coverage available for the underlying claims and its assertion of a lack of information fails to
establish that it is entitled to judgment as a matter of law.114 Blue Cross further argues that Illinois
Union did not make reasonable efforts to settle the underlying action and unreasonably withheld
consent, despite the risks that Blue Cross faced if it were to go to trial.115
Finally, Blue Cross asserts that Illinois Union has not shown that it did not act in bad faith
pursuant to the five factors set forth by Louisiana Supreme Court for determining whether an
insurer acted in bad faith.116 Rather, Blue Cross argues, Illinois Union simply states that Blue
Cross failed to provide sufficient analyses to evaluate the claims.117 Because, Blue Cross contends,
this assertion is without factual support, Illinois Union’s motion for summary judgment should be
denied.118
3.

Illinois Union’s Reply in Further Support of the Motion to Dismiss

In reply, Illinois Union contends that Blue Cross does not address the correct legal standard

112

Id. at 15.

113

Id. at 16.

114

Id. at 17.

115

Id. at 17–18.

116

Id. at 18 (citing Kelly, 169 So.3d at 340).

117

Id. at 19.

118

Id.

17

for bad faith, because it fails to recognize that the insured must bear the burden of demonstrating
that Illinois Union’s conduct was arbitrary, capricious, or without probable cause.119 Illinois Union
argues that Blue Cross incorrectly applies the factors established by the Louisiana Supreme Court
in Kelly v. State Farm Fire & Casualty Company to make a general determination of bad faith on
the part of the insurer but that those factors are limited to analyzing whether an insurer acted in
bad faith only with regard to its settlement efforts.120 According to Illinois Union, the undisputed
facts in the record indicate: (1) that Illinois Union had a good faith basis for its coverage position
and handing of Blue Cross’s claim; and (2) that it had a good faith basis to refuse to fund the
settlement with Omega.121
Illinois Union contends that Blue Cross, as the insured, bears the burden of demonstrating
that an incident falls within the Policy’s terms and that Blue Cross’s failure to provide sufficient
information regarding the underlying action to Illinois Union bars its bad faith claim.122 Illinois
Union asserts that it was never seeking privileged information from Blue Cross and that Blue
Cross, a sophisticated insurer, could have provided non-privileged information to Illinois Union
to demonstrate coverage of its claims but failed to do so.123
III. Law and Analysis
A.

Legal Standard for Summary Judgment
Summary judgment is appropriate when the pleadings, the discovery, and any affidavits

119

Rec. Doc. 174 at 1–2.

120

Id. at 2 (citing 169 So.3d at 340).

121

Id. at 3.

122

Id. at 3–4.

123

Id. at 5.

18

show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.”124 When assessing whether a dispute as to any material fact exists, the court
considers “all of the evidence in the record but refrains from making credibility determinations or
weighing the evidence.”125 All reasonable inferences are drawn in favor of the nonmoving party,
but “unsupported allegations or affidavits setting forth ‘ultimate or conclusory facts and
conclusions of law’ are insufficient to either support or defeat a motion for summary judgment.”126
If the record, as a whole, “could not lead a rational trier of fact to find for the non-moving party,”
then no genuine issue of fact exists and the moving party is entitled to judgment as a matter of
law.127 The nonmoving party may not rest upon the pleadings, but must identify specific facts in
the record and articulate the precise manner in which that evidence establishes a genuine issue for
trial.128
The party seeking summary judgment always bears the initial responsibility of informing
the Court of the basis for its motion and identifying those portions of the record that it believes
demonstrate the absence of a genuine issue of material fact.129 Thereafter, the nonmoving party
should “identify specific evidence in the record, and articulate” precisely how that evidence
supports his claims.130 To withstand a motion for summary judgment, the nonmoving party must

124
Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986); Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
125

Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398–99 (5th Cir. 2008).

126

Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); Little, 37 F.3d at 1075.

127

Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986).

128

See Celotex, 477 U.S. at 325; Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998).

129

Celotex, 477 U.S. at 323.

130

Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994), cert. denied, 513 U.S. 871 (1994).

