Judgment rendered December 18, 2024. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.
No. 56,015-CA
COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA
*****
NGOC TROUNG Plaintiff-Appellant
versus
MARCUS DEWAYNE SANDERS Defendants-Appellees AND OLD AMERICAN INDEMNITY, COMPANY
Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 642,960
Honorable Christopher T. Victory, Judge
RICE & KENDIG, LLC Counsel for Appellant By: William F. Kendig, Jr.
TANNER & JUSTICE Counsel for Appellees By: William H. Justice E’Vinski Davis
Before STONE, THOMPSON, and ELLENDER, JJ. THOMPSON, J.
In a matter of first impression, the insurance company of the at-fault
driver refused to pay the total costs of repair of a vehicle, instead taking a
deduction for “betterment” for the fractional difference of tread wear for a
new tire replacing a used tire and of a portion of the exhaust system. After
approving all the repairs and estimates, the insurance company deducted
from its payment to the repair shop a credit it calculated of $313.79 for
betterment. When the not-at-fault driver arrived to obtain his vehicle, the
repair shop refused to release his vehicle until he paid the $313.79 balance
owed. After his attorney provided the necessary funds to retrieve his
vehicle, the driver filed suit claiming the insurance company was not entitled
to take a betterment credit from him, as he has no contractual agreement
with the insurance company. The driver also argued the insurance company
was in bad faith for unilaterally taking a credit for betterment and not fully
repairing the damage caused by the accident to his vehicle. The trial court
determined that betterment was allowed under Louisiana law, and therefore
concluded the insurance company did not act in bad faith. For reasons more
fully detailed below, we reverse the decision of the trial court and find that
betterment, in this instance, is not permitted under Louisiana law, that the
insurance company acted in bad faith when it took a credit for betterment,
and hereby award the driver the penalty afforded by La. R.S. 22:1982(I).
FACTS AND PROCEDURAL HISTORY
On January 21, 2023, at approximately 1:37 PM, Marcus Dewayne
Sanders (“Sanders”) rear-ended Ngoc Troung’s (“Troung”) 2019 Honda CR-
V on North Market Street in Shreveport, Louisiana. Sanders’ automobile carrier was Old American Indemnity Company (“Old American”), which
provided coverage for his 2008 Honda Accord involved in the collision. The
liability insurance policy insuring him was in full force and effect at the time
of the collision. The record establishes that Troung did not cause or
contribute to the collision in any way. As a result of the collision, the
exhaust system and components of the drive assembly of Troung’s vehicle
were damaged, and the vehicle was inoperable. On February 2, 2023,
Troung’s vehicle was submitted for repairs. At the same time, Troung
rented a replacement car, which he maintained until the repairs on his
vehicle were completed on March 16, 2023.
The parties stipulated that liability for this collision rested solely with
Sanders. An initial estimate was prepared, and four supplemental estimates
were approved by Old American’s adjuster, Chad Rogers. The repairs were
timely approved, performed, and completed by March 16, 2023. Old
American did not dispute the costs of the necessary repairs. However, when
it came time to issue payment to the mechanic who undertook the repairs,
Old American failed to tender the full amount of the agreed upon repairs –
$7,109.48. Instead, Old American withheld $313.79, claiming “betterment”
for the replacement of the muffler, exhaust system pipes, and front wheel
drive components. This failure to pay for the actual costs of the repairs came
as a surprise to Troung. The repair shop refused to release the vehicle to
Troung until he paid the balance of $313.79. In order to obtain his vehicle
from the repair shop, Troung’s attorney paid the $313.79 betterment amount,
when Troung reportedly could not afford the charge. From March 16
through March 22, 2023, Troung’s attorney communicated with
2 representatives of Old American and advised them that betterment was not
provided for under Louisiana law. Old American maintained that their
betterment credit was permitted and refused to pay the full amount of the
damages Troung’s vehicle sustained.
