Opinion
2023 CA 0535
01-10-2024
STATE FARM FIRE AND CASUALTY COMPANY v. James DONELON, in His Official Capacity as Commissioner for the Department of Insurance for the State of Louisiana
William D. Shea, Kellen J. Matthews, Jeffrey E. Richardson, Baton Rouge, Louisiana, Attorneys for Plaintiff/Appellee, State Farm Fire and Casualty Company John W. Waters, Jr., New Orleans, Louisiana, Attorney for Defendant/Appellant, James J. Donelon, in his official capacity as Commissioner for the Department of Insurance, State of Louisiana
On Appeal from the 19th Judicial District Court, In and for the Parish of East Baton Rouge, State of Louisiana, Trial Court No. C717505, Honorable Trudy M. White, Judge Presiding
William D. Shea, Kellen J. Matthews, Jeffrey E. Richardson, Baton Rouge, Louisiana, Attorneys for Plaintiff/Appellee, State Farm Fire and Casualty Company
John W. Waters, Jr., New Orleans, Louisiana, Attorney for Defendant/Appellant, James J. Donelon, in his official capacity as Commissioner for the Department of Insurance, State of Louisiana
BEFORE: THERIOT, PENZATO, AND GREENE, JJ.
PENZATO, J.
2James J. Donelon, in his official capacity as Commissioner for the Department of Insurance, State of Louisiana (the Commissioner), appeals the district court’s February 8, 2023 judgment reversing a decision of the Division of Administrative Law and declaring a cease and desist order issued by the Commissioner to State Farm Fire and Casualty Company (State Farm) to be invalid. For the following reasons, we affirm the district court’s judgment.
FACTS AND PROCEDURAL HISTORY
At issue in this case is the validity of a cease and desist order issued by the Commissioner in connection with State Farm’s application of a Hurricane Duration Deductible (HDD) to claims arising from Hurricane Barry, which made landfall in Louisiana in July of 2019. The relevant homeowners’ policies issued by State Farm in Louisiana contained endorsements that provided for application of the HDD to insured losses that occur during the "Hurricane Duration" as defined in the policy. The HDD is generally a higher percentage deductible than the "all-peril" deductible, which generally applies to certain insured losses that occur outside the Hurricane Duration.
State Farm policy forms used in Louisiana must be approved by the Louisiana Department of Insurance (LDI). In 2011, LDI approved the State Farm HDD endorsement that was in effect in 2019. This HDD endorsement provided as follows:
During the process of approving State Farm’s HDD endorsement, LDI indicated that it was LDI's position that the HDD applied to "losses that occur beginning when the hurricane watch or warning has been issued."
The Hurricane Duration deductible applies to Losses Insured that:
1. are caused by wind, wind gusts, hail, rain, tornadoes, lightning (except covered fire losses caused by lightning), cyclones, civil authority, or power outage; and
2. occur within the Hurricane Duration and result from the storm system that triggered the Hurricane Duration; 3provided this storm system has hurricane status, as classified by the National Hurricane Center of the National Weather Service:
1. sometime within the 48 hour period prior to first causing damage to property within this state; or
2. anytime after first causing damage to property within this state, so long as this hurricane classification occurs while a hurricane watch or warning is still in effect for this state.
"Hurricane Duration" is defined in the endorsement as the period of time:
1. beginning when a hurricane watch or warning is issued for any part of this state because of a storm system that has been declared to be a hurricane by the National Hurricane Center of the National Weather Service; and
2. ending 72 hours after the termination of the last hurricane watch or warning for any parts of this state.
The first hurricane watch in Louisiana for Barry was issued by the National Hurricane Center of the National Weather Service at 4:00 p.m. on July 10, 2019. At that time, Barry was a tropical storm. On July 11, 2019, a hurricane warning was issued. On July 13, 2019, at 10:00 a.m., the National Hurricane Center declared Barry to be a hurrcane. Hurricane Barry was downgraded to a tropical storm at 1:00 p.m. on July 13, 2019.
On July 17, 2019, LDI received a complaint from a State Farm insured, Sonny Lieu, regarding State Farm’s application of the HDD to his claim. In his complaint, Mr. Lieu, a Baton Rouge resident, indicated that his chimney fell down on July 13, 2019, "due to poor construction," but State Farm advised him that the HDD applied to his loss, even though his chimney fell before Barry made landfall and even though Baton Rouge was not considered a hurricane disaster area. According to State Farm’s interpretation of the HDD endorsement, in the case of Hurricane Barry, the Hurricane Duration started on July 10, 2019, at 4:00 p.m., when the first hurricane watch was issued. Because Mr. Lieu’s loss occurred July 13, 2019, around noon, State Farm determined that Mr. Lieu’s claim was subject to the HDD.
