Church Mutual Prevails in Latest Hurricane Laura Bad Faith Case: Key Differences and Lessons Learned

The Fifth Circuit Court of Appeals recently ruled in favor of Church Mutual Insurance Company in a Hurricane Laura claim brought by First United Pentecostal Church.1 This decision contrasts with some prior rulings against Church Mutual in a similar bad faith case noted in yesterday’s post, Church Mutual’s Claims Practices Under Scrutiny: Lessons from the First Baptist Church of Iowa Case. The key differences seem very slight but should be examined.

First United Pentecostal Church sued Church Mutual for allegedly underpaying its Hurricane Laura claim. The district court awarded over $2 million to First United, including policy damages, bad faith penalties, and attorney’s fees. However, the Fifth Circuit reversed the penalties and attorney’s fees award, finding that Church Mutual’s conduct was not arbitrary and capricious. The primary key difference to this most recent decision seems to be the good faith and more timely reliance on an engineering expert.

In this case, Church Mutual inspected the property within about 45 days of the claim being reported and made its first payment within about four months. This timeline was significantly faster than in the previous First Baptist Church of Iowa, where it took over six months to inspect and over eight months to make the first payment. Significantly, the appellate court ruled there were “reasonable and legitimate questions as to the extent of Church Mutual’s liability, particularly the extent of the loss as to the roof.” This contrasts with First Baptist, where the court found Church Mutual had no reasonable basis to dispute the damages.

In this case, Church Mutual waited to receive and review an engineering report before making its first payment. In the prior case, Church Mutual was found to have ignored or disregarded expert reports showing more extensive damage. Subsequent payments and re-evaluations were made, and Church Mutual made a second payment about two months after the first and continued to evaluate new information. In contrast, in the First Baptist case, Church Mutual was found to have failed to re-evaluate or make additional payments even after receiving new information.

While Church Mutual’s representative admitted to some late payments here, the court did not find this rose to the level of bad faith, given the disputes over damages. This seems perplexing to me, and the policyholder’s brief noted the following:

…Ms. Renland testified she had no involvement at all in First United’s case until one month before trial, when she was designated by Church Mutual as its 30(b)(6) corporate deposition representative. The only things Ms. Renland did in connection with her testimony were to review the claims file, claims notes, photographs, insurance policy, damage photographs, and Church Mutual claims handling guidelines, and then to provide testimony about the actions of the absent adjusters who actually participated in the handling of First United’s claims. In sum, no one at Church Mutual with personal knowledge of First United’s claim testified about what happened during Church Mutual’s handling of the claim, the actions it took, and why it took them.

Ms. Renland’s testimony, however, was extremely important, because she admitted Church Mutual failed to pay First United’s undisputed losses timely and that this failure was arbitrary, capricious or without probable cause so as to subject Church Mutual to penalties and attorney’s fees. By way of background, Ms. Renland has been a licensed adjuster for over twenty years. ROA.732-733. She had adjusted claims in Louisiana for Church Mutual well before Hurricane Laura, going all the way back to Hurricane Katrina and Hurricane Rita.  As a result, she was familiar with Church Mutual’s policies and procedures for compliance with Louisiana law, because Church Mutual knew its failure to comply with Louisiana law could render it liable for penalties and attorney’s fees on top of policy damages.

It is odd that judges who presumably are not first-party claims handling experts nor learned in good faith duties of adjusters would ignore such an admission by an experienced adjuster designated to testify by Church Mutual as its corporate representative. Maybe it proves my point that one never knows how litigation is going to turn out, and predicting how different judges view matters can be speculative as well.

I am not certain there are significant lessons learned from the recent decision that were not already highlighted in yesterday’s post. Timely good faith inspections with timely payments for undisputed amounts owed significantly determine if an insurer is acting in good faith.

Insurers should engage qualified experts promptly and carefully consider their findings from all evidence. The existence of legitimate questions about the extent of damage can shield an insurer from bad faith penalties, assuming subsequent payments are not too late. Insurers should document their reasoning for disputing certain damages and findings.

The appellate court seemed to focus on Church Mutual’s ongoing evaluation of the claim, and the additional payment helped show good faith. Insurers should be prepared to re-evaluate claims and make additional payments when new information comes to light.

Implications for Policyholders and Their Attorneys

This ruling demonstrates that bad faith cases against insurers are not automatic wins, even when there are some delays or disputes in payment. To prevail on bad faith claims, policyholders and their attorneys should:

Document all communications and provide clear, timely proof that damages under the policy are owed.
Be prepared to show that disputed damages were clearly covered and that the insurer had no good faith basis for delay.
Engage their own qualified experts to counter insurer arguments about the extent of damage.
Highlight any pattern of delay or failure to re-evaluate the claim when new information is provided.
Be aware that courts may apply varying standards for what constitutes “arbitrary and capricious” conduct.

While this case represents a win for Church Mutual, it doesn’t negate the importance of prompt, thorough claims handling by insurers. The key takeaway is that having a reasonable basis for disputing certain damages, relying on expert opinions, and showing ongoing claim evaluation can help insurers avoid bad faith penalties – even if some aspects of the claim handling were less than perfect.

For policyholders and their advocates, this case reflects the need to build a strong, well-documented, factual case when alleging bad faith. Simply showing some delay in payment may not be enough; demonstrating that the insurer’s conduct was truly arbitrary and without any reasonable basis remains crucial to prevailing on bad faith claims because some courts seem reluctant to award penalties even when the insurance company representative, but not its lawyers, admits to the wrongdoing.

Thought For The Day  

The minute you read something that you can’t understand, you can almost be sure that it was drawn up by a lawyer.
—Will Rogers

1 First United Pentecostal Church v. Church Mut. Ins. Co., No. 23-30779, 2024 WL 4511240 (5th Cir. Oct. 17, 2024).