       IN THE UNITED STATES COURT OF APPEALS
                FOR THE FIFTH CIRCUIT United States Court of Appeals
                                               Fifth Circuit

                                                                FILED
                                                               January 8, 2009

                                No. 07-30963               Charles R. Fulbruge III
                                                                   Clerk

XAVIER GRILLETTA, JR; RANDY LAUMAN

                                    Plaintiffs-Appellees-Cross-Appellants
v.

LEXINGTON INSURANCE COMPANY

                                    Defendant-Appellant-Cross-Appellee



                Appeal from the United States District Court
                    for the Eastern District of Louisiana


Before KING, DeMOSS, and PRADO, Circuit Judges.
PER CURIAM:
      Hurricane Katrina wreaked havoc on the New Orleans area, destroying
homes and businesses. One such casualty was a large vacation house located on
the southeastern shore of Lake Pontchartrain. This appeal considers whether
the insurer of the property must cover that damage.
           I. FACTUAL AND PROCEDURAL BACKGROUND
      Plaintiffs-Appellees-Cross-Appellants Xavier Grilletta (“Grilletta”) and
Randy Lauman (“Lauman”) (collectively, the “Plaintiffs”) owned a huge vacation
home on the shores of Lake Pontchartrain. The house was approximately 6,000
square feet and included nine bedrooms, seven and a half bathrooms, three
kitchens, two dens, a large main room measuring 25 by 60 feet, and an elevator.
                                  No. 07-30963

Water surrounded the house on three sides. The elevation of the lowest floor of
the house was 16.22 feet NAVD,1 with the lowest “horizontal member” at 15.21
feet NAVD. The property also included a large boathouse.
      The Plaintiffs obtained homeowners’ insurance from Defendant-Appellant-
Cross-Appellee Lexington Insurance Company (“Lexington”). The insurance
policy covers most damage—including damage from wind—but excludes
coverage of “water damage,” defined as damage caused by “flood, surface water,
waves, tidal water, overflow of a body of water, or spray from any of these,
whether or not driven by wind.” In essence, therefore, if wind destroyed the
house, then Lexington’s insurance policy covers the damage; if water destroyed
the house, then Lexington is not liable based on the water-damage exclusion.
The policy limits are $400,000 on the dwelling, $40,000 on other structures, and
$200,000 on contents in the house.
      On August 29, 2005, Hurricane Katrina completely destroyed the house.
Two days after the hurricane, the Plaintiffs reported the loss to Lexington.
Lexington hired an outside adjuster, Wayne Wagner (“Wagner”), to work on the
claim. Wagner met with the Plaintiffs at the property on September 27, 2005.
After that meeting, Wagner requested additional information from the Plaintiffs,
which they provided at another meeting on October 28, 2005. On November 10,
2005, Grilletta faxed a lost contents list to Wagner. On November 12, 2005,
Wagner submitted a final report to his superiors, who then forwarded the report
to Lexington on November 13, 2005. Wagner concluded, “[t]he damage appears
to be wind related” and “[t]he home was destroyed from wind and not flood.” He
recommended that Lexington pay the Plaintiffs $400,000 for the dwelling (the
policy limit) and an additional $140,448 for the loss of contents, minus a
deductible of $8,000, for a total payment of $532,448.


      1
       NAVD stands for North American Vertical Datum. In essence, “16.22 feet NAVD”
means 16.22 feet above sea level.

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                                  No. 07-30963

