                         Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE                                         NEWS RELEASE #023


FROM: CLERK OF SUPREME COURT OF LOUISIANA



The Opinions handed down on the 5th day of May, 2015, are as follows:



BY WEIMER, J.:


2014-CQ-1921      DANNY KELLY v. STATE FARM FIRE & CASUALTY COMPANY (United States
                  Fifth Circuit Court of Appeals)

                  We answer the certified questions as set forth in this opinion.
                  Pursuant to Louisiana Supreme Court Rule XII, the judgment
                  rendered by this court on the questions certified shall be sent
                  by the clerk of this court under its seal to the United States
                  Court of Appeals for the Fifth Circuit and to the parties.
                  CERTIFIED QUESTIONS ANSWERED.
05/05/15

                        SUPREME COURT OF LOUISIANA


                                         NO. 2014-CQ-1921

                                          DANNY KELLY

                                                VERSUS

                   STATE FARM FIRE & CASUALTY COMPANY

                    ON CERTIFIED QUESTION FROM THE UNITED STATES
                           FIFTH CIRCUIT COURT OF APPEALS



WEIMER, Justice

         Invoking Louisiana Supreme Court Rule XII,1 the United States Court of

Appeals for the Fifth Circuit certified to this court two questions of law. Both

questions relate to claims that an insurer is liable for subjecting its insured to a court

judgment in excess of insurance policy limits. The certified questions are:

                (1) Can an insurer be found liable for a bad-faith failure-to-settle
         claim under Section 22:1973(A) when the insurer never received a firm
         settlement offer?




1
    Louisiana Supreme Court Rule XII provides, in relevant part:

         When it appears to ... any circuit court of appeal of the United States, that there are
         involved in any proceedings before it questions or propositions of law of this state which
         are determinative of said cause independently of any other questions involved in said case
         and that there are no clear controlling precedents in the decisions of the supreme court of
         this state, such federal court before rendering a decision may certify such questions or
         propositions of law of this state to the Supreme Court of Louisiana for rendition of a
         judgment or opinion concerning such questions or propositions of Louisiana law. This
         court may, in its discretion, decline to answer the questions certified to it.
             (2) Can an insurer be found liable under Section 22:1973(B)(1) for
      misrepresenting or failing to disclose facts that are not related to the
      insurance policy's coverage?
Kelly v. State Farm Fire & Cas. Co., 582 Fed.Appx. 290, 296 (5th Cir. 2014). The

specific sections of La. R.S. 22:1973 referenced provide:

                (A) An insurer, including but not limited to a foreign line and
         surplus line insurer, owes to his insured a duty of good faith and fair
         dealing. The insurer has an affirmative duty to adjust claims fairly and
         promptly and to make a reasonable effort to settle claims with the insured
         or the claimant, or both. Any insurer who breaches these duties shall be
         liable for any damages sustained as a result of the breach.

               (B) Any one of the following acts, if knowingly committed or
         performed by an insurer, constitutes a breach of the insurer's duties
         imposed in Subsection A of this Section:

                (1) Misrepresenting pertinent facts or insurance policy provisions
         relating to any coverages at issue.

         We accepted certification2 and, for the reasons set forth below, answer the

questions as follows: 1) A firm settlement offer is unnecessary for an insured to sustain

a cause of action against an insurer for a bad-faith failure-to-settle claim, because the

insurer's duties to the insured can be triggered by information other than the mere fact

that a third party has made a settlement offer; 2) An insurer can be found liable under

La. R.S. 22:1973(B)(1) for misrepresenting or failing to disclose facts that are not

related to the insurance policy’s coverage because the statute prohibits the

misrepresentation of “pertinent facts,” without restriction to facts “relating to any

coverages.”

                       FACTS AND PROCEDURAL HISTORY

         The certified questions stem from the claims handling by State Farm Fire &

Casualty Company [State Farm] following an automobile accident. The facts of this

case have been presented by the court of appeals, which observed that, except where


2
    Kelly v. State Farm Fire & Cas. Co., 14-1921 (La. 11/21/14), 152 So.3d 888.

                                               2
specifically indicated, the parties did not dispute the court’s narrative.3 Accordingly,

to place the certified questions into perspective, we draw largely from the court of

appeals’ factual and procedural narrative.

          Danny Kelly (“Kelly”) was injured on November 21, 2005, during an automobile

accident with Henry Thomas (“Thomas”), who had liability insurance with State Farm.

Thomas and Kelly were driving in opposite directions, when Thomas turned left and

struck Kelly. Both Kelly and a witness told police that Thomas had failed to yield to

oncoming traffic, but Thomas maintained he was not at fault. Kelly was taken to a

hospital by ambulance and treated for a fractured femur. He remained hospitalized for

approximately six days. The cost of his medical care totaled $26,803.17.

          On January 6, 2006, Kelly’s attorney mailed a letter to State Farm regarding

Kelly’s injury. The letter included copies of Kelly’s hospital records and stated:

          Please find enclosed a copy of Danny Kelly's Medical Summary with
          attached medical records/reports and bills concerning his hospital
          treatment for the above referenced incident involving your insured. I will
          recommend release of State Farm Insurance Company and your insured,
          Henry Thomas, Jr., for payment of your policy limits.

          Please give me a call in the next ten (10) days to discuss this matter.

State Farm did not respond to the letter.4 Kelly’s attorney, however, conversed with

State Farm representatives on March 8 and March 22, 2006. During the March 22

conversation, a State Farm representative offered to settle the case for $25,000, the




3
  Kelly, 582 Fed.Appx. at 292. In briefs to this court, the parties provided additional information beyond
that recited by the appeals court and disagree as to the accuracy of that additional information. For
example, Kelly maintains that State Farm accepted liability on December 21, 2005. However, State Farm
contends it did not accept liability on that date because Thomas maintained the accident was not his fault.
Such disputes run to the merits of the case, which are not before this court. Accordingly, we have largely
gleaned the salient facts as being those presented to this court by the appeals court.
4
    Id.

                                                    3
policy limit,5 and sent Kelly’s attorney a letter memorializing the offer. Kelly’s attorney

responded that the offer was rejected and later filed suit against Thomas. The same

day State Farm received word that the offer was rejected, it sent Thomas a letter

informing him of the possibility of personal liability and suggesting that he retain

independent counsel. The letter from State Farm did not mention the January 2006

letter from Kelly’s attorney, State Farm’s offer to Kelly, or the amount of Kelly’s

medical bills.

