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

                                                                           FILED
                                                                       December 22, 2008

                                     No. 07-30823                     Charles R. Fulbruge III
                                  cons w/No. 07-30868                         Clerk


DALE DICKERSON; SHIRLEY DICKERSON1

                                                  Plaintiffs-Appellees
v.

LEXINGTON INSURANCE COMPANY

                                                  Defendant-Appellant



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


Before KING, HIGGINBOTHAM, and WIENER, Circuit Judges.
WIENER, Circuit Judge:
       Plaintiffs-Appellees Dale and Shirley Dickerson sued Defendant-Appellant
Lexington Insurance Company (“Lexington”) for its failure to pay his
homeowner’s policy claim timely following Hurricane Katrina. After a one-day
bench trial, the district court awarded Dickerson $175,467 in damages,
penalties, and attorneys’ fees and costs, ruling that Lexington acted in bad faith




       1
         Shirley Dickerson, Dale Dickerson’s wife and co-plaintiff in this lawsuit, died on
January 15, 2006. The record does not reflect that her succession or her succession
representative was ever formally substituted as a plaintiff or appellee herein. References in
this opinion to “Dickerson” shall be to Dale unless otherwise specified.
                                         No. 07-30823

in violation of Louisiana statutes. Lexington appeals the judgment. We affirm
in part and reverse in part.
                            I. FACTS AND PROCEEDINGS
        Dale and Shirley Dickersons’ home in Marrero, Louisiana, was extensively
damaged by Hurricane Katrina in August 2005. There was evidence of flooding
throughout the first floor; Dickerson estimated that the water had risen to a
level of approximately two feet inside his house. There was also evidence of
extensive damage from wind and rain.2 There was a hole in the roof. Furniture
was warped and waterlogged. Carpets were moldy. An attic door had blown
open exposing the crawl space to the wind and water. A light fixture on the first
floor still contained an inch of water when the Dickersons returned home in mid-
September following the storm.
        The Dickersons held a homeowner’s insurance policy issued by Lexington.
That policy’s four classes of coverage for wind damage and the limits of each
were:
                 Coverage A (Building, i.e. home) - $153,000
                 Coverage B (Outbuildings) - $15,300
                 Coverage C (Contents) - $76,500
                 Coverage D (Additional living expenses) - $30,600
Like many homeowner’s policies, the Dickersons’ policy did not cover flood
damage. They held federal flood insurance issued through a different carrier,
which coverage paid $108,342 on their Katrina-related claim: $62,042 for
damage to their home and $46,300 for damage to its contents.
        The Dickersons notified Lexington of their wind damage claim under their
homeowner’s policy in mid-September 2005, and a Lexington insurance adjuster
inspected the property on October 1. The adjuster wrote a report in November
2005, but also wrote a second report that he sent to Lexington on February 4,



        2
            Henceforth we include both wind and rain when, for economy, we refer only to wind.

                                                2
                                         No. 07-30823

2006.3 Lexington issued a check to Dickerson for $11,335 on March 2, 2006,
indicating that it was for hurricane damage to the home under Coverage A.
       Dickerson sued Lexington, claiming that it had breached the contract by
failing to pay; and, additionally, that Lexington had breached its statutory duty
of good faith through its unjustifiable failure to pay promptly and in full.4 That
suit was filed in May 2006. In June 2006, Dickerson sought additional payment
from Lexington based in part on his claim that the structure of his home had
been twisted in the storm. In response, Lexington sent a different adjuster to
the property and eventually paid Dickerson an additional $2,200 under Coverage
A. Finally, in May 2007, Lexington sent yet another adjuster to the Dickerson
home who found that, in fact, the home had suffered far more wind damage than
Lexington previously thought. That inspection resulted in a check to Dickerson
for $103,756 in June 2007, about a month before the bench trial in this case.5
       Lexington’s response to Dickerson’s lawsuit was that it had made a good
faith effort to settle the claim, but that its adjusters had returned with
conflicting information and had determined that the bulk of the home’s damage
was caused by flooding, thus falling outside the Dickersons’ policy coverage.
Lexington also contended that Dickerson had breached the insurance contract
by failing to mitigate the damage to his home that had been caused by an
improperly secured roof tarp and by failing to submit an itemized list of the
damaged contents.
       After a one-day bench trial conducted in July 2007, the district court held
for Dickerson on all claims and entered a judgment for $122,362. The amount

       3
           It is unclear whether the first report was sent to Lexington.
       4
         Louisiana law requires insurers to act in good faith, including issuing payment within
a statutorily prescribed timeframe. LA. REV. STAT. ANN. §§ 22:1220 (“§ 22:1220") and 22:658
(“§ 22:658") (2008).
       5
         The check comprised $46,478 under Coverage A (home), $1,183 under Coverage B
(outbuildings) and $56,095 under Coverage C (contents).

                                                3
                                          No. 07-30823

of the judgment included $50,000 in penalties under § 22:1220. Separately, the
court awarded Dickerson attorneys’ fees of $53,105, bringing the total award to
$175,467.
       Lexington timely appealed, contending that (1) there was insufficient
evidence for a fact-finder to conclude that wind, rather than flooding, caused the
subject damage to Dickerson’s home and contents, (2) the trial court improperly
calculated the value of the contents of Dickerson’s home in violation of the terms
of the insurance policy, (3) there was insufficient evidence to support a finding
that Lexington had acted in bad faith, (4) § 22:1220 does not authorize recovery
of mental anguish damages, (5) alternatively, there was insufficient evidence to
support a determination that Lexington’s bad faith actions had caused Dickerson
mental anguish, and (6) attorneys’ fees are impermissible under the applicable
version of § 22:658.
                                         II. ANALYSIS
A. Applicable Law and Standard of Review
       When sitting in diversity, we apply the substantive law of the state.6 In
this case, we apply Louisiana law.
       In the appeal of a bench trial, we review findings of fact for clear error7
and conclusions of law and mixed questions of law and fact de novo.8


B. Evidence of Wind Damage



       6
         Trinity Universal Ins. Co. v. Stevens Forestry Serv. Inc., 335 F.3d 353, 356 (5th Cir.
2003) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). Lexington removed the suit to the
Eastern District of Louisiana on the grounds of diversity of the parties. Lexington is a citizen
of Delaware and Massachusetts.
       7
       Adams v. Unione Medtierranea di Sicurta, 364 F.3d 646, 655 (5th Cir. 2004) (citing
Baldwin v. Stalder, 137 F.3d 836, 839 (5th Cir. 1998)).
       8
           Am. Int’l Specialty Lines Ins. Co. v. Res-Care, Inc., 529 F.3d 649, 656 (5th Cir. 2008).