      Lexington took no action until January 26, 2006, when it requested a
damage causation analysis from Halliwell Engineering Associates, Inc.
(“Halliwell Engineering”). The engineering firm retained meteorologist Andy
Johnson (“Johnson”) to examine the cause of the damage. Johnson determined
that the maximum winds sustained at the property were between 95 and 100
miles per hour, with wind gusts possibly as high as 116 miles per hour. He
concluded that this wind might have damaged the roof, doors, and windows, but
was unlikely to have totally destroyed the property. He also found that the
storm surge was between fifteen to sixteen feet, with waves superimposed on
top. Johnson therefore concluded that a storm surge was the proximate cause
of the destruction. His report stated, however, that wind damage to the roof
might have occurred prior to any flood or storm surge. Halliwell Engineering
submitted Johnson’s report to Lexington on April 18, 2006.
      Lexington told Wagner, the claims adjuster, to re-adjust the claim based
on the Halliwell Engineering report, and specifically to assume that wind
damaged the roof, which in turn could have led to interior damage. Wagner then
submitted a report detailing the damage to the roof, siding, interior drywall
ceilings and walls, insulation, flooring, cabinets, and contents. On June 5, 2006,
Lexington paid the Plaintiffs $311,055.38, consisting of $191,674.58 for the
house and $119,380.80 for contents.
      On June 23, 2006, Grilletta wrote to Lexington to dispute its conclusion
that the proximate cause of the destruction was anything other than wind,
question Lexington’s failure to pay for the destruction of the boathouse, and
state that he and Lauman reserved the right to submit a supplemental claim for
lost contents. Lexington responded with a form denial letter. Thereafter, on
August 15, 2006, the Plaintiffs brought suit.
      In June 2007, the Plaintiffs included a supplemental claim for contents in
a proposed trial exhibit. Lexington did not respond to this supplemental


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contents claim. The district court conducted a bench trial on August 23-24,
2007. At trial, the Plaintiffs sought payments for total destruction of the house,
total destruction of the boathouse, supplemental contents coverage, and
statutory penalties.
      Regarding the destruction of the house, the Plaintiffs offered the testimony
of engineer Leonard Quick (“Quick”). Quick stated that “[t]he property was
destroyed by high wind forces, more probably than not, a tornado by way of the
forensic physical evidence well in advance of the maximum height of flood water
associated with a storm surge on the back end of the storm.” Quick came to this
conclusion by examining the forensic evidence at the property, albeit
approximately fourteen months after the hurricane. Quick also stated that if
there were not a tornado, then winds of 125-155 miles per hour destroyed the
property. Regarding a storm surge, Quick stated that the house sustained a
surge of only ten to twelve feet.
      In response, Lexington submitted the testimony of two experts who
provided a completely different analysis. Meteorologist Johnson stated that he
examined the radar images of the area from the National Weather Service’s
Doppler radar in Slidell and could not find any evidence of a tornado. Lexington
argued that Johnson’s analysis of the radar images rules out the possibility of
a tornado crossing the Plaintiffs’ property. Johnson also used data from the
National Climatic Data Center to conclude that the property sustained
maximum winds of approximately 100 miles per hour, with gusts at 129 miles
per hour. Johnson testified that these winds were Category 2 winds on the
Saffir-Simpson scale and could damage roofs, doors, or windows but could not
cause major damage to the structure. Providing his theory of the cause of the
destruction, Johnson stated that the height of the storm surge at the
property—not counting the waves on top—was 15.3 feet, just touching the lowest
horizontal members of the house. Engineer Todd Cormier (“Cormier”) reviewed


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this meteorological data and described how, in his opinion, the force of the waves
destroyed the house. He explained that a large storm surge exerted upward
pressure and lifted the wood-frame house off of its foundation. He also noted
that a storm surge destroyed a property known as “Old Glory” close to the
Plaintiffs’ property.
      In sum, the Plaintiffs’ expert, an engineer, asserted that either a tornado
or high winds destroyed the house and that there was a small storm surge of ten
to twelve feet. Lexington’s experts, a meteorologist and an engineer, stated that
there was no evidence of a tornado or winds strong enough to destroy the house
and that a storm surge of at least fifteen feet caused the destruction.
      The district court considered this evidence and issued written findings of
fact and conclusions of law. The court noted that there was no dispute that the
house was worth more than the $400,000 policy limit. It also stated that there
was no dispute that the boathouse was worth more than the $40,000 policy limit
for other structures, although Lexington did dispute this finding.
      In its conclusions of law, the court recognized that an insurer has the
burden of proving that a policy exclusion applies (once an insured suffers a loss),
and it determined that Lexington had not met its burden here. Specifically, the
court stated that “[a]t best, it is ambiguous as to what caused the destruction of
the property.” The court noted that Lexington and its experts conceded that
wind could have caused some of the damage. Accordingly, the court held that
the Plaintiffs were entitled to the full $400,000 payment for loss of the house.
The court also found that Lexington did not meet its burden of showing that
water destroyed the boathouse and awarded the Plaintiffs the full $40,000 policy
limit for this loss.
      Regarding the Plaintiffs’ claim for supplemental contents coverage, the
district court ruled that because the Plaintiffs had not actually submitted a
supplemental contents claim to Lexington itself, Lexington was not liable for any