         Kelly’s lawsuit against Thomas proceeded to a trial, in which Thomas was

found liable for the accident and cast in judgment for $176,464.07, plus interest. State

Farm paid Kelly the policy limit of $25,000.

         After the judgment was rendered against him, Thomas entered into a

compromise agreement with Kelly. Thomas assigned his right to pursue a bad faith

action against State Farm to Kelly in exchange for Kelly’s promise not to enforce the

judgment against Thomas’ personal assets.

         Kelly filed suit against State Farm, alleging State Farm was liable for bad faith

practices under Louisiana law. State Farm removed the case to federal district court.

The district court discerned two potentially actionable claims from the petition, which

were described by the appeals court as: “(1) fail[ing] to notify Thomas of Kelly’s

January 2006 letter; and (2) fail[ing] to accept Kelly’s January 2006 settlement offer.”6

State Farm filed a motion for summary judgment, seeking the dismissal of both claims.

         On November 8, 2011, the district court partially granted State Farm’s motion.

The district court granted summary judgment in State Farm’s favor on Kelly’s first



5
 Apparently, there is some dispute regarding whether Kelly’s attorney believed the policy limit was
$50,000 or $25,000 when the letter was sent.
6
    Kelly, 582 Fed.Appx. at 293.

                                                4
claim, holding that the January 2006 letter did not constitute a settlement offer and that

State Farm did not have a duty to notify Thomas when the letter was received. The

district court denied summary judgment on the second claim, however, stating that

Kelly might be able to prove that State Farm’s failure to settle his insurance claim

constituted bad faith.

         State Farm moved the district court for reconsideration on November 23, 2011,

arguing that State Farm could be liable for bad faith failure to settle only if it failed to

accept an actual offer and acted in bad faith. According to State Farm’s argument,

the district court’s finding that the January 2006 letter did not constitute an offer

necessarily precluded liability on Kelly’s second claim. The district court agreed and

revised its opinion to grant a full summary judgment in State Farm’s favor. Kelly

appealed the summary judgment dismissal of his two claims.

         On appeal, a three-judge panel of the court of appeals affirmed in part and

reversed in part.7 The court affirmed dismissal of what the court would later identify

as the second claim (i.e., the duty to settle claim), reasoning that “[b]ecause Kelly’s

purported settlement letter and medical receipts did not constitute ‘a satisfactory proof

of loss from the insured,’ Kelly cannot maintain a claim under § 22:1892(A)(1) as a

matter of law.”8 However, the court reversed dismissal of the first claim (i.e., the duty

to inform claim), explaining:

                The only communication between State Farm and Thomas alleged
         here consisted of a single letter in which State Farm told Thomas that he
         might face personal liability and that he should consider seeking
         independent counsel. At no point did State Farm inform Thomas the
         extent to which Kelly’s medical bills exceeded his policy limits, nor did
         State Farm tell Thomas that it had made a settlement offer that was
         rejected by Kelly. In short, State Farm sent a single, cursory

7
    Kelly, 559 Fed.Appx. 316.
8
    Id., 559 Fed.Appx. at 320.

                                             5
           communication to Thomas, and it cannot be said as a matter of law that
           this letter communicated the pertinent facts necessary for Thomas to
           determine what was in his best interest. Therefore, State Farm was not
           entitled to judgment as a matter of law on Kelly’s claim under §
           22:1973(B)(1).[9]

           Both parties filed petitions for rehearing, which were granted. The appeals court

withdrew its earlier opinion and issued another opinion certifying the two earlier-quoted

“questions of Louisiana law on which there are no controlling precedents from the

Supreme Court of Louisiana.”10

           The appeals court divided its review of the pertinent jurisprudence into two

categories, focusing only on “Thomas’ claims [against State Farm] under Section

22:1973(A) and (B)(1).”11 Accordingly, the first category of jurisprudence involved

an interpretation of La. R.S. 22:1973(A), which in relevant part provides: “An insurer

… owes to his insured a duty of good faith and fair dealing. The insurer has an

affirmative duty to adjust claims fairly and promptly and to make a reasonable effort

to settle claims with the insured or the claimant, or both.”

           “Despite the broad wording of Section 22:1973(A), it does not give a third-party

claimant the right to sue an insurer for a generalized breach of its duty of good faith

and fair dealing.”12 Theriot v. Midland Risk Ins. Co., 694 So.2d 184, 188-93 (La.

1997). If Kelly were advancing a claim only on his own behalf, his claim under La.

R.S. 22:1973(A) would have been barred under this court’s ruling in Theriot because

the claims by third parties are only actionable if the third party proves the “insurer …




9
     Id., 559 Fed.Appx. at 322.
10
     Kelly, 582 Fed.Appx. at 294.
11
     Id.
12
     Id., 582 Fed.Appx. at 294.

                                               6
has taken one or more of the prohibited actions specified in Section 22:1973(B).”13

Because Kelly was not advancing his own claims, but Thomas’ claims assigned to

him, Kelly had an available cause of action under La. R.S. 22:1973(A). See Stanley

v. Trinchard, 500 F.3d 411 (5th Cir. 2007). In the absence of a ruling to the contrary

by this court, the appeals court determined it “must assume that an insured can pursue

a cause of action against an insurer for a generalized breach of the duty of good faith

and fair dealing” under La. R.S. 22:1973(A).14

         The appeals court’s assumption that a cause of action was available under La.

R.S. 22:1973(A) to an insured such as Thomas did not settle the matter. In

Commercial Union Ins. Co. v. Mission Ins. Co., 835 F.2d 587, 588, & n.2 (5th Cir.

1988), the court placed a limitation on an insured’s cause of action, holding “that an

insurer could be found liable for a bad-faith failure-to-settle claim only if the insurer

had received a firm settlement offer from a claimant.”15 The appeals court stated:

“Commercial Union’s holding [was] seriously undermined by the subsequent

enactment of Section 22:1973(A), which provides that ‘[t]he insurer has an affirmative

duty ... to make a reasonable effort to settle claims with the insured or the claimant,

or both.’ (emphasis added).”16



         The appeals court further explained the need to certify the first question to this

court:



13
     Id., citing Theriot, 694 So.2d at 188-93.
14
     Id., 582 Fed.Appx. at 294.
15
     Id., 582 Fed.Appx. at 294, citing Commercial Union, 835 F.2d at 588 & n.2.
16
  Kelly, 582 Fed.Appx. at 294-95. La. R.S. 22:1973 was originally enumerated as La. R.S. 22:1220.
See 1990 La. Acts 308, § 1 (adding La. R.S. 22:1220) and 2008 La. Acts 415 §, 1 (renumbering).

