SIGNIFICANT AREAS OF LOUISIANA LAW
AFFECTING HEALTH, ACCIDENT
& LIFE INSURERS

George D. Fagan
Leake & Andersson, L.L.P.
1700 Energy Centre
1100 Poydras Street
New Orleans, LA  70163-1701
Telephone:  (504) 585-7500
Facsimile:  (504) 585-7775

1.  The Elements of Fraud:

Generally, Louisiana law allows a contract to be rescinded for vices of consent where the contract would not have been issued but for the fraud of one of the contracting parties, or due to mutual mistake. "Consent may be vitiated by error, fraud, or duress."  See, Louisiana Civil Code article 1948. Fraud is the misrepresentation of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction. See, Louisiana Civil Code article 1953. Error induced by fraud need not concern the cause of the obligation to vitiate consent, but it must concern a circumstance that has substantially influenced that consent.  See, Louisiana Civil Code article 1955.  Fraud need only be proved by a preponderance of the evidence. See, Louisiana Civil Code article 1957.

The party alleging fraud must prove: the other party's intent to defraud of gain an unfair advantage; and, the loss or damage caused thereby. Heyl v. Heyl, 445 So.2d 88, 90 (La. App. 2nd Cir. 1984), writs denied, 446 So.2d 1228 (La. 1984). To establish fraud from silence or inaction, there must exist a duty to speak or disclose information. First Downtown Development v. Cimochowski, 613 So.2d 671, 677 (La. App. 2nd Cir. 1993), writs denied, 615 So.2d 340 (La. 1993). A duty to provide correct information exists where there is privity of contract between the parties, as is the case with insurance contracts. Barrie v. V.P. Exterminators, Inc., 625 So.2d 1007, 1015-1016 (La. 1993). Some courts have held that an insured owes an insurer a duty of uberrimae fidei, utmost good faith.  Ray Gibbins Certified Welders v. Griggs, 545 So.2d 68, 75 (La. App. 1st Cir. 1989); and Miller v. Lumbermens Mutual Casualty Company, 488 So.2d 273, 278 (La. App. 3rd Cir. 1986), writs denied, 493 So.2d 637 (La. 1986). This duty is breached when the insured acts in bad faith, a term connoting fraud, deception or sinisterly-motivated nonfulfillment of an obligation. National Union Fire Insurance Company of Pittsburgh, Pa. v. Cagle, 68 F.3d 905, 911 (5th Cir. 1995), and the cases cited therein.

An insurer which establishes fraud may recover attorney's fees and damages against the insured if the Court rescinds the policy based on the insured's fraud.  See, Louisiana Civil Code article 1958.

2. Elements of Bad Faith:

Louisiana Revised Statute 22:657 requires an insurer to pay health and accident insurance claims within 30 days following the insurer’s receipt of written notice unless just and reasonable grounds exist such as would put a reasonable businessman on his guard. Disability payments must be made at least every thirty days. The insurer’s failure to comply allows the recovery of double benefits and attorney’s fees to be determined by the Court. Claims for accidental death must be settled within 60 days of the insurer’s receipt of proof of death, and the failure to settle without just cause allows the insured to recover interest on the amount due at 6% from the date of death until paid. These are the sole remedies for penalty damages in claims involving health, life and accident policies under Louisiana law.

“Provisions of Louisiana Revised Statute 22:657 are penal in nature and must be strictly construed. These penalties should not be applied unless the refusal to pay is clearly arbitrary and capricious.” Shrader v. Life General Security Insurance Company, 588 So.2d 1309, 1317 (La. App. 2nd Cir. 1991), writs denied, 592 So.2d 1317 (La. 1991); See Also, Toups v. Equitable Life Assurance Company, 657 So.2d 142 (La. App. 3rd Cir. 1995), writs denied, 664 So.2d 421 (La. 1995). “Although a beneficiary may ultimately be determined to be entitled to policy benefits, this judicial determination does not in and of itself justify the invocation of penalties.” Colville v. Equitable Life Assurance Society, 514 So.2d 678, 682-683 (La. App. 2nd Cir. 1987).

