5th Circuit Strikes Attorney Fee Award in Katrina Bad-Faith Case
An award of punitive damages and attorney fees in a bad-faith case against an insurance company has been overturned by the New Orleans-based 5th U.S. Circuit Court of Appeals.
State Farm Fire and Casualty Co. was mistaken when it denied coverage for wind-based damage from Hurricane Katrina, wrongly attributing the destruction of a home to uncovered water damage. But the plaintiff homeowners, Michael and Judy Kodrin, didn’t establish that the insurer acted without a good-faith basis in denying coverage. Hence, although they are still entitled to an earlier $200,000 jury award for the wind damage to their home, they will no longer get additional punitive damages and an award of attorney fees for bad faith under the 5th Circuit decision, the Associated Press explains.
“The only evidence that the Kodrins offered to demonstrate that this denial was in bad faith is the fact of the denial itself and their expert’s testimony that wind actually caused the damage to the home. This is evidence that State Farm was wrong about the cause of damage, but without more, it is not evidence of bad faith,” the appeals court states in its written opinion (PDF) yesterday.
“An insurer cannot be held to have acted in bad faith simply because it eventually turned out to be wrong about the cause of the damage,” the opinion continues. “Where there is a serious dispute as to the nature of the loss, thus leaving the question of coverage in doubt, the insurer’s refusal to pay the claim is not arbitrary, capricious or without probable cause.”
The bad-faith damages were awarded under a Louisiana statute that sets requirements for adjusting an insurance claim.
“Felt like I got punched in my stomach. So did my clients,” says attorney John Redmann, who represents the Kodrins. He says they are considering whether to ask the 5th Circuit for an en banc rehearing, the AP reports.
Additional coverage:
Slabbed: “5th hands Kodrin a polyester purse—stands up to water! (Kodrin v State Farm)”
Insurance Coverage Law Blog (2007): “Kodrin v. State Farm: wind vs. water trial underway in Louisiana federal court”