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additional payments for contents coverage.        The court then awarded the
Plaintiffs statutory damages pursuant to Louisiana insurance law. Specifically,
the court awarded 25% of the undisputed amount that Lexington eventually paid
based on the satisfactory proof of loss, or 25% of $311,055.38 ($77,763.84). The
court rejected the Plaintiffs’ request for statutory penalties for the additional
amount that the court had awarded. In sum, the court awarded the Plaintiffs
$208,325.42 in additional payments for loss of the house, $40,000 for the loss of
the boathouse, and statutory penalties in the amount of $77,763.84. Both
parties appeal this ruling. Because the district court, which had diversity
jurisdiction, issued a final judgment, we have jurisdiction pursuant to 28 U.S.C.
§ 1291.
                                II. DISCUSSION
A.    The House
      1.    Standard of Review
      “The standard of review for a bench trial is well established: findings of
fact are reviewed for clear error and legal issues are reviewed de novo.” Bd. of
Trs. New Orleans Employers Int’l Longshoremen’s Ass’n v. Gabriel, 529 F.3d 506,
509 (5th Cir. 2008) (quoting Water Craft Mgmt. LLC v. Mercury Marine, 457
F.3d 484, 488 (5th Cir. 2006)). Accordingly, we review the allocation of the
burden of proof de novo and the decision on whether the party met that burden
for clear error. See Guajardo v. Tex. Dep’t of Criminal Justice, 363 F.3d 392, 395
(5th Cir. 2004) (per curiam).


      2.    Analysis
      As the district court correctly explained, under Louisiana law, once an
insured suffers a covered loss, the insurer has the burden of proving that a policy
exclusion applies to avoid liability. See LA. REV. STAT. ANN. § 22:658.2(B) (“If
damage to immovable property is covered, in whole or in part, under the terms

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                                  No. 07-30963

of the policy of insurance, the burden is on the insurer to establish an exclusion
under the terms of the policy.”). The insurer must demonstrate that the policy
exclusion applies by a preponderance of the evidence. See Ferguson v. State
Farm Ins. Co., No. 06-3936, 2007 WL 1378507, at *1 (E.D. La. May 9, 2007)
(citing Ferro v. Gebbia, 252 So. 2d 545, 547 (La. Ct. App. 1971)). As there is no
dispute that the Plaintiffs suffered a covered loss, Lexington had the burden of
proving by a preponderance of the evidence that the water-damage exclusion
applied, i.e., that water destroyed the house.
      When reviewing a district court’s factual findings, this court may not
second-guess the district court’s resolution of conflicting testimony or its choice
of which experts to believe. See Ayers v. United States, 750 F.2d 449, 455 (5th
Cir. 1985) (“The resolution of conflicting testimony and the making of credibility
choices are within the province of the court sitting without a jury, subject only
to the clearly erroneous standard.”). As we have previously stated, “[t]he
credibility determination of witnesses, including experts, is peculiarly within the
province of the district court. Consequently, we give deference to the findings
and credibility choices trial courts make with respect to expert testimony.”
League of United Latin Am. Citizens No. 4552 v. Roscoe Indep. Sch. Dist., 123
F.3d 843, 846 (5th Cir. 1997) (internal quotation marks and citations omitted).
Thus, we review the district court’s finding that water did not destroy the house
only for clear error.
      The Louisiana Fourth Circuit Court of Appeal recently decided a very
similar case, which guides our analysis. See Veade v. La. Citizens Prop. Corp.,
985 So. 2d 1275 (La. Ct. App. 2008). That case involved a house near the
Grilletta-Lauman property that Hurricane Katrina also destroyed. Id. at 1277.
At trial, the plaintiffs presented the testimony of the same engineer as in this
case, Leonard Quick, who stated that high winds or a tornado, and not water,
destroyed the property. Id. at 1279. The insurer presented the opinions of its

