LA Supreme Court: Unconditional Payments Interrupt Prescription on First-Party Insurance Claims
The Louisiana Supreme Court ruled on March 6 that an unconditional payment on a first‑party property insurance claim interrupts prescription, Louisiana’s term for a statute of limitations. This ruling could extend the time that policyholders have to file certain suits long past the usual two-year limits.
In Bryan v. Louisiana Citizens Property Insurance Corporation, the policyholder filed suit against the insurer more than two years after the loss. The policy at issue required that suit be filed within two years of the loss, but the Bryan Court declared the suit timely under the rationale that the unconditional payment made during the adjustment constituted an acknowledgment of a debt sufficient to interrupt prescription (i.e., toll the statute of limitations).
Background
Under Louisiana law, contractual claims are generally subject to a prescriptive period of ten years. La. R.S. § 22:868(B) allows property insurance policies to limit the deadline for a policyholder to file suit against an insurer to two years from the date of the loss.
Initially, there was debate about whether the suit-limitation provisions were prescriptive, and subject to the rules of interruption and suspension, or purely contractual, peremptive-like conditions. While prescription can be interrupted, suspended or renounced, a peremptive period cannot. Peremption is Louisiana’s equivalent to a statute of repose.
In Taranto v. Louisiana Citizens Prop. Ins. Corp., the Louisiana Supreme Court held that the contractual suit-limitation provisions authorized by La. R.S. § 22:868(B) were prescriptive and subject to the rule of suspension in the context of a Hurricane Katrina class action certification. Despite Taranto, courts remained divided over the application of Taranto’s holding beyond the unique circumstances presented in that case.
Under Louisiana law, prescription is interrupted when “one acknowledges the right of the person against whom he had commenced to prescribe.” An acknowledgment may be express or tacit. Courts have long recognized that a tacit acknowledgment may arise from conduct leading a creditor to reasonably believe that liability will not be contested, including unconditional offers or payments.
In the context of a third-party property damage claim against the tortfeasor’s insurer, the Louisiana Supreme Court held that an unconditional payment constitutes an acknowledgment sufficient to interrupt prescription. The Court later extended that principle to uninsured/underinsured motorist claims in Demma v. Auto. Club Inter-Ins. Exch. More recently, some federal courts extended this rationale to first-party property insurance claims, though the Louisiana Supreme Court had yet to speak on the issue.
The Decision
In Bryan, the Louisiana Supreme Court held that a suit against a property insurer filed more than two years after Hurricane Ida was timely, because unconditional payments were made within the two years, which interrupted prescription.
Southern Fidelity Insurance Company (SFIC) issued the policy and made at least one unconditional payment during the adjustment. SFIC was later declared insolvent and placed into receivership.
The policyholder filed suit on the two-year anniversary of Hurricane Ida and initially incorrectly named Louisiana Citizens Property Insurance Corporation as the defendant. The policyholder later amended the petition after the two-year mark to name Louisiana Insurance Guaranty Association (LIGA) as the defendant, because LIGA steps into the shoes of insolvent insurers by operation of Louisiana law.
LIGA filed an exception of prescription to dismiss the lawsuit. It argued that suit was untimely against LIGA because neither SFIC nor LIGA were properly sued within two years of the date of the loss. The policy provided that “[n]o action can be brought against [SFIC] unless . . . the action is started within two years after the date of loss.”
The Bryan Court rejected LIGA’s prescription defense, confirming that contractual suit limitation provisions are prescriptive — not peremptive — and therefore subject to interruption. The Bryan Court further held that an unconditional payment on this first-party property insurance claim interrupted prescription. It found no legal basis to exempt such claims from the principle that an unconditional payment constitutes tacit acknowledgment of a debt.
Because SFIC issued an unconditional payment within two years of the amendment to add LIGA as a defendant, the Bryan Court concluded that the suit was timely. The Court emphasized that its ruling only applies to unconditional payments — those made without qualification, condition or reservation of rights.
The Bryan Court reaffirmed that settlement payments do not interrupt prescription, nor does a partial payment made under protest pursuant to Louisiana Civil Code article 1861, which provides that if the amount of an obligation to pay money is disputed in part, the obligor can pay the undisputed portion.
Practical Takeaways
Insurers will need to carefully analyze each claim’s individual timeline to determine whether a suit filed more than two years after the loss is timely, notwithstanding an otherwise valid two-year suit-limitation provision. The effective result of this opinion is that a claim with an extended adjustment process and continued payments may not prescribe for many years after the initial two years from the date-of-the-loss deadline.
While the Bryan Court acknowledged concerns that the ruling may discourage unconditional payments, it concluded that such policy considerations are best addressed by the legislature. Insurers should monitor potential legislative responses to this decision.
Please contact Jay Knighton, Ginger Dodd or any member of the Phelps insurance team with questions or for advice or guidance.
