A Repair Estimate Is Not Necessarily a Notice of Bad Faith in Louisiana

A Louisiana property insurer receives a contractor’s estimate for far more than it paid after a hurricane. Sixty days pass. The insured files suit and seeks bad faith penalties.

Did the estimate start the cure period under Louisiana’s Act 3?

That question is reaching the courts. Act 3 of 2024 created La. R.S. 22:1892.2 for certain catastrophic losses involving immovable property. Before bringing an action under that section, an insured must give the insurer 60 days’ written notice of the alleged violation, giving the insurer an opportunity to cure any alleged breach of contract and reduce — if not eliminate — extra-contractual exposure.

The Louisiana Legislature granted this substantive right to insurers. If suit is filed before the required notice is sent, the statute calls for an automatic stay.

The difference between an estimate and a cure notice matters. An estimate tells the insurer what a contractor believes repairs will cost. It may be important proof of the loss and may require the insurer to reconsider its payment. A cure notice tells the insurer that the insured alleges a statutory violation and gives it an opportunity to address a specified demand before the penalty claim proceeds.

Act 3 attaches consequences to that opportunity. If the insurer makes the full statutory cure within 60 days, the insured has no further cause of action under Section 1892.2 concerning the noticed demand. A timely partial payment can reduce by half any penalty otherwise due on the amount paid. The insurer must respond to the notice within 60 days.

A claims team cannot evaluate those choices without knowing what violation is alleged and what the insured demands to resolve it. A disagreement over repair costs, even a substantial one, does not necessarily supply that information.

Federal judges in Louisiana have begun to draw that distinction.

In Castro-Rochez v. Allied Trust Insurance Co., the insureds sent a demand package containing an engineering report and estimate. The Eastern District of Louisiana held that the package described damage but did not notify the insurer of an alleged statutory violation. The court stayed the suit.

In 3612 Edenborn LLC v. Chaucer Insurance Co. DAC, the insured argued that its repair estimate, sent more than 60 days before suit, satisfied the notice requirement. The court disagreed and stayed the case until adequate notice was provided.

In Sicilian Foods LLC v. Atain Specialty Insurance Co., another Eastern District judge enforced the stay and explained how the cure period gives an insurer an opportunity to eliminate or reduce statutory penalty exposure.

Those rulings do not end the debate. The Louisiana Supreme Court is considering a writ application on this issue, which could provide more guidance to insurers and policyholders alike.

Claims professionals should treat each communication according to what it says and does. An estimate deserves prompt evaluation for any additional amount due. A communication alleging a statutory violation requires its own review, deadline and response. Keeping those decisions distinct gives the insurer an opportunity to address the claim and makes the record clear if the dispute reaches court.

Act 3 was written to provide an opportunity to resolve an alleged violation before litigating penalties. Whether a particular letter starts that process depends on its substance. The emerging cases show that sending an estimate and giving notice of bad faith may be two different acts.

Arnold is a partner at Blue Williams LLC.