author: VICTORY, J.

text:
    Daniel ARCENEAUX, Louis Daverede, Jr., Vives Lemmon, and Jules Menesses v. AMSTAR CORP., Amstar Sugar Corp., Tate and Lyle North American Sugars, Inc., and Domino Sugar Company.
    No. 2010-C-2329.
    Supreme Court of Louisiana.
    July 1, 2011.

      Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Glenn Gill Goodier, New Orleans, Troutman Sanders, L.L.P., Rebecca L. Ross (pro hac vice), for Applicant.
    Tabary & Borne, LLC, Paul A. Tabary, III, Chalmette, Fried & Epstein LLP, Lee M. Epstein (pro hac vice), for Respondent.
   VICTORY, J.

We granted a writ application in this insurance case primarily to determine whether the lower courts erred in holding that the insurer waived its right to enforce its policy, defenses because it breached its duty to defend. After reviewing the record and the applicable law, we find that the lower courts erred in holding the insurer liable for 100% of the claims asserted by the insured. In spite of breaching its defense duty, the insurer was entitled to rely on its policy defenses in limiting its indemnity obligation. Therefore, we reverse the judgment of the court of appeal on that issue and render judgment against the insurer for the proper amount due under the insurance policies. All other issues are remanded to the trial court.

FACTS AND PROCEDURAL HISTORY

A detailed history of the facts and procedural history of this case can be found at Arceneaux v. Amstar Corp., 06-1592 (La.App. 4 Cir. 10/31/07), 969 So.2d 755, unit denied, 07-2486, 08-0053 (La.3/24/08), 977 So.2d 952, 953. (“Arceneaux II ”), but will be summarized here. On February 2, 1999, four employees of Tate & Lyle North America Sugars, Inc. (“T & L”) filed a cumulated action against T & L for damages from noise exposure during their employment with T & L at its Domino Sugar Refinery. The period of alleged exposure was between 1947 and 1994.

Continental Casualty Insurance Company (“Continental”) issued eight general liability insurance policies to T & L covering bodily injury occurring between March 1, 1963 and March 1, 1978. Each of the policies contained exclusions for bodily injury to employees of the insured arising out of the course and scope of employment. However, in the last policy, covering the period between March 1, 1975 and March 1, 1978, the exclusion was deleted by special endorsement effective December 31,1975.

After T & L notified Continental of the lawsuit, in May of 1999, Continental retained the firm of Galloway, Johnson, Burr & Smith (“Galloway”) to defend T & L, and Galloway enrolled as co-counsel with T & L’s counsel. Continental did not reserve its rights to contest coverage or to assert any coverage defenses in connection with its defense of these claims. In April, 2001, the plaintiffs filed a supplemental and amending petition adding 125 new plaintiffs to the suit alleging noise exposure between 1947 and 2001. Due to the large number of plaintiffs, the case was to be tried in flights of 15 plaintiffs by bench trial. Trial was continued to allow for settlement on May 9, 2003, and on that date, without Continental’s consent, T & L settled with the first flight of 15 plaintiffs for $35,000 per plaintiff. On May 29, 2003, Continental was notified of the settlement. On June 6, 2003, Continental withdrew from the defense by letter, disclaiming liability based on the | ¡¡exclusions in its policies for injuries to employees. This was done based on Continental’s mistaken belief that all of its policies contained employee exclusions when in fact, as stated above, for the final 26 months of its last policy — from December 31, 1975 to March 1, 1978 — the employee exclusion had been removed. In addition, Continental reserved its right to disclaim coverage to the extent that “[t]he alleged bodily injury did not take place during one or more of the Continental Casualty policy periods,” and stated that its reservation of rights extended to any “future litigation regarding these policies.” In July of 2003, T & L sued Continental as a third party defendant. In its third party demand, T & L sought indemnification for the amounts it was required to pay plaintiffs, defense costs, and bad faith penalties under La. R.S. 22:658.

In August 2003, and April 2004, plaintiffs filed their second and third supplemental and amending petitions adding Continental as a defendant and adding 160 new plaintiffs. (These plaintiffs, added after Continental disclaimed coverage and issued its reservation of rights letter are referred to as the “post-denial plaintiffs;” the plaintiffs in the original and first supplemental and amending petition who sued before this time are referred to as the “pre-denial plaintiffs.”) The post-denial plaintiffs’ claims were not tendered to Continental and Continental did not assume the defense of those claims.

