Louisiana Legislature Enacts Act 932 – Significant Changes To Insurer Bad-Faith Exposure For Failure To Settle

The Louisiana Legislature has enacted Act 932 (formerly House Bill 1162), which became law this week without the Governor's signature pursuant to the Louisiana Constitution, after expiration of the applicable constitutional review period. Act 932 makes several important amendments to Louisiana's insurer bad-faith statute and appears intended, at least in part, to address issues arising from the Louisiana Supreme Court's decision in Kelly v. State Farm Fire & Casualty Co., 169 So.3d 328 (La. 2015). The Act also makes changes regarding claim payments involving licensed contractors. The Act takes effect on August 1, 2026.

Key Takeaways

Act 932:

• Limits certain bad-faith causes of action (bad faith failure to settle) involving personal injury and bodily injury claims where good-faith disputes exist or where an insurer has not been afforded sufficient opportunity to respond to a settlement demand.
   
• Requires insurers and adjusters to verify a contractor's Louisiana license status before issuing claim payments when a contractor is named as a payee on a check for repair or restoration of immovable property.
   
• Creates a statutory safe harbor protecting insurers from bad-faith penalties and attorney fees when payment delays result from an inability to verify a contractor's license, provided specified documentation and notice requirements are met. 

The Kelly Decision

In Kelly v. State Farm, the Louisiana Supreme Court significantly expanded the potential scope of insurer bad-faith liability under Louisiana law. The Court held that:

• An insurer may be liable for bad-faith failure to settle even when it never received a formal or "firm" settlement demand; and
   
• An insurer may be liable for misrepresenting or failing to disclose "pertinent facts" even when those facts are not directly related to policy coverage.

The decision arose from an automobile accident in which the claimant's medical expenses exceeded policy limits. After an excess judgment was entered against the insured, litigation followed over whether the insurer had adequately communicated settlement-related information and fulfilled its duty to make reasonable efforts to settle the claim. The Supreme Court interpreted Louisiana's good-faith obligations broadly, emphasizing that an insurer's duties may be triggered by facts and circumstances in the absence of a formal settlement offer. 

Since Kelly, insurers have faced heightened exposure to bad-faith allegations based on claims-handling conduct, communications, and settlement practices.

How Act 932 Changes the Landscape

Act 932 directly amends La. R.S. 22:1892, Louisiana's principal bad-faith and prompt-payment statute. The legislation adds new limitations on bad-faith failure to settle claims in personal injury and bodily injury matters. Under the amended statute, no cause of action is created where:

• A good-faith dispute exists as to liability;
   
• A good-faith dispute exists as to medical causation; or
   
• No settlement offer within policy limits has been presented and the insurer has not been given at least thirty days to respond.

Act 932 also adds additional wording regarding policy misrepresentations to either an insured or a third-party claimant. Under the amended Act, a breach of the duty of good faith occurs for a knowing misrepresentation of pertinent facts or insurance policy provisions relating to any coverages at issue “or a misrepresentation of relevant insurance policy provisions.” 

These provisions are designed to provide insurers with greater protection from bad-faith exposure in contested liability and injury claims and are viewed as a legislative response to concerns raised by Kelly and subsequent bad-faith litigation.

New Contractor Verification Requirements

For property claims involving repairs to immovable property, Act 932 imposes a new obligation on insurers and adjusters to verify the contractor's licensing status through the Louisiana State Licensing Board for Contractors before issuing payment when the contractor is a named payee.

Recognizing that verification issues may delay claim payments, the Act creates a safe harbor from penalties and attorney fees if:

• The delay is directly attributable to the inability to verify the contractor's license;
   
• The insurer documents its verification efforts in the claim file; and

Written notice is provided to the insured within five business days explaining the delay.

Practical Implications

Insurers writing business in Louisiana should promptly review and, where necessary, revise:

• Claims-handling protocols;
   
• Settlement evaluation procedures;
   
• Bodily injury claim documentation practices;
   
• Communications with insureds regarding settlement opportunities and excess exposure; and
   
• Property claims procedures involving contractor-payee checks.

While Kelly remains a significant Louisiana bad-faith decision, Act 932 provides insurers with additional statutory defenses and clarifications that may narrow certain avenues of bad-faith liability going forward. The ultimate scope of these amendments will likely be shaped by future judicial interpretation. 

For questions regarding Act 932, the Kelly decision, or Louisiana bad-faith litigation generally, please contact our Louisiana Insurance Coverage Team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.