By the express terms of the statute, Louisiana Revised Statute 22:657(A) is not to be applied if the insurer has “just and reasonable grounds [for nonpayment], such as would put a reasonable and prudent businessman on his guard…”Id. An insurer’s actions in denying coverage based on reasonable and good faith disputes over statutory interpretation which requires a court decision do not warrant an award of penalties and attorney’s fees. Soniat v. Travelers Insurance Companies, 538 So.2d 210, 216 (La. 1989). “Where an insurer’s interpretation of its policy is reasonable and not contrary to any existing jurisprudence, the denial of a claim is not arbitrary so as to require the imposition of penalties, and the insurer has the right to a judicial determination of the issues.” Landry v. Louisiana Hospital Service, Inc., 449 So.2d 584, 589 (La. App. 1st Cir. 1984).

A claim for penalties and attorney’s fees under Louisiana Revised Statute 22:657 is a separate and independent claim from a claim for benefits under an insurance policy. Cantrelle Fence & Supply Co. v. Allstate Insurance Company, 515 So.2d 1074, 1079 (La. 1987). Care should be taken to include claims under La.R.S. 22:657 as part of any release.

3. The Elements of Intentional Infliction of Emotional Distress:

In Louisiana, the action of intentional infliction of emotional distress is composed of three elements: the defendant's conduct was so extreme in degree and so outrageous in character that it went beyond all bounds of decency and was utterly intolerable in a civilized community; such conduct caused severe emotional distress; and, the defendant intended, by performing the acts complained of, to inflict severe emotional distress on plaintiff, or that defendant knew that such severe emotional distress would be certain or substantially certain to result from conduct. Deus v. Allstate Ins. Co., 15 F.3rd 506 (5th Cir. 1994), citing, White v. Monsanto Co., 585 So.2d 1205, 1209 (La. 1991). This is derived from Section 46 of the Restatement of Torts (2nd). White v. Monsanto Co., 585 So.2d at 1209.

The action, however, "does not extend to mere insults, indignities, threats, annoyance, petty oppressions, and other trivialities."Id. "The rough edges of our society are still in need of a good deal of filing down, and in the meantime plaintiffs must be expected and required to be hardened to a certain amount of rough language, and to occasional acts that are definitely inconsiderate and unkind." Deus v. Allstate Ins. Co., 15 F.3rd at 514. “The mere facts that the actor knows that the other will regard the conduct as insulting, or will have his feelings hurt is not enough. Unless the actor has knowledge of the other's particular suspectibility to emotional distress, the actor's conduct should be judged in the light of the effect such conduct would ordinarily have on a person of ordinary senses." White v. Monsanto Co., 585 So.2d at 1210.

4.  The Standards for Compensatory and Punitive Damages:

Compensatory Damages: In breach of contract cases, damages are “measured by the loss sustained by the obligee and the profit of which he has been deprived.” See, Louisiana Civil Code article 1995. “An obligor in good faith is liable on for the damages that were foreseeable at the time the contract was made.” See, Louisiana Civil Code article 1996. “An obligor in bad faith is liable for all damages, foreseeable or not, that are a direct consequence of his failure to perform.” See, Louisiana Civil Code article 1997. Such bad faith damages include mental anguish and suffering, but the insurer’s actions must be vexatious and deliberate to warrant such an award. Nolan v. Commonwealth National Life Insurance Company, 688 So.2d 581, 585 (La. App. 2nd Cir. 1996), writs denied, 692 So.2d 449 (La. 1997). An award for bad faith damages under Louisiana Civil Code article 1997 does not include attorney’s fees. Id. Bad faith means actual or constructive fraud or refusal to fulfill contractual obligations, not honest mistakes as to actual rights or duties. Delaney v. Whitney National Bank, 703 So.2d 709, 719 (La. App. 4th Cir. 1997), writs denied, 715 So.2d 1211 (La. 1998). Bad faith damages require a showing of conscious wrongdoing for dishonest or morally questionable motives. Bond v. Broadway, 607 So.2d 865, 867 (La. App. Cir. 1992), writs denied, 612 So.2d 88 (La. 1992). Nonpecuniary damages are damages for mental anguish, inconvenience, humiliation and embarrassment. Nolan v. Commonwealth National Life Ins. Co., 688 So.2d at 585.