In October 2004, the trial court granted partial summary judgment to T & L, finding that Continental had waived its right to rely on its policy exclusion defenses. This judgment apparently was directed to only the pre-denial plaintiffs. The trial court based its ruling on the fact that Continental participated in T & L’s defense for a period of four years without securing a non-waiver agreement or issuing a reservation of rights declaration. This partial summary judgment was certified as a final judgment for the purposes of an appeal and was eventually affirmed by the court of appeal on December 14, 2005. Arceneaux v. Amstar Corp., 05-0177 (La.App. 4 Cir. 12/14/05), 921 So.2d 189 (“Arceneawo /”). The court of appeal found Continental had waived its right to assert its policy exclusions based on the following:

In the instant case, the plaintiffs’ original petition states that “[a]t various times between 1947 and 1994, plaintiffs were employed as direct employees at the Arabi facility ...” In September of 1999, the defense counsel retained by [Continental] specifically advised [Continental] that the plaintiffs were longtime employees of [T & L]. [Continental] was also well aware of the employee related exclusions in its policies. As such, [Continental] was aware of its rights and acted in such a manner as to waive those rights.

921 So.2d at 192. Continental did not file a writ application with this Court, making this a final judgment. On November 11, 2004, T & L submitted defense bills to Continental for the first time and, after reviewing the policies, Continental realized that there were in fact 26 months (from January 1976 to March 1978) when the employee exclusion was not in effect. Accordingly, Continental offered to pay its pro rata share of the defense bills, but the offer was rejected. After attempts to get other insurers to share in the costs of defense failed, Continental notified T & L that it would pay 100% of the defense costs and defend all of the claims going forward under a full reservation of rights. On April 6, 2005, Continental paid T & L $1,419,168.95, the full amount of reimbursement for defense costs to date, and paid the full cost of defense from that point forward.

Shortly before trial for the second flight of plaintiffs, on April 14, 2005, T & L announced that it had entered into a settlement with all of the remaining plaintiffs, under which it would pay $35,000 for each plaintiff who met certain settlement criteria. This settlement was entered into without Continental’s consent. Ultimately, T & L made payments that included 101 pre-denial plaintiffs and 116 post-denial plaintiffs.

| ¡/Trial on T & L’s cross-claims against Continental was held between August 22 and August 25, 2005. The record was left open for the purpose of filing supplemental settlement agreements, and post-trial memoranda. Hurricane Katrina made landfall in St. Bernard Parish on August 29, 2005, and all court records were destroyed when the courthouse flooded, but, apparently, part of the record was reconstructed. On April 7, 2006, the trial court rendered judgment in favor of T & L in the amount of $9,848,542.33, exclusive of interest and costs, holding Continental liable for (1) indemnification for the full amount of the settlements of the 217 pre-denial and post-denial plaintiffs paid by T & L; (2) penalties under La. R.S. 22:658, as amended in 2003, for 25% of the $7,595,000 in indemnity for the 217 claims and $1,149,168.95 in defense costs already paid by Continental; and (3) interest from the date of judicial demand. The trial court found that Continental was liable for indemnity for the post-denial plaintiffs’ claims, even though those plaintiffs filed suit after Continental had issued its reservation of rights letter and disclaimed coverage, on the basis of waiver. Specifically, the trial court used the “relation back” theory found in La. C.C.P. art. 1153, to find that the post-denial claims related back to the time of the pre-denial claims such that Continental’s waiver as to the pre-denial plaintiffs also applied to the post-denial plaintiffs. The trial court found that Continental waived its right to limit coverage to the policy period and its right to invoke its policy exclusions for claims made by employees. In addition, the trial court found that all the settlements were reasonable. Finally, the penalties awarded under La. R.S. 22:658 were for failure to pay the settlements and failure to pay defense costs of approximately $1,400,000.00 within 30 days from when T & L submitted the costs to it on November 11, 2004.