                                                 7
           Section 22:1973(A)’s imposition of an affirmative duty to make a
           reasonable effort to settle claims suggests that insurers must do more
           than simply rest on their laurels and wait for claimants to submit firm
           settlement offers. Particularly given Louisiana’s civilian methodology,
           which treats jurisprudence as secondary to statutes, this statutory
           enactment casts serious doubt on our prior jurisprudence on this issue.

                  Again, the Supreme Court of Louisiana and the Louisiana
           intermediate appellate courts have never held that a firm settlement offer
           is required for a bad-faith failure-to-settle claim. But Kelly has not
           directed us to any Louisiana cases that find an insurer liable for bad-faith
           failure-to-settle in the absence of a firm settlement offer. The resolution
           of this issue is thus unclear under both Louisiana law and our own
           precedent. Moreover, this issue is determinative. Kelly’s petition for
           rehearing does not claim that he made a binding settlement offer, and
           therefore Kelly will lose if he must show that he made such an offer.[17]

           Turning next to La. R.S. 22:1973(B), the appeals court observed “[s]ome

Louisiana intermediate court decisions have held that an insurer can only be found

liable under Section 22:1973(B)(1) if the insurer misrepresents the coverage provided

by the insurance policy.”18 See Talton v. USAA Cas. Ins. Co., 06-1513 (La.App.

4 Cir. 3/19/08), 981 So.2d 696, 709-10; Strong v. Farm Bureau Ins. Co., 99-3362

(La.App. 2 Cir. 10/29/99), 743 So.2d 949, 953. Cf. Arvie v. Safeway Ins. Co. of

Louisiana, 06-1266 (La.App. 3 Cir. 2/07/07), 951 So.2d 1284, 1285; McGee v.

Omni Ins. Co., 02-1012 (La.App. 3 Cir. 3/1503), 840 So.2d 1248, 1253-56 (in which

the courts did not find that, under La. R.S. 22:1973(B), an actionable

misrepresentation by an insurer must be limited to a misrepresentation regarding

coverage).

           Aside from finding the jurisprudence of the intermediate state courts conflicting

on the issue of whether an actionable misrepresentation must relate to coverage, the

appeals court found its own jurisprudence only clouded any resolution of the issue.


17
     Id. (citation and footnote omitted).
18
     Id.

                                               8
The appeals court observed it had “never made a direct holding on this issue,” but in

Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729, 739-40 (5th Cir.

2010), the appeals court “suggested in dicta that Section 22:1973(B)(1) only applies

to misrepresentations about coverage-related facts.”19 However, just before that dicta,

the appeals court “cited McGee, [which] held that the insurer breached its duty under

Section 22:1973(B)(1) by failing to communicate the status of a claim, [McGee,] 840

So.2d at 1256, which was clearly not a coverage-related misrepresentation.”20 The

appeals court summed up its rationale for certifying the second question:

           Thus, if we apply McGee, Kelly should almost certainly win. As in
           McGee, Kelly’s primary complaint under Section 22:1973(B)(1) is that
           State Farm failed to communicate the status of Kelly’s claim and
           settlement negotiations to Thomas. Versai therefore cuts in two
           opposing directions in this case; Versai’s reliance on McGee indicates
           that Kelly should win, but Versai’s dicta suggests that Kelly should
           lose.[21]

           Concluding its analysis, the appeals court explained that its own “precedent

does not directly answer either of the [two certified] questions, and the State of

Louisiana has a strong interest in ensuring the proper application of its insurer liability

statute.”22 The appeals court further remarked that “[t]he Supreme Court of Louisiana

is uniquely well-suited” to interpret La. R.S. 22:1973 and to answer the two questions

arising from the present case.23

                                  LAW AND ANALYSIS




19
     Id., 582 Fed.Appx. at 295.
20
     Id., 582 Fed.Appx. at 296.
21
     Id.
22
     Id.
23
     Id.

                                             9
       Like the appeals court, we must emphasize that Kelly does not seek to recover

directly for his own damages. Instead, Kelly has been assigned24 Thomas’ causes of

action, as might have been available to Thomas, for State Farm’s actions which

allegedly subjected Thomas to the judgment in excess of Thomas’ insurance policy

limits. Therefore, the causes of action asserted by Kelly are not those of a third-party

claimant, but rather those of an insured. We also agree with the appeals court that

both certified questions call for interpretation of La. R.S. 22:1973. Mindful of our

civilian mandate, we begin as we must with the words of the statute itself. See La.

R.S. 24:177(B)(1) (“The text of a law is the best evidence of legislative intent.”). See

also Quinn v. Louisiana Citizens Property Ins. Corp., 12-0152 (La. 11/2/12), 118

So.3d 1011, 1018; Sensebe v. Canal Indem. Co., 10-0703 (La. 1/28/11), 58 So.3d

441, 446.

                             FIRST CERTIFIED QUESTION

       The first certified question calls for an interpretation of La. R.S. 22:1973(A),

which, although cited previously, we again quote for convenience of the reader:

              An insurer, including but not limited to a foreign line and surplus
       line insurer, owes to his insured a duty of good faith and fair dealing.
       The insurer has an affirmative duty to adjust claims fairly and promptly
       and to make a reasonable effort to settle claims with the insured or the
       claimant, or both. Any insurer who breaches these duties shall be liable
       for any damages sustained as a result of the breach.

For similar ease of reference, the specific question the appeals court posed is: Can an

insurer be found liable for a bad-faith failure-to-settle claim under subsection A of La.

R.S. 22:1973 when the insurer never received a firm settlement offer?




24
  See La. C.C. art. 2642 (“All rights may be assigned, with the exception of those pertaining to obligations
that are strictly personal. The assignee is subrogated to the rights of the assignor against the debtor.”).

                                                  10
       This question has two operative clauses and is indeed twofold. Before we can

address the second clause, i.e., whether a firm settlement offer is required, we must

address the first clause–Can an insurer be found liable for a bad-faith failure-to-settle

claim under subsection A of La. R.S. 22:1973? The appeals court assumed there to

be a bad-faith failure-to-settle claim under subsection A of La. R.S. 22:1973 because

its prior jurisprudence so held. See Stanley, 500 F.3d at 427. However, Stanley is

not binding on this court and we perceive the ruling in Stanley to represent an “Erie

guess”25 as to how this court would rule if faced with the question of whether a

bad-faith failure-to-settle claim exists under subsection A of La. R.S. 22:1973.