“Damages for nonpecuniary loss may be recovered when the contract, because of its nature, is intended to gratify a nonpecuniary interest and, because of the circumstances surrounding the formation or the nonperformance of the contract, the obligor knew, or should have known, that his failure to perform would cause that kind of loss. Regardless of the nature of the contract, these damages may be recovered also when the obligor intended, through his failure, to aggrieve the feelings of the obligee.” See, Louisiana Civil Code article 1998. Barring bad faith, damages for nonpecuniary are not available against insurers. Nolan v. Commonwealth National Life Insurance Company, 688 So.2d 581, 585 (La. App. 2nd Cir. 1996), writs denied, 692 So.2d 449 (La. 1997); and, Perry v. State Farm Fire & Casualty Company, 700 F.Supp. 306 (M.D. La. 1988).

Punitive Damages: Louisiana law requires a statutory basis for any punitive or exemplary damages claim.  International Harvester Credit Corp. v. Seale, 518 So.2d 1039, 1041 (La. 1988).  La.R.S. 22:657, discussed above, affords the only statutory basis for an award of penalties against a health, accident or life insurer.

Interest:  Louisiana Revised Statute 13:4203 states:
Legal interest shall attach from date of judicial demand, on all judgments, sounding in damages, “ex delicto”, which may be rendered by any of the courts.

This generally applies to all tort claims, or tort related damages. 

Generally, Louisiana Civil Code article 2000 provides that contractual interest is due from the date of breach or the date that the performance was due; however, the Louisiana Supreme Court has held that interest on disputed or discretionary contractual damages generally runs from the date of judicial demand.  Trans-Global Alloy v. First national Bank of Commerce, 583 So.2d 443, 458-459 (La. 1991).

In Negem v. Paul Revere Life Insurance Company, 366 So.2d 194 (La. App. 2nd Cir. 1978), the Court concluded that legal interest is owed on judgments awarding penalties and attorney’s fees under Louisiana Revised Statute 22:657.  There is a split as to when interest begins to run on such an award.  One Court of Appeal has held that judicial interest on judgments awarding penalties and attorney's fees under Louisiana Revised Statute 22:657 commences from the date of judicial demand.  Coulton v. Levitz Furniture Corporation, 391 So.2d 80, 84 (La. App. 4th Cir. 1980).  More recent cases from Louisiana’s other appellate circuits have held that interest does not accrue until the date of the judgment awarding penalties and attorney’s fees under Louisiana Revised Statute 22:657 and 22:658. Francis v. Travelers Insurance Company, 581 So.2d 1036, 1045 (La. App. 1st Cir. 1991); Hidalgo v. Old Hickory Insurance Company, 630 So.2d 252, 257 (La. App. 5th Cir. 1993), writs denied, 635 So.2d 240 (La. 1994); Economy Auto Salvage v. Allstate Insurance Company, 499 So.2d 963, 975 (La. App. 3rd Cir. 1986), writs denied, 501 So.2d 199 (La. 1986).  This issue has not been resolved by the Louisiana Supreme Court.

5.  Insurance Laws and Regulations to Watch:

Cancellation by the Insurer: La.R.S. 22:213.3 provides that insurers may cancel an individual health and accident policy for non-payments of premiums by providing written notice by first class mail which notifies the insured that if the premium is not paid by a certain date that the policy will lapse and that the policy will be reinstated without penalty if the full premium is paid within the reinstatement period provided in the policy. 

