In December 2024, the Louisiana Second Circuit Court of Appeals rendered a significant opinion in Troung v. Sanders, et al., addressing the contentious issue of “betterment deductions” in third- party property damage claims.[1] Louisiana law allows for a betterment deduction, or credit, to the insurance company in certain first-party property damage claims when covered repairs improve the property’s value beyond its pre-accident condition, thus creating a windfall at the insurer’s expense. However, there was no statute or controlling case law expressly prohibiting or allowing betterment deductions for property damage claims made by a third-party.
Factual and Procedural Background
On January 21, 2023, Ngoc Troung’s 2019 Honda CR-V was rear-ended by a vehicle driven by Marcus Dewayne Sanders in Shreveport, Louisiana. Sander’s automobile insurer was Old American Indemnity Company (“Old American”). It was undisputed that Troung did not cause or contribute to the collision.
Old American’s claims adjuster approved all estimates by the repair shop for property damage to Troung’s Honda CR-V caused by the collision. However, instead of paying the repair shop the total amount of the approved estimates, Old American withheld $313.79 as a deduction for “betterment” to the vehicle by replacing old parts with new parts, including a 50% increase of tread on one replaced tire, and a 23% betterment overall to the replaced muffler and pipe. As a result, the repair shop would not release the Honda to Troung until he paid the outstanding balance of $313.79.
Troung filed suit against Old American to recover the $313.79 he paid out for repairs to his Honda CR-V caused by Old American’s insured, along with a claim for bad faith. Troung argued that Louisiana law does not permit a liability insurer to withhold any amounts owed for property damage repairs caused to a tort victim’s vehicle. Additionally, Troung denied receiving any betterment to his vehicle, and if he did, he neither requested it nor wanted it. Therefore, Truong alleged Old American had acted in bad faith. The trial court denied Troung’s bad faith claim, finding the betterment deductions made by Old American were permissible, because betterment deductions were allowed under Louisiana law, and “there is no express prohibition against betterment as to third parties.” Troung appealed.
Court of Appeals Opinion
In relevant part, Troung argued on appeal that the trial court made an error of law in finding that betterment is permitted in a third-party tort damages claim, and therefore, Old American did not commit bad faith.[2] Specifically, Troung asserts that his third-party tort claim is not controlled by the policy language between Old American and its insured, Sanders, but is instead controlled by Louisiana law and policy.
The Appellate Court acknowledged there was no Louisiana statute or controlling case law that expressly prohibited betterment deductions in third-party claims. However, Louisiana public policy and statutes provide that a tort victim must be restored to the position he or she occupied prior to the tort, which includes all costs for damages caused by the tortfeasor.[3]
In reaching its decision that Old American was liable for all of the damages caused by its insured’s negligence, which included a vehicle with four functioning tires and a functioning exhaust system, the Court reasoned:
[T]the insured is legally bound to repair the damage it has caused. The insured 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, the Appellate Court reversed the trial court’s finding that betterment deductions are allowed under Louisiana law for third-party tort actions.
Bad Faith Analysis
Troung asserts that 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 withheld the full amount of the plaintiff’s undisputed vehicle repair costs. The trial court determined there could be no bad faith by Old American since betterment deductions were allowed in Louisiana. Troung argues that taking a betterment deduction is not specifically authorized against third-parties.
Louisiana statutory law provides, in relevant part, that an insurer has a duty of good faith and fair dealing and to adjust claims fairly and promptly, including payment of “any third-party property damage claim.[4]” Any breach of a duty based solely upon a failure to pay the amount of any claim due within the period provided by law following receipt of satisfactory proof of loss if found to be “arbitrary, capricious, or without probable cause” shall be entitled to an award of penalties[5], together with attorney’s fees and costs actually incurred due to the breach. A misrepresentation of pertinent facts or insurance policy provisions relating to any coverages at issue, if knowingly committed by an insurer, constitutes a breach of the insurer’s duty. See LA.R.S.22:1982(I)(2)(a).
As noted by the Court, the record shows Old American was aware of the full costs of repairs and approved all estimates provided by the repair shop, never indicating to Troung that he would be responsible for a portion of the payment for those damage estimates. Old American did not assert that it was entitled to a betterment credit until the repairs were complete and it was time for Troung to retrieve his vehicle. Old American then refused to tender the amount necessary for the repairs it had authorized.
The Court found that forcing Troung to pay for the betterment 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. Therefore, Old American did act in bad faith in failing to repair the damage caused by its insured and is liable for the damages sustained as a result of the breach of its duty of good faith, which include the $313.79 paid on the Troung vehicle, and a penalty of $5,000 under Louisiana insurance protection statutes, along with costs.
Conclusion
Troung v. Sanders now serves as precedent for future cases in Louisiana, and other jurisdictions, regarding betterment deductions in third-party claims. Importantly, the Court focused on the insurer’s conduct, specifically noting that the insurer approved all damage repair estimates and did not communicate to Troung that he would be responsible for any portion of the payment. This was found to be a knowing misrepresentation of pertinent facts and in bad faith. Additionally, this case reaffirms that an insurer cannot rely on policy language alone regarding contractual rights to betterment deductions. To avoid bad faith, it is necessary to determine whether applicable state law or policy explicitly allows for betterment deductions based on the circumstances of that claim, and/or would be in contra to its application, before proceeding.
[1] Ngoc Troung v. Marcus Dewayne Sanders and Old American Indemnity Company, ___ So.3d. ___ (2024)(La. Ct. App. Dec. 18, 2024).
[2] Troung also asserts the trial court erred in admitting certain discovery deposition transcripts. This issue is not addressed here.
[3] See La.C.C.art. 2315 (repealed effective July 1, 2024, but the pertinent language of duties of insurers incorporated into the newly enacted La.R.S.22:1892); See also Littleton v. Colonial Pac. Leasing Corp., 818 So.2d ( La.App. 2 Cir. 5/8/02), writ denied, 827 So.2d 1155 (La. 10/25/02)( finding betterment credit based on contractual agreement for depreciation specifically defined in the policy, not on a general legal theory or principle of betterment).
[4] See La. R.S.22:1892 (which includes relevant duties owned by insurers to third parties previously contained in LA.R.S.22:1973).
[5] “Penalties” in an amount not to exceed fifty percent of the damages sustained or five thousand dollars, whichever is greater. La.R.S.22:1982(I)(1)(a).
