Opinion
No. 2023-CC-01021
01-24-2024
PVCA, INC. and Renola Equity Fund II, LLC v. PACIFIC WEST TD FUND, LP, et al.
Hughes, J., would grant. Crichton, J., concurs for reasons assigned by McCallum, J.
Applying For Writ Of Certiorari, Parish of St. Bernard, 34th Judicial District Court Number(s) 13-0134, Court of Appeal, Fourth Circuit, Number(s) 2023-C-0342.
1Writ application denied.
Hughes, J., would grant.
Crichton, J., concurs for reasons assigned by McCallum, J.
McCallum, J., concurs and assigns reasons.
McCALLUM, J., concurs in the denial of the writ application.
1I concur in the denial of the writ application in this matter and supply, as a reminder, that this Court’s denial of a writ application is not indicative of a predisposed result. See, e.g., State v. Williams, 00-1725, p. 4 n.3 (La. 11/28/01), 800 So.2d 790, 795 ("a writ denial … does not indicate the supreme court’s adoption of the appellate court’s reasoning."). This Court’s denial leaves undisturbed the conclusion of the court of appeal on the issue presented - whether a mortgagee is entitled to recover’s attorney fees against an insurer of mortgaged property for bad faith claims handling, when a jury’s verdict is rendered solely in favor of the mortgagor, to whom an award of attorney fees was also made. However, our denial leaves unaddressed whether the lower courts must ultimately apportion the award of attorney fees pro rata between the mortgagee and the mortgagor, so as to prevent the insurer from paying the bad faith claims twice. That issue has not been presented to, nor addressed by, the lower courts in this matter.
The facts of this case are largely undisputed. Plaintiffs, PVCA, Inc. and Renola Equity Fund II, LLC (collectively referred to hereinafter as "Renola") owned a 71-unit apartment/condominium complex. Defendant, Pacific West TD Fund, LP, ("Pacific West") provided financing to Renola and held a mortgage on the property. The property was insured under a commercial property insurance policy issued by 2Louisiana Citizens Property Insurance Corporation ("LCPIC"). The named insured under the policy was Renola. Pacific West was named as an additional insured and a "loss payee" under the policy.
When the complex was damaged as a result of Hurricane Isaac, Renola made a claim under the insurance policy which LCPIC denied. Renola then filed suit against LCPIC, asserting bad faith claims handling under La. R.S. 22:1892 for LCPIC’s failure to adjust the claim timely and in good faith. Pacific West intervened in the action, asserting the same bad faith claims against LCPIC.
La. R.S. 22:1892 A (1) provides that "[a]ll insurers issuing any type of contract … shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest." The insurer becomes subject to a penalty of "fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater" when the insurer fails to timely pay a claim and the failure to pay within the thirty day time frame "is found to be arbitrary, capricious, or without probable cause." La. R.S. 22:1892(B)(1)(a). The insurer is also liable for "reasonable attorney fees and costs." Id.
The matter proceeded to a jury trial on the bad faith claims; the parties had previously stipulated that the trial judge would decide "all matters related to an award of attorney fees and costs." Finding that LCPIC breached the requirement of good faith and fair dealing to Renola, the jury rendered a verdict in Renola's favor and awarded $810,000.00 in damages for loss of rental income and a 50% penalty. The trial court then rendered a final judgment in accordance with the jury’s verdict, including attorney fees and costs under La. R.S. 22:1892, in amounts to be determined at a later hearing. The judgment was affirmed by the court of appeal, which remanded the matter to the trial court to determine attorney fees and costs, PVCA, Inc. v. Pac. W. TD Fund LP, 20-0327, p. 3 (La. App. 4 Cir. 1/20/21), 313 So.3d 320.
In particular, the jury found that LCPIC failed to pay Renola amounts due under the insurance policy, failed to pay Renola any undisputed amounts within the statutory time limits, and failed to pay Renola within the same time periods after receiving satisfactory proof of losses. The jury also found that LCPIC misrepresented pertinent facts or insurance claims provisions relating to coverage.
3On remand, Pacific West maintained that, as an additional insured and loss payee under the policy, LCPIC was liable to it for attorney fees and costs pursuant to La. R.S. 22:1892; it filed a motion for partial summary judgment on this issue. Additionally, Pacific West argued that it was a party to and a full participant in the trial on the merits of LCPIC’s bad faith. LCPIC filed a cross-motion for summary judgment, contending that Pacific West was not entitled to attorney fees and costs as the jury's verdict did include a specific award to Pacific West. It further argued that there is no legal precedent whereby an insurer is required to pay a second award of attorney fees to a mortgage holder absent a separate judgment specifically in its favor.
Both Pacific West and Renola sought attorney’s fee on remand. LCPIC responded with an exception of res judicata as to Pacific West’s claims. The trial court awarded attorney’s fees to Renola but granted LCPIC’s exception of res judicata, dismissing Pacific West's claim for attorney's fees. The court of appeal reversed and remanded, finding the exception of res judicata to be inapplicable. PVCA, Inc. v. Pacific West TD Fund, LP, 21-0753 (La. App. 4 Cir. 7/13/22), 366 So.3d 243 (unpub.). writ denied, 22-01220, (La. 11/8/22), 362 So.3d 423.
After a hearing, the district court granted Pacific West’s motion for partial summary judgment, and denied LCPIC’s summary judgment motion. LCPIC sought supervisory review and the court of appeal granted writs but denied relief, with one judge dissenting. PVCA, Inc. v. Pac. W. TD Fund, LP, 2023-0342 (La. App. 4 Cir. 6/26/23), — So.3d —, 2023 WL 4188356. The present writ application followed.