                                                 4
                                         No. 07-30823

       On appeal, Lexington asserts that there was insufficient evidence
presented at trial to support the finding that wind, rather than flooding, caused
most of the damage to Dickerson’s home. As wind damage is covered by
Dickerson’s homeowner’s policy but flood damage is not, Lexington would not be
liable for any damage attributable to flooding.9 None disputes that, in addition
to flooding, both wind and rain caused damage, but the parties disagree on the
proper apportionment of the causes of the damage between flooding and wind.
       Under Louisiana law, the insured must prove that the claim asserted is
covered by his policy.10 Once he has done this, the insurer has the burden of
demonstrating that the damage at issue is excluded from coverage.11 Thus, once
Dickerson proved his home was damaged by wind, the burden shifted to
Lexington to prove that flooding caused the damage at issue, thereby excluding
coverage under the homeowner’s policy. As no one disputes that at least some
of the damage to the Dickerson home was covered by the homeowner’s policy,
Lexington had to prove how much of that damage was caused by flooding and
was thus excluded from coverage under its policy.
       Dickerson’s trial expert, a New Orleans general contractor, testified that
wind and rain from the storm caused approximately 70 percent of the damage.
The same percentage results when the estimated total value of damage to the
home and its contents is reduced by the amount that Dickerson’s flood insurer
paid following Katrina, although Dickerson’s expert also testified that he had not
known the total amount that the flood insurance had paid until after he came
up with his own estimate of the breakdown between the two causes of damage.


       9
       At trial, an expert for the plaintiff testified that the total cost of repairing the home’s
wind and flood damage would exceed $177,000.
       10
        Jones v. Estate of Santiago, 870 So. 2d 1002, 1010 (La. 2004); Comeaux v. State Farm
Fire & Cas. Ins. Co., 986 So. 2d 153, 157-58 (La. App. 5th Cir. 2008).
       11
            Jones v. Estate of Santiago, 870 So. 2d at 1010.

                                                5
                                       No. 07-30823

       Lexington did not submit a competing percentage. Instead, it offered the
testimony of its own adjuster who provided the court with estimates of
rebuilding costs. Dickerson contended at trial that those costs were too low
because they did not reflect inflated post-Katrina prices for materials and labor.
Lexington also attempted to deconstruct Dickerson’s expert’s estimate by
identifying individual components of the damage and assigning their cause to
either flood or wind. For example, because flooding damaged the electrical
wiring, Lexington maintained that the entire replacement cost of the wiring
system throughout the house could be attributed to flooding. Dickerson’s expert
conceded that some of the figures in his estimate could be attributed entirely to
flood damage, but insisted that he had accounted for that in calculating the 70-
30 ratio.
       At trial, the question of flood versus wind damage essentially turned on
witness credibility, as the quantity and quality of the evidence adduced by each
party was similar. The district court, as the finder of fact in a bench trial, is best
positioned to evaluate the credibility of the witnesses.                On this record, a
reasonable fact finder could conclude that Dickerson’s expert offered the more
credible analysis of the damage to the home and the cost of rebuilding it.
Finding no clear error, we defer to the determination of the district court and
affirm.
C. Value of the Home’s Contents
       The contents coverage limit on Dickerson’s policy, Coverage C, is $76,500.
The district court valued Dickerson’s damaged and destroyed contents at
approximately $114,000.12 As the limit of the policy’s contents coverage is


       12
         The origin of this figure is not entirely clear. Dickerson submitted the same itemized
contents list to Lexington and his flood insurer. Our review of the list indicates that the
replacement value of the contents either certainly or possibly damaged and destroyed by the
hurricane was about $117,000. The total value of the contents on Dickerson’s list, including
flood damaged items, exceeded $205,000.

                                              6
                                        No. 07-30823

substantially less than the total value of the contents, the figure at issue here
is the $76,500 coverage limit. By trial, Lexington had reimbursed Dickerson
$56,005 for the loss of his possessions.13
       Lexington contends that the district court misinterpreted the language of
Coverage C. According to Lexington, the trial court’s award of $20,49514 under
this provision ignores the fact that Lexington was entitled to withhold some
portion of the proceeds of Coverage C until it received proof from Dickerson that
he had replaced the damaged or destroyed items.15
       The policy reads:
              When the replacement cost for the entire loss under
              this endorsement is more than $500, we will pay no
              more than the actual cash value for the loss or
              damage until the actual repair or replacement is
              complete.

To us, the language is quite clear: It permits recovery of only the actual cash
value of an item until such time as the insured furnishes the insurer a receipt
for replacement of that item. The actual cash value of an item is its depreciated
value; presumably the replacement cost is higher. The insured is not entitled to
the full replacement value of an item until he proves that he has, in fact,
replaced that item.


       13
        The district court’s award of $20,495 under Coverage C was essentially the difference
between the amount Lexington had paid and the coverage limit.
       14
          There was some discrepancy in this figure. At trial, the parties stated that Lexington
paid $56,095 to Dickerson prior to trial, which was $20,405 below the coverage limit, but the
district court repeatedly referred to $20,495 as the amount awarded to bring Dickerson to the
coverage limit. In its brief, Lexington states that it paid Dickerson $56,005 prior to trial,
which comports with the trial court’s understanding.
       15
           Lexington adds that Dickerson failed to comply with his policy by not promptly
submitting a list of damaged personal property or receipts for replacement of that property.
Lexington seems to offer the latter argument not as a stand-alone complaint, but in support
of its contention that the district court erred. Nevertheless, Dickerson did submit a list on May
10, 2007, shortly before trial. Lexington thereafter issue a check to Dickerson for $56,005.