19

show that there is a genuine issue for trial by presenting evidence of specific facts. 131 The
nonmovant’s burden of demonstrating a genuine issue of material fact is not satisfied merely by
creating “some metaphysical doubt as to the material facts,” “by conclusory allegations,” by
“unsubstantiated assertions,” or “by only a scintilla of evidence.” 132 Rather, a factual dispute
precludes a grant of summary judgment only if the evidence is sufficient to permit a reasonable
trier of fact to find for the nonmoving party. Hearsay evidence and unsworn documents that cannot
be presented in a form that would be admissible in evidence at trial do not qualify as competent
opposing evidence.133
B.

Louisiana Revised Statute § 22:1973
Louisiana Revised Statute § 22:1973 of the Louisiana Insurance Code states that an insurer

“owes to his insured a duty of good faith and fair dealing.”134 Section 22:1973(A) states the insurer
“has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to
settle claims with the insured or the claimant, or both.” 135 The statute then lists six acts that
constitute a breach of the insurer’s duties imposed in Subsection A if “knowingly committed or
performed by an insurer.”136
The six enumerated acts are:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to
any coverages at issue.

131

Bellard v. Gautreaux, 675 F.3d 454, 460 (5th Cir. 2012) (citing Anderson v. Liberty, 477 U.S. 242, 248–

49 (1996)).
132

Little, 37 F.3d at 1075.

133

Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549 (5th Cir. 1987); Fed. R .Civ. P. 56(c)(2).

134

La. Rev. Stat. § 22:1973(A).

135

Id.

136

La. Rev. Stat. § 22:1973(B).

20

(2) Failing to pay a settlement within thirty days after an agreement is reduced
to writing.
(3) Denying coverage or attempting to settle a claim on the basis of an
application which the insurer knows was altered without notice to, or
knowledge or consent of, the insured.
(4) Misleading a claimant as to the applicable prescriptive period.
(5) Failing to pay the amount of any claim due any person insured by the
contract within sixty days after receipt of satisfactory proof of loss from the
claimant when such failure is arbitrary, capricious, or without probable cause.
(6) Failing to pay claims pursuant to R.S. 22:1893 when such failure is
arbitrary, capricious, or without probable cause.137
The insured bears the burden of demonstrating that an insurer acted in bad faith. 138
Moreover, “the determination of whether the insurer acted in bad faith turns on the facts and
circumstances of each case.”139 Because Section 1973 is penal in nature, it should be strictly
construed. 140 If an insurer is found to violate Section 1973, “the claimant may be awarded
penalties assessed against the insurer in an amount not to exceed two times the damages sustained
or five thousand dollars, whichever is greater.”141

137

Id.

138

See Reed v. State Farm Mut. Auto. Ins. Co., 2003-0107 (La. 10/21/03), 857 So.2d 1012.

139

Smith v. Audubon Ins. Co., 95-2057 (La. 9/5/96), 679 So.2d 362, 377.

140

Kelly v. State Farm Fire & Cas. Co., 2014-1921 (La. 5/5/15), 169 So.3d 328. See also Durio v. Horace
Mann Ins. Co., 11-0084 (La. 10/25/11), 74 So.3d 1159, 1170.
141

La. Rev. Stat. § 22:1973(C).

21

C.

Analysis
In its motion for summary judgment, Blue Cross argues that it is entitled to summary

judgment on Count III of its counterclaims against Illinois Union for bad faith under Louisiana
Revised Statute § 22:1973.142 Illinois Union also argues that it is entitled to summary judgment
on Blue Cross’s counterclaim for bad faith.143 Because both parties request summary judgment on
the issue of bad faith, the Court will address the parties’ arguments together in turn.
As noted supra, Section 22:1973(A) states that an insurer “has an affirmative duty to adjust
claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the
claimant, or both.”144 The Louisiana Supreme Court has found that the insurer’s “obligation to act
in good faith is triggered by knowledge of the particular situation, which knowledge ‘[t]he insurer
has an affirmative duty’ to gather during the claims process.”145 In other words, an insurer has a
duty to conduct “a thorough investigation” and to consider “the evidence developed in the
investigation” when determining whether to settle or litigate.146
An insurer can be found liable under Section 22:1973(B)(1) “for misrepresenting or failing
to disclose facts,” even if those facts are not related to the insurance policy’s coverage. 147
Additionally, Section 22:1973(B)(5) establishes that an insurer can be found in breach of its duty

142

Rec. Doc. 115 at 1.

143

Rec. Doc. 117 at 1.

144

La. Rev. State. § 22:1973(A).