4Jeffrey Zewe, Deputy Commissioner of Insurance for the Office of Consumer Services, investigated Mr. Lieu’s complaint. The day after receiving the complaint, Mr. Zewe met with other LDI staff membera to discuss the applicability of State Farm’s HDD to Hurricane Barry. At the July 18, 2019 meeting, Mr. Zewe expressed his opinion that the HDD did not apply to any Hurricane Barry claims because there was no watch or warning issued after Barry was declared a hurricane. One staff member at the meeting, Liz Butler, executive counsel for LDI, disagreed with Mr. Zewe’s interpretation of State Farm’s HDD endorsement. Ms. Butler opined that the Hurricane Duration began when the first watch was issued in connection with a hurricane that has been declared, regardless of when the declaration was made. Ms. Butler indicated that she believed the HDD applied to Hurricane Barry claims beginning on July 10, 2019, at 4:00 p.m., with the issuance of the first hurricane watch, an interpretation consistent with that of State Farm.
On July 26, 2019, the Commissioner, Mr. Zewe, Ms. Butler, and several other LDI staff members met with representatives of State Farm to discuss the FIDD. At that meeting, State Farm was advised that LDI did not agree with State Farm’s application of the HDD to Hurricane Barry claims; rather, State Farm was advised that it should not apply the HDD to Hurricane Barry claims (Mr. Zewe’s interpretation). Thereafter, on August 5, 2019, the Commissioner advised State Farm that, as he interpreted the HDD endorsement, the Hurricane Duration began when Barry was declared a hurricane; thus, State Farm should only apply the HDD to losses that occurred after 10:00 a.m. on July 13, 2019, when the National Hurricane Center declared Barry to be a hurricane (the Commissioner’s interpretation). After several follow-up communications between State Farm and the Commissioner, on August 19, 2019, State Farm advised the Commissioner that 5it disagreed that its application of the HDD to insured losses that occurred prior to the declaration of Barry as a hurricane was improper. State Farm maintained that it properly applied the HDD to Hurricane Barry claims, that is, beginning on July 10, 2019, at 4:00 p.m., when the first hurricane watch was issued.
By this time, LDI had received two additional consumer complaints regarding State Farm’s application of its HDD to Hurricane Barry claims. Mr. Zewe testified at the administrative hearing that all three complaints were ultimately found to be non-meritorious.
On August 20, 2019, the Commissioner issued a "Cease and Desist Order and Notice of Proposed Regulatory Action" (C&D Order). The C&D Order indicated that LDI had received a complaint that State Farm was imposing a HDD on claims made for losses attributable to Hurricane Barry that occurred prior to the Hurricane Duration period. According to the C&D Order, the Hurricane Duration period did not commence until July 13, 2019 at 10:00 a.m., when Barry was declared to be a hurricane, and the HDD could not be applied to the claims of policy-holders for losses sustained before 10:00 a.m. The C&D Order identified the following violation by State Farm:
Your imposition of a [HDD] on claims made for losses occurring prior to 10:00 a.m. on July 13, 2019, or when the imposition of a hurricane deductible should
not be imposed in accordance with the policy language, constitutes a violation of La. R.S. 22:1892, La. R.S. 22:1964(1)(a) and (14)(a).
Louisiana Revised Statutes 22:1892(A)(1) provides, in relevant part, that "[a]ll insurers … shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest."
Louisiana Revised Statutes 22:1964 declares, in pertinent part, the following to be unfair methods of competition and unfair or deceptive acts or practices in the business of insurance:
(1) Misrepresentations and false advertising of insurance policies. Making, issuing, circulating, or causing to be made, issued, or circulated any estimate, illustration, circular or statement, sales presentation, omission, or comparison that does any of the following:
(a) Misrepresents the benefits, advantages, conditions, or terms of any policy issued or to be issued.
* * *
(14) Unfair claims settlement practices. Committing or performing with such frequency as to indicate a general business practice any of the following: (a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.
