Louisiana Supreme Court: Payment by Insurer Establishes Liability

July 6, 2009

The Louisiana Supreme Court recently reversed the decision of trial and appeals courts, which had ruled in favor of an insurer in a case involving an uninsured/underinsured motorist.

In Marco Demma, III v. Automobile Club Inter-Insurance Exchange (2008-C -2810), the high court undertook to “determine whether an carrier’s unconditional payment of monies to its insured for damages sustained in an automobile accident with an underinsured motorist pursuant to LSA-R.S. 22:658 … constitutes an acknowledgment sufficient to interrupt prescription.”

The Court found that the payment did show evidence of the insurer’s liability and maintained that the lower courts “erred in sustaining the uninsured/underinsured motorist carrier’s exception of prescription.”
The lower courts’ decisions were reversed and the case was remanded to the district court.

The Court described the case as follows:

“On May 3, 2005, Marco Demma, III was operating a vehicle owned by his father, Marco Demma, Jr., when he was struck by a vehicle being operated by Shane Quick.

“At the time of the accident, Quick was insured under a policy of liability insurance issued by Liberty Mutual Insurance Company (Liberty Mutual). Demma was covered under a policy of uninsured/underinsured motorist (“UM”) insurance issued to his father by Automobile Club Inter-Insurance Exchange (“Auto Club”).

“Following the accident, Demma filed a claim with Auto Club asserting that Liberty Mutual had paid its limits under the liability policy issued to Quick, but that the payment was insufficient to compensate Demma for his injuries. By correspondence dated November 8, 2006, Auto Club made an unconditional tender of $23,000.00 to Demma.”

Believing the $23,000 to be insufficient to cover the cost of his injuries, Demma unsuccessfully attempted to contact Auto Club about additional amounts. In May 2007 he filed suit “filed suit against Auto Club, alleging that Auto Club had breached its contractual obligations and acted in bad faith in handling his claim. Auto Club answered the petition and asserted a peremptory exception of prescription,” according to Supreme Court documents.

Both the district court and appeals court found in favor of Auto Club. However, one member of the appeals panel questioned the decision and the Supreme Court agreed to take up the matter.

Demma argued that Auto Club’s unconditional payment of $23,000 tacitly acknowledged “existence of the obligation and interrupting prescription,” the court said. Demma also introduced a copy of a letter dated Nov. 8, 2006, that accompanied the $23,000 check from Auto Club. The letter, the court said, “states, in pertinent part:

“‘Enclosed is our check for the Unconditional Tender of $23,000.00 in settlement of your Underinsured Motorist claim.

“‘Please call me to discuss the final settlement of your claim.'”

The Supreme Court stated in its published opinion that “it is important to note that the unconditional payment that is owed by the insurer is not owed under the statute, but pursuant to the insurance contract. The amount that must be unconditionally tendered to the insured is not tendered in settlement of the claim, but as a demonstration of the insurer’s good faith and in order to comply with the duties imposed under the contract of insurance.”

The Court also wrote that after reviewing relevant statutes, cases and code articles, it reaffirmed its ruling in a previous case “that the unconditional payment of a portion of a debt is a tacit acknowledgment sufficient to interrupt prescription.”

Therefore, the Court said, Auto Club’s unconditional payment of $23,000 to Demma “was a tacit acknowledgment that interrupted prescription,” and the “lower courts erred in sustaining the exception of prescription.”

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