On appeal, the Fourth Circuit affirmed in part, modified in part, reversed in part, and remanded the case to the trial court. Arceneaux v. Amstar Corp., 06-1592 (La.App. 4 Cir. 10/31/07), 969 So.2d 755 (“Arceneaux II”), unit denied, 07-2486, 08-0053 (La.3/24/08), 977 So.2d 952, 953. The court framed the issues raised in the appeal as being twofold: “(i) whether Continental’s waiver expanded the period of Continental’s coverage beyond its policy period — the fifteen years (1963 to 1978) for which it issued policies; and (ii) whether Continental’s waiver applies to the post-denial plaintiffs ...” Id. at 763. The court of appeal recognized that the trial court “materially expanded its prior decision [granting T & L’s motion for partial summary judgment] by finding that the scope of Continental’s waiver included waiving the enforcement of its policy period as well as waiving its right to assert the employee defense or to limit coverage to its policy period to the claims of the post-denial plaintiffs.” Id. at 764. Regarding the first issue, waiver of the policy period, the court of appeal affirmed the trial court’s finding that the policy period could be waived and that it was in fact waived because “[d]uring the period it was defending [T & L], Continental had in its possession the facts that it needed to assert a defense based on its policy period, yet it did not advise its insured that it intended to assert that defense.” Id. at 769. However, regarding the second issue, the court of appeal found the trial court erred in ruling that Continental’s waiver of policy defenses extended to the claims asserted by the post-denial plaintiffs. Id. at 770. The court of appeal found that the “relation back theory cannot support extending Continental’s waiver of its policy defenses to these cumulated multiple claims.” Id. Further, the court of appeal found that the requirements for waiver for the post-denial claims were not met because “[d]uring the four year period when Continental unconditionally provided a defense to [T & L], it was not aware of the claims of the post-denial plaintiffs [and therefore] |7had no existing or known right to deny coverage for claims that had not yet been asserted.” Id. By the time the post-denial claims were filed, Continental had disclaimed coverage, issued a reservation of rights letter, and ceased providing a defense; therefore, there could be no waiver of policy defenses for the post-denial claimants. Id.

In addition to the waiver issue, the court of appeal addressed several other trial court findings. It affirmed the trial court’s finding that the settlements were reasonable, but found that because the trial court did not determine whether 15 of the claimants met the settlement criteria, Continental should be allowed on remand to have the trial court determine if those claims met the settlement criteria. Id. at 776. As to penalties, the court of appeal first found the trial court erred in applying the 2003 amendment to La. R.S. 22:658, which increased the penalty rate from 10-25%, because Continental’s breach of withdrawing its defense in June of 2003 occurred prior to the effective date of the amendment, August 2003.

In addressing the trial court’s award of a 25% penalty on the amount of the settlement award ($7,595,000), the court of appeal noted that the trial court’s reasons were silent as to that issue. The court of appeal found the trial court was manifestly erroneous in awarding these penalties because “Continental’s contention^] that all of the settlements were unreasonable and that it did not waive |sits right to enforce its policy term were reasonable and legitimate questions that it had the right to litigate without being found in bad faith.” Id. at 781. As to the penalties on defense costs, the court of appeal found that the trial court was not manifestly erroneous in finding Continental violated La. R.S. 22:658 by failing to pay defense cost invoices submitted in November 2004, and not paid until April, 2005. Id. at 783. However, the court of appeal amended the award of bad faith penalties on the defense costs to exclude from that calculation bills totaling $46,790.05 that were submitted on March 24, 2005, and timely paid on April 6, 2005. Id. at 784. In addition, the court of appeal affirmed the award of prejudgment interest but modified the award of interest on the 2005 settlements to provide that interest is due on such amounts only from the date on which T & L made payment of such settlements. Id. at 785. Finally, the court issued the following decree:

For the foregoing reasons, the following findings of the trial court are reversed: (1) the extension of Continental’s waiver to the claims of the post-denial plaintiffs; (2) the finding that the 2003 amendment to La. R.S. 22:658 applies in this case; and (3) the award of La. R.S. 22:658 penalties on the settlement awards. The judgment of the trial court is modified in the following two respects: (1) the amount on which the La. R.S. 22:658 penalty award on the defense costs is calculated is modified to exclude $46,790.05 in defense costs that were paid within thirty days of the tender, and (2) the award of interest on the 2005 settlement awards is modified to provide that interest is due on such awards only from the date on which Tate & Lyle made payment of such awards. This case is remanded to the trial court for two reasons: (1) for a determination of whether the fifteen plaintiffs identified earlier in this opinion satisfied the settlement criteria; and (2) for a recalculation of the amounts due consistent with the findings set forth herein. In all other respects, the judgment of the trial court is affirmed.

Id.