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own experts, who determined that water caused the destruction. Id. at 1279-80.
The trial court weighed these competing views and concluded that the insurer
had not met its burden of showing that the water damage exclusion applied. Id.
at 1280. On appeal, the court noted that “Mr. Quick is an experienced forensic
engineer who had conducted many Katrina related claim inspections.” Id. The
court ruled that the trial court had not committed “manifest error” in its
findings, especially because there were “two opposing theories” as to the
destruction of the property. Id.
      Similarly, much of the bench trial in this case involved a battle of the
experts. As discussed above, the Plaintiffs presented the testimony of Quick, the
engineer, who stated that his review of the forensic physical evidence suggested
that a tornado or high winds destroyed the house. Lexington responded with the
testimony of two experts, who discounted the Plaintiffs’ expert and concluded
that the only plausible explanation was that water or flooding caused the
destruction. On appeal, Lexington strenuously objects to the district court’s
finding that it did not meet its burden of showing that water caused the damage,
arguing that “objective meteorological evidence” completely discounts the theory
that a tornado or high winds destroyed the house. It notes that its meteorologist
expert, Johnson, used objective data from the National Weather Service, the
National Hurricane Center, the National Oceanic Atmospheric Administration,
the National Climatic Data Center, and the United States Geological Survey.
Lexington also points out that Quick did not offer any meteorological data and
instead relied on “unreliable” forensic evidence on the property, which he had
examined roughly fourteen months after the hurricane.
      However, Lexington’s experts also conceded that a tornado or high winds
could have damaged the house.         Further, Lexington’s engineer, Cormier,
admitted that Halliwell Engineering originally concluded that a storm surge
destroyed “Old Glory,” the property nearby, but later removed that conclusion

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                                   No. 07-30963

from future reports regarding that property. Thus, the evidence at trial was not
as clear-cut as Lexington suggests.
      Most tellingly, much like in Veade, our review of the record shows that
there were “two permissible views of the evidence,” meaning that “the
factfinder’s choice between them cannot be clearly erroneous.” Anderson v. City
of Bessemer City, 470 U.S. 564, 574 (1985). Although Lexington presented a
persuasive argument that the meteorological data suggests that water was the
proximate cause of the damage, the district court did not view that evidence as
conclusive. Indeed, the main basis of this lawsuit is that it is unclear whether
wind or water destroyed the house, and several experts offered differing views.
Given that the trial consisted of a battle of qualified experts who all presented
plausible theories, the district court was free to choose among these reasonable
explanations in rendering its decision. Accordingly, by definition, the district
court’s resolution of this issue cannot be clearly erroneous, and we affirm the
district court’s finding.
B.    The Boathouse
      1.      Standard of Review
      At the close of the Plaintiffs’ case-in-chief, Lexington moved for judgment
on partial findings under Federal Rule of Civil Procedure 52(c), arguing that the
Plaintiffs failed to prove the value of the boathouse, which was an element of
their claim. The district court denied the motion. In its final judgment, the
court awarded $40,000 for coverage of the boathouse, the full policy limit for
“other structures.” When considering a district court’s ruling under Rule 52(c),
this court reviews the district court’s legal conclusions de novo and its factual
findings for clear error. Bursztajn v. United States, 367 F.3d 485, 488-89 (5th
Cir. 2004).




