Federal District Court Denies Statutory Damages and Attorney Fees in Insurance Dispute

Federal District Court Denies Statutory Damages and Attorney Fees in Insurance Dispute

Case and Court: Carlisle Farms & Transportation, LLC  v. United Financial Cas. Co., Case No. 3:23-cv-00079-KGB (E.D. Ark.)

Issue: Does a settlement agreement under which the insurer expressly denies liability and agrees to pay an amount less than half that implicitly demanded in the complaint foreclose an award of a statutory penalty, attorney fees, and interest to the insured?

Holding: Yes. The relevant statute both requires that the insured recover at least 80% of the amount demanded and that there be a determination of liability against the insured. The amount demanded in the complaint was never supplanted by a lesser amount. And against that demanded amount, the settlement award was insufficient. Moreover, there was never any finding or acknowledgment of liability against the insurance company. Therefore, the insured was not entitled to anything other than the settlement proceeds.

Summary: Carlisle Farms & Transportation, LLC (“Carlisle”) transports agricultural products. One of its trucks, which was covered by a policy issued by United Financial Casualty Company (“United”), broke down in Tennessee while on a run. Carlisle alleged that its driver had vandalized and abandoned it.

Carlisle made a claim, and United disputed coverage. After pre-litigation attempts to resolve the matter failed, Carlisle filed suit. The complaint sought $40,000 in damages for the damage to the truck, $6,000 per week in lost profit damages, and pursuant to Ark. Code Ann.  § 23-79-208, a 12% statutory penalty for non-payment and attorney fees, as well as pre- and post-judgment interest.

The parties eventually settled for $41,500. However, the “partial settlement agreement” they entered into made no determination as to liability for coverage and left the statutory damages and fees issue open, to be determined by the court later:

Pursuant to the settlement, United agreed to pay $41,500 to Carlisle to “fully and finally settle all claims asserted in the litigation, or any claims for damages which could have been asserted in the litigation, or any claims arising out of the policy referenced in subsection B above, save and except Carlisle’s claim for statutory damages”. The settlement agreement expressly specified that “any payments or agreements made pursuant to this Release are not an admission of any liability or responsibility for, or the correctness of” the claims in the litigation. The settlement agreement further states that “liability, responsibility, and correctness” of Carlisle’s claims in the litigation are “expressly denied” and that the settlement payment is made “for purposes of avoiding the costs of litigation”. However, the agreement expressly reserved for Carlisle the right to bring a motion for statutory damages pursuant to Arkansas Code Annotated § 23-79-208.

Slip Op. at 3.

The parties subsequently submitted briefs on whether the statute would apply. United’s position was that taking into account the damages claim and calculating the amount of time the truck was out of commission at the time suit was filed (slightly under three months had elapsed between the breakdown and the initiation of suit), Carlisle’s demand was essentially for $88,000, an amount that was too high relative to the recovery to allow for the statutory penalties. It also stressed that the lack of any finding of liability prevented its imposition.

Carlisle argued that a pre-trial settlement did not foreclose a statutory award and that the court should measure its recovery not against that made in the complaint, but against an amended demand for $40,000 it represented it made during a mediation session. The court began its analysis by explaining the contours and purpose of the statutory penalty:

Arkansas Code Annotated § 23-79-208(a) provides that “[i]n all cases in which loss occurs” and the insurance company “shall fail to pay the losses within the time specified in the policy after demand is made,” the insurance company “shall be liable to pay the holder of the policy or his or her assigns, in addition to the amount of the loss, twelve percent (12%) damages upon the amount of the loss, together with all reasonable attorney’s fees for the prosecution and collection of the loss.” The purpose of the statute is to “punish unwarranted delaying tactics of insurance companies.” State Farm Automobile Ins. Co. v. Stamps, 363 S.W.3d 1, 4 (Ark. 2009). The insurer’s good faith in contesting coverage is not a defense to liability. McHalffey v. Nationwide Mut. Fire Ins. Co., 61 S.W.3d 231, 239 (Ark. Ct. App. 2001). Where the policy does not include a time limit, the losses must be paid in a reasonable time. Farm Bureau Mut. Ins. Co. of Ark. v. Guyer, 386 S.W.3d 682, 687 (Ark. Ct. App. 2011).

Slip Op. at 3-4.

Citing to both the statute and various court cases, the court also noted several other relevant principles, namely:

• Because it is intended to punish, the statute must be construed strictly in favor of insurance companies;
• The penalty only applies to cases that “come clearly within the statute”;
• A case only qualifies as “clearly within the statute” if the plaintiff recovers at least 80% of what was demanded or sought in the suit;
• The amount against which the recovery is to be measured is the amount of the legal claim, not of the insurance claim;
• A plaintiff may make a new demand by amending their complaint.

Slip Op. at 4.

The court held for the insurer. First, it determined that the $88,000 amount derived from the complaint’s demand for payment was the proper measure of what was demanded. Though Carlisle alleged that it had lowered its demand at mediation, rendering the $41,500 well above the 80% threshold, the court (in addition to noting a factual dispute between the parties on this point) held that an oral mediation demand was not sufficient.

While, as noted above, a demand may be reduced by a written amendment to the court, what occurred here did not modify the initial demand of $88,000: “Although Arkansas case law supports the proposition that a § 23-79-208(a) demand may be amended after the filing of the lawsuit, to this Court’s knowledge no court has ever accepted a purported demand that was made outside the context of a formal writing or otherwise made in open court.”

Slip Op. at 5.

Second, and per the court, more importantly, the issue of liability under the policy was not resolved in the plaintiff’s favor. There had been a settlement in which the issue of coverage was left open, the court had not made a finding on liability, and United had never admitted that it owed Carlisle any obligation under the policy.

Accordingly, this trigger for the imposition of the penalty had not been satisfied:

Based on this Court’s research, in every case in which courts have awarded the statutory penalty without a judicial decision on the merits, the defendant insurer admitted guilt either by confessing judgment or paying the claim directly under the policy.  Whether or not, as Carlisle claims, it “defies logic that Defendant would pay policy limits if there was no coverage”, the parties agreed to a settlement according to which United “expressly denied” liability for Carlisle’s claims. Thus, given that the parties agreed to resolve their differences here through language that includes no confession of judgment or admitted liability under the policy, nor any other determination on the merits of Carlisle’s claims, the Court declines to find a proper basis for an award of statutory penalties under § 23-79-208(a).

Slip Op. at 6 (citations omitted).

Bottom Line: Unfortunately, insurers are forced to file lawsuits against their insurance companies to get a claim paid, either in whole or in part. Such plaintiffs may have to make decisions on whether, when, and for how much to settle and, in light of those determinations, consider how they might preserve any claims for payment over and above the bare amount of the claim.

This includes deciding whether to reject a settlement because it (as they often do) makes no determination on liability, amending a complaint to lower a demand, etc. If you are seeking an Arkansas Insurance Attorney and want to discuss your claim, we can help.

Contact our firm today to schedule a free consultation with an experienced  lawyer in your area.