Therefore, recalling that we are presently concerned only with the rights of an insured,

we must determine whether La. R.S. 22:1973(A) affords an insured a cause of action

for a bad-faith failure-to-settle claim.

       Third parties have no cause of action under La. R.S. 22:1973(A). Subsection

A of La. R.S. 22:1973 describes an insurer’s general duties, but subsection B contains

an exclusive list of actionable breaches of those duties for which third-party claimants

can recover. See Theriot, 95-2895 at 14, 694 So.2d at 193. In the current case, State

Farm argues that, like the rights of third-party claimants, the insured must show not

simply a violation of the duties described in subsection A but also a breach described

in subsection B in order to recover.

       In Theriot, we expressly refused to hold that an insured was subject to the

same exclusive list of insurer breaches contained in subsection B as a condition for

recovery under subsection A of La. R.S. 22:1973. See Theriot, 95-2895 at 14, 694




25
   Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), requires federal courts sitting in diversity
jurisdiction to apply state substantive law to state law claims.

                                               11
So.2d at 192 n.15.       We also observed fundamental differences between the

relationship of insurer to third party and the relationship of insurer to insured:

      It is generally agreed that an insurer’s duties run primarily in favor of its
      insured as an outgrowth of duties that have their foundation in the
      contract between the parties. It is the relationship of the parties that gives
      rise to the implied covenant of good faith and fair dealing. The
      relationship between the insurer and third-party claimant is neither
      fiduciary nor contractual; it is fundamentally adversarial.

Theriot, 95-2895 at 15, 694 So.2d at 193. Owing to the adversarial relationship of a

third-party claimant to an insurer, we concluded that “a cause of action directly in

favor of a third-party claimant against a tortfeasor’s insurer is not generally recognized

absent statutory creation.” Id. Presently, and unlike Theriot, we must approach La.

R.S. 22:1973(A) from the proposition that the insurer undertakes in an insurance

contract certain fiduciary duties toward the insured.

      The plain language of La. R.S. 22:1973(A) is favorable to finding a cause of

action for an insured. Most notably, after describing the duties owed by an insurer,

La. R.S. 22:1973(A) concludes: “Any insurer who breaches these duties shall be liable

for any damages sustained as a result of the breach.” It is a cardinal rule of statutory

interpretation that “[t]he word ‘shall’ is mandatory and the word ‘may’ is permissive.”

La. R.S. 1:3. This would indicate that an insurer is liable for a breach of the duties

described in La. R.S. 22:1973(A), specifically: “An … insurer, owes to his insured a

duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims

fairly and promptly and to make a reasonable effort to settle claims with the insured

or the claimant, or both.”

      This leads us, of course, to the question of whether there is sufficient

justification to find an insured has a cause of action under La. R.S. 22:1973(A), when

we ruled in Theriot that a third-party claimant has no such cause of action–third


                                           12
parties can only recover under La. R.S. 22:1973(B). See Theriot, 95-2895 at 7, 15,

694 So.2d at 188, 193. State Farm reminds us, the statute on its face requires an

insurer “to make a reasonable effort to settle claims with the insured or the claimant,

or both.” La. R.S. 22:1973(A).

      Why only an insured may have a cause of action under La. R.S. 22:1973(A) was

suggested in Theriot. “The first sentence of Subsection A of the statute recognizes

the jurisprudentially established duty of good faith and fair dealing owed to the insured,

which is an outgrowth of the contractual and fiduciary relationship between the insured

and insurer.” Theriot, 95-2895 at 5-6, 694 So.2d at 187. Or, as our federal judicial

colleagues later explained in Stanley, “[i]nasmuch as it is not the statute that creates

the insured’s cause of action against the insurer, the basis for an insured’s cause of

action for a breach of the implied covenant of good faith and fair dealing are not

limited to the prohibited acts listed in La. R.S. 22:[1973](B).” Stanley, 500 F.3d at

427 (emphasis in original).

      Indeed, although we are not bound by Stanley, we approve of its ruling just

quoted. In response to both Stanley and Theriot, we now explain the basis for

holding the legislature essentially codified within La. R.S. 22:1973(A) a

jurisprudentially-recognized cause of action in favor of insureds for an insurer’s bad

faith failure to settle. Our interpretation of La. R.S. 22:1973(A) is consistent with its

enactment as a remedial measure. See Manuel v. Louisiana Sheriff's Risk

Management Fund, 95-0406 (La. 11/27/95), 664 So.2d 81, 85 (noting that La. R.S.

22:1220 [now enumerated La. R.S.22:1973] “is remedial in nature”).

      “[I]t is presumed the Legislature enacts each statute with deliberation and with

full knowledge of all existing laws on the same subject.” Fontenot v. Reddell


                                           13
Vidrine Water Dist., 02-0439, 02-0442, 02-0478, p. 13 (La. 1/14/03), 836 So.2d 14,

24. It therefore stands to reason that the legislature did not intend its remedial

measures to take away any rights, but to add rights. We made a similar observation

in Theriot, in which we found that the legislature added rights of third-party claimants

to recover under La. R.S. 22:1973(B), but we also noted: “Our holding does not affect

rights and causes of action the insured may have directly against his own insurer for

breach of the implied covenant of good faith and fair dealing arising out of the

contractual and fiduciary relationship between the parties.” Theriot, 95-2895 at 14,

694 So.2d at 192 n.15.

        The availability of a cause of action for insureds to recover from a judgment in

excess of policy limits has a long lineage, as we described in Smith v. Audubon Ins.

Co., 95-2057, p. 8 (La. 9/5/96), 679 So.2d 372, 376, dating back at least to this court's

“recogni[tion] in Roberie v. Southern Farm Bureau Cas. Ins. Co., 250 La. 105,

194 So.2d 713 (1967) [of] the responsibility of a liability insurer to deal in good faith

with a claim against its insured.” Moreover, in Smith we collected cases in which “the

intermediate state courts and the federal courts have held liability insurers liable for an

excess judgment when the insurer failed to deal in good faith with a claim against its

insured.”26 Smith, 95-2057 at 8, 679 So.2d at 376.