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                                        No. 07-30963

       2.      Analysis
       At the trial, co-plaintiff Lauman described the boathouse as a twenty-three
to twenty-four foot high structure that had sheet metal sides, a split-level pier,
a covered deck, an open fishing area with four large fishing lights, running
electricity and water, and a remote control electric launch for lifting, storing, and
launching a twenty-seven foot boat. The district court, in denying Lexington’s
Rule 52(c) motion, stated that based on this description and an aerial
photograph of the premises, it could conclude that the boathouse was worth well
more than the $40,000 policy limit for “other structures.”
       Lexington challenges this finding on appeal, but it fails to demonstrate
how the court clearly erred. For example, Lexington does not explain why the
court went astray in relying on Lauman’s detailed testimony about the
boathouse. Although additional evidence might have been preferable to support
its conclusion, it is well within the fact finder’s discretion to consider this
testimony, view an aerial photograph, and make an inference that the boathouse
was, in the district court’s words, a “pretty substantial structure” that would cost
more than $40,000 to rebuild. Accordingly, we affirm the district court’s finding
on this issue.2
C.     Supplemental Contents Coverage
       1.      Standard of Review
       The district court found that the Plaintiffs did not provide Lexington with
a satisfactory proof of loss for supplemental contents coverage, and, in a cross-
appeal, the Plaintiffs challenge this conclusion. This is a factual finding that we


       2
          Lexington also argues that the Plaintiffs failed to provide a satisfactory proof of loss
for the boathouse. However, Lexington did not assert this argument as a basis for its Rule
52(c) motion, instead challenging only the evidence regarding the value of the boathouse, and
the district court never made any findings regarding a satisfactory proof of loss for the
boathouse. Accordingly, Lexington has waived this argument on appeal. See, e.g., Lemaire v.
Louisiana, 480 F.3d 383, 387 (5th Cir. 2007) (stating that “arguments not raised before the
district court are waived and cannot be raised for the first time on appeal”).

                                               10
                                  No. 07-30963

review for clear error. See Gabriel, 529 F.3d at 509; Boudreaux v. State Farm
Mut. Auto. Ins. Co., 896 So. 2d 230, 236 (La. Ct. App. 2005) (stating that “a trial
court’s determination that an insurer was not provided with a satisfactory proof
of loss is a factual finding that may not be disturbed on appeal absent manifest
error”).
      2.    Analysis
      On November 10, 2005, Grilletta faxed to Wagner a contents list for
Wagner to use in his claim adjustment. On June 5, 2006, Lexington paid the
Plaintiffs $119,380.80 for loss of the contents of their house. On June 23, 2006,
Grilletta sent a letter to Lexington, which stated that the Plaintiffs were refining
their contents list and were viewing the list as a “work in progress.” Lexington
responded with what the Plaintiffs describe as a “form denial letter.” After the
Plaintiffs initiated this suit, they presented Lexington with an additional claim
for $79,745.00, along with a supplemental contents list, as part of a proposed
trial exhibit. The district court overruled Lexington’s objection to the submission
of the supplemental contents list. However, the court ruled that because the
Plaintiffs never officially submitted or proved the value of their supplemental
contents claim, they were not entitled to additional payments.
      The Plaintiffs argue that their trial exhibit satisfies the “flexible”
requirement of providing a satisfactory proof of loss. In support, they cite McDill
v. Utica Mutual Insurance Co., 475 So. 2d 1085, 1089 (La. 1985), in which the
Louisiana Supreme Court concluded that the insured had carried its burden of
showing a satisfactory proof of loss to trigger penalties and attorneys’ fees even
though the insurer first received notice of the claim when the insured filed the
lawsuit. The Plaintiffs suggest that this means that, as a matter of law, they
validly submitted a satisfactory proof of loss through the trial exhibit. See Sher
v. Lafayette Ins. Co., 988 So. 2d 186, 198 (La. 2008) (stating that in McDill, the
court “held that an insurer was liable for statutory penalties even though the

