Chris D’Amour, Paige Franckiewicz and Jeffey Richardson | Adams and Reese
In a recent unanimous decision in Wilson v. Louisiana Citizens Property Insurance Corporation, the Louisiana Supreme Court held that bad faith claims against insurance companies are subject to a two-year prescriptive period when a policy states that a breach of contract claim against the insurer must be filed within two years.
In doing so, the Court streamlined insurance litigation between policyholders and their insurers.
The default rule in the Louisiana Civil Code is that a plaintiff alleging breach of contract has ten years to file a lawsuit. However, the parties to such a contract may agree to limit that period so long as the truncation does not violate public policy. This practice is commonplace in the realm of insurance, so much so that Louisiana Revised Statute § 22:629 specifically states that an insurance policy may limit the right to sue to two years. In a prior decision, the Louisiana Supreme Court affirmed that two-year limitation for a breach of contract claim.
After that decision, there was further litigation regarding whether the two-year limitation would also apply to a claim that the insurer acted in bad faith.
For example, in Melendez v. Southern Fidelity Insurance Company, the Eastern District of Louisiana held that the two-year limitation applied to a bad faith claim. However, several more recent rulings out of the Western District held that the insured has ten years to sue for bad faith, even if the policy states that a suit be filed within two years.*
To remedy the inconsistency, the Louisiana Supreme court revisited the issue in its recent decision in Wilson v. Louisiana Citizens Property Insurance Corporation. Notwithstanding the disagreement in other courts, the justices of the Louisiana Supreme Court reached a unanimous decision, holding that a two-year prescriptive limitation in an insurance policy applies not only to an insured’s breach of contract claim but also any bad faith claims.
* See, e.g., Miller v. Aegis Sec. Ins. Co., No. 2:23-CV-01055, 2023 WL 6850131 (W.D. La. Oct. 17, 2023); Goodly v. Allstate Ins. Co., No. 2:22-CV-05650, 2023 WL 6466262 (W.D. La. Oct. 4, 2023).
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