A Reason to Do Away with the Tort of Bad Faith
Catastrophes, like hurricanes, bring out the best and worst of the U.S. public. The Cajun Navy coming to the rescue of flood victims without a need for remuneration and seeking nothing more than thanks shows the best of the U.S. public. Those who attempt to profit from a catastrophe and steal from an insurer and seeking bad faith tort damages in addition to actual losses should be condemned and shunned.
In Ammar Investments, LLC d/b/a Zegar, Inc. and d/b/a Fouad & Faris, Inc. v. Certain Underwriters of Lloyd’s, London, NO. 18-ca-347, Fifth Circuit Court of Appeal State of Louisiana (December 12, 2018) the Louisiana Court of Appeal not only refused to allow the attempt to profit from a hurricane but chided those attempting to profit from the storm. The only thing the appellate court failed to do was to report the plaintiff to a prosecutor for prosecution for attempted insurance fraud.
Ammar Investments, LLC d/b/a Zegar, Inc. and d/b/a Fouad & Faris, Inc. (“AI”), appealed the trial court’s judgment awarding it $26,654.10 in damages for loss of personal property as a result of Hurricane Isaac, but denying its claim for damages sustained to the roof of its building. AI also appealed the trial court’s denial of its motion for new trial and/or rehearing of a prior judgment granting summary judgment in favor of defendant, Certain Underwriters of Lloyd’s, London (“Underwriters”), and dismissing AI’s claim for bad faith damages due to Underwriters’ alleged misrepresentation of its policy provisions pertaining to the hurricane deductible.
Ammar Zughayer is the owner of AI, which owns and operates Mike’s Food Mart, a convenience store and gas station located on River Road East in Garyville, Louisiana. Mike’s Food Mart was insured against building and personal property (inventory) loss under a policy of insurance issued to AI by Underwriters (“the Policy”). The Policy, which required a three percent (3%) wind and hail deductible, was effective from June 8, 2012 to June 8, 2013; its coverage included a $300,000.00 limit for damages occasioned to the building, and a $200,000.00 limit for loss of personal property located on the premises.
On August 28-29, 2012, Hurricane Isaac made landfall in St. John the Baptist Parish causing widespread power outages throughout the parish. Underwriters retained SyNerGy Adjusting Corporation to investigate Mr. Zughayer’s claims. SyNerGy’s senior claims’ adjuster, Mike Dossett, inspected the property and assessed the damages. He discovered only minimal damage to the metal fascia of the canopy situated over the diesel pumps. Mr. Dossett then inspected the inside of the building, which he found to be in good condition and well-stocked. Mr. Zughayer identified for him two areas of the store where he claimed water was leaking through the roof: (1) in between a walk-in cooler and a back wall, and (2) around a hood vent positioned over cooking equipment in the kitchen. Mr. Zughayer then showed Mr. Dossett the store’s inventory that was damaged, which included food and drinks that were spoiled as a result of the power outage.
Mr. Dossett found the building to be in “excellent condition” and determined that the covered damages to the premises were minor. No estimates for building damages, nor a completed itemized list of damaged contents, were ever provided by Mr. Zughayer to Mr. Dossett during the adjustment period.
Although it did not send new or detailed information required AI filed suit against Underwriters seeking recovery for damages to the building and personal property (i.e., business inventory) caused by Hurricane Isaac. AI sought additional damages claiming that Underwriters acted in bad faith and was “arbitrary and capricious” in adjusting its claim and refusing to pay for its property damage. The matter proceeded to a two-day trial after which the trial court took the matter under advisement and later issued judgment with written reasons. The trial court denied AI’s claim for damages to the building on the basis that AI failed to adduce sufficient evidence to satisfy its burden of proving that damages were sustained to the building’s roof, canopies or signs.
Despite its rejection of AI’s claim for damages to the building’s roof caused by the hurricane, the trial court awarded $26,654.10 to AI for the cost of replacing its water-damaged tobacco inventory (less the 3% hurricane deductible), which was stored in the attic directly underneath the roof.