                                               7
                                       No. 07-30823

       According to Lexington, the district court erroneously calculated the
amount owed to Dickerson under Coverage C by using the replacement value
rather than the actual cash value, resulting in an excessive award for which
Dickerson had never provided the required substantiation. Lexington argues
that, by using the replacement value instead of the actual cash value, the district
court over-estimated the compensable value of Dickerson’s possessions and
awarded him too much. As evidence that the district court employed the wrong
value, Lexington claims that the district court’s $114,000 baseline value
represented the replacement value of the contents of the home rather than the
actual cash value; Lexington does not expressly address the $114,000 figure in
its brief. Lexington also seems to rely on its approval of only $77,765 in contents
coverage of the total that Dickerson submitted as evidence that the district court
got it wrong; yet it neither offers an explanation for what this figure represents
nor contends that this is the total replacement value of Dickerson’s possessions.
       We are unable to determine the bases of Lexington’s claim of error and,
regardless, find the contention that the district court relied on the replacement
value rather than the actual value to be a distinction without a difference. Even
assuming that $114,000 was the aggregate replacement value, the court only
awarded Dickerson an amount sufficient to bring him up to the $76,500 limit of
his contents coverage, or 67percent of the value of his possessions. At trial,
Lexington’s claims adjuster testified that the depreciation rate its adjusters use
to calculate actual value is 20 percent16 which, when applied to $114,000,
produces a result identical to the award. Under both calculations, Dickerson will
receive the coverage limit.17 Lexington has neither provided evidence that the

       16
          Dickerson’s lawyer represented that Lexington actually used 28 percent to calculate
depreciation, but the witness seemed unfamiliar with the higher rate so we use the lower rate
for the sake of argument.
       17
          Using Lexington’s depreciation rate, contents valued at $114,000 would be
depreciated to $91,200, so Dickerson would receive $76,500, his policy’s coverage limit and the

                                              8
                                           No. 07-30823

district court relied on an erroneous amount nor demonstrated harm from the
purported error. We affirm the award of the district court.
D. Bad Faith of the Insurer
       Under § 22:1220, an insurer owes its policyholders a duty of good faith in
settling claims. Breach of the duty exposes an insurer to liability for damages,
discretionary penalties, and attorneys’ fees via § 22:658.18                   Among the
enumerated breaches of § 22:1220's duty of good faith is failure to pay a claim
within 60 days following receipt of satisfactory proof of loss if that failure is
“arbitrary, capricious, or without probable cause.”19              In contrast, § 22:658
subjects the insurer to penalties and attorneys’ fees for its arbitrary and
capricious failure to pay a claim within 30 days.20 A plaintiff may be awarded
penalties under only one of the two provisions, §§ 22:1220 and 22:658, whichever
amount is greater.21 He may, however, seek attorneys’ fees under § 22:658 while
seeking damages and penalties under § 22:1220.22
       A plaintiff has the burden of proving that his insurer (1) received
satisfactory proof of loss, (2) failed to pay within the required time, and (3) acted




same result reached by the district court.
       18
         Calogero v. Safeway Ins. Co. of La., 753 So. 2d 170, 174 (La. 2000). Calogero was
decided before the § 22:658 amendment at issue in this case went into effect. At the time of
that decision, the statute permitted attorneys’ fees just as it does now. The language
permitting attorneys’ fees was expunged in 2003 and reinserted in 2006.
       19
            § 22:1220(B)(5) and (6).
       20
         § 22:658(B)(1); see also Reed v. State Farm Mut. Auto Ins. Co., 857 So. 2d 1012, 1021
(La. 2003).
       21
        Calogero, 753 So. 2d at 174. In the instant case, the court assessed penalties against
Lexington under § 22:1220 only.
       22
            Calogero, 753 So. 2d at 174.

                                                9
                                           No. 07-30823

in an arbitrary and capricious manner.23 “Arbitrary and capricious” has virtually
the same meaning under § 22:1220 as it does under § 22:658;24 courts interpret
the phrase as synonymous with “vexatious.”25 “‘[V]exatious refusal to pay’ means
unjustified, without reasonable or probable cause or excuse.”26 An insurer does
not act arbitrarily and capriciously, however, when it withholds payment based
on a genuine (good faith) dispute about the amount of a loss or the applicability
of coverage.27
       Lexington makes two assertions in this context. First, it contends that the
district court erred by requiring it to prove that it acted in good faith because it
is the plaintiff who must prove that the insurer acted in bad faith. Second,
Lexington contends that the evidence offered by Dickerson was insufficient to
prove that Lexington acted arbitrarily and capriciously. We address Lexington’s
assertions in turn.
       1. Burden of Proof
       We review de novo the district court’s assignment of the burden of proof.28
Lexington invites our attention to an exchange between its attorney and the
court at the close of the bench trial during which the district judge observed that
the plaintiffs had not shown that Lexington’s actions were intentional and asked
Lexington for evidence that it had acted in good faith. Lexington interprets the
court’s statement to mean that the district judge believed Lexington had to prove

       23
          Talbert v. State Farm Fire & Cas. Ins. Co., 971 So. 2d 1206, 1211-12 (La. App. 4th
Cir. 2007); DeSoto v. Balbeisi, 837 So. 2d 48, 51 (La. App. 1st Cir. 2002) (addressing version
of § 22:658 that permitted attorneys’ fees).
       24
            Calogero, 753 So. 2d at 174.
       25
            Reed, 857 So. 2d at 1021.
       26
            Id.
       27
            Calogero, 753 So. 2d at 173.
       28
            Broussard v. State Farm Fire & Cas. Co., 523 F.3d 618, 625 (5th Cir. 2008).

                                               10
                                         No. 07-30823

that it had acted in good faith, instead of Dickerson having to prove that
Lexington acted in bad faith. We have reviewed the transcript of the exchange
in question and we cannot agree with Lexington’s interpretation.
       First, the statutes in question do not require proof that the insurer
intentionally harmed the plaintiff. In this respect, the district judge merely
stated a fact. In support of its insistence that Dickerson had to prove that
Lexington acted in bad faith, Lexington cites Holt v. Aetna Casualty & Surety
Company, in which the court stated, “[t]o prevail on a claim of breach of duty,
the insured must prove that the insurer knowingly committed actions which
were completely unjustified, without reasonable or probable cause or excuse.”29
As knowingly committing particular unjustified actions is not synonymous with
knowingly harming the insured, Lexington’s argument misses the mark. To the
extent that the statute requires an intentional or knowing act, it is to prevent
the imposition of penalties on insurers who have, by accident or oversight, failed
to pay within the statutory period. This is to say that the statute requires the
insurer to intend its actions; we do not however read Holt as requiring an
insured to prove that his insurer intended to harm him.30 Even though Holt is
a correct statement of the law, it does not provide support for Lexington’s
position.
       Additionally, we disagree with Lexington’s conclusion that the district
court’s statement was an assessment of which party must bear the ultimate
burden of proof. In context, the better reading is that the district court believed
that the plaintiff had borne his burden, so it sought Lexington’s rebuttal. The



       29
            Holt v. Aetna Cas. & Sur. Co., 680 So. 2d 117, 130 (La. App. 2d Cir. 1996) (emphasis
added).
       30
         Indeed, in statutes that do have such a requirement, the wording is explicit such that
this court need not hunt for meaning in the text. See, e.g., LA. CIV. CODE ANN. ART. 1998
(2008).