After the Fourth Circuit issued its opinion, Continental paid T & L $4,548,255.00, representing indemnity payments for all pre-denial plaintiffs, excluding the 15 that were remanded, plus interest through June of 2008. In |naddition, Continental had already paid T & L the 10% penalty on the defense costs of $1,372,378.00 as awarded by the court of appeal. On October 13, 2008, the trial court ordered the parties to file cross-motions for summary judgment on the issues remaining after remand. Continental’s motion alleged: (1) it was only liable for $174,090.92 in indemnity for the post-denial plaintiffs in light of its coverage defenses; (2) it had no liability for' the 15 remanded plaintiffs because they did not meet the settlement criteria; (3) it was liable only for attorneys’ fees under La. R.S. 22:658 for delayed payment of the defense invoices submitted in November 2004, which was only a fraction of the defense costs submitted. T & L alleged: (1) Continental was liable for approximately $4,600,000.00 in indemnity for the post-denial plaintiffs because it had breached its duty to defend and therefore could not assert any policy defenses including the policy period and the employee exclusions; (2) Continental was liable for indemnity for the 15 plaintiffs because those settlements were reasonable; and (8) in addition to the 10% penalty, Continental was liable for the entire amount of attorneys’ fees sought for all the work on the third party demand against Continental from June 2003 until April 2005 — $359,-925.61 — because that suit was necessitated by Continental’s breach of its duty to defend. In these motions, Continental claimed T & L’s “new” theory that the breach of the duty to defend resulted in waiver of all coverage defenses for the post-denial plaintiffs came too late and was outside the scope of the limited remand; whereas T & L argued that while the court of appeal ruled Continental did not waive its coverage defenses for the post-denial plaintiffs, its remand order that the trial court recalculate the amount of damage necessitated a determination of whether the coverage defenses were actually applicable.

|1ftAt the hearing on the cross-motions for summary judgment held on January 16, 2009, the trial judge did not did not rule on the waiver issue at this time, but announced he would hold Continental liable for all 12 remanded plaintiffs’ claims because the settlements were reasonable ($35,000), and for the entire amount of attorneys’ fees claimed by T & L ($359,-925.61). The trial court rendered a written judgment on these two issues on April 29, 2009, granting T & L’s motion and denying Continental’s motion. On May 6, 2009, the trial court rendered a final written judgment, incorporating the April 29, 2009, judgment, and additionally finding Continental liable for $4,060,000.00 with respect to the post-denial plaintiffs claims. In Reasons for Judgment dated April 23, 2009, the trial court explained that it was holding Continental liable for indemnity for all post-denial claims based on Continental’s breach of its duty to defend. The court reasoned that although these post-denial plaintiffs had not yet filed their claims when Continental issued its reservation of rights letter and terminated its defense of T & L, Continental knew or should have known to expect more claims at that time. The court reasoned that the initial lawsuit was filed as a cumulation of claims, which by its very nature indicates future claims would be added, and 130 more plaintiffs were added in 2001, which indicated more would probably be filed. Continental’s termination of its defense in 2003 was wrongful because the employee exclusions it was relying on did not exist from December 31,1975, through March 1, 1978. The trial court rejected Continental’s claim that its liability for the post-denial plaintiffs should be on a pro-rata basis for the years these plaintiffs were exposed that fell within the policy period and within the years the employee exclusion was not in effect in the amount of $174,090.92. The trial court criticized Continental for asserting this argument:

| n Continental’s advancing this manner of calculating the insured share at this stage of the litigation speaks clearly, emphatically and undeniably of the intentional and wrongful termination and withdrawal of a defense to their insured and a deliberate breach of their contractual duty to defend [T & L] on the allegations of the Second and Third Supplemental and Amending Petitions asserting the claims of the “so-called” Post Denial Plaintiffs.

In the end, the court denied Continental’s motion and granted T & L’s motion, finding as follows:

This Court is constrained in the granting of the Continental’s Motion for Partial Summary Judgment by the very notion advanced in Continental’s own writing of resolution of any recalculation of indemnification due Continental on the settlement of the Post Denial Plaintiffs is more appropriately suitable for resolution, if any, at a trial on the merits. What Continental asks is this Court limit any future award on [T & L]’s claim as they propose. In that manner, any other potential remedy relate[s] to their deliberate, knowingly and retaliatory breach of their duty to defend [T & L] would leave [T & L] a “hollow remedy” or no remedy at all for a significant contractual breach.
This court has reviewed the facts of this case and has determined Continental’s breach of the duty to defend [T & L] is so grievous, mean spirited and designed to cause financial harm to its insured [T & L], justice demands and it must fashion a remedy for the redress of that breach which is commensurate -with the breach of the duty to defend under these particular set of facts. This Court grants the Cross Motion of [T & L] for Partial Summary Judgment for the reasons stated herein.