145

Kelly, 169 So.3d at 341 (citing La. Rev. Stat. § 22:1973).

146

See Smith, 679 So.2d at 377.

147

Kelly, 169 So.3d at 344.

22

of good faith if it fails to pay a claim within sixty days following receipt of satisfactory proof of
loss if the failure to pay is “arbitrary, capricious, or without probable cause.”148 “Arbitrary and
capricious” has been interpreted by the Louisiana Supreme Court to mean “vexatious,” and a
“vexatious refusal to pay means unjustified or without reasonable or probable cause or excuse.”149
“An insurer does not act arbitrarily and capriciously, however, when it withholds payment based
on a genuine (good faith) dispute about the amount of a loss or the applicability of coverage.”150
Ultimately, the determination of whether an insured acted in bad faith depends on the facts and
circumstances of a particular case.151
Here, Blue Cross argues that there are no genuine issues of material fact that Illinois Union
acted in bad faith. 152 In particular, Blue Cross argues that Illinois Union acted in bad faith,
because: (1) Illinois Union acted in bad faith in adjusting Blue Cross’s claim for coverage in the
underlying action; (2) Illinois Union failed to make a reasonable effort to settle the claim; (3)
Illinois Union failed to perform a diligent, thorough investigation of the underlying claims; (4)
Illinois Union withheld its written consent in bad faith; (5) Illinois Union misrepresented pertinent
facts; and (6) Illinois Union failed to indemnify Blue Cross for its covered damages in bad faith.153
In particular, Blue Cross points to Illinois Union’s claims notes stating that Illinois Union met with
a Blue Cross executive and “reiterated [its] coverage position that it does not appear that there are

148

La. Rev. Stat. §22:1973(B)(5).

149

Reed, 857 So.2d at 1021.

150
Dickerson v. Lexington Ins. Co., 556 F.3d at 299 (citing Calogero v. Safeway Ins. Co. of Louisiana, 19991625 (La. 1/19/00), 753 So. 2d 170, 174).
151

See id.

152

Rec. Doc. 115 at 1.

153

Rec. Doc. 115-1 at 11–16.

23

any covered claims as this is a claim for underpayment of medical benefits, which falls squarely
outside the loss definition of the policy.”154 Blue Cross further points to testimony of Illinois
Union’s claims handler in which she testified that there was no indemnity reserve established for
the underlying action, because Illinois Union “had always seen this as a defense expense case.”155
Blue Cross also points to the claims handler’s testimony that it was her position that there was no
coverage for any judgment or settlement in the Omega case and that this position was
communicated to Blue Cross verbally in 2014 and later by reservation of rights letters. 156
Additionally, Blue Cross points to the claims handler’s testimony that she sent a memo from Blue
Cross’s defense counsel in the underlying action to Illinois Union’s coverage counsel and avers
that this same coverage counsel represents Illinois Union in the instant action.157
Blue Cross notes that the conclusion that there was no coverage under the Policy, which
was communicated in reservation of rights letters, conflicts with the testimony of Pizzonia, head
of Illinois Union’s medical risk claims department, in which he testified that damages being sought
in connection with fraud were separate and apart from amounts owed under a contract and that a
LUTPA claim and a claim for negligent misrepresentation were causes of action separate from a
breach of contract claim.158
In support of its contention that Illinois Union did not properly investigate Blue Cross’s
claim, Blue Cross further points to Pizzonia’s testimony that he never made any effort to access

154

Rec. Doc. 115-4 at 2.

155

Id. at 5.

156

Id. at 6.

157

Id. at 8.

158

Rec. Doc. 115-6 at 6, 7.

24

the state court’s docket to obtain relevant documents from the underlying action and that he
acknowledged receipt of the summary judgment motion in the underlying action but never read it
in its entirety.159 Blue Cross notes that Pizzonia also testified that he knew there was a pressing
need to engage in mediation in the underlying action but never asked Blue Cross why that was the
case.160 In further support of its argument that Illinois Union did not properly handle Blue Cross’s
claim, Blue Cross points to Pizzonia’s testimony that Illinois Union did not split its file between
liability and coverage issues until it filed a declaratory judgment against Blue Cross.161
Finally, in support of its contention that Illinois Union withheld its written consent in bad
faith and failed to make reasonable efforts to settle, Blue Cross contends that Illinois Union
withheld consent even though trial was quickly approaching and Blue Cross had communicated to
Illinois Union that it faced potential damages in excess of Blue Cross’s available coverage.162 Blue
Cross also maintains that Illinois Union did not have a reasonable basis for refusing to pay the
Omega settlement in the underlying action, as some of the allegations in the underlying action
sounded in tort and Illinois Union failed to independently investigate each allegation in the
underlying petition, despite the cooperation of Blue Cross.163 In support of its contention that it
cooperated and provided sufficient information, Blue Cross points to correspondence in evidence
of its status updates to Illinois Union throughout the litigation. 164 Blue Cross also points to