Proof of Loss Form: La.R.S. 22:214.3 requires the use by insurers of National Uniform Bill 82 (UB-82) or its successor, the current Health Care Financing Administration (HCFA) Form 1500. 

Prohibitions Regarding Prenatal Test Results: La.R.S. 22:213.6 prohibits restrictions, exclusions, denials or cancellation of coverage based on the result of any prenatal test result. 

Prohibitions Regarding Genetic Information: La.R.S. 22:213.76 prohibits restrictions, exclusions, denials or cancellation of coverage based on the result of any genetic information, request or receipt of genetic services, or the refusal to submit to a genetic test or make the results available. 

Dependent Coverage for Physically or Mentally Handicapped Children: La.R.S. 22:215.2 requires any hospital or medical expense policy to include as a dependent mentally or physically handicapped children of the insured notwithstanding any such child's  attainment of majority or such other age limitation set forth in the policy. 

Incentive or Discount Programs: La.R.S. 22:215.19 bars health and accident insurers from providing incentives or payments to any health care provider in order to deny, reduce, limit or delay medically necessary services; this does not apply to capitation payments or shared-risk arrangements which are not related to specific medical decisions. 

Diabetes: La.R.S. 22:215.21 mandates coverage for diabetes-related treatment for policies issued or delivered in Louisiana on or after January 1, 1998; individually underwritten, guaranteed renewable or renewable limited benefit supplemental health insurance policies and medical benefits plans subject to ERISA are excepted from the statute's application. 

Cancellation After Receipt of Certain Claims: La.R.S. 22:228 prohibits group, family group and blanket health insurers from canceling a policy based on any terminal, incapacitating or debilitating condition until after the condition has concluded and no further claims are expected.  La.R.S. 22:229.1 applies to health and accident insurers and prohibits cancellation, premium increases and reductions in benefits based on any condition relating to a covered claim until after the condition has concluded. 


Detrimental Reliance:  Louisiana Civil Code Article 1967 may allow an insurer or an insured to recover damages or relief based on any detrimental reliance on the other party’s statements or representations.  The Louisiana Supreme Court recently recognized that Article 1967 "incorporates into the law of Louisiana a new basis for enforcement of obligations."  Morris v. Friedman, 94-2808 (La. 11/27/95), 663 So.2d 19, 23.  Article 1967 means that "a promise becomes an enforceable obligation when it is made in a manner that induces the other party to rely on it to his detriment."  Carter v. Huber & Heard, Inc., 95-142 (La. App. 3rd Cir. 5/31/95), 657 So.2d 409, 411.

Use of Applications as Evidence: La.R.S. 22:618 requires insurance applications to be attached to and delivered with the policy in order to be admissible as evidence. 

Limitation on Coordination of Benefits: Louisiana Revised Statute 22:663 prohibits the coordination of benefits when an insured has validly procured participation in a group plan and additionally properly maintains individual coverage (i.e., Auto Med Pay, Auto UM, etc.).  Peters v. Prudential Insurance Company of America, 511 So.2d 37 (La. App.3rd Cir. 1987).  In such a circumstance, the group insurer cannot invoke its coordination of benefits clause to reduce benefits to the insured by the amount the insured has received as payment under the individual plan.  Id. at 39.

6.  Rescission of Insurance Contracts for Fraud or Misrepresentations:

Louisiana Revised Statute 22:219 provides that false statements made in an application for a health insurance policy do not bar coverage unless the false statements materially affect either the acceptance of the risk or the hazard assumed by the insurer; however, the application must be attached to the policy in order to cancel the policy based on such a misstatement.  Louisiana Revised Statute 22:213(A)(13) provides that after three years of the issuance of the policy that only fraudulent misstatements may be used to void a policy or deny a claim.