On May 10, 2010, a different panel of the Fourth Circuit affirmed the trial court’s judgment. Arceneaux v. Amstar Corp., 09-0980, p. 1 (La.App. 4 Cir. 5/14/10), 2010 WL 1980204, — So.3d-, unpublished (“Arceneaux III”). At the outset, it is evident that the majority misunderstood the main issue on appeal, i.e., the $4,060,000.00 judgment against Continental resulting from the trial court’s finding that Continental waived its right to assert any of its policy defenses for the post-denial plaintiffs based on its breach of the duty defend. Instead, the court began the opinion by recognizing that Continental was arguing the trial court’s judgment ignored the court of | ^appeal’s prior remand order, but then stated that the judgment “resulted in the granting of a motion for summary judgment in favor of [T & L], casting judgment against Continental [ ] in the amount of $359,925.21 and settling with 15 plaintiffs.” Later in the opinion, the court of appeal did acknowledge Continental’s argument that it was not liable for the full indemnity amount based on its policy defenses, but rejected the argument finding that the trial court reasoned the coverage defenses were based in part on the employee exclusion, and “it was determined at trial that no such exclusions existed during the period of time in question.” Id., pp. 3-4, — So.3d at- -. After recognizing that the duty to defend is broader than the duty to indemnify and may exist unless the factual allegations of plaintiffs’ petition unambiguously exclude coverage, the court of appeal found there was no error in the trial court’s finding Continental grievously terminated its duty to defend. Id., p. 5, — So.3d at-. In addition, the court of appeal found no error in the trial court’s ruling that Continental was hable for the 12 remanded plaintiffs’ claims. Id., p. 6, -So.3d at-. Finally, with regard to attorneys’ fees, the court of appeal affirmed the award, reasoning that where attorneys’ fees awarded are based on arbitrary nonpayment of benefits, they “need not be proven because the award is penal in nature” and that “the effort, substantial amount of time, coupled with discovery, and defense invested in this litigation is clearly reflected in the record.” Id., p. 7, — So.3d at-. Judge Bonin strenuously dissented, finding that the opinion was silent as to the $4,060,000 indemnity award and strayed from the court’s previous limited remand order. Judge Bonin explained that the court of appeal had already held that waiver did not apply to the post-denial plaintiffs, yet the trial court on remand used waiver again to justify the indemnity award, which is prohibited by the “law of the case” doctrine. In Judge Bonin’s view, the trial court was restricted to decide what portion of the post-denial settlements Continental should indemnify T & L for, and that this portion must bear hsa rational relationship to the limited period for which Continental provided coverage.

The court of appeal granted rehearing for the sole purpose of correcting a factual error in the original opinion, i.e., its statement that “it was determined at trial that no [employee] exclusions existing during the period of time in question: 1963 to 1978.” The court of appeal on rehearing stated:

We are of the opinion that Continental is correct when it asserts in its application for rehearing that “all of Continental’s policies did contain employee exclusions” except for the last 26 months of Continental’s 15-year coverage period. While the parties have vigorously disputed the applicability of the employee exclusions, the existence of those exclusions for the relevant time period did not appear to be in dispute.

Inexplicably, although this appeared to be the sole finding on which the court of appeal relied in affirming the $4,060,000.00 indemnity award on original hearing, it did not change or reanalyze this issue in light of this factual error. We granted Continental’s writ application primarily to determine whether the lower courts erred in awarding T & L $4,060,000.00 in indemnity for the post-denial plaintiffs’ claim based on Continental’s breach of its duty to defend. Arceneaux v. Amstar Corp., 10-2329 (La.1/28/11), 56 So.3d 955.