The C&D Order contained the following directive:
In accordance with La. R.S. 22:18, La. R.S. 22:1969, and 49:961, STATE FARM FIRE AND CASUALTY COMPANY is hereby 6ordered to CEASE AND DESIST from imposing a [HDD] on claims made by Louisiana State Farm homeowners insurance policyholders for losses incurred during the period when policy language dictates a [HDD] should not be imposed. Any violation of the cease and desist order or other violations of the Louisiana Insurance Code may result in further regulatory action.
In addition, the Commissioner proposed to suspend or revoke the Certificate of Authority issued to State Farm.
On August 26, 2019, State Farm requested an administrative hearing to determine the validity and underlying legal basis of the C&D Order. At the administrative hearing conducted on August 23-24, 2021, both State Farm and LDI presented testimony and evidence. On December 30, 2021, the Administrative Law Judge (ALJ) rendered its decision affirming the C&D Order. The ALJ affirmed the C&D Order because it concluded that the Commissioner’s interpretation of the HDD policy language was reasonable. According to the ALJ, La. R.S. 22:1969(A) mandates that if the Commissioner determines that a person has engaged in an unfair method of competition or an unfair or deceptive act or practice, the Commissioner shall issue and cause to be served upon the person an order requiring the person to cease and desist from the practice. The ALJ indicated that the C&D Order was precipitated by investigation and deliberation by LDI senior staff after complaints were filed by State Farm policyholders. The ALJ concluded that the C&D Order was not arbitrary or capricious because it was based on the findings of the investigation conducted by LDI and after extensive communication with State Farm representatives. The ALJ further found that the C&D Order was not an abuse of discretion in that the Commissioner’s interpretation of the HDD was not clearly wrong, manifestly erroneous, or such an abuse that it shocked the conscience. Thus, the ALJ affirmed the C&D Order, which imposed the Commissioner’s interpretation 7of the definition of Hurri- cane Duration upon State Farm. State Farm requested a rehearing, which was denied.
State Farm also requested a stay order deferring the implementation of the C&D Order pending the outcome of the full hearing on the merits. The Commissioner did not oppose the motion. An ALJ granted the motion to stay on September 11, 2019.
Thereafter, State Farm filed a petition for judicial review in the Nineteenth Judicial District Court, seeking a judgment reversing the ALJ’s decision and invalidating the C&D Order. In support of its petition, State Farm argued the ALJ’s decision violated La. R.S. 22:18, which mandates that the C&D Order should not be maintained if it was not "warranted," following a proper hearing, without any deference to the Commissioner. State Farm also argued the ALJ failed to adequately consider whether State Farm’s application of the HDD violated any of the statutes cited by the Commissioner in the C&D Order. State Farm contended its application did not violate any provisions of the Insurance Code, and the ALJ’s consideration of any potential violation was limited solely to matters related to the Commissioner’s regulatory authority, not to claims of coverage, which are the province of the judiciary. State Farm further argued the ALJ erred as a matter of law in finding the language in the HDD ambiguous, affording deference to the Commissioner’s interpretation, failing to consider the Commissioner’s reversal from the 2011 interpretation and approval of the HDD, and failing to consider that the C&D Order did not mandate that State Farm follow the Commissioner’s interpretation.
The petition for judicial review also included a request for a stay. The district court issued a stay order on April 5, 2022. The Commissioner filed a motion to dissolve the stay issued by the district court, which motion was denied on May 10, 2022.
A copy of the administrative record was filed with the district court on June 14, 2022. State Farm’s petition for judicial review was heard on January 30, 2023. At the conclusion of the hearing, with respect to the C&D Order, the district court noted that the C&D Order made no reference that the HDD was ambiguous, and therefore the issue of ambiguity was not before the ALJ. The district court indicated that a subsequent hearing would be required on the issue of ambiguity to allow State Farm to be heard. The district court further found that La. R.S. 22:1892 could not 8be used as authority for the C&D Order because there were no violations by State Farm of the Insurance Code, and that satisfactory proof of loss is a question of law for the judiciary, not the Commissioner. Finally, the district court found that because the C&D Order did not contain allegations of violations of La. R.S. 22:1892, 22:1964(1)(a) and (14)(a), the C&D Order was invalid. Accordingly, the district court granted State Farm’s petition for judicial review, reversed the ALJ’s decision, and declared the C&D Order invalid. On February 8, 2023, the district court signed a judgment in accordance with its oral ruling.
The Commissioner appeals the February 8, 2023 judgment, contending the district court erred in declaring the C&D Order invalid.