                                        11
                                       No. 07-30963

insurer’s first notice of the claim was the filing of suit almost a year after the
accident occurred”).
       McDill is distinguishable, however, because in that case the insurer first
learned of the entire claim when the insured filed the lawsuit, while here the
Plaintiffs sought to supplement an already-existing claim through a trial exhibit.
The district court ruled that the Plaintiffs had never submitted their
supplemental contents claim to Lexington, and McDill does not change that
finding. That is, the Plaintiffs read McDill too broadly in suggesting that a
proposed trial exhibit will always give an insurer, as a matter of law, “sufficient
information to act on the claim.” Sevier, 497 So. 2d at 1384. Moreover, the
Plaintiffs have not challenged the district court’s implicit factual finding that the
trial exhibit in this case did not satisfy the Plaintiffs’ burden of submitting a
satisfactory proof of loss. Accordingly, we affirm the district court’s decision to
deny additional payments for supplemental contents coverage.3
D.     Statutory Penalties
       1.     Standard of Review
       Under Louisiana insurance law, an insurer is liable for statutory penalties
for failing to pay a claim within thirty days if that failure was arbitrary and
capricious. LA. REV. STAT. ANN. § 22:658(B)(1); Reed v. State Farm Mut. Auto.
Ins. Co., 857 So. 2d 1012, 1019-20 (La. 2003). A determination of whether an
insurer’s failure to pay a claim was arbitrary and capricious is a finding of fact,
which this court reviews for clear error. See Hardy v. Hartford Ins. Co., 236 F.3d
287, 293 (5th Cir. 2001).         We review the district court’s legal conclusions
regarding the statutory penalties de novo. See Gabriel, 529 F.3d at 509; Floors
Unlimited v. Fieldcrest Cannon, 55 F.3d 181, 184 (5th Cir. 1995) (reviewing a
district court’s interpretation of state law de novo).

       3
         We take no position on whether the Plaintiffs still could present a satisfactory proof
of loss under the Lexington policy.

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                                      No. 07-30963

       2.     Analysis
              a.     Statutory Penalties on the Undisputed Portion of the Claim
       LA. REV. STAT. ANN. § 22:658(B)(1) provides,
       Failure to make a written offer to settle any property damage claim
       . . . within thirty days after receipt of satisfactory proofs of loss of
       that claim . . . or failure to make such payment within thirty days
       after written agreement or settlement . . . when such failure is found
       to be arbitrary, capricious, or without probable cause, shall subject
       the insurer to a penalty [of 25%].4
To recover statutory penalties, the Plaintiffs must establish three elements:
“(i) that the insurer received a satisfactory proof of loss, (ii) that the insurer
failed to pay the claim within the applicable statutory period, and (iii) that the
insurer’s failure to pay was arbitrary and capricious.” Boudreaux, 896 So. 2d at
233.
       As discussed above, to show a “satisfactory proof of loss,” the insurer must
“receive[] sufficient information to act on the claim.” Sevier, 497 So. 2d at 1384.
The district court concluded that Lexington received a satisfactory proof of loss
no later than November 13, 2005, when it received Wagner’s report that wind
caused the destruction of the house. Lexington then took no action on the claim
until January 26, 2006, when it hired Halliwell Engineering to conduct a
causation analysis. That is, Lexington failed to pay the claim within thirty days,
as the statute requires.        Further, the district court ruled that Lexington
arbitrarily sat on the claim for over two months before deciding to hire Halliwell
Engineering and that Lexington had no good-faith basis for delaying payment
of the claim. Accordingly, the court awarded penalties on the amount that
Lexington ultimately tendered on June 5, 2006.



       4
         In 2006, the Louisiana Legislature amended this provision to increase the statutory
penalties from 25% to 50%. See 2006 La. Acts 813. As that amendment is not retroactive, the
parties agree that the 25% penalty applies to the facts of this case.