                                               11
                                          No. 07-30823

exchange came after both sides had concluded their cases. Before it uttered the
statements with which Lexington takes issue, the court cited examples of
Dickerson’s evidence of Lexington’s having acted in bad faith.                  Although the
insured has the burden of proof under §§ 22:1220 and 22:658, once he has made
his case, the burden of persuasion shifts to the insurer to rebut the insured’s
showing. The timing and context of the discussion between the court and the
defense attorney lead us to conclude that Lexington misinterprets the exchange
and that the district court was only inviting Lexington to offer evidence in its
defense.
         2. Sufficiency of the Evidence
         Again, to demonstrate arbitrariness or capriciousness, Louisiana law
requires a plaintiff to show that his insurer acted unjustifiably and
unreasonably. The statute is not intended, however, to prevent insurers from
disputing claims in good faith, including litigating such disputes.31 A refusal to
pay the full amount claimed will not be arbitrary and capricious when the
dispute has a good faith basis.32 Some delay to allow the insurer to verify a
claim may also be permissible.33 Without more, an insurer’s payment of less
than the full value of an insured’s loss is insufficient evidence of arbitrary and
capricious behavior for purposes of §§ 22:1220 and 22:658.34 Similarly, an

         31
         La. Bag Co., Inc. v. Audubon Indem. Co., ___ So. 2d ___, 2008 WL 5146674, at *7 (La.
Dec. 2, 2008); Holt, 680 So. 2d at 131 (citing Darby v. Safeco Ins. Co. of Am., 545 So. 2d 1022,
1028 (La. 1989)).
         32
         Pendarvis v. Am. Bankers Ins. Co., No. 06-772-DLD, 2008 WL 2280235, at *7-8 (M.D.
La. 2008) (holding no violation of § 22:1220 where insured and insurer engaged in continuing
negotiation over the value of the loss following Hurricane Katrina, and insurer continued to
respond promptly to insured’s inquiries), appeal docketed, No. 08-31064 (5th Cir. Oct. 29,
2008).
         33
              Block v. St. Paul Fire & Marine Ins. Co., 742 So. 2d 746, 753-54 (La. App. 2d Cir.
1999).
         34
        Gates v. Auto Club Family Ins. Co., No. 06-4394, 2007 WL 1464259, at *4 (E.D. La.
2007). Partial payment in Gates was the difference between the insurer’s tendered amount

                                                 12
                                        No. 07-30823

insured who fails to provide his insurer with information required to process his
claim cannot then claim the insurer acted arbitrarily in delaying payment.35
       Dickerson’s bad faith claim hinges on the undisputed timing of Lexington’s
first inspection and payment. Dickerson had reported the damage to the insured
property in mid-September of 2005, and Lexington had sent an adjuster to
inspect the damage on October 1, a month after Katrina. A report based on this
inspection was sent to Lexington no later than November, yet no payment was
made. Another report was sent to Lexington (apparently by the same claims
adjuster) on February 4, 2006. Although Lexington representatives took the
position that the second report corrected a “mistake” in the November report, we
have found no explanation in the record for why Dickerson could not have been
compensated in the interim. Indeed, Lexington’s attorney stated at trial that he
had no explanation for the five-month delay. In its brief, however, Lexington
states that its adjuster revised the first report to account for rising construction
costs attributable to Katrina’s aftermath. Dickerson did not receive the payment
of $11,335 until March 2, 2006 — five months after the inspection and four
months after Lexington received the inspection report.36 Another inspection in
the spring of 2006 produced an additional $2,274 payment, again a mere fraction
of the aggregate $300,000 limit of Dickerson’s homeowner’s coverage. It was not
until the eve of trial, following a third inspection and more than a year and a
half after Katrina struck, that Lexington finally acknowledged that the insured



and the plaintiff’s contractor’s estimate of the total cost of repairs. In contrast, in Pendarvis,
the partial payment was the insurer’s tender of the undisputed lesser amount of the claim for
which insurer agreed it was liable while the full amount of the claim was being negotiated.
       35
            Block, 742 So. 2d at 752.
       36
          That payment also included $718 for damage to other structures on the property and
$1,874 for additional living expenses. Lexington apparently paid Dickerson another $1,000
for additional living expenses in October, but payments of additional living expenses have no
bearing on our analysis.

                                               13
                                      No. 07-30823

property had suffered substantial wind (as opposed to flood) damage and made
a substantial payment.
       Lexington insists that it had a good faith dispute with Dickerson over how
much of the damage to the house and its contents was caused by flooding rather
than by wind. The existence of such a dispute is not supported by the evidence.
The insurer has pointed to nothing evidencing that it told Dickerson it was
disputing his claim on the basis of flood damage; it offers no evidence of a
dialogue with Dickerson over the quantum of the damage.                      Neither has
Lexington provided evidence that its adjusters and engineers had difficulty
assigning a portion of the damage to wind, and we have found no evidence in the
record to indicate that Lexington informed Dickerson that it was making or
could not make such a determination. Dickerson’s daughter testified at trial
that she and her brother repeatedly called Lexington about the insufficiency of
the payment but never got a response. The second inspection of the home did
not take place until June 2006, well after the long-delayed payment was made,
and even then resulted in payment of only $2,274. Given the lack of evidence of
a bona fide dispute and the fact that the extent of the flooding was self-evident,
we cannot credit Lexington’s contention that its payments totaling about $17,000
on damage valued at seven times that much (exclusive of the flood insurer’s
payment) was the result of a good faith dispute.
       The district court applied the proper legal standard. It sought evidence of
a basis for Lexington’s delayed payments and later stalling, but could find
none.37 The court’s finding about whether Lexington’s dispute was in good faith
is a factual determination that we review deferentially. Even if Lexington
considered the damage to be much less than Dickerson claimed, it was aware


       37
         “[D]irect and positive evidence of vexatious refusal is not necessary to impose the
statutory penalty.” La. Bag. Co., 2008 WL 5146674, at *13 (quoting 14 COUCH ON INSURANCE
3D § 204.108).

