Kief Hardware, Inc. v. Hartford Fire Insurance Company Inc., et al

Filing 53

ORDER AND REASONS: IT IS ORDERED that Plaintiff's 43 Motion for Partial Summary Judgment is GRANTED and IT IS FURTHER ORDERED that Defendant's 44 Motion for Summary Judgment is DENIED as set forth in document. Signed by Judge Jay C. Zainey on 5/18/2018. (ajn)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
KIEF HARDWARE, INC.

CIVIL ACTION

VERSUS

NO: 16-15762

HARTFORD FIRE INSURANCE CO.

SECTION: "A" (1)

ORDER AND REASONS
The following motions are before the Court: Motion for Partial Summary
Judgment (Rec. Doc. 43) filed by plaintiff, Kief Hardware, Inc.; Motion for Partial
Summary Judgment (Rec. Doc. 44) filed by defendant, Hartford Fire Insurance Co.
Both motions are opposed. The motions, submitted on April 18, 2018, are before the
Court on the briefs without oral argument. For the reasons that follow, Plaintiff’s motion
is GRANTED and Defendant’s motion is DENIED.
I.

BACKGROUND

On September 9, 2015, Plaintiff’s property located at 16230 Highway 3235, Cut
Off, Louisiana 70345, sustained damages as a result of a fire. The building was
originally a hardware store established in 1944, which was being used for storage at the
time of the fire. The Lafourche Parish Fire District (“LPFD”) responded to the blaze.
Captain Ryan P. Collins was first to arrive on the scene. Captain Collins prepared the
incident report. The cause of the fire was undetermined but nothing in the report
suggests that the fire was intentionally set. (Rec. Doc. 44-2). The LPFD contacted the
State Fire Marshal to investigate the cause of the fire.

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Michael Russell with the Office of State Fire Marshal (“OSFM”) responded to the
scene. His initial report reiterated that the cause of the fire was undetermined and the
status of the investigation was open. (Rec. Doc. 44-3). In the incident report Russell
stated that the OSFM was called in to investigate due to the “unusual circumstances.”
(Id.). To wit, the building was vacant and for sale, and during the fire cleanup the owner,
Mr. James Cabirac, had arrived at the scene and removed the video recorder. (Id.). The
very next sentence in the report clarifies, however, that Mr. Cabirac had secured the
video recorder to examine it to determine if there were any recordings that would show
what happened. (Id.). But again, nothing in the report suggests that the fire was
intentionally set.
Plaintiff initiated this action in state court on September 9, 2016, to recover
unpaid losses, as well as damages, penalties, and attorney’s fees pursuant to La. R.S.
22:1892 and § 1973. Hartford removed the case to federal court.
The motions currently before the Court are essentially cross motions directed at
the claims asserted under La. R.S. 22:1892, which provides for mandatory penalties
when certain criteria are met. Plaintiff moves for partial summary judgment awarding
penalties and attorney’s fees for Hartford’s alleged violation of the statute. Hartford, on
the other hand, moves to have all of Plaintiff’s “bad faith” claims dismissed on summary
judgment.
A nonjury trial is scheduled to commence on July 25, 2018.
II.

DISCUSSION

Although Plaintiff seeks recovery for additional amounts allegedly owed under its
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policy for property damage, $375,935.96 was the undisputed amount owed to Plaintiff.
This total comprises a business personal property damage payment of $62,890.71, and
a building coverage payment of $313,045.25. These payments were made on February
2, 2016, and on February 25, 2016, respectively. It is undisputed that Hartford’s own
adjuster finalized reports as to these amounts no later than October 21, 2015.1 (Rec.
Doc. 43-5, CIA reports). Thus, payment to Plaintiff of the “undisputed” amounts owed
was not made until 104 days and 127 days after receipt of satisfactory proof of loss, for
business personal property damage and building damage, respectively.2
Louisiana Revised Statute § 22:1892 mandates that an insurer pay the amount of
any claim due within thirty (30) days after receipt of satisfactory proof of loss from the
insured or any party in interest. La. R.S. 22:1892 (A)(1). Failure to timely make such
payment when such failure is found to be arbitrary, capricious, or without probable
cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty
percent (50%) damages on the amount found to be due from the insurer to the insured,
as well as reasonable attorney’s fees and costs. La. R.S. 22:1892(B)(1). Once the
requirements of the statute are satisfied, penalties and attorney’s fees are mandatory
rather than discretionary. See Calogero v. Safeway Ins. Co., 753 So. 2d 170, 174 (La.
2000) (interpreting predecessor statute La. R.S 22:658).

