Where to Start – The Policy
When determining duties owed between an Insured and Insurance company, the first place to always look is the policy itself. Assuming a policy does not directly address the specific issue of whether an insurer must notify an insured of benefits owed (I have never seen a policy doing so), one can then look to statutes and jurisprudence.
Nationally, all jurisdictions recognize a special duty of good faith and fair dealing on insurers in dealing with their insureds. On the specific issue of whether an insurer has a duty to inform an insured about unclaimed but available coverage, states are split. Some states (i.e. California, Iowa, Tennessee, New York, New Mexico) do recognize a duty of an insurer to inform an insured about available coverage, especially when the insurer knew the benefits were payable and knew the insured was unaware. However, the typical trend (i.e. Indiana, Illinois, North Carolina, Colorado, Pennsylvania) specifically find no such duty unless the insurer assumed such a duty.
In Louisiana, no case or statute directly on point could be found. However, guidance can be found in Louisiana’s statutes governing claims adjusting / penalties, and interpretive cases. Under La. R.S. 22:1973(A), the UM insurer owes the insured the duty of good faith / fair dealing. Per 22:1973(B), this means that an insurer cannot knowingly (1) misrepresent pertinent facts or insurance policy provisions, (2) fail to pay a written settlement agreement within 30 days, (3) deny coverage or attempt to settle a claim pursuant to an application which the insurer knows was altered without notice or consent of the insured, (4) mislead a claimant as to the applicable prescriptive period, or (5) fail to pay the amount of any claim to an insured within 60 days after receipt of satisfactory proof of loss when such failure is arbitrary, capricious, or without probable cause. If a UM insurer knowingly breaches 1973 duties, it shall be liable for any new damages (general or special) sustained as a result of the breach. Further, under La. R.S. 22:1892(A) the UM insurer shall pay the amount due to the insured within 30 days after receipt of satisfactory proof of loss, which is defined as (1) showing that the owner or operator of the other vehicle involved in the accident was uninsured or underinsured, (2) that it was at fault, (3) such fault gave rise to damages, and (4) the extent of such damages. Reed v. State Farm Mut. Auto. Ins. Co., App. 3 Cir.2002, 832 So.2d 1132, 2002-804 (La.App. 3 Cir. 12/11/02), writ granted 842 So.2d 1081, 2003-0107 (La. 3/28/03), reversed 857 So.2d 1012, 2003-0107 (La. 10/21/03). If the insurer fails to pay a claim after proof of loss is submitted and/or a demand is made, it shall be penalized if such failure is arbitrary, capricious, or without probable cause. (La. R.S. 22:1892(B))
According to references in the statutes above, and Louisiana cases interpreting same, the good faith/fair dealing duty by an insurer appears to be triggered only after a demand and/or request for benefits is made. See for example the following: An insured must make demand to his insurer, unless demand is waived, for loss suffered by him before he is entitled to penalties and attorney’s fees for nonpayment of loss; See for example: Steadman v. Pearl Assur. Co., Sup.1961, 242 La. 84, 134 So.2d 884; To qualify as “demand” for purposes of imposition of statutory penalties and attorney fees for arbitrarily refusing to pay medical expenses due to plaintiff under insurance policy covering premises, communication must fully inform insurer of plaintiff’s intention to claim payment under policy for a specified amount. Abraham v. Hanover Ins. Co., App. 2 Cir.1982, 420 So.2d 526; Under Louisiana law, insureds’ failure to assert claim for emotional distress in their complaint barred claim in conjunction with insurer’s alleged breach of its statutory duty of good faith and fair dealing. Matthews v. Allstate Ins. Co., E.D.La.2010, 731 F.Supp.2d 552; Automobile insurer had duty to investigate and pay driver’s and passengers’ claims for medical expenses within 30 days after it received the bills, reports, and demand for payment. McClendon v. Economy Fire & Cas. Ins. Co., App. 3 Cir.1999, 732 So.2d 727, 1998-1537 (La.App. 3 Cir. 4/7/99); Even after a demand was made, the UM carrier had no duty to investigate whether the liability insurance limits were exhausted; insureds had burden to show satisfactory proof of loss within the meaning of statutes requiring timely payment after satisfactory proof of loss. McClendon v. Economy Fire & Cas. Ins. Co., App. 3 Cir.1999, 732 So.2d 727, 1998-1537 (La.App. 3 Cir. 4/7/99).
Nothing specific in Louisiana has been found requiring a UM insurer to notify its insured about unclaimed but available UM benefits, especially if that duty has not been taken on by the insurer. That is not to say an insurer can mislead the insured about any available UM coverage if asked (certainly it cannot do that). But, the initial burden on a UM claim appears to be with the insured, and thus, the duty to pay UM benefits appears triggered only by a demand and/or request for benefits. Outside of Louisiana, several states have recognized a duty to inform, especially when the insurer knows additional benefits are owed, and knows the insured is ignorant of same. However, that trend is still the minority, and although growing, has not specifically reached Louisiana … yet.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.