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                                  No. 07-30963

      Lexington takes issue with the court’s finding that its delay was arbitrary
and capricious. A failure to pay a claim is “arbitrary and capricious” if the
insurer’s refusal to pay is “vexatious.” Reed, 857 So. 2d at 1021. The Louisiana
Supreme Court defined “vexatious” in this context as “unjustified, without
reasonable or probable cause or excuse.” Id.       The court concluded that this
standard “describe[s] an insurer whose willful refusal of a claim is not based on
a good-faith defense.” Id. As the Louisiana Supreme Court recently stated,
“there can be no good reason—or no probable cause—for withholding an
undisputed amount.” La. Bag Co. v. Audubon Indem. Co., No. 2008-C-0453,
2008 WL 5146674, at *8 (La. Dec. 2, 2008) (internal quotation marks omitted).
      The district court rested its decision to award statutory penalties on the
fact that Lexington did nothing on the Plaintiffs’ claim after Wagner submitted
his report, which concluded that wind caused the damage and recommended that
Lexington pay the entire policy limit of $400,000 for the dwelling.           After
Lexington received Wagner’s report on November 13, 2005, the Plaintiffs did not
hear from Lexington, even though co-plaintiff Grilletta tried calling the insurer.
Lexington had assigned the claim to file examiner Donald Fielder (“Fielder”),
and although Grilletta could not reach Fielder, Grilletta managed to track down
another file examiner, Phil Smith (“Smith”), to inquire about the status of the
payment. On January 26, 2006, Smith requested an engineering report from
Halliwell Engineering. Smith apparently had not reviewed Wagner’s report and
photographs, because in his email to Halliwell Engineering requesting the
engineering report, he wrote, “[t]he adjuster’s report does not include if a loss is
a result of wind damage or flood.” Additionally, neither Fielder nor Kristi
Fickeisen, Lexington’s corporate representative who also was involved in
handling the Plaintiffs’ claim, had reviewed Wagner’s report or photographs
until just before the trial. Thus, it appears that Lexington began to act only
after Grilletta contacted Smith, and at that point Smith decided to seek an

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                                       No. 07-30963

engineering report instead of simply paying the claim. Moreover, there was
never a dispute that wind caused at least some of the damage. Based on the two
and a half month delay between when Lexington received Wagner’s report and
when it sought the engineering analysis, and given Lexington’s failure to pay
any undisputed amount within thirty days, the district court did not clearly err
in concluding that Lexington’s failure to pay the claim was arbitrary and
capricious. See La. Bag Co., 2008 WL 5146674, at *8 (“Any insurer who fails to
pay said undisputed amount has acted in a manner that is, by definition,
arbitrary, capricious or without probable cause.”) Accordingly, there was ample
support for the district court’s finding that there was “no good faith basis on
which Lexington could have denied this claim,” and we affirm the award of
statutory penalties for the undisputed amount Lexington owed.5
              b.     Statutory Penalties on the Entire Amount Due
       The Plaintiffs also sought statutory penalties for the additional amount
that the district court awarded in this case ($248,325.42), but the district court
denied that request because it concluded that there was a reasonable dispute as
to the nature of the total loss of the structure. The Plaintiffs assert on appeal
that the district court erred as a matter of law.
       As the Louisiana Fourth Circuit Court of Appeal explained,
       Case law reveals that where there is a reasonable disagreement
       between the insured and the insurer as to the amount of a loss, the
       insurer’s refusal to pay is not arbitrary, capricious or without
       probable cause and failure to pay within the statutory delay does
       not subject the insurer to penalties. However, if part of a claim for
       property damage is not disputed, the failure of the insurer to pay

       5
        Lexington’s argument that the delay was simply due to the large number of cases it
had stemming from Hurricane Katrina is unavailing, as this does not explain why Smith
sought an engineering analysis instead of consulting Wagner’s report. It also does not explain
why Lexington chose not to pay some amount to cover the damage from wind. This delay was
the catalyst for the district court’s decision to award statutory penalties, because Lexington
did nothing with the claim even though the adjuster stated that wind destroyed the entire
house.

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                                  No. 07-30963

      the undisputed portion of the claim within the statutory delay will
      subject the insurer to penalties on the entire claim. Consequently,
      when such a dispute arises, to avoid the imposition of penalties the
      insurer must unconditionally tender to the insured the undisputed
      portion of the insured’s claim.