Louisiana Revised Statute 22:619 concerns warranties and misrepresentations in applications and during negotiations:
    
A.  Except as provided in Subsection B of this Section and R.S. 22:692 and R.S. 22:692.1 [which concern standard fire policies only], no oral or written misrepresentation or warranty made in the negotiation of an insurance contract, by the insured or in his behalf, shall be deemed material or defeat or void the contract or prevent it attaching, unless the misrepresentation or warranty is made with the intent to deceive.
    
B.  In any application for life or health and accident insurance made in writing by the insured, all statements therein made by the insured shall, in the absence of fraud, be deemed representations and not warranties.  The falsity of any such statement shall not bar the right of recovery under the contract unless such false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer.

Under Louisiana Revised Statute 22:219 and 22:619, the insurer has the burden of proof to establish that the misrepresentation or omission was material to the insurer and that the insured intended to deceive the insurer.  Breaux v. Bene, 664 So.2d 1377 (La. App. 1st Cir. 12/15/95).  A material misrepresentation is one which, had it not been made, the insurer would not have issued the policy.  Id. 

“Strict proof of fraud is not required to show the applicant’s intent to deceive, because of the inherent difficulties of proving one’s intent.  The intent to deceive must be determined from the attending circumstances which indicate the insured’s knowledge of the falsity of the representations made in the application and his recognition of the materiality thereof, or from circumstances which create a reasonable assumption that the insured recognized the materiality of the misrepresentations.”  Watson v. Life Insurance Company of Louisiana, 335 So.2d 518, 521 (La. App. 1st Cir. 1976); See also, Johnson v. Occidental Life Insurance Company of California, 368 So.2d 1032, 1036 (La. 1979); and, Green v. Pilot Life Insurance Company¸450 So. 406, 408 (La.3rd Cir. 1984). 

Louisiana Revised Statute 22:641 addresses an insurer’s right to avoid and rescind a policy based on intervening breaches of warranty or conditions in an insurance contract:

If any breach of a warranty or condition in any insurance contract occurs prior to a loss under the contract, such breach shall not avoid the contract nor avail the insurer to avoid liability, unless the breach exists at the time of the loss.

7.  Construction of “Pre-Existing Illness or Disease” Clauses:

Louisiana Revised Statute 22:215.12 states that a health insurer “shall not deny, exclude or limit benefits for losses due to a preexisting condition incurred more than twelve months following the effective date of then individual’s coverage” and that any such policy “shall not contain a definition of a preexisting condition more restrictive than the following: (1) a condition that would have caused an ordinarily prudent person to seek medical advice, diagnosis, care or treatment during the 12 months immediately preceding the effective date of coverage; (2) a condition for which medical advice, diagnosis, care or treatment was recommended or received during the 12 months immediately preceding the effective date of coverage; (3) a pregnancy existing on the effective date of coverage.”  Louisiana Revised Statute 22:215.12 was repealed effective July 14, 1997, but applies to insurance contracts issued prior to that date.  This standard was re-enacted as part of La.R.S. 22:2501.11(D).  See, Act No. 1138 of the Louisiana Legislature. 

La.R.S. 22:250.2 became effective on July 1, 1997, and allows group health plans and group health insurers to impose a preexisting condition exclusion only if: the exclusion relates to a physical or mental condition for which medical advice, diagnosis, care or treatment was received within 6 months prior to the enrollment date; such exclusion precludes coverage for 12 months unless the insured is a late enrollee, in which case the limit is 18 months; and, the period of the preexisting condition exclusion is reduced by the aggregate of the periods of creditable coverage as defined by La.R.S. 22:250.1(4).

La.R.S. 22:250.11 provides the portability requirements for non-group health and accident insurance policies and HMO subscriber agreements, and allows the inclusion of  “the standard twelve-month pre-existing condition exclusions when the covered person initially becomes covered under a health and accident policy, or when any such person lacks continuous health insurance coverage for more than 60 days.”  Any non-group health and accident insurance policies and HMO subscriber agreements issued after July 1, 1997 “shall be portable without preexisting conditions or limitations except as otherwise provided in this Section.”