Hartford’s adjuster inspected the property on September 9, 2015. The reports may have
been provided to Hartford in the September timeframe that Plaintiff suggests but the Court
will use the date stamped on the bottom of the report, which is October 21, 2015. Whether
the date was in September or October of 2015 is not material to the Court’s analysis.
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Hartford does not nor could it dispute Plaintiff’s contention that the reports issued by its
own adjuster on October 21, 2015, constituted satisfactory proof of loss.
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The phrase “arbitrary, capricious, or without probable cause” is synonymous with
“vexatious,” and a “vexatious refusal to pay” means “unjustified, without reasonable or
probable cause or excuse.” La. Bag Co. v. Audubon Indem. Co., 999 So. 2d 1104, 1114
(La. 2008) (quoting Reed v. State Farm Auto. Ins. Co., 857 So. 2d 1012, 1021 (La.
2003)). Both phrases describe an insurer whose willful refusal of a claim is not based on
a good-faith defense. Id. Penalties should be imposed only when the facts “negate
probable cause for nonpayment.” Id. (quoting Guillory v. Travelers Ins. Co., 294 So. 2d
215, 217 (La. 1974)). In the absence of reasonable and legitimate questions as to the
extent of the insurer’s liability, an insurer who fails to pay the undisputed amount has
acted in a manner that is, by definition, arbitrary, capricious, or without probable cause,
and will be subject to penalties under the statute. Id. at 1116.
Again, Hartford received satisfactory proof of loss as to undisputed amounts on
October 21, 2015. Although the cause of the fire had initially been undetermined,
Hartford knew as of October 2, 2015, that its own investigator had ruled out arson and
that the cause of the fire was likely a faulty electrical sign. (Rec. 43-17, HART-002028).
This conclusion was confirmed in the investigator’s report sometime in November
2015.3 Therefore, as of November 2015 Hartford could no longer legitimately resist
payment based on a question that its arson exclusion might preclude

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Even though the record unequivocally demonstrates that Hartford had communicated with
its investigator and had actual knowledge as of October 2, 2015, that arson was not
involved, the specific date that Hartford received its investigator’s report is not clear from the
record. The date is not material however because under Louisiana law penalties are not
calculated on a day by day basis.

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coverage.Nonetheless, Plaintiff was not paid the undisputed amounts until February
2016. If Hartford’s withholding of payment of the undisputed amount for more than thirty
days was arbitrary, capricious, or without probable cause then Plaintiff is entitled to
penalties and attorney’s fees under § 1892(B)(1). Under Louisiana law, proof of specific
acts or proof of the insurer’s state of mind is generally not required to establish conduct
that is arbitrary, capricious, or without probable cause. La. Bag, 999 Sao. 2d at 1121.
Hartford defends its withholding of timely payment on two grounds, and offers
these two defenses in support of its own motion for partial summary judgment. First,
Hartford relies on La. R.S. 22: 1892(B)(2), which states:
The period set herein for payment of losses resulting from fire and the
penalty provisions for nonpayment within the period shall not apply where
the loss from fire was arson related and the state fire marshal or other
state or local investigative bodies have the loss under active arson
investigation. The provisions relative to time of payment and penalties
shall commence to run upon certification of the investigating authority that
there is no evidence of arson or that there is insufficient evidence to warrant
further proceedings.
La. R.S. 22:1892(B)(2) (emphases added).
Hartford argues that the delay afforded by this statute was triggered when the
LPFD called in the OSFM to investigate the cause of the fire. Hartford points out that La.
R.S. 40:1566 mandates that municipal fire departments contact the fire marshal if
circumstances indicate that the possible cause of the fire is human design or criminal
neglect. Hartford points out that the OSFM did not close its investigation until June 22,
2016. Therefore, according to Hartford, it actually paid the undisputed amounts four
months prior to the date when the thirty day period began to run.

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The summary judgment record renders this assertion meritless. Captain Collins,
Chief Kully Griffin, and Deputy Fire Marshal Russell all confirmed unequivocally during
their depositions that arson was never suspected in this case even though the cause of
the fire was undetermined.4 The LPFD called in the OSFM not because arson was
suspected but rather because the cause of the fire was undetermined and the state had
the resources and expertise to properly investigate it. (Rec. Doc. 44-2, Collins
deposition at 39). La. R.S. 40:1566 mandates that the local authorities contact the state
fire marshal when arson is suspected but it does not follow that every contact with the
OSFM necessarily implicates arson. The facts of this case bear out that conclusion—no
one with LPFD suspected arson when the call was made to the OSFM and the OSFM
did not suspect arson when it agreed to help investigate the fire.
But even if La. R.S. 40:1566 imputes suspicion of arson in all cases in which the
OSFM is called in to investigate, § 1892(B)(2) expressly requires an active arson
investigation in order for the tolling period to apply. It is clear from the summary
judgment record that the OSFM never engaged in an active arson investigation or any
investigation for that matter once Hartford’s own investigator, Mr. Don Horaist, began to
investigate the fire on September 14, 2015. It is clear from the updates to Russell’s
report that he was deferring to Horaist to investigate the cause of the fire. (Rec. Doc.