159

Id. at 4, 10.

160

Id. at 11.

161

Id. at 3.

162

Rec. Doc. 1 at 6–7.

163

Rec. Doc. 148 at 8–9.

164

Rec. Docs. 148-8–148-17.

25

testimony of Pizzonia that indicates that he, as Illinois Union’s representative at the mediation,
was provided updates during the mediation and that Pizzonia did not object on behalf of Illinois
Union to the settlement offers extended by Blue Cross to Omega.165
By contrast, Illinois Union argues that there are no genuine issues of material fact that it
did not act in bad faith.166 In particular, Illinois Union argues that summary judgment in its favor
is proper, because : (1) Illinois Union properly handled Blue Cross’s claims and made reasonable
efforts to settle the claims, based on the knowledge it could develop about the claims at the time;
(2) Blue Cross failed to cooperate and to provide “meaningful substantive information” about Blue
Cross’s potential liability in the underlying action; and (3) the Policy provides no coverage for
Blue Cross’s damages in the underlying action.167 In support of its motion for summary judgment,
Illinois Union points to its claims handler’s testimony that the initial complaint in the underlying
action did not contain enough information to make a coverage determination.168 Illinois Union
notes that the claims handler also testified that Illinois Union’s requests for additional information
regarding the allocation of damages to specific claims in the underlying action was for the purpose
of finding coverage.169 Illinois Union also points to Pizzonia’s testimony that Illinois Union was
looking for facts regarding the liability issues and substantiation of damages.170
In support of its assertion that it fully, fairly, and promptly adjusted Blue Cross’s claims,

165

Rec. Doc. 115-6 at 12, 13.

166

Rec. Doc. 117 at 1.

167

Rec. Doc. 117-1 at 1–2.

168

Rec. Doc. 117-11 at 57.

169

Id. at 148.

170

Rec. Doc. 117-72 at 80, 82.

26

Illinois Union points to fifteen requests that it made to Blue Cross regarding the claims in the
underlying action.171 Additionally, Illinois Union notes that Blue Cross provided Illinois Union
with a copy of its motion for summary judgment in the underlying action almost five months after
it was filed and that Blue Cross’s counsel acknowledged in his deposition that the summary
judgment motion might have been generally responsive to Illinois Union’s requests for additional
information concerning liability damages in the underlying action.172
Illinois Union also points to correspondence from Blue Cross’s in-house counsel in which
he stated that he felt the underlying action was a “very winnable case,” as well as a memorandum
from Blue Cross’s defense counsel in which he advised that a jury verdict in excess of $10 million
was a possible risk.173 Additionally, Illinois Union points to its request for clarification as to these
contradictory assessments.174 Illinois Union also notes that only two days before the scheduled
mediation, it repeated its request for an evaluation of the damages in the underlying action but
avers that it never received a response to its request.175
In support of its assertion that it made reasonable efforts to settle the claims in the
underlying action, Illinois Union notes that it agreed to attend the mediation with only five days’
notice. 176 Illinois Union also points to the fact that it offered to contribute $500,000 to the
settlement on a cost of defense basis and that Blue Cross rejected the offer and demanded the

171

Rec. Docs. 117-10–117-39.

172

Rec. Doc. 117-58; Rec. Doc. 117-59; Rec. Doc. 117-5 at 201.

173

Rec. Docs. 117-53, 117-54.

174

Rec. Docs. 117-47.

175

Rec. Docs. 117-74, 117-76.

176

Rec. Doc. 117-64.