On March 23, 2023, Troung filed a petition for damages to recover the
full costs of repairing the damage caused to his vehicle through no fault of
his own, which amounted to the $313.79 payment required to be made to
retrieve his vehicle. Troung alleged that Louisiana law does not provide for
betterment and does not permit a liability insurer to withhold any amounts
from the full amount of money required to repair the damages caused to a
tort victim’s vehicle. Troung denies he received anything better than he had
before, and if he did, he neither requested nor wanted it. Troung asserted
that a refusal to pay the full amount of required repairs is arbitrary,
capricious, and without probable cause; therefore, Old American would be
subject to penalties.
Chad Rogers, the claims adjuster for Old American, provided
deposition testimony about how he arrived at the calculations of the two
items in question that were replaced with newer parts. Rogers explained as
follows:
Old American took $131.95 in betterment. That is a 50% betterment on the cost of the tire only, including tax, and we arrived at that from the tire tread depth gauge showing 5/32 of an inch tread remaining. Standard tread depth on a passenger vehicle tire is 11/32 when brand-new, so this was approximately ½ of the tread remaining on the tire, so we applied the 50% betterment.
***
[F]or the intermediate pipe, which is referred to on here as the muffler and pipe, we took $130.38. That is a betterment of 23%.
3 For the rear muffler itself, we took $51.46, which again is 23%. We arrived at that based on the calculation of the mileage on the vehicle at the time of loss versus an expected life expectancy of 200,000 miles for wearable mechanical components.
Wesley Staley, Rogers’ supervisor at Old American, also provided
deposition testimony about betterment credits and testified that they were a
common practice in the insurance industry. Both Rogers’ and Staley’s
depositions were offered and admitted into evidence at the trial on the issue
of betterment.
On November 21, 2023, a bench trial was held. The parties stipulated
all pertinent facts, and issues of liability and damages were resolved prior to
trial. The issue at trial was whether Troung and his insurance company
could shave the costs of repairs for which they are responsible by forcing
Troung, the injured party, to pay a portion of the actual repair costs, because
the insurance company has independently determined Troung is now better
off than before the accident. 32/100’s of an inch of tire tread and a portion
of the exhaust system are not something an ordinary party would perceive as
an improvement or betterment. We note the record is devoid of any
testimony or evidence that Troung desired anything other than to be made
whole and to have the damage inflicted on his vehicle be repaired at no
expense to him. Pursuant to the agreement of all parties, the matter was
submitted to the court without live testimony, but with the presentation of
evidence, including the deposition testimony of Rogers and Staley, and oral
arguments. At the conclusion of the brief trial, the trial court found that
betterment is allowed under Louisiana law. The trial judge stated that there
are no statutes, case law, or insurance codes or regulations prohibiting
betterment. The trial judge also noted that there is no express prohibition
4 against betterment as to third parties. The trial judge ruled that betterment
was allowed in this case, and the betterment deductions made by Old
American were permissible.
On February 2, 2024, the trial court signed a written judgment,
quoting the language from his oral ruling at the conclusion of the trial. The
judgment stated that betterment is allowed under Louisiana law, and that the
deduction for betterment in the amount of $313.79 taken by Old American
against Troung’s property damage was allowed.
On July 18, 2024, this Court determined that the February 2, 2024
judgment did not contain the proper decretal language. On July 25, 2024,
the trial court issued an amended judgment, finding as follows:
1. Plaintiff’s objections to the depositions of Chad Rogers and Wesley Staley, based on relevance, are DENIED.
2. Plaintiff’s objections to introduction of the excerpts from the depositions of Chad Rogers and Wesley Staley, based on qualifications, are DENIED.
3. The Court finds that “betterment” as that term is used to establish a credit against the amount due the tort victim by the tortfeasor in third-party automobile property damage claims, is allowed under Louisiana law;
4. The Court finds that “betterment” as that term is used to establish a credit against the amount due the tort victim by the tortfeasor in third-party automobile property damage claims, was appropriately applied by defendant, Old American Insurance Company […] in this case.