The basis of Pacific West's claims for attorney fees is La. R.S. 22:1892 B (1) (a), which, as noted previously (see, footnote 1), renders an insurer liable for penalties for its failure to timely make payments under an insurance policy after "receipt of satisfactory proofs of loss… when such failure is found to be arbitrary, capricious, or without probable cause…." In addition to the loss, the insurer may be liable for a penalty "of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured. …" Id. (Emphasis added). The issue in this case, therefore, turns on 4whether Pacific West is an "insured" as contemplated by La. R.S. 22:1892 and the LCPIC policy.
This Court addressed this issue in May v. Market Ins. Co., 387 So.2d 1081, 1083 (La. 1980), a case involving a claim for penalties under La. R.S. 22:658 (now, La. R.S. 22:1892). We determined the mortgagee’s rights turned on whether the mortgage clause of the insurance policy created a separate policy of insurance between the insurer and the mortgagee:
Intervenor’s right to the insurance proceeds arises under the mortgage clauses of the several insurance policies. Mortgage clauses fall into two forms, the open or simple mortgage clause and the standard or union mortgage clause. The
simple mortgage clause merely provides in effect that the proceeds of the policy shall be paid to the mortgagee as his interest may appear; but the so-called standard or union mortgage clause is somewhat more specific in that if also provides that the mortgagee shall be protected against loss from any act or neglect of the mortgagor or owner, so that it shall not defeat the insurance so far as the interest of the mortgagee is concerned. Couch on Insurance § 42:648 (2d ed. 1963).
* * *
The jurisprudence of this state is in accord with the view that a standard mortgage clause creates a separate contract of insurance between the insurer and the mortgagee. In Capital Building & Loan Assn v. Northern Ins. Co., 166 La. 179, 116 So. 843 (1928), we permitted a mortgagee who sued for a fire loss under a standard mortgage clause to recover penalties and attorney’s fees as provided by statute.
Id., 387 So.2d at 1083-1084. The May court determined the mortgage clause in that case was a standard clause. Therefore, it concluded:
The mortgage clause in the policy in May provided, in pertinent part, as follows:
Loss or damage, if any, under this policy (on building) shall be payable to the mortgagee (or trustee) named in this policy, as its interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, …. Provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.
***
This Company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation, and shall then cease, and this Company shall have the right, on like notice, to cancel this agreement.
Whenever this Company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this Company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made under all securities held as collateral to the mortgage debt, or may at its option pay to the mortgagee (or trustee) the whole principal due, or to grow due, on the mortgage, with interest and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of his, her or their claim.
5Where separate and independent insurance of the mortgagee’s interest exists, there must be both an insurer and insured. Therefore, we consider intervenor to have been constituted an insured by the inclusion of the standard mortgage clauses in the insurance policies. Accordingly, we hold intervenor to be an insured within the meaning of La. R.S. 22:658 and as such entitled to penalties and attorney’s fees from defendants based on the share of insurance proceeds that should have been paid to it within sixty days after receipt by defendants of satisfactory proofs of loss and demands therefor.
Id., 387 So. 2d at 1085 [footnote omitted].
In this case, it is clear that Pacific West is an "insured" under the LCPIC policy. Although it lists Renola as the "Named Insured, and the "Commercial Property Interest Schedule" names Pacific West as the "First Mortgagee," the policy contains a standard mortgage clause which establishes that Pacific West is an additional insured. As such, it has an independent right to collect statutory penalties. More particularly, the "Mortgageholders" clause provides:
2. Mortgageholders
a. The term mortgageholder includes trustee.
b. We will pay for covered loss of or damage to buildings or structures to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear.
c. The mortgageholder has the right to receive loss payment even if the mortgageholder has started foreclosure or similar action on the building or structure.
6 d. If we deny your claim because of your acts or because you have failed to comply with the terms of this Coverage Part, the mortgageholder will still have the right to receive loss payment if the mortgageholder:
(1) Pays any premium due under this Coverage Part at our request if you have failed to do so;
(2) Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so; and
(3) Has notified us of any change in ownership, occupancy or substantial risk known to the mortgageholder. All of the terms of this Coverage Part will then apply directly to the mortgageholder.
(Emphasis added).
As in May, subsection (d) of the LCPIC policy gives Pacific West, as the mortgagee, specific rights under the policy. Therefore, it is considered an "insured" for purposes of penalties under La. R.S. 22:1892. The lower courts, thus, correctly found that Pacific West is entitled to statutory penalties and summary judgment was warranted in Pacific West’s favor.
Importantly, a careful reading of May suggests that an insurer may not be required to pay penalties to both the mortgagee and mortgagor. In footnote 7 of the May decision, this Court implied that, absent the unusual procedural circumstances of that case, the penalties would have been prorated between the mortgagee and mortgagor based on their respective interests:
We realize that the effect of this decision will be to make defendants pay double penalties on the share of the proceeds that were owed to intervenor. In the ordinary case, penalties are prorated between the insureds as their respective interests appear. In the instant case, however, defendants were cast in judgment for penalties owed to plaintiff and did not apply to this court for writs. Therefore, we cannot reduce the award of penalties made to plaintiff.
7 May, 387 So.2d at 1085, n.7 [emphasis added]. Applying that reasoning here, while both Renola and Pacific West are insureds under the policy and both are entitled to attorney fees under La. R.S. 22:1892, they may not, together, be entitled to recover double penalties. Neither this Court nor any appellate court has weighed in on this issue since the 1980 May decision. Because the issue has not been presented in the current writ application, we need not consider it at this time.