                                            14
                                     No. 07-30823

that it owed some substantial amount, albeit a lesser one; yet it did not pay
Dickerson for five months following its first adjuster’s inspection. The fact that,
in the district court’s words, Lexington “all of a sudden decided or realized” on
the eve of trial that it owed an additional $46,479 under Coverage A — not to
mention amounts that it owed under other coverages — is further evidence that
Lexington’s earlier failure to pay was without probable cause. Lexington did
have a credible argument with respect to the contents claim, and the trial court
found that Lexington did not act capriciously in that regard. The district court’s
determination that Dickerson proved Lexington’s bad faith based on its arbitrary
and capricious withholding of payments under the policy’s Coverage A for the
dwelling was a conclusion of fact, which we review under the deferential clear
error standard. Finding none, we affirm.
E. Mental Anguish Recovery Under § 22:1220
      Insurance contracts in Louisiana, such as the policy at issue here, are
regulated by both the Louisiana Civil Code and Title 22 of the Louisiana Revised
Statutes. The Civil Code provides the general law of contracts, and Title 22 fills
in the specifics that are applicable to contracts of insurance. Lexington claims
that the intersection of these two sources of law works to bar recovery of
damages for mental anguish by policyholders who claim their insurers have
acted toward them in bad faith. We conclude to the contrary.
      1. Permissibility of Mental Anguish Damages as a Matter of Law
      Lexington contends that Civil Code Article 1998 bars recovery of mental
anguish damages for breach of contract.38 Such damages are recoverable for


      38
            Article 1998. Damages for Non-pecuniary Loss
                    Damages for Non-pecuniary loss may be recovered when
            the contract, because of its nature, is intended to gratify a Non-
            pecuniary interest and, because of the circumstances
            surrounding the formation or the nonperformance of the
            contract, the obligor knew, or should have known, that his
            failure to perform would cause that kind of loss.

                                            15
                                       No. 07-30823

breach of contract only if (1) the primary object of the contract is non-pecuniary,
or (2) the defendant’s conduct was intended to aggrieve the plaintiff.39 As
neither was the case here, argues Lexington, Dickerson cannot recover for
mental anguish suffered as a result of the insurer’s delays and denials.
      We have previously observed that § 22:1220 requires an insurer to act in
good faith by fairly and promptly adjusting and paying claims. This statute
identifies a half dozen per se breaches of the duty of good faith, including
arbitrary or capricious failure to pay a claim within 60 days following receipt of
satisfactory proof of loss.40        The statute specifies that “[a]ny insurer who
breaches these duties shall be liable for any damages sustained as a result of the
breach.”41 Lexington maintains that this broad language is negated by the Art.
1998's proscription of damages for non-pecuniary harms outside of its confines.
Lexington reasons that, because Art. 1998 governs all breaches of contract, and
the Civil Code creates the lens through which the revised statutes are to be
viewed, the Code article sets the limits of § 22:1220's governance of one kind of
contract, viz., insurance contracts. According to Lexington’s argument, because
the object of a home insurance contract is the payment of money — placing it
outside the first prong of Art. 1998 because it is intended to gratify a pecuniary
interest — Art. 1998 would only permit mental anguish damages if the insurer
intended to harm the insured.




                     Regardless of the nature of the contract, these damages
             may be recovered also when the obligor intended, through his
             failure, to aggrieve the feelings of the obligee.
      LA. CIV. CODE ANN. ART. 1998.
      39
           Id.
      40
           § 22:1220(B)(5) (2008).
      41
           § 22:1220(A).

                                            16
                                         No. 07-30823

       We have not previously addressed the interaction of Civil Code Art. 1998
and § 22:1220. Neither has the Louisiana Supreme Court squarely addressed
this issue. Lexington nevertheless contends that the recent Louisiana Supreme
Court decision in Sher v. Lafayette Insurance Company resolved the issue.42
Although we agree that the Sher decision lends some support to Lexington’s
argument, it is hardly determinative. The court essentially left for another day
the question posed here. In Sher, the trial court had refused to give a jury
instruction on mental anguish damages under Civil Code Art. 1998; the
discussion does not mention § 22:1220.                 The intermediate appellate court
affirmed that ruling, finding no error because the ruling had no impact on the
trial’s outcome. The Louisiana Supreme Court affirmed, concluding the trial
court’s error, “if any,” was harmless. In so holding, the court stated that “there
was no legal basis for the jury to have found damages for mental anguish.”43 The
court did not elaborate on this statement.
       Several other courts also have viewed the Sher decision as inconclusive
with respect to mental anguish damages under § 22:1220.44 In Gaffney v. State


       42
            Sher v. Lafayette Ins. Co., 988 So. 2d 186 (La. 2008).
       43
            Id. at 203.
       44
          Gaffney v. State Farm Fire & Cas. Co., No. 06-8143, 2008 WL 4656926, at *1 (E.D.
La. 2008). The Gaffney court stated that Sher “simply held that the plaintiff in that particular
case failed to provide sufficient evidence to recover mental anguish damages pursuant to
Louisiana Civil Code Article 1998 ... the Supreme Court made no ruling one way or the other
under Section 22:1220 as to whether damages for mental anguish are recoverable as general
damages.” Id. See also Burgess v. Allstate Ins. Co., No. 07-248-JJB, 2008 WL 5121962, at *4
n.46 (M.D. La. Dec. 5, 2008) (stating that Sher is not dispositive on the permissibility of mental
anguish damages under § 22:1220); Creecy v. Metro. Ins. Co., No. 06-9307, 2008 WL 4758625,
at *2 (E.D. La. Oct. 30, 2008) (finding mental anguish damages permissible under § 22:1220
after Sher); Farber v. Amer. Nat’l Prop. & Cas. Co., No. 08-821, 2008 WL 5159207, at *7 (La.
App. 3d Cir. Dec. 10, 2008) (same). Cf. Juneau v. State Farm Fire & Cas. Co., No. 08-1238,
2008 WL 5234405, at *4 (E.D. La. Dec. 12, 2008) (finding Sher barred mental anguish
damages recovery under § 22:1220); Barrow v. State Farm Fire & Cas. Co., No. 07-5603, 2008
WL 4412259, at *2 (E.D. La. Sept. 18, 2008) (same); see also Copelin v. State Farm Ins. Co.,
No. 06-4115, 2008 WL 4587306, at *2 (E.D. La. Oct. 10, 2008) (stating that Sher should guide