This case stands in stark contrast to Judge Fallon’s Dennis v. Allstate Insurance Co., No.
10-795, 2011 WL 870508 (E.D. La. Mar. 10, 2011), decision cited by Hartford. In that case
the New Orleans Fire Department determined almost immediately that the fire had been set
intentionally. Gasoline appeared to have contributed to the spread of the fire. And, the
insurer had been advised by federal authorities that the insured was being investigated for
health care fraud, and that the government suspected that the fire was used as a cover to
destroy evidence. (Id. at *1).
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44-3). Given the absence of any objective indicators of arson, the OSFM chose not to
be actively involved in the investigation. And while it is true that the OSFM’s
investigation remained “open” until June 22, 2016, this only occurred because Horaist
never contacted Russell to inform him that arson had been ruled out and the cause of
the fire had been determined months earlier. It was Russell who finally reached out to
Horaist to determine whether he could close his file. To the extent that the OSFM’s
involvement could be characterized as an arson investigation at all, it was by no means
an active one.
Of course, much of the summary judgment record evidence was gathered during
the course of this litigation in March 2018 when the depositions were taken. An insurer’s
conduct is evaluated based on the facts known to the insurer at the time of its action.
La. Bag, 999 So. 2d at 1114 (quoting Reed, 857 So. 2d at 1021). Hartford’s
representative made no attempt to point to any of the facts upon which Hartford might
have reasonably relied upon to believe that arson was involved so as to withhold
payment. (Rec. Doc. 44-4, Reynolds affidavit). As far as the Court can tell there were no
such facts because none of the reports generated in the aftermath of the fire even
allude to arson. In argument, Hartford points out that Russell’s report narrative mentions
“unusual circumstances,” which were that the building was vacant and for sale, and
during the fire cleanup the owner, Mr. James Cabirac, had arrived at the scene and
removed the video recorder. But again, none of this suggests arson and the owner’s
attempt to salvage security footage from a smoldering building is hardly indicative of
criminal activity. Nowhere does the file indicate that Mr. Cabriac secreted the video,
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altered it, withheld it, or destroyed it. Again, Hartford’s reliance on La. R.S.
22:1892(B)(2) to escape penalties is without merit.
Second, Hartford attributes the delay in payment to an internal error that caused
an endorsement to be added to the policy that would have precluded coverage. In order
to correct the error, Hartford reformed the policy on January 29, 2016, and paid the
undisputed portion of the claim within thirty days.
Hartford’s representative made no attempt to refute Plaintiff’s contention that the
erroneous endorsement was added to the policy due solely to Hartford’s negligence
when it amended the policy upon renewal. The error in this case was unilateral in
nature, and Hartford was aware of the error as of December 31, 2015. (Rec. Doc. 4317, HART-001046). An insurer’s error in misinterpreting its own policy provisions is not
a reasonable ground for delaying payment. La. Bag, 999 So. 2d at 1117 (citing Carney
v. Am. Fire & Indem. Co., 371 So. 2d 815, 819 (La. 1979)). Therefore, the issue related
to reformation does not constitute cause to delay timely payment.5
In sum, Hartford’s failure to pay the undisputed portion of Plaintiff’s claim was
without probable cause. As such, Plaintiff is entitled to a 50 % penalty of $187,967.98
on the undisputed sum of $375,935.96, plus reasonable attorney’s fees and costs.
Moreover, given that Hartford failed to timely pay the undisputed portion of the claim,

The reformation argument is unconvincing for another reason. Although Hartford’s
representative was silent on when Hartford actually determined that an erroneous
endorsement had been applied to the policy, (Rec. Doc. 44-4, Reynolds affidavit), the
emails of record suggest that the error was not discovered until January 7, 2016. (Rec. Doc.
43-17, HART-001401). Meanwhile, Hartford knew as of October 2, 2015, that arson had
been ruled out as a cause of the fire. It is clear then that Hartford did not act expeditiously to
pay the undisputed amounts of the claim even after arson was no longer an issue.
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Hartford will be subject to penalties on the disputed portion of the claim should Plaintiff
prove that additional property damages are owed. Grilletta v. Lexington Ins. Co., 558
F.3d 359, 370 (5th Cir. 2009).
Accordingly, and for the foregoing reasons;
IT IS ORDERED that the Motion for Partial Summary Judgment (Rec. Doc. 43)
filed by plaintiff, Kief Hardware, Inc. is GRANTED as explained above;
IT IS FURTHER ORDERED that the Motion for Partial Summary Judgment
(Rec. Doc. 44) filed by defendant, Hartford Fire Insurance Co. is DENIED.
May 18, 2018
_______________________________
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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