26
  The cases we collected in Smith as examples of insurers being liable for excess judgment for failure to
deal in good faith with an insured are:

        See, e.g., Domangue v. Henry, 394 So.2d 638 (La.App. 1st Cir.1980), cert. denied,
        399 So.2d 602 (La. 1981) (after a tentative agreement to a settlement for the $10,000
        liability policy limits, the compromise fell through when the insurer sought further negotiation
        of the victim’s demand for $600 for automobile depreciation under the property damage
        coverage; the court held the insurer liable for the excess judgment of $23,000 over the
        policy limits, noting that the excess exposure, in a case with a “great preponderance of
        evidence” of the insured’s fault, hinged on a dispute of less than $600); Fertitta v.
        Allstate Ins. Co., 439 So.2d 531 (La.App. 1st Cir.1983), amended on other grounds
        and aff'd., 462 So.2d 159 (La. 1985) (in a case of clear liability with about $8,000 in
        special damages and $10,000 policy limits, the insurer was liable for an excess judgment

                                                      14
        This long lineage of jurisprudence and the remedial intent of La. R.S.

22:1973(A) have important consequences for the availability of a cause of action for

insureds under La. R.S. 22:1973(A). Because legislation is a primary source of law

and jurisprudence constante is a secondary source of law, it follows that the

legislature would not elevate the rights of claimants by establishing a cause of action

enshrined by a statute, while leaving insureds with a cause of action tethered only to

jurisprudence.27 The relationship between an insurer and a third-party claimant, we

have observed, is adversarial. See Theriot, 95-2895 at 15, 694 So.2d at 193. In

contrast, the relationship between an insurer and the insured is fundamentally different

because “a liability insurer is the representative of the interests of its insured and the

insurer, when handling claims, must carefully consider not only its own self- interest,

but also its insured’s interest so as to protect the insured from exposure to excess



        of almost $39,000 because of bad faith in failing to investigate the claim thoroughly, in
        failing to consider properly the extent of the insured's excess exposure, and in requiring that
        the settlement include a $2,668 medical payments subrogation claim by the tort victim’s
        insurer); Hodge v. American Fidelity Fire Ins. Co., 486 So.2d 233 (La.App. 3d Cir.),
        cert. denied, 489 So.2d 917 (La.1986) (the insurer was in bad faith and liable for an
        excess judgment of $40,000 for failing to tender its $10,000 policy limits when an adverse
        judgment was inevitable and the insurer grossly disregarded its insured’s interests despite
        repeated warnings from its attorney); Keith v. Comco Ins. Co., 574 So.2d 1270
        (La.App. 2d Cir.), cert. denied, 577 So.2d 16 (La. 1991) (the court held the insurer in
        bad faith in a case of clear liability when the insurer arbitrarily refused to accept the treating
        physician’s findings and rejected reasonable offers that would have totally protected the
        insured); Roy v. Glaude, 494 So.2d 1243 (La.App. 3d Cir.1986) (insurer was liable for
        excess judgment for arbitrarily refusing to settle within policy limits). See also Parich v.
        State Farm Mut. Auto. Ins. Co., 919 F.2d 906 (5th Cir.1990), cert. denied, 499 U.S.
        976, 111 S.Ct. 1621, 113 L.Ed.2d 719 (1991) (the insurer was in bad faith by arbitrarily
        refusing to pay interest in addition to the policy limits when the judgment clearly would
        exceed the policy limits).

Smith, 95-2057 at 8-9, 679 So.2d at 376-77 (footnote omitted).


27
   See Doerr v. Mobil Oil Corp., 00-0947, p. 14 (La. 12/19/00), 774 So.2d 119, 129, reh’g granted
on other grounds, 00-0947 (La. 3/16/01), 782 So.2d 573 (“[I]t is only when courts consistently recognize
a long-standing rule of law outside of legislative expression that the rule of law will become part of
Louisiana’s custom under Civil Code article 3 and be enforced as the law of the state.”); compare La. C.C.
art. 3 (“Custom may not abrogate legislation.”).

                                                       15
liability.” See Smith, 95-2057 at 7-8, 679 So.2d at 376, citing Holtzclaw v. Falco,

Inc., 355 So.2d 1279 (La. 1978) (on reh’g). Thus, to grant third-party claimants (who

have an adversarial relationship to the insurer) a statutorily-recognized cause of action

for an insurer’s bad faith, while leaving insureds (whom the insurer is bound to

protect) only a jurisprudentially recognized cause of action, would be an absurd and

inequitable result. Our civilian mandate prohibits us from interpreting a statute in a

manner that would lead to such absurd results. See La. R.S. 1:4 (“When the wording

of a Section is clear and free of ambiguity, the letter of it shall not be disregarded

under the pretext of pursuing its spirit.”).

       Therefore, in light of the jurisprudence and the remedial intent of La. R.S.

22:1973(A), we return to the first clause of the certified question, which asks: Can an

insurer be found liable for a bad-faith failure-to-settle claim under subsection A of La.

R.S. 22:1973? Having determined that the plain language supports the existence of a

cause of action in favor of the insured under La. R.S. 22:1973(A), we answer this

question affirmatively. Based on our review of the jurisprudence and the remedial

intent of La. R.S. 22:1973, to our federal colleagues’ observation in Stanley, we add

that La. R.S. 22:1973(A) represents a legislative recognition of a cause of action found

earlier only in the jurisprudence.28


28
  Indeed, based on the jurisprudence, commentators have formulated the following current guidance
regarding an insurer’s duty to settle:

                Anyone involved in handling claims quickly learns that the evaluation of liability and
       amount of damages is not an exact science, and reasonable professional judgment may
       vary (substantially in larger claims) on where to draw the line in settlement negotiations.
       It is suggested that the insurance company should disregard its policy limits in evaluating
       the reasonableness of a settlement offer. The insurer should not be motivated by how
       much it stands to gain or lose, thus disregarding the insured's exposure. Instead, the
       insurance company should analyze the claim from the viewpoint of how much it would be
       willing to pay in settlement of the case if its policy limits were adequate to cover the
       insured's full exposure. Then, it should be prepared to fund such reasonable settlement up
       to its policy limits. On the other hand, if the insurer reasonably would risk its own funds

                                                     16
       Because we have affirmatively answered the first operative clause of the certified

question, we must now turn to the second operative clause. The second clause

essentially asks if the insurer must receive “a firm settlement offer” as a condition for

an insured to recover for the insurer’s bad-faith failure-to-settle.

       As we did with the first operative clause, in answering the second clause, we

begin with the language of the statute. The relevant language provides: “The insurer

has an affirmative duty to adjust claims fairly and promptly and to make a reasonable

effort to settle claims with the insured or the claimant, or both.” La. R.S. 22:1973(A).

       Just as we observed when analyzing whether a cause of action exists in favor

of an insured for an insurer’s bad-faith failure-to-settle, the plain language sheds

significant light on interpreting the provision of La. R.S. 22:1973(A) just quoted. The

action required of an insurer by La. R.S. 22:1973(A) is contained within this clause:

“The insurer has an affirmative duty ....” The phrase “affirmative duty” is a legal term

of art, for which we are required to give the meaning commonly employed in the law.