                                                17
                                          No. 07-30823

Farm Fire & Casualty Co., the district court stated that the Sher ruling was
limited to the specifics of that case and did not address the availability of
damages vel non for mental anguish under § 22:1220.
       A review of the case law shows that the appellate courts of Louisiana and
the district courts of this circuit have regularly permitted mental anguish
damages for a breach of § 22:1220. A number of Louisiana appellate courts have
approved awards for mental anguish under § 22:1220 although mostly without
addressing the applicability of Civil Code Art. 1998.45 Prior to Sher, only
Louisiana’s Fourth Circuit Court of Appeal, in Veade v. Louisiana Citizens
Property Corp., had held that Civil Code Art. 1998 applies to § 22:1220
damages.46 We find no post-Sher cases in Louisiana courts that have rejected
mental anguish damages under § 22:1220 and only a few in the district courts
of this circuit.47 The Veade court, in reaching its conclusion, affirmed an award
of mental anguish damages on a finding that the insurer acted intentionally48
and appeared to conflict with prior authority in that circuit permitting mental
anguish damages under § 22:1220.49 The Veade decision only briefly refers to the



courts in determining permissibility of recovery for mental anguish under § 22:1220).
       45
         Orellana v. La. Citizens Prop. Ins. Co., 972 So. 2d 1252 (La. App. 4th Cir. 2007)
(affirming damages award for emotional distress under § 22:1220 when insurer failed to pay
timely under insured’s policy following Hurricane Katrina without mention of Art. 1998); Clark
v. McNabb, 878 So. 2d 677 (La. App. 3d Cir. 2004) (affirming award of damages under §
22:1220 for anxiety and mental anguish without mention of Art. 1998); Reed v. Recard, 744
So.2d 13 (La. App. 1st Cir. 1998) (same), abrogated on other grounds; Holt, 680 So. 2d 117
(affirming, but reducing damages for mental anguish awarded under § 22:1220 without
mention of Art. 1998).
       46
            Veade v. La. Citizens Prop. Corp., 985 So. 2d 1275 (La. App. 4th Cir. 2008).
       47
            Juneau, 2008 WL 5234405, at *4; Barrow, 2008 WL 4412259, at *2.
       48
            Veade, 985 So. 2d. at 1281.
       49
        Orellana, 972 So. 2d at 1256 (Louisiana Fourth Circuit Court of Appeal permitting
damages for mental anguish under § 22:1220).

                                               18
                                         No. 07-30823

conflicting opinion in Orellana v. Louisiana Citizens Property Insurance Corp.,
merely acknowledging that case’s holding that “damages can be recovered for
mental anguish if the insurer breaches its duty of good faith,” and deflecting any
apparent conflict by noting Orellana made no mention of the insurer’s intent (or
lack thereof) to aggrieve the insured.50 We do not find the reasoning in Veade
convincing or see it as resolving the question, particularly in light of the
substantial number of Louisiana decisions to the contrary.
       At least two federal district courts in Louisiana have determined that Civil
Code Art. 1998 does not bar § 22:1220 damages for mental anguish under
insurance contracts, reasoning that § 22:1220 addresses a harm distinct from
breach of contract: breach of the duty of good faith.51 “The prohibited acts set
forth in § 22:1220(B) amount to knowing and vexatious wrongdoing directed
toward an insured. The general and special damages award is thus aimed at,
and limited to, a caliber of misconduct that goes well beyond an ordinary breach
of contract.”52 By this rationale, Art. 1998 simply does not apply. Indeed, the
Louisiana Supreme Court itself has acknowledged and endorsed this reading of
§ 22:1220 — albeit without express reference to Art. 1998.53 “[T]he subject

       50
            Veade, 985 So. 2d at 1280-81 (citing Orellana, 972 So. 2d at 1256).
       51
           Faust v. State Farm Fire & Cas. Co., No. 06-8470, 2007 WL 1191163, at *4 (E.D. La.
2007) (“Plaintiffs’ claims for general damages such as emotional distress do not arise from a
simple breach of their insurance contract. Rather, they are based on the asserted violation of
State Farm's statutory duty under Section 22:1220 in one or more of the specified ways.”)
(internal footnote omitted); see also Bowers v. State Farm Fire & Cas. Co., No. 06-830, 2007 WL
2670087, at *1 (E.D. La. 2007) (distinguishing mental anguish damages under § 22:1220 from
prohibition on such damages in insurance contracts).
       At common law, claims of breach of the duty of good faith are distinct from claims of
breach of contract. See, e.g., Med. Care Am., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 341
F.3d 415, 419 (5th Cir. 2003).
       52
            Faust, 2007 WL 1191163, at *4.
       53
         Manuel v. La. Sheriff’s Risk Mgmt. Fund, 664 So. 2d 81, 84 (La. 1995) (“[T]he statute
does not speak on a matter that is a subject of the contract, or is specifically addressed in the
contract. The statute speaks of an insurer's obligation to act in good faith toward insured and