5. The Court finds that the amount of betterment credits in the amount of $313.79, taken by the defendant, Old American Insurance Company […] against plaintiff’s stipulated property damages were appropriate in this case;
6. Plaintiff’s claims for bad faith under La. R.S. 22:1973(A) and 1973(B)(1) against Old American Insurance Company, are DENIED;
5 7. Plaintiff’s claims for penalties under La. R.S. 22:1973(C) against Old American Insurance Company, are DENIED.
Troung now appeals.
DISCUSSION
Troung asserts five assignments of error. The first assignment of error
pertains to the concept of betterment. Assignments of error numbers two,
three, and four pertain to whether Old American acted in bad faith by
misrepresenting its entitlement to a betterment credit; we will consider those
assignments of error together. Assignment of error number five pertains to
the evidentiary ruling of the trial court regarding the testimony of Old
American’s claims adjusters.
Assignment of Error No. 1: The trial court erred as a matter of law concluding betterment is an available offsetting credit under Louisiana tort law and may be used by third party tortfeasors to reduce a plaintiff’s recovery of the full costs of repairs in contravention of La. C.C. art. 2315.
Troung’s arguments regarding bad faith are based on the now repealed
statute La. R.S. 22:1973. However, effective July 1, 2024, the pertinent
language of those penalty provisions and the enumerated duties of insurers
transferred and were incorporated into the newly enacted La. R.S.
22:1892(I).
Troung urges that he is entitled to a de novo review because the trial
court made an error of law in its finding that betterment is permitted in a
third party tort damage claim. When a trial court applies incorrect legal
principles, and these errors materially affect the outcome of a case and
deprive a party of substantial rights, legal error occurs. Evans v. Lungrin,
97-0541 (La. 2/6/98), So. 2d 731. Where one or more trial court legal errors
interdict the fact-finding process, the manifest error standard is no longer
6 applicable, and, if the record is otherwise complete, the appellate court
should make its own independent de novo review of the record. Id.; Buckner
v. Berry, 55,832 (La. App. 2 Cir. 7/17/24), --- So. 3d---, 2024 WL 343716;
Singleton v. Singleton, 51,476 (La. App. 2 Cir. 6/21/17), 224 So. 3d 1134.
Troung correctly notes that betterment in the third party context is a
matter of first impression for this court. We must determine whether or not
betterment within the context of a third party tort-based property damage
claim is provided for by Louisiana law. We note at the outset that
betterment is not expressly provided for in Louisiana statutory or case law in
the context of a third party tort-based property damage claim.
Troung describes betterment as the concept that a tortfeasor is entitled
to a credit against the damages it owes in the event the tort victim’s position
is improved by repairs to his damaged property. Troung explains that his
tire had worn tread at the time of the wreck, and it was replaced with a new
tire. Additionally, the muffler and intermediate exhaust pipe were replaced
with new items. Troung asserts that Old American erroneously reasoned
they were entitled to prorate a reduction of the repair costs due to wear and
tear of those replaced items. These are not modifications Troung was
interested in pursuing prior to the accident, and only due to the nature of the
automobile repair industry and safety standards, an exact replacement to the
millimeter of tread depth or extent of exhaust pipe use could never be
accomplished.
Troung notes only two Louisiana cases discussing betterment credits,
both involving first party contract claims. In Eaves v. Norwel, Inc., 570 So.
2d 123 (La. App. 3 Cir. 1990), writs denied, 572 So. 2d 93, 575 So. 2d 375
7 (La. 1991), Eaves owned a John Deere manufactured bulldozer; John Deere
was also the first party property insurer. John Deere refused to pay the total
repair costs, arguing that the insurance contract itself provided for a
betterment credit if Eaves was in a better position after the repairs than
before it was damaged. The trial court denied the betterment claim in that
case, because there was no proof of betterment, and the tractor had basically
the same value after the repairs as it did before.
Similarly, in Littleton v. Colonial Pac. Leasing Corp. 35,777 (La.