See La. R.S. 1:3 (“Technical words and phrases, and such others as may have

acquired a peculiar and appropriate meaning in the law, shall be construed and

understood according to such peculiar and appropriate meaning.”). Affirmative duties

abound in the law, but one example in the Insurance Code illustrates that an affirmative

duty requires taking positive action(s) to comply with a legal standard. See, e.g. La.

R.S. 22:1931.12 (indicating that persons found culpable for insurance fraud “have an




       in litigation of the claim, then it should not be required to pay more simply because the
       insured has purchased inadequate insurance protection. [Footnotes omitted.]

15 WILLIAM MC KENZIE & H. ALSTON JOHNSON , LOUISIANA CIVIL LAW TREATISE: INSURANCE LAW
                                 th
AND PRACTICE § 7.9, pp. 658-59 (4 ed. 2012) (citing, inter alia, Pareti v. Sentry Indem. Co., 536
So.2d 417, 423 (La. 1988); Holtzclaw, 355 So.2d at 1283-1284; Commercial Union, supra.

                                                  17
affirmative duty to fully disclose all property and liabilities and all transfers of property

which meet the criteria of Subsection C of this Section”).

       State Farm would have us hold that the affirmative duty required by La. R.S.

22:1973 is breached in bad faith only when an insurer unreasonably refuses an offer

of settlement. In support, State Farm points to this statement in our opinion in Smith:

“[A]n insurer is not obliged to compromise litigation just because the claimant offers

to settle a claim for serious injuries within the policy limits, and its failure to do so is

not by itself proof of bad faith.” Smith, 95-2057 at 9, 679 So.2d at 377. State Farm

argues the statement just quoted must be interpreted as a predicate for recovery

because that statement precedes a listing of factors for determining whether an insurer

has acted in bad faith in deciding to proceed to trial rather than settle. State Farm

further argues that if we do not presently find a firm settlement offer to be a predicate

to recovery, then we will effectively replace a bright line rule with uncertainty as to how

an insurer can satisfy its duty.

       State Farm’s reliance on Smith has two shortcomings. The first is that we

decided Smith under facts arising before the enactment of La. R.S. 22:1220 (now

enumerated as La. R.S. 22:1973). See Smith, 95-2057 at 2, 679 So.2d at 373

(describing litigation arising from an accident occurring “[o]n May 12, 1987”);

compare 1990 La. Acts 308, § 1 (noting the addition of La. R.S. 22:1220, effective

July 6, 1990). Therefore, the issue is not whether this court believes public policy

considerations–such as State Farm’s claimed benefit of a bright line rule–should cause

this court to impose a requirement that a claimant asserting insurer bad faith must have

first submitted a firm settlement offer. Instead, the issue is whether the legislature

imposed a requirement in La. R.S. 22:1973(A) that such a claimant submit a firm



                                             18
settlement offer. Sensebe, 10-0703 at 8, 58 So.3d at 446 (“The court’s search for the

public policy governing … insurance policies … must begin with the statutes enacted

by the legislature.”)

        The second shortcoming in State Farm’s reliance on Smith is that we listed

factors to be considered without including in the list that a settlement offer must be

received by the insurer. Specifically, we held in Smith that the determination of

whether the insurer acted in bad faith turns on the facts and circumstances of each

case, and we articulated the following factors for making that determination:

               The determination of good or bad faith in an insurer’s deciding to
        proceed to trial involves the weighing of such factors, among others, as
        the probability of the insured’s liability, the extent of the damages
        incurred by the claimant, the amount of the policy limits, the adequacy of
        the insurer’s investigation, and the openness of communications between
        the insurer and the insured.

Smith, 95-2057 at 9-10, 679 So.2d at 377. Not only is a “firm settlement offer” not

listed as a factor, but the case-by-case determination we described would necessarily

and, hence, explicitly, have been conditioned by a “firm settlement offer” if that had

been our intent. Thus, Smith does not stand for the proposition that a “firm

settlement offer” is required as a condition for an insured’s bad-faith failure-to-settle

claim against an insurer.29

        Having determined our ruling in Smith did not impose a requirement for a firm

settlement offer, we return to the text of La. R.S. 22:1973(A). At the outset of our

analysis of this “firm offer” issue, we noted that “affirmative duty,” as used in La. R.S.

22:1973(A), means to take positive action(s) to comply with a legal standard. See p.

18, infra. Following the imposition on an insurer of an “affirmative duty,” in La. R.S.


29
   A finding that a firm settlement offer is not a requirement does not mean such an offer has no place in
the analysis. Such an offer would unmistakably put the insurer on notice the matter can be resolved and,
if the offer were within policy limits, shield the insured from an excess judgment.

                                                   19
22:1973(A), two positive steps to meet that duty are listed. Particularly, an insurer is

required “to adjust claims fairly and promptly” and also “to make a reasonable effort

to settle claims with the insured or the claimant, or both.” La. R.S. 22:1973(A). The

facts of the present case most directly implicate the latter step. Thus, in the context

of the certified question, we can further narrow the issue as follows: whether an

insurer’s affirmative duty to make a reasonable effort to settle claims is triggered only

by receipt of a firm settlement offer.

       The clearest indicator is that a firm settlement offer is not listed anywhere in the

statute. To impose the requirement of a firm settlement offer would essentially amount

to adding words not included in the statute. As we understand State Farm’s brief, not

only would we have to essentially add wording requiring a “‘firm’ or ‘actual’ offer to

settle,” but State Farm would have us further qualify that an offer must be “within the

available policy limits.” The wording proposed by State Farm amounts not to

statutory interpretation, but to a wholesale rewriting of La. R.S. 22:1973(A). Such

rewriting is not, however, the role of this or other Louisiana courts. See Cacamo v.

Liberty Mut. Fire Ins. Co., 99-3479, 99-3480, p. 4 (La. 6/30/00), 764 So.2d 41, 44

(“Courts are not free to rewrite laws to effect a purpose that is not otherwise

expressed.”).

       Practical considerations also support our interpretation of La. R.S. 22:1973(A)

as not requiring a firm offer as a condition for finding the insurer has acted in bad faith.