STANDARD OF REVIEW
[1] The Louisiana Administrative Procedure Act, at La. R.S. 49:978.1(G), governs the district court’s judicial review of a final decision in an agency adjudication, providing that:
Louisiana Revised Statutes 49:978.1 was redesignated from La. R.S. 49:964 by 2022 La. Acts No. 663, § 1, effective August 1, 2022.
The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights
of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Affected by other error of law;
(5) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or
(6) Not supported and sustainable by a preponderance of evidence as determined by the reviewing court. In the application of this rule, the court shall make its own determination and conclusions of fact by a preponderance of evidence based upon its own evaluation of the record reviewed in its entirety upon judicial review. In the application of the rule, where the agency has the opportunity to judge the credibility of witnesses by first-hand observation of demeanor on the witness stand 9and the reviewing court does not, due regard shall be given to the agency’s determination of credibility issues.
Any one of the six bases listed in La. R.S. 49:978.1(G) is sufficient to modify or reverse an agency determination. See Mid-City Automotive, LLC v. Louisiana Department of Public Safety, 2019-1219 (La. App. 1 Cir. 5/11/20), 304 So. 3d 457, 461.
[2–4] When reviewing an administrative final decision in an adjudication proceeding, the district court functions as an appellate court. Coastal Bridge Company, LLC v. Louisiana State Licensing Board for Contractors, 2022-0737 (La. App. 1 Cir. 1/11/23), 361 So. 3d 40, 45, writ denied, 2023-00207 (La. 4/12/23), 359 So. 3d 29. An aggrieved party may obtain a review of any final judgment of the district court by appeal to the appropriate circuit court of appeal. La. R.S. 49:979. On review of the district court’s judgment, no deference is owed by the court of appeal to the factual findings or legal conclusions of the district court, just as no deference is owed by the Louisiana Supreme Court to factual findings or legal conclusions of the court of appeal. Mid-City Automotive, 304 So. 3d at 461. Thus, an appellate court sitting in review of an administrative agency reviews the findings and decision of the administrative agency and not the decision of the district court. Id. Accordingly, this court will conduct its own independent review of the record in accordance with the standards provided in La. R.S. 49:978.1(0) to determine whether the C&D Order was properly issued.
LAW AND ANALYSIS
The Louisiana Constitution establishes the Department of Insurance, headed by the commissioner of insurance. La. Const. art. IV, § 11. The commissioner "shall have powers and perform duties authorized by [the Louisiana] constitution or provided by law." Id. Louisiana Revised Statutes 22:18(A) authorizes the Commissioner to order an insurer to cease and desist any action that violates any 10provision of the Insurance Code. In the C&D Order, the Commissioner found that State Farm violated La. R.S. 22:1892 and La. R.S. 22:1964(1)(a) and (14)(a) by imposing the HDD on claims made for losses occurring prior to 10:00 a.m. on July 13, 2019, or when the imposition of a hurricane deductible should not have been imposed, in accordance with the policy language.
Louisiana Revised Statutes 22:1892(A)(1) requires insurers to pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest. Louisiana Revised Statutes 22:1964 declares certain methods, acts, and practices to be unfair methods of competition and unfair or deceptive acts or practices in the business of insurance. Relevant hereto, La. R.S. 22:1964(1)(a) and (14)(a) declare the following to be unfair or deceptive acts or practices:
(1) Misrepresentations and false advertising of insurance policies. Making, issuing, circulating, or causing to be made, issued, or circulated any estimate, illustration, circular or statement, sales presentation, omission, or comparison that does any of the following:
(a) Misrepresents the benefits, advantages, conditions, or terms of any policy issued or to be issued.
* * *
(14) Unfair claims settlement practices. Committing or performing with such frequency as to indicate a general business practice any of the following:
(a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.
On appeal, the Commissioner contends that the Insurance Code mandates a "readable Policy" (La. R.S. 22:41) and anyone misrepresenting the terms of a policy would be engaged in an unfair or deceptive act or practice, violative of La. R.S. 22:1964(1)(a) and (14)(a). The Commissioner further argues that the decision to issue the C&D Order was a discretionary action, which cannot be overturned by the 11Court in the absence of a clear showing that the action was arbitrary and capricious. According to the Commissioner, the HDD is ambiguous, and the Commissioner’s interpretation of the HDD is entitled to deference.
Louisiana Revised Statutes 22:41, titled "Policyholder bill of rights," states that it does not create additional causes of actions not otherwise provided under Louisiana statutes.