App. 2 Cir. 5/8/02), 818 So. 2d 283, writ denied, 02-1876 (La. 10/25/02),
827 So. 2d 1155, an insurance policy was issued by John Deere. John Deere
had amended its policies pursuant to Eaves, supra, to include a credit for
depreciation. The plaintiff argued that the reduction taken by John Deere
was in theory a betterment credit, not a depreciation credit. The Court
rejected the notion that a credit was taken on the theory of betterment and
found that the credit was based on contractually agreed depreciation, which
was provided for and specifically defined in the policy.
Troung argues that the Littleton court rejected the notion that there
was a general betterment principle, in favor of evaluating a case based on the
language of the insurance policy at issue. Troung argues that under
Louisiana case law, a betterment or depreciation credit only exists if it is
clearly and unambiguously included in the policy language. Troung argues
third party tort claims are not controlled by the language of a policy between
the tortfeasor and the insurer; third party claims are controlled only by La.
C.C. art. 2315. We agree.
La. C. C. art. 2315 provides:
8 A. Every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it.
B. Damages may include loss of consortium, service, and society, and shall be recoverable by the same respective categories of persons who would have had a cause of action for wrongful death of an injured person. Damages do not include costs for future medical treatment, services, surveillance, or procedures of any kind unless such treatment, services, surveillance, or procedures are directly related to a manifest physical or mental injury or disease. Damages shall include any sales taxes paid by the owner on the repair or replacement of the property damaged.
We acknowledge that there is no statutory or jurisprudential basis that
expressly prohibits betterment. La. C. C. art. 2315 does not contain a
betterment prohibition. There is also no directive from the Louisiana
Department of Insurance prohibiting betterment in a third (or first) party
context. Yet, Louisiana public policy provides that all costs caused by the
tortfeasor are to be repaired or paid by the tortfeasor. The Louisiana
legislature addressed a similar concept with amendments to La. C. C. art.
2315 in 2001. Those amendments overruled State Farm Mut. Auto. Ins. Co.
v. Berthelot, 98-1011 (La. 4/13/99), 732 So. 2d 1230, and provided that a
tort victim must be restored to the position he occupied just prior to the tort,
which includes the payment of all sales tax with the purchase of a
comparable vehicle. Similarly in this case, Old American was liable for all
of the damages occasioned by the tortfeasor’s negligence, which was a
vehicle with four functioning tires and a functioning exhaust system.
Troung did not enter a contract with Old American; the at-fault driver,
Sanders, did. To pass an insurer’s betterment credit off to an injured third
party, who did not contract with the insurer and has no negotiating power
9 with that insurer, does not align with the clear language of La. C. C. art.
2315.
There is no doubt that insurance companies across this and every state
are seeking ways to keep repairs and expenses associated with claims to a
minimum. This court recognizes the difficulty Louisiana drivers have in
obtaining affordable insurance coverage. However, the insured is legally
bound to repair the damage it has caused. The insurance company is
contractually bound to its insured. The source of recovery of an insurance
company for any perceived improvement embedded in a claim may be from
its insured, not the injured party who most likely would have preferred to
avoid the inconvenience and aggravation of the accident and repair process
altogether. Assessing the party not at-fault with unavoidable costs is not
proper, especially considering these allegedly better items were neither
desired nor requested by the injured party, and do not increase the value of
the vehicle in any meaningful way. Accordingly, we find that Troung’s first
assignment of error has merit and reverse the trial court’s finding that
betterment is allowed under Louisiana law for third-party tort actions.
Assignment of Error No. 2: The trial court erred as a matter of law in failing to find that Old American misrepresented that it was entitled to take a credit for betterment in this third party tort action as contemplated by La. R.S. 22:1973(A) and (B)(1).
Assignment of Error No. 3: The trial court erred as a matter of law in failing to find Old American acted in bad faith when it misrepresented that it was entitled to take a credit for betterment in this third party tort action and intentionally withholding the full amount of the plaintiff’s undisputed vehicle repair costs.