LAW AND DISCUSSION
To prevail on a claim for bad faith claims adjusting a plaintiff bears the burden of proving:
- the insured provided a proof of loss;
- the proof of loss was satisfactory; that is, sufficient information to allow the adjuster to pay the undisputed amount within 30 days; and
- the insurer’s failure to timely make payment of the undisputed amount was the result of conduct that was arbitrary, capricious and/or without probable cause.
An insurer’s actions are “arbitrary and capricious” when its willful refusal of a claim is not based on a good faith defense, or is unreasonable or without probable cause.
AI argues that the uncontroverted testimony at trial established that at the time of Hurricane Isaac, the building and its roof were just over a year old and that there had been no prior issues with leaks. AI introduced numerous photographs into evidence at trial that were taken of the inside of the convenience store by Mr. Zughayer depicting what he alleged to be water damage caused by the leaking roof. Notably, of the 82 photographs offered into evidence, not one photograph was taken of the purported damage to the roof.
Although A-1’s estimate was submitted to Mr. Zughayer on September 28, 2012—only twenty days after Mr. Dossett had inspected the building on behalf of Underwriters—this estimate was never provided to Underwriters (nor was any other estimate of purported damage to the building or its contents).
In Louisiana, a plaintiff bears the burden of proving with legal certainty every item of damages, and the plaintiff’s own uncorroborated testimony is insufficient to satisfy that burden. If the damaged property has been restored to its former condition by repair, the proper basis for assessing damages is the repair bill itself.
The trial judge determined AI failed to produce a single receipt for the repairs to the roof. Further, the check Mr. Zughayer claims to have given to Mr. Burr as evidence that roof repairs were made — which check Mr. Burr denied ever having even seen it — was made payable to someone other than Mr. Burr and was made out for $28,200.00, not the estimated $27,000.00. The only consistency in the testimony of Mr. Zughayer and Mr. Burr was that Mr. Burr was paid $22,000.00 in cash for the job, yet neither could produce a single receipt, bank statement or deposit slip as proof that the cash payment was either made or received.
When Underwriters subsequently sought to subpoena AI’s (or Mr. Zughayer’s) bank records, those checks that AI claimed to have been paid did not appear. Nor did the bank’s records reveal cash withdrawals matching the amounts indicated on the checks.
Given AI’s presentation of its case in the trial court — which the lower court found to be “contradictory [and] inconsistent” — coupled with the total absence of documentary evidence to substantiate the damages AI alleged were sustained to the building’s canopies, gas pumps, and air conditioning units, it is understandable why the trial court rejected all of AI’s claims to the building (including the roof).
Underwriters filed a cross appeal in this matter averring the trial court manifestly erred in awarding $26,654.10 in damages to AI for the loss of its tobacco inventory. Because AI’s evidence regarding its tobacco inventory loss was riddled with conflicting, inconsistent and unsupported evidence that was insufficient to prove that the alleged damage was in any way related to Hurricane Isaac, the appellate court resolved the inconsistency in favor of Underwriters. Consequently, it reversed that portion of the trial court’s judgment awarding $26,654.10 to AI for loss of its tobacco inventory.
Not only did Mr. Zughayer fail to show Mr. Dossett damaged tobacco that day, Mr. Zughayer failed to even mention water damage to his tobacco inventory. The appellate court found it incredible that having placed a substantial order that same day to replace inventory he was claiming to be damaged, and at a significant cost for which he was requesting repayment, that when asked to specify the damaged items, he would fail to even mention the loss of that expensive item.
AI’s burden to show a preponderance of the evidence of a loss to tobacco products was manifestly erroneous and clearly wrong requires reversal of the $26,654.10 in damages awarded to AI for its loss of inventory claim.
The lawsuit filed by AI and Zughayer was more than inadequate it was clearly fraudulent and supported by false documents. Insurance fraud is a felony in Louisiana and La.R.S. 22:1243 makes it a crime to present or cause to be presented any written or oral statement as part of or in support of a claim for payment or other benefit pursuant to an insurance policy, knowing that such statement contains any false, incomplete, or fraudulent information concerning any fact or thing material to such claim. As a result the insurer is obligated to report AI and Zughayer to the state’s insurance fraud investigators and the trial judge and court of appeal should have recommended prosecution.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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