                                               19
                                       No. 07-30823

matter of the statute is unrelated to that of the contract.... The duties that it
does impose upon insurers are separate and distinct from the duties mentioned
in the contract of insurance.”54
       This is a more plausible reading of the statute. It is supported by the plain
language of § 22:1220, whereas Lexington’s proffered reading is not. The statute
specifically refers to a breach of the duty of good faith; it does not refer to breach
of contract. Furthermore,§ 22:1220 is broadly worded, explicitly permitting
liability for “any damages sustained,”55 including, without limitation, “any
general or special damages.”56 “General damages are those which may not be
fixed with pecuniary exactitude; instead, they ‘involve mental or physical pain
or suffering, inconvenience, the loss of intellectual gratification or physical
enjoyment, or other losses of life or life-style which cannot be definitely
measured in monetary terms.’”57 By authorizing “any damages,” including “any
general or special damages,” the legislature pointedly permitted the award of
mental anguish damages.58
       We hold that Art. 1998 is, as a matter of law, inapplicable to § 22:1220 and
does not bar the award of mental anguish damages under this statute: Damages


non-insured claimants and establishes penalties for the commission of certain acts, none of
which are covered in the contract.”). Although Manuel addressed the 1991 version of the
statute, the relevant language of the applicable version is identical. The court in Manuel
permitted the plaintiffs to sue their insurer for mental anguish damages, among other claims.
Id. at 82-83.
       54
            Id.
       55
            § 22:1220(A).
       56
            § 22:1220(C).
       57
          Bellard v. American Cent. Ins. Co., 980 So. 2d 654, 674 (La. 2008) (quoting Keeth v.
Dep’t of Pub. Safety & Transp., 618 So. 2d 1154, 1160 (La. App. 2d Cir. 1993).
       58
         Courts have permitted the award of damages for mental anguish caused by insurers’
breaches under § 22:1220 for years. The Louisiana Legislature has amended the statute twice
since 1997 and yet has not clarified the language to bar such awards.

                                             20
                                        No. 07-30823

for mental anguish may be awarded under § 22:1220 for breaches of the duty of
good faith.       With this established we must determine whether Dickerson
adduced sufficient proof of mental anguish to support an award.
       2. Sufficiency of the Evidence
       The trial court awarded Dickerson $25,000 in general damages for mental
anguish that he suffered from Lexington’s arbitrary refusal to pay. Lexington
contends that Dickerson did not offer sufficient evidence to support such an
award.
       Both Dickerson and his daughter, Cindy Bane, testified about his living
situation following Hurricane Katrina. Bane testified that the year and a half
of fighting with Lexington caused her father’s mental health to deteriorate.
Bane said that her father became increasingly withdrawn and short-tempered
over the course of his ordeal. She noted that he has been living in the bathtub
showroom of a store and showering with a garden hose while standing on a
wooden pallet in an unheated back room. Dickerson testified that the stress
caused a rash for which he eventually had to seek a doctor’s care.
       Lexington asserts that for an insured to succeed on a claim of mental
anguish, the law requires more evidence than Dickerson offered. “[B]are
allegations of depression and embarrassment”59 are insufficient, Lexington
contends; mental anguish must rise to the level of medical significance.60
Lexington insists that Dickerson should have offered the testimony of an expert
who could attest to his mental state before and after the storm and to any nexus
with the ensuing battle with the insurer. Furthermore, argues Lexington, much
of the suffering was of Dickerson’s own making; he could have saved himself
significant hardship by moving into the FEMA trailer that sat unoccupied on his

       59
         Buddy’s Tastee No. 1, Inc. v. Tastee Donuts, Inc., 483 So. 2d 1321, 1324 (La. App. 4th
Cir. 1986).
       60
            Atwood v. Hylan, 685 So. 2d 450, 454 (La. App. 2d Cir. 1996).

                                               21
                                        No. 07-30823

front lawn for months. His unilateral and arbitrary choice to live in a bathtub
showroom instead of the trailer should not provide a basis for Lexington’s
liability.
       There is no clear legal standard for what constitutes sufficient evidence of
mental anguish in a case such as this. It was up to the trial court as fact-finder
to determine whether the evidence Dickerson presented was sufficient to prove
that he suffered compensable mental anguish as a result of Lexington’s actions.
In effect, the question whether there was legally sufficient evidence merges with
this factual question. We review the court’s factual conclusion for clear error;
mixed questions of law and fact de novo.61
       These cases are necessarily fact-specific, so outcomes vary.62 The case law
provides only anecdotal guidance as to what may or may not suffice to prove
compensable mental anguish. “Mental anguish which gives rise to a claim for
damages must be a real mental injury that one can reasonably expect a person
in such a position to suffer.”63          It “does not require proof that medical or
psychiatric care was required as a result of the incident, but minimal worry and
inconvenience should not be compensated.”64                 Neither is expert testimony
mandatory, as Lexington contends.65
       For example, in Orellana, the fact that the plaintiff had to stand idle and
watch his home deteriorate while his insurer refused to pay helped convince the
court that mental anguish damages under § 22:1220 were proper.66 Another


       61
            Adams v. Unione Medtierranea, 364 F.3d at 655.
       62
            Stanford v. Town of Ball, 903 So. 2d 1235, 1243-44 (La. App. 3d Cir. 2005).
       63
            Kim v. Kim, 970 So. 2d 1158, 1165 (La. App. 5th Cir. 2007).
       64
            Lacombe v. Carter, 975 So. 2d 687, 690 (La. App. 3d Cir. 2008).
       65
            Laurents v. La. Mobile Homes, 689 So. 2d 536, 543 (La. App. 3d Cir. 1997).
       66
            972 So. 2d at 1256.

                                               22
                                         No. 07-30823

Louisiana court found the evidence sufficient to support an award for mental
anguish based on the testimony of an elderly couple who both stated that they
felt helpless as they watched their home become more and more damaged by
vibrations from a prolonged street drainage construction project in their
neighborhood, and that they would have to endure additional distress as the
home was repaired.67 Still another court sanctioned mental anguish damages
based on the plaintiffs’ testimony that a crop failure forced them to take on
mortgages and finance their farming operation on credit cards, causing them
“increased stress, irritability, and short tempers.”68 In other cases, Louisiana
courts have found testimony of humiliation69 and fears of possible injury70
sufficient, but have also held that evidence of damage to reputation and harm
from gossiping was insufficient.71 The case Lexington cites as setting the
standard at “psychic trauma requiring medical treatment” is inapposite here.72
That case concerned a property owner’s claim of psychic trauma as a result of
physical damage to his property resulting from a property dispute; it is a specific
type of mental anguish claim and thus distinct from the instant situation.