Assignment of Error No. 4: The trial court erred as a matter of law in failing to award a penalty of $5,000.00, pursuant to La. R.S. 22:1973(C).
10 Louisiana statutory law provides that insurance carriers owe duties to
third party claimants. The current version of La. R.S. 22:1892 provides the
duties owed by insurers to third parties, as well as applicable penalties that
were previously contained in La. R.S. 22:1973.
La. R.S. 22:1892 provides, in pertinent part:
(A)(2) All insurers issuing any type of contract […] shall pay the amount of any third party property damage claim and of any reasonable medical expenses claim due any bona fide third party claimant within thirty days after written agreement of settlement of the claim from any third party claimant.
(I)(1)(a) An insurer […] owes to its insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer that breaches the duties of this Subsection shall be liable for any proven economic damages sustained as a result of the breach. For claims not involving loss to an insured’s immovable property, the insured may be awarded penalties in an amount not to exceed fifty percent of the damages sustained or five thousand dollars, whichever is greater, together with attorney fees and costs actually incurred due to the breach. Any penalty for breach of a duty imposed by this Subsection based solely upon a failure to pay the amount of any claim due to any person insured by the contract within the period provided by law following receipt of satisfactory proof of loss shall be awarded only if the breach is found to be arbitrary, capricious, or without probable cause.
(2) Any one of the following acts, if knowingly committed or performed by an insurer or representative of the insurer, constitutes a breach of the insurer’s duties imposed in Paragraph (1) of this Subsection:
(a) A misrepresentation of pertinent facts or insurance policy provisions relating to any coverages at issue. (Emphasis added.)
Troung argues that Old American misrepresented that it was entitled
to a credit for betterment for the repair of the muffler, intermediate pipe, and
11 left tire with new parts, and knowingly short-changed him the total costs of
repairing the damaged vehicle. Troung argues that an insurer’s obligation to
adjust claims in good faith, promptly, and fairly, was violated by Old
American knowingly taking a credit for betterment. Troung asserts that
adjusting claims fairly includes the duty to follow the applicable law in this
state regarding tort-based damages owed by insurers, whether they are the
insured or a tort claimant.
Troung notes that in this case, the $313.79 credit taken by Old
American was the difference between him being able to get his repaired car
out of the repair shop or not. Counsel for Troung paid the difference to
mitigate Troung’s damages and obtain the release of his vehicle. Troung
argues that payment of most, but not all, of what was due did not comply
with the insured’s duty to fairly and promptly adjust his property damage
claim.
The trial court determined that betterment was allowed in Louisiana;
therefore, there could be no bad faith by Old American. The trial court held
that the insurer did not commit bad faith and dismissed the plaintiff’s claim
with prejudice. La. R.S. 22:1892(I), like the prior penalty provision of La.
R.S. 22:1973, now provides that an insurer has an affirmative duty to adjust
claims fairly and promptly. The record shows that the insurer was aware of
the full costs of repairs and approved all estimates provided by the repair
shop, never indicating to Troung that he would somehow have to participate
in assisting Sanders and Old American in repairing the damage caused by
Sanders. However, when the repair was complete and it was time for
Troung to obtain his vehicle, Old American for the first time asserted its
12 entitlement to a betterment credit. Old American’s assertion at that moment
that it was entitled to $313.79 in betterment credits rendered Troung
incapable of obtaining his own vehicle that had been damaged through no
fault of his own. Additionally, Old American refused to tender the amount
necessary for the repairs it had authorized.
Troung was not aware of the $313.79 charge until he tried to retrieve
his vehicle. By forcing Troung to pay for the betterment credit, a credit Old
American calculated itself without any input from Troung, while previously
approving all damage repair estimates, amounts to a knowing
misrepresentation of pertinent facts. Old American suggests that taking a
betterment deduction is not specifically prohibited. Troung suggests taking
a betterment deduction is not specifically authorized. Old American can
point to no declaratory judgment action to support its position and cost-
savings effort; the matter is now presented to a court for a judicial
determination on the issue. Old American’s confidence in its self-serving,
cost-saving actions at the expense of the innocent driver, we conclude, are
misplaced.