The insured has no control over whether a firm offer will be submitted. For that

matter, neither does the insurer. Yet, the insurer has undertaken the obligation to

protect the insured. “[I]n every case, the insurance company is held to a high fiduciary

duty to discharge its policy obligations to its insured in good faith–including the duty

to defend the insured against covered claims and to consider the interests of the

                                             20
insured in every settlement.” Pareti, 536 So.2d at 423, citing, inter alia, Holtzclaw,

355 So.2d at 1279. Therefore, we see no practical reason why the insurer’s obligation

to act in good faith should be made subject to the tenuous possibility that an insurer

will receive a firm settlement offer. Instead, the insurer’s obligation to act in good faith

is triggered by knowledge of the particular situation, which knowledge “[t]he insurer

has an affirmative duty” to gather during the claims process. See La. R.S. 22:1973(A).

See also Smith, 95-2057 at 9-10, 679 So.2d at 377 (finding that an insurer has a duty

to conduct “a thorough investigation” and to consider “the evidence developed in the

investigation” when determining whether to litigate or settle).

       As another practical consideration, we reject State Farm’s concern that requiring

a firm settlement offer would serve as a bright line rule, without which an insurer faces

great uncertainty as to its duties.            Although we disagree with State Farm’s

interpretation of Smith inasmuch as we do not find such a rule in Smith, we believe

Smith is instructive. The five non-exclusive factors we articulated as part of a

case-by-case determination should adequately address State Farm’s desire for clearly

defined ways to measure whether an insurer has made “a reasonable effort to settle

claims” (La. R.S. 22:1973(A)) and to thereby protect the insured from excess

liability.30 See Smith, 95-2057 at 9, 679 So.2d at 377.


30
  The appeals court indicated this court need not “confine its reply to the precise form or scope of the legal
questions … certif[ied].” Kelly, 582 Fed.Appx. at 297. Although we have already answered the first
certified question as posed, for the following reasons, we believe that our answer would be incomplete
without indicating the utility of the case-by-case evaluation of the five non-exclusive factors from Smith.
  When the appeals court stated it was bound by its earlier decision in Smith (finding an insured can
maintain a cause of action under La. R.S. 22:1973(A)), it indicated it was bound by the precedent of
Stanley, 500 F.3d at 427. However, the appeals court explained this court “may correct this or any other
assumption that it finds to be erroneous.” Kelly, 582 Fed.Appx. at 297. We note that the utility of the
case-by-case evaluation of the non-exclusive list of factors in Smith was not recognized by the appeals
court in Stanley. Thus, we find the Smith test and factors to be a necessary corollary to the answer we
have provided to the first certified question. To leave the parameters of the cause of action assumed, as
the appeals court indicated it would remain absent our input, would not fulfill the appeals court’s need for
clarification of Louisiana law.

                                                 21
        In sum, having now addressed both components of the first certified question,

we answer it fully: an insurer can be found liable for a bad-faith failure-to-settle claim

under La. R.S. 22:1973(A), notwithstanding that the insurer never received a firm

settlement offer.

                             SECOND CERTIFIED QUESTION

        The second certified question asks us to decide whether an insurer can be found

liable under La. 22:1973(B)(1) for misrepresenting or failing to disclose facts that are

not related to the insurance policy’s coverage. For ease of reference, the pertinent

language of La. R.S. 22:1973(B) prohibits: “Misrepresenting pertinent facts or

insurance policy provisions relating to any coverages at issue.” We do not, however,

examine the language of La. R.S. 22:1973(B) in a vacuum. Rather, “[w]ords and

phrases shall be read with their context and shall be construed according to the

common and approved usage of the language.” La. R.S. 1:3. The context to

subsection B of La. R.S. 22:1973 is subsection A. Because we have already

determined that subsection A imposes affirmative duties on the insurer to take positive

action, we have no difficulty in according the word “misrepresenting” in subsection

B its commonly understood meaning at the time the statute was enacted. A

communication from the insurer that either states an untruth or fails to state the truth

is contemplated by La. R.S. 22:1973(B).31 See BLACK’S LAW DICTIONARY (6th ed.

1990) (“Misrepresentation. Any manifestation by words or other conduct by one




31
  For purposes of the second certified question, it is important to recall that the merits of this case are not
before this court to decide. We are, essentially, confined to the facts as the appeals court has presented
them to us. For these reasons, we do not purport to decide whether State Farm’s letter to Thomas
addressed all facts that were “pertinent” within the meaning of La. R.S. 22:1973(B), let alone delineate
every situation for which an insurer is required to disclose pertinent facts.

                                                      22
person to another that, under the circumstances, amounts to an assertion not in

accordance with the facts.”).

        The appeals court declined to answer the second question, finding no ruling

from this court and differing answers within the Louisiana appellate jurisprudence.32

As the appeals court noted, two appellate courts found that an actionable

misrepresentation is limited to a misrepresentation that “relate[s] to a coverage issue”

and “[a] misrepresentation relating to a coverage issue would involve facts about the

policy itself, such as the amount of coverage, lapse or expiration of the policy, or

exclusions from coverage.” Talton, 06-1513 at 20, 981 So.2d at 710, quoting

Strong, 32,414 at 5, 743 So.2d at 953. Two other appellate courts found that an

actionable misrepresentation was not factually limited to dealing with a coverage issue.

First, in McGee, the appellate court ruled that, in the context of evaluating the

possibility of settlement, “[m]isrepresentation can occur when an insurer either makes

untrue statements to an insured concerning pertinent facts or fails to divulge pertinent

facts to the insured.” McGee, 02-1012 at 11, 840 So.2d at 1256. Then later, in Arvie,

the appellate court cited the preceding ruling from McGee with approval. Arvie,

06-1266 at 2, 951 So.2d at 1286.

        Although none of the four cases just cited explicitly addressed the issue, our

review reveals a different approach to applying the word “or” in La. R.S.

22:1973(B)(1). In La. R.S. 22:1973(B), there are two phrases separated by “or.” In

Talton and Strong, the courts implicitly found that the word “or” connected the final

qualifier, i.e., the words “to any coverages at issue” with both the first phrase and the


32
   Kelly, 582 Fed.Appx. at 293 (noting that in the absence of a decision from the state’s highest court,
“we must make an Erie guess and determine, in our best judgment, how that court would resolve the issue
if presented with the same case.”) quoting Six Flags, Inc. v. Westchester Surplus Lines Ins. Co., 565
F.3d 948, 954 (5th Cir. 2009).

                                                  23
second phrase.     Stated differently, under Talton and Strong, the following

underscored language is imported from the phrase following the word “or,” such that

the statute prohibits: “Misrepresenting pertinent facts [relating to any coverages at

issue] or insurance policy provisions relating to any coverages at issue.” La. R.S.