       67
          Holzenthal v. Sewerage & Water Bd. of New Orleans, 950 So. 2d 55, 79-80 (La. App.
4th Cir. 2007).
       68
            Matt v. Agro Distribution, LLC, 904 So. 2d 928, 934 (La. App. 3d Cir. 2005).
       69
        Stanford v. Town of Ball, 903 So. 2d at 1245-46 (plaintiff and his family’s testimony
about humiliation from living in a home with raw sewage fumes emanating from the plumbing
and backing up in the bathtub was sufficient evidence of aggravation and inconvenience
endured, but court reduced jury award, finding $175,000 excessive).
       70
          Ganhart v. Executive House Apartments, 671 So. 2d 525, 527-28 (La. App. 4th Cir.
1996) (plaintiff testified that leak in apartment above hers caused hers to smell and made her
fear a rodent infestation, electrical fire, that her ceiling could fall in or that she could slip on
wet carpet).
       71
         Kim, 970 So. 2d 1158 at 1165 (plaintiff testified she suffered mental anguish from
damage to her reputation and gossiping about her due to defendant’s failure to comply with
their business partnership agreement).
       72
            Atwood, 685 So. 2d at 454.

                                                23
                                       No. 07-30823

       Dickerson did not offer expert or medical testimony, but he did offer more
than“bald assertions.” His daughter’s testimony of watching her father’s mental
state deteriorate and his becoming short-tempered and anti-social is more than
bare or conclusional. The same holds for Dickerson’s testimony that he suffered
a rash from the stress, for which he did seek medical care. Although Lexington
contends plausibly that Dickerson could have mitigated his suffering, the district
court was best positioned to make credibility determinations of the witnesses,
and it found the weight of the evidence tipped in favor of Dickerson. On review,
we find no clear error in the district court’s conclusions grounded largely in
credibility determinations.
F. Applicability of § 22:658 Amendment Permitting Attorneys’ Fees
       Section 22:658(B)(1) permits the imposition of penalties against insurers
who delay payment of claims in bad faith. A post-Katrina amendment to this
statute that took effect on August 15, 2006 altered the statute in two significant
ways: (1) Penalties were doubled from 25 percent to 50 percent of any amounts,
in addition to the payment for the claim, determined to be due from the
insurer,73 and (2) recovery of attorneys’ fees by the insured was permitted.
Hurricane Katrina plaintiffs have advanced several arguments to encourage
courts to permit the amended version of the statute to apply to their insurance
disputes. Here, Lexington insists that the amendments do not apply because
they did not take effect until after Dickerson filed his claim. The critical
question is at what point on the timeline does an insurer’s refusal to pay trigger
the penalty provisions of § 22:658.74              Courts have disagreed about this,


       73
          The district court awarded penalties under § 22:1220, not under § 22:658, so this
portion of the amendment is not at issue here.
       74
          The answer to this question has significant implications for victims of Hurricane
Katrina that extend beyond any single case, because most Katrina victims made claims well
before the amendments took effect. If, however, the measuring event is not limited to the filing
of a claim — for example, it might be the refusal by the insurer to pay — some of those

                                              24
                                       No. 07-30823

pinpointing, for example (1) the filing of the initial claim, (2) the submission of
satisfactory proof of loss, (3) the insurer’s refusal to pay or denial of a claim, and
(4) an ongoing refusal to pay. In Sher, the Louisiana Supreme Court clarified
that, as a general rule, the relevant event for triggering the attorneys’ fees
provisions of § 22:658 is the submission of satisfactory proof of loss.75 In so doing,
the Sher court rejected two arguments that might have permitted other Katrina
victims to benefit from the amended § 22:658: (1) that injury from an insurer’s
bad faith delay of payment or denial of recovery continues so long as the delay
or denial continues,76 and (2) that the amendments were retroactive.77 At the
same time, the Sher court left some room for holding that other later-occurring
events might trigger § 22:658, noting that if Sher had not yet submitted his
satisfactory proof of loss, a petition for damages could have sufficed, and that if
damage is discovered after the first claim is made and the insurer fails timely
to pay this additional claim, such a failure might give rise to penalties.78
        Lexington argues that Sher forecloses the award of attorneys’ fees in this
case because the satisfactory proof of loss was submitted and payment was
refused before August 15, 2006. We agree. The district court awarded Dickerson
attorneys’ fees and costs under § 22:658 in the amount of $53,105 in reliance on
the “continuing breach” rationale, holding that Lexington could be liable for that
part of the breach (the continued refusal to pay) that extended past August 15,
2006.



claimants still might benefit from the amendment.
        75
         988 So. 2d at 199. In Sher, the owner of a small apartment building in which he lived
sought recovery following Hurricane Katrina under his commercial all-risk insurance policy.
        76
             Id.
        77
             Id. at 201.
        78
             Id.

                                             25
                                       No. 07-30823

       After Sher, Louisiana law clearly prohibits the continuing-breach rationale
employed by the district court in this case, irrespective of any merit that it might
have had at the time of decision. Dickerson filed his claim with Lexington in the
fall of 2005, prior to the August 15, 2006 effective date of the amendment to §
22:658. Even though Sher post-dates the district court’s judgment on attorneys’
fees in this case,79 the intervening Louisiana Supreme Court decision controls.
We must apply the “latest and most authoritative expression of state law
applicable to the facts of a case.”80 We therefore reverse the judgment of the
district court to the extent that it awarded attorneys’ fees. Because it is possible,
however, that some damage was not discovered until after August 15, 2006
(Lexington made its third inspection in 2007 during which it found new damage),
we remand this issue to the district court for it to consider whether attorneys’
fees under the amended version § 22:658 might apply to any part of the
insurance proceeds that were paid after the effective date of the amendment.
                                   III. CONCLUSION
       We reverse that part of the judgment which awards attorneys’ fees and
remand it to the district court for further proceedings consistent with this
opinion. We affirm the judgment of the district court in all other respects.
REVERSED and REMANDED in part; AFFIRMED in part.




       79
         The trial court entered judgment as to attorneys’ fees on September 11, 2007. Sher
was decided on April 8, 2008.
       80
          Santibanez v. Wier McMahon & Co., 105 F.3d 234, 239 (5th Cir. 1997); see also
Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538, 542-43 (1941) (“[T]he dominant
principle is that nisi prius and appellate tribunals alike should conform their orders to the
state law as of the time of the entry. Intervening and conflicting decisions will thus cause the
reversal of judgments which were correct when entered.”)

                                              26