Warner v. Liberty Mut. Fire Ins. Co., 543 So. 2d 511, 515 (La. Ct. App. 1989)
(citations omitted) (emphasis added). In Shadow Lake Management Co. v.
Landmark American Insurance Co., No. 06-4357 et al., 2007 WL 1959236, at *3
(E.D. La. July 2, 2007), the court reviewed the line of cases discussed in Warner
and concluded, “if part of a claim for property damage is not disputed, the
insurer’s failure to unconditionally tender the undisputed portion of the claim
to the insured within the statutory delay will subject the insurer to liability for
the statutory penalties on the entire claim.”
      Lexington responds that the Plaintiffs’ argument for a statutory penalty
on the entire amount Lexington owed is based on outdated law. Prior to 1992,
LA. REV. STAT. ANN. § 22:658 provided for a penalty on “the total amount of the
loss.” See 1990 La. Acts 262; 1989 La. Acts 638. In 1992, the legislature
amended the statute to make the penalty a percentage of “the amount found to
be due from the insurer to the insured.” 1992 La. Acts 879. In 2003, the
legislature amended the statute to increase the penalty from 10% to 25% of “the
amount found to be due from the insurer to the insured.” 2003 La. Acts 790.
The 2003 version applies to the Plaintiffs’ case. Lexington argues that the
Louisiana courts have construed the “amount found to be due” under this statute
to mean “that amount over which reasonable minds could not differ.” Ibrahim
v. Hawkins, 845 So. 2d 471, 477 (La. Ct. App. 2003) (describing the “amount due”
after an insured submits a satisfactory proof of loss).
      However, the Louisiana courts have recently provided some guidance on
this issue that undercuts Lexington’s argument. In 2007, the Louisiana Fourth
Circuit Court of Appeal cited Warner, a 1989 case, for the proposition that “if

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part of a claim for property damage is not disputed, the failure of the insurer to
pay the undisputed portion of the claim within the statutory delay will subject
the insurer to penalties on the entire claim.” Sher v. Lafayette Ins. Co., 973 So.
2d 39, 60 (La. Ct. App. 2007) (citing Warner, 543 So. 2d at 515) (alteration
omitted). The court then awarded a penalty of 25% of the total amount due, not
just the undisputed portion. Id. at 65. On appeal, the Louisiana Supreme Court
did not cite Warner or explicitly point out this rule, but it similarly awarded a
25% penalty on the entire amount due. Sher, 988 So. 2d at 208. In Louisiana
Bag, the Louisiana Supreme Court noted that “an insurer need only fail to
tender one undisputed portion of the claim to be subject to penalties on the
difference between the amount paid or tendered and the amount found to be
due.” 2008 WL 5146674, at *13. Here, Lexington did not pay or tender anything
to the Plaintiffs within the statutory deadline, so under this rule Lexington is
liable for a statutory penalty pursuant to LA. REV. STAT. ANN. § 22:658 for the
amount found to be due, i.e., the total amount of the Plaintiffs’ loss. Thus, even
though “R.S. 22:658 . . . [is] penal in nature and must be strictly construed,”
Sher, 988 So. 2d at 206 (quoting Reed, 857 So. 2d at 1020), the Louisiana
Supreme Court has not interpreted the 1992 amendment to have changed the
meaning of the law. Accordingly, we must reverse this portion of the district
court’s judgment and remand for the imposition of a 25% penalty on the entire
amount due.
                              III. CONCLUSION
      Much of this case involves a review of the district court’s factual findings,
and there is no indication that the district court committed clear error.
Accordingly, we AFFIRM the district court’s decision regarding the house, the
boathouse, and the supplemental contents coverage. The district court did err,
however, when it failed to impose statutory penalties on the entire amount due.



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We therefore REVERSE that portion of the district court’s opinion and
REMAND for a recalculation of the statutory penalties.
     AFFIRMED IN PART; REVERSED IN PART; REMANDED.




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