At the administrative hearing, Mr. Zewe was able to identify only three consumer complaints regarding State Farm’s application of the HDD received by LDI prior to the issuance of the C&D Order. Mr. Zewe testified that State Farm did not violate the Insurance Code in connection with any of these three complaints. Moreover, the record contains no evidence that State Farm failed to pay the amount of any claim due within thirty days after receipt of satisfactory proofs of loss as required by La. R.S. 22:1892. Thus, as there is no evidence that State Farm violated La. R.S. 22:1892, we must determine whether there is any evidence that State Farm violated La. R.S. 22:1964(1)(a) and (14)(a) by engaging in unfair methods of competition or unfair or deceptive acts or practices.
In issuing the C&D Order, the Commissioner concluded State Farm violated La. R.S. 22:1964 by misrepresenting its policy language to policyholders. Applied herein, the Commissioner contends that the interpretation of a policy provision that differs from the Commissioner’s interpretation of that provision constitutes a misrepresentation in violation of La. R.S. 22:1964.
[5–7] The interpretation of an insurance contract is a matter of law. Labarre v. Occidental Chemical Company & Texas Brine Company, LLC, 2017-1370 (La. App. 1 Cir. 6/4/18), 251 So. 3d 1092, 1102. writ denied, 2018-1380 (La. 12/3/18), 257 So. 3d 196. It is the job of the courts to resolve disputes over insurance coverage. Breazeale v. T.T., 2012-1703 (La. App. 1 Cir. 4/26/13), 117 So. 3d 192, 202, writ denied, 2013-1852 (La. 11/1/13), 125 So. 3d 437. The duty of the Commissioner is to administer the provisions of the Insurance Code. La. R.S. 22:2(A)(1); Breazeale, 117 So. 3d at 202. The Commissioner is not the final arbiter of the interpretation and reconciliation of the Insurance Code and insurance policy language. That role 12is constitutionally assigned to the judiciary. Id.; see also Bayham v. State Through Office of Group Benefits, 2018-1708 (La. App. 1 Cir. 8/29/19), 285 So. 3d 1111, 1117, writ denied, 2019-01667 (La. 1/14/20), 286 So. 3d 1040.
[8] Applying these precepts, we find that the Commissioner improperly determined that State Farm’s application of its HDD in a manner consistent with its interpretation of the HDD endorsement instead of the Commissioner’s interpretation violated La. R.S. 22:1964(/)(a) and (14)(a). These statutory provisions require a misrepresentation by an insurer with regard to its policy language. A misrepresentation requires a party to provide false or incorrect information. See, e.g., Cook v. American Gateway Bank, 2010-0295 (La. App. 1 Cir. 9/10/10), 49 So. 3d 23, 32 (defining the elements of negligent misrepresentation). There is no evidence in the record that State Farm provided false or inaccurate information regarding the applicability of its HDD to claims arising from Hurricane Barry. Rather, it advised its policyholders that based upon the policy of insurance, the FTDD applied to Hurricane Barry claims beginning on July 10, 2019, at 4:00 p.m., when the first hurricane watch was issued. The Commissioner disagreed with State Farm’s interpretation of its policy and opined that the HDD was not applicable to claims for losses sustained prior to 10:00 a.m. on July 13, 2019. However, the Commissioner’s interpretation of the policy language is not the definitive interpretation. As noted above, that role is constitutionally assigned to the judiciary.
[9] Upon our independent review of the record in this matter, we find there is no evidence that State Farm violated La. R.S. 22:1892, La. R.S. 22:1964(1)(a), or La. R.S. 22:1964(14)(a), the provisions of the Insurance Code upon which the C&D Order was based. Pursuant to the Louisiana Constitution and the Insurance Code, the Commissioner has the authority to issue a C&D Order only for actions that violate the Insurance Code. Absent evidence of such a violation, the Commissioner’s action in issuing the C&D Order violates constitutional and 13statutory provisions and exceeds the Commissioner’s statutory authority. Thus, we affirm the February 8, 2023 district court judgment declaring the C&D Order invalid.
CONCLUSION
After our de novo review, the February 8, 2023 district court judgment, which granted the petition for judicial review filed on behalf of State Farm Fire and Casualty Company, reversed the decision of the Division of Administrative Law, and declared invalid a cease and desist order issued by James J. Donelon, in his official capacity as Commissioner for the Department of Insurance, State of Louisiana, is affirmed. Costs of this appeal in the amount of $10,834.00 are assessed to James J. Donelon, in his official capacity as Commissioner for the Department of Insurance, State of Louisiana.
AFFIRMED.