 La.R.S. 22:213(A)(13)(b) was enacted in 1995 and includes this provision: “No claim for loss incurred or disability (as defined in the policy) commencing after three years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or description effective on the date of the loss had existed prior to the effective coverage of this policy.”  This in large measure conflicts with La.R.S. 22:250.11(D), enacted in 1997, which states that all hospital, health, medical expense policies and employee welfare benefit plans issued or delivered in Louisiana on or after January 1, 1999 “shall not deny, exclude or limit benefits for a covered individual for losses due to a preexisting condition incurred more than 12 months following the effective date of the covered persons coverage.”  This restriction does not apply to limited benefit and supplemental benefit insurance policies nor to short-term major medical policies with a duration of 6 months or less.  La. R.S. 22:250.11(D) is the last enacted statute and should govern in any dispute. 

Louisiana law makes it clear that it is not sufficient to establish merely that a condition or an illness is related to a pre-existing condition.  Rabalais v. Louisiana Health Service and Indemnity Company, 671 So.2d 7, 9 (La. 5th Cir. 1996).  The claimant must have been treated “for the same condition in both instances.”  Id.; See Also, Hoffpauir v. Time Insurance Company, 536 So.2d 699, 702 (La. App. 3rd Cir. 1988); and, Dorsey v. Board of Trustees, 482 So.2d 735, 738 (La. App. 1st Cir. 1986), writs denied, 486 So.2d 735 (La. 1986).  The insurer has the burden of establishing that the alleged pre-existing condition did in fact pre-date the effective date of the policy through “certain and decisive” proof, “leaving no room for doubt.”  Cramer v. Association Life Insurance Company, Inc., 619 So.2d 821, 824 (La. App. 1st Cir. 1993). 

In Wynn v. Washington National Insurance Co., 122 F.3d 266 (5th Cir. 1997), the insured disclosed on her application that she had experienced some back pain a year earlier.  Washington National issued a rider excluding all coverage for her back (other than fractures or cancer).  Id. at 267-68.  This rider exclusion disallowed benefit payments indefinitely into the future and therefore beyond the twelve month period set out in Louisiana Revised Statute 22:215.12 as the maximum period  in which an insurer can deny claims based upon a pre-existing condition.  About two years after the effective date of the policy, Wynn underwent surgery for a cervical disc problem.  The Court concluded that the insurer was free to condition its acceptance of the insured’s application upon the insured’s agreement that her coverage would not extend to some future back injury claims even beyond the statutory twelve month pre-existing condition period set forth in La. R.S. 22:215.12.  Id.

8.  Arbitration and Mediation Agreements:

La.R.S. 22:629(A)(2) prohibits any insurance contract which is issued or delivered in Louisiana from “depriving the courts of this state of the jurisdiction of action against the insurer.”  This has been held to bar the enforcement of mandatory arbitration clauses in insurance contracts.  Doucet v. Dental Health Plans Management Corp., 412 So.2d 1383, 1384 (La. 1982). 

Louisiana law on arbitration agreements or clauses is found in Louisiana Civil Code articles 3099 through 3133 and La.R.S. 9:4201 through 9:4217.  Such agreements are favored and liberally construed under Louisiana law.  Rogers v. Brown, 986 F.Supp. 354 (M.D. La. 1997); and, Cajun Electric Power Cooperative, Inc. v. Louisiana Power & Light Company, 324 So.2d 475, 478 (La. App. 4th Cir. 1979). 

The Louisiana Mediation Act is contained at La.R.S. 9:4101 through 9:4112.  The Act “encourages” attorneys to mediate civil cases.  La.R.S. 9:4103 allows a Court to order the parties to submit to mediation upon the filing of a joint motion for such relief.