27

Policy’s limits.177 In support of its argument that Blue Cross intended to settle regardless of Illinois
Union’s contribution, Illinois Union points to Blue Cross’s counsel’s testimony that “[w]e were
going to settle the case” and that Illinois Union could have contributed but didn’t respond
reasonably to his request for the Policy limits.178 Finally, Illinois Union notes that Blue Cross
never made any other settlement demand aside from the demand for the Policy limits.179
Based on the foregoing, the Court finds that both parties have pointed to evidence to raise
disputes of material fact as to whether Illinois Union acted in bad faith under Louisiana Revised
Statute § 22:1973. Blue Cross and Illinois Union have each pointed to conflicting evidence
regarding Illinois Union’s affirmative duty to adjust claims fairly and make reasonable efforts to
settle under Section 22:1973(A). The Louisiana Supreme Court has articulated five non-exclusive
factors to consider in determining whether the insurer acted in bad faith with regards to its efforts
to settle a claim under the facts and circumstances of a particular case.180 The five factors are: (1)
the probability of the insured’s liability; (2) the extent of the damages incurred by the claimant;
(3) the amount of the policy limits; (4) the adequacy of the insurer’s investigation; and (5) the
openness of communications between the insurer and the insured.181 Here, as presented supra,
Blue Cross and Illinois Union have both pointed to conflicting evidence regarding the probability
of the insured’s liability, the extent of the damages incurred by Blue Cross, the adequacy of Illinois
Union’s investigation, and the openness of communications between Blue Cross and Illinois

177

Rec. Doc. 117-72 at 273.

178

Rec. Doc. 117-5 at 321–322.

179

Rec. Doc. 117-79.

180

Kelly, 169 So.3d at 340 (internal citation omitted).

181

Id.

28

Union.
Likewise, each of the parties has pointed to contradictory evidence as to whether Illinois
Union breached any of the enumerated duties in Section 22:1973(B) that would establish a bad
faith claim. For example, in support of its contention that Illinois Union failed to pay a claim within
sixty days after receiving satisfactory proof of loss in an arbitrary or capricious manner, Blue Cross
has pointed to testimony of Illinois Union’s employee suggesting that some of the causes of action
in the underlying petition were separate and apart from breach of contract182 and that Illinois
Union did not attempt to access the state court docket in the underlying action to conduct a
thorough investigation of the claims at issue.

183

By contrast, Illinois Union points to

correspondence suggesting that it requested an analysis of the damages allocated to claims in the
underlying action184 and testimony that Illinois Union’s employees requested analyses of damages
in the underlying action on multiple occasions in order to establish coverage.185
Ultimately, the determination of whether an insured acted in bad faith depends on the facts
and circumstances of a particular case.186 Where, as here, material disputes of fact exist as to
whether an insurer acted in bad faith in violation of Louisiana Revised Statute § 22:1973, summary
judgment is not appropriate in favor of either party.187 In other words, Blue Cross has failed to
show that Illinois Union acted in bad faith as a matter of law such that summary judgment in its

182

Rec. Doc. 115-6 at 4, 7.

183

Id. at 4.

184

Rec. Docs. 117-74, 117-76.

185

Rec. Doc. 117-72 at 80, 82.

186

Smith v. Audubon Ins. Co., 95-2057, (La. 9/5/96), 679 So.2d 362, 377.

187

The Court notes Illinois Union’s objection to the expert report attached to Blue Cross’s motion for
summary judgment. Rec. Doc. 141 at 15. However, because the Court finds that it would reach the same conclusion
regardless of whether it considered the expert report, it need not address the objection.

29

favor is proper, and Illinois Union has failed to show that it did not act in bad faith in any way as
a matter of law such that summary judgment in its favor is proper. Accordingly, both motions for
summary judgment on Blue Cross’s bad faith counterclaim are denied.
IV. Conclusion
Based on the foregoing, the Court concludes that there are genuine issues of material fact
precluding summary judgment for either party regarding Blue Cross’s counterclaim for bad faith
under Louisiana Revised Statute § 22:1973.
Accordingly,
IT IS HEREBY ORDERED that Blue Cross’s “Motion for Summary Judgment on Bad
Faith”188 and Illinois Union’s “Motion for Summary Judgment on Bad Faith”189 are DENIED.
NEW ORLEANS, LOUISIANA, this ________ day of June, 2017.
12th
_________________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE

188

Rec. Doc. 115.

189

Rec. Doc. 117.

30