Accordingly, we find these assignments of error have merit. Old
American did act in bad faith in failing to repair the damage caused by its
insured and is therefore liable for the damages sustained as a result of the
breach of his duty of good faith, which include the $313.79 paid on behalf of
Troung, as well as the penalty of $5000, as provided in La. R.S.
22:1892(I)(1)(A).
Assignment of Error No. 5: The trial court erred as a matter of law admitting the depositions of Wesley Staley and Chad Rogers further allowing said witnesses to testify regarding “the insurance industry standard practices” and Louisiana law.
13 Troung argues that the trial court abused its discretion in overruling
his objections to the admission of the depositions of Wesley Staley and Chad
Rogers. Troung argues the trial court erroneously admitted irrelevant
portions of the depositions, as well as portions of the depositions relating to
expert legal opinions. Troung asserts that an industry standard, or the use of
betterment in the state of Texas, does not supersede or create law in
Louisiana. Troung argues that the relevant issue before the court is: “what is
Louisiana law on this issue?” Therefore, what the industry standard
provides is irrelevant to the issue. Troung argues that there is not a
discernible, consistent industry standard for betterment claims. Troung also
notes that neither Staley nor Rogers is a licensed Louisiana claims adjuster
or an expert in Louisiana insurance claims adjustment.
Old American argues that by asserting a claim of bad faith, Troung
placed all of the subject testimony at issue before the court. Old American
argues that the testimony of Rogers (and his direct supervisor, Staley) is
entirely relevant to the estimates and offset for betterment. Also, Rogers and
Staley’s understanding of the industry standard is entirely relevant to the
issue of a credit for betterment. Specifically, Rogers’ testimony assisted the
trial court in understanding what betterment is, how it was calculated, and
how it was applied in this case.
The trial court is granted broad discretion in its evidentiary rulings,
which will not be disturbed on appeal absent a clear abuse of discretion.
Fields v. Walpole Tire Serv., LLC, 45,206 (La. App. 2 Cir. 5/19/10), 37 So.
3d 549, writ denied, 10-1430 (La. 10/1/10), 45 So. 3d 1097. On appeal, this
court must consider whether the complained-of ruling was erroneous and
14 whether the error affected a substantial right of the party. Fields, supra.
The determination is whether the error, when compared to the record in its
entirety, has a substantial effect on the outcome of the case, and it is the
complainant’s burden to so prove. If there is no substantial effect on the
outcome, then a reversal is not warranted. Fields, supra; Crisler v. Paige
One, Inc., 42,563 (La. App. 2 Cir. 1/9/08), 974 So. 2d 125.
We find that the trial court did not abuse its discretion in admitting the
deposition testimony of Rogers and Staley. Their depositions were the only
evidence available to the trial court in making its determination. As noted
above, the parties agreed to submit the matter to the court without live
testimony, but with the presentation of evidence and oral arguments. The
deposition testimony was certainly relevant; Rogers – who worked directly
on the claim – explained his understanding of what betterment was,
explained how he calculated the betterment credit, and how he applied
betterment to Troung’s case. While we ultimately disagreed with his
application of betterment, without the deposition testimony, there would
have been no relevant evidence for the trial court or for this Court to
consider. Accordingly, we find this assignment of error lacks merit.
CONCLUSION
For the foregoing reasons, we reverse the decision of the trial court
and find that an insurer’s deduction for betterment is prohibited in third
party tort actions, pursuant to La. C. C. art. 2315. We reverse the decision of
the trial court and find Old American Indemnity Company did act in bad
faith and is therefore liable for a penalty in the amount of $5,000, pursuant
to La. R.S. 22:1892(I). We affirm the evidentiary rulings of the trial court
15 admitting the deposition testimony of Rogers and Staley. Costs are assessed
to Old American Indemnity Company.
REVERSED IN PART; AFFIRMED IN PART.