22:1973(B)(1).

      The courts in McGee and Arvie took a different interpretative approach.

Tacitly, McGee and Arvie confined the phrase “relating to any coverages at issue”

to the phrase following the word “or.” Thus, under McGee and Arvie, the first

phrase would prohibit only “[m]isrepresenting pertinent facts.”

      State Farm argues we should disregard McGee and Arvie, in favor of Talton

and Strong, because Talton and Strong took the most restrictive view of La. R.S.

22:1973. State Farm points out that in Durio v. Horace Mann Ins. Co., 11-0084

(La. 10/25/11), 74 So.3d 1159, we observed that La. R.S. 22:1973 is penal and,

therefore, should be strictly construed. However, in Durio we noted that “being

mindful that statutes subjecting insurers to penalties are considered penal in nature and

should be strictly construed” is a principle that goes hand-in-hand with “following

proper guidelines of statutory interpretation.” Id., 11-0084 at 19, 74 So.3d at 1170.

Of course, “proper guidelines of statutory interpretation” include the legislature’s own

guidelines, which frame our analysis below.

      Because the interpretation of La. R.S. 22:1973(B)(1) hinges on the word “or,”

we take direct legislative guidance from La. R.S. 1:9: “Unless it is otherwise clearly

indicated by the context, whenever the term ‘or’ is used in the Revised Statutes, it is

used in the disjunctive and does not mean ‘and/or’.” While it is possible to interpret

“or” to mean “and/or,” La. R.S. 1:9 instructs that we may only reach that conclusion


                                           24
if “clearly indicated by the context.” Accord LOUISIANA SENATE DRAFTING

MANUAL, Vol. 1, p. 102 (2007) (“Remember ‘or’ is generally disjunctive.”).

        The context does not clearly indicate that “or” should be interpreted to mean

anything other than “or.” Even though the introductory word “[m]isrepresenting”

applies to the phrase before and after the word “or,” La. R.S. 22:1973(B)(1) can be

given a reasonable meaning without importing words from the end of La. R.S.

22:1973(B)(1) to precede the word “or.”33 Indeed, if we did not give “or” a

disjunctive meaning, we would render the first phrase (“pertinent facts”) both

redundant and meaningless because misrepresentations about insurance policy

provisions are addressed in the second phrase, which follows the word “or.” Given

that here “the wording … is clear and free of ambiguity,” we are required to “observe

the letter” of the entire law. La. R.S. 1:4. We must, therefore, apply the word “or”

disjunctively, meaning that an insurer can be liable for misrepresenting either: 1)

“pertinent facts,” or 2) “insurance policy provisions relating to any coverages at

issue.” La. R.S. 22:1973(B)(1).

        To the extent the intermediate appellate courts held a misrepresentation of

“pertinent facts” must also “relat[e] to any coverages at issue” in order to be


33
  We have recently interpreted a similarly structured statute in a similar manner. Specifically, in Smith v.
State, 10-1140, p. 6 (La. 1/24/12), 84 So.3d 487, 492, a man convicted of sex offenses occurring in
1995 urged us to apply a restrictive date for sex offender registration that followed the word “or,” such that
the restrictive date of 1997 would also apply to the phrase before the word “or.” The statute (La. R.S.
15:542.1(A) (prior to amendment in 1999) provided:

               Any person convicted of a sex offense as defined in R.S. 15:542(E) or of a
        criminal offense against a victim who is a minor as defined in R.S. 15:541(14) after July 1,
        1997 shall have the duty to register and report under the provision of this Chapter.

  This court explained that the first part of the sentence dealing with a “sex offense” was “separated by
the disjunctive ‘or,’” such that the date restriction “after July 1, 1997,” applied only to the second part of
the sentence following the word “or.” Id. Thus, this court held the first part of the sentence preceeding
the word “or” was not restricted by the phrase “after July 1, 1997,” and the offender was required to
register for his 1995 sex offenses. Id.

                                                     25
actionable, their holding contravenes the use of the word “or” required by La. R.S.

1:9. Accordingly, the opinions in Talton and Strong are hereby overruled.

        In sum, we provide the following answer to the second certified question. An

insurer can be found liable under La. R.S. 22:1973(B)(1) for misrepresenting or failing

to disclose facts that are not related to the insurance policy’s coverage; the statute

prohibits the misrepresentation of “pertinent facts,” without restriction to facts

“relating to any coverages.”34

                                            CONCLUSION

        We answer the certified questions as set forth in this opinion. Pursuant to

Louisiana Supreme Court Rule XII, the judgment rendered by this court on the

questions certified shall be sent by the clerk of this court under its seal to the United

States Court of Appeals for the Fifth Circuit and to the parties.

        CERTIFIED QUESTIONS ANSWERED.




34
   Although we have rejected State Farm’s proposed interpretations of La. R.S. 22:1973(B)(1), we have
not entirely rejected State Farm’s larger view of the statute. Inasmuch as La. R.S. 22:1973 was born from
a jurisprudential pedigree, it appears that even under pre-enactment law, courts recognized that tight reigns
must be kept on a cause of action for insurer settlement practices. For example, when responding to the
suggestion that holding an insurer liable for an excess judgment was tantamount to “Monday-morning
quarterbacking” and that “with the benefit of hindsight almost any settlement decision can be looked on as
poor judgment,” an appellate court applying pre-enactment law explained: “We are not saying that mere
poor judgment is the basis of an award for bad faith failure to settle within policy limits. … the law of bad
faith should be cautiously applied ….” Keith v. Comco Ins. Co., 574 So.2d 1270, 1279-80 (La.App.
2 Cir. 1991), citing Moskau v. Insurance Co. of North America, 366 So.2d 1004 (La.App. 1 Cir.
1978). Having traced the development of a cause of action for bad faith settlement practices from the time
it was a jurisprudentially-recognized cause of action to its present status as a statutorily-enshrined facet of
the law, we believe it is appropriate to reiterate that La. R.S. 22:1973 should be strictly construed. See
Durio, 11-0084 at 19, 74 So.3d at 1170. A strict application of the statute does not contemplate
gamesmanship, such as having “unrealistic offers ... presented through ‘carefully ambiguous demands
coupled with sudden-death timetables’” in order to “set up” the insurer for an excess liability judgment.
See Parich v. State Farm Mut. Auto. Ins. Co., 919 F.2d 906, 912 (5th Cir. 1990), citing Baton v.
Transamerica Ins. Co., 584 F.2d 907, 914 (9th Cir. 1978).

                                                      26