DISCUSSION

Law of the case

Continental’s first assignment of error involves the “law of the case” doctrine. Specifically, Continental argues the trial court and the Fourth Circuit violated the law of the case doctrine in ruling, and affirming on remand, that Continental waived its policy defenses with respect to the post-denial claims by breaching the duty to defend. Continental argues that the Fourth Circuit held in Arceneaux II that Continental had not waived its defenses with respect to the post-denial claims; therefore, the trial court was precluded from making such a ruling |14again, even though the waiver was found to be because of a breach of the duty to defend, rather than relation back of the waiver of the pre-denial claims.

The law of the case refers to a policy by which the court will not reconsider prior rulings in the same case. Day v. Campbell-Grosjean Roofing & Sheet Metal Corp., 260 La. 325, 256 So.2d 105 (1971).

The law of the case principle relates to (a) the binding force of trial court rulings during later stages of the trial, (b) the conclusive effects of appellate rulings at trial on remand, and (c) the rule that an appellate court will ordinarily not reconsider its own rulings of law on a subsequent appeal. Among reasons assigned for application of the policy are: the avoidance of indefinite reliti-gation of the same issue; the desirability of consistency of the result in the same litigation; and the efficiency, and the essential fairness to both sides, of affording a single opportunity for the argument and decision of the matter at issue.

Petition of Sewerage and Water Bd. of New Orleans, 278 So.2d 81, 84 (La.1973). However, even when applicable, the law of the case is discretionary and should not be applied in cases of palpable error or where application would result in injustice. Id.

T & L argued that while the court of appeal ruled Continental did not waive its coverage defenses for the post-denial plaintiffs, its remand order that the trial court recalculate the amount of damage necessitated a determination of whether the coverage defenses were actually applicable. According to T & L, this allowed its argument on remand that the coverage defenses did not apply because Continental breached its duty to defend.

We are troubled because it appears the trial court basically ignored the Fourth Circuit’s findings on remand in determining: (1) Continental knew or should have known there would be future claims at the time they waived coverage as to the pre-denial plaintiffs; and (2) Continental’s breach in failing to defend was so egregious that the only possible remedy was to make Continental pay indemnity 11sfor claims not covered by their policies. Just as troubling is the fact that the court of appeal majority after remand failed to consider the limited nature of the prior remand order and the specific findings made on original hearing that would have, if given effect, preponderated against penalizing Continental in such a severe fashion. For instance, the Fourth Circuit in Arcen-eaux II found that during the four-year period Continental was unconditionally providing a defense to T & L, it was not aware of the claims of the post-denial claimants and therefore could not have waived its right to deny coverage as to those claimants. Further, the Fourth Circuit held that by the time the post-denial claims were filed, Continental had disclaimed coverage and therefore there could be no waiver of policy defenses for the post-denial claimants. In addition, the court of appeal in Arceneaux II reversed the trial court’s imposition of 25% penalties on the indemnity award, finding “Continental’s contention^] that all of the settlements were unreasonable and that it did not waive its right to enforce its policy term were reasonable and legitimate questions that it had the right to litigate without being found in bad faith.” Further, the court of appeal specifically rejected T & L’s argument that Continental’s late payment of defense costs in April 2004 after the trial court granted T & L’s motion for partial summary judgment awarding defense costs in November 2004 was a bad faith act under the 2003 amendment to La. R.S. 22:658:

Contrary to [T & L]’s argument, the trial court’s grant of partial summary judgment on the employee exclusion did not resolve the coverage issue entirely. Continental had denied coverage for any bodily injury that did not take place during one of its policy periods. Continental, therefore, was not in bad faith at that point so that there was no act of bad faith after the effective date of the amended version of the statute, and the pre-amendment version is applicable to this claim. (Emphasis added.)

hJn spite of this ruling by the court of appeal on original hearing, on remand the trial court ruled that Continental had waived its policy defenses on the post-denial claims because its “breach of the duty to defend [T & L] is so grievous, mean spirited and designed to cause financial harm to its insured [T & L], ...” Not only is this contrary to the finding that the Continental did not waive its defenses as to the post-denial claims, its finding of grievous behavior is inconsistent with the court of appeal’s ruling in Arceneaux II that Continental was not in bad faith in litigating its policy defenses. Finally, the court of appeal made a prior ruling in Arceneaux II that Continental did not violate La. R.S. 22:658 by its late payment of defense costs; whereas on remand, the trial court awarded attorneys fees under La. R.S. 22:658 based on Continental’s late payment of defense costs. Because the trial court re-decided these issues on remand, and the court of appeal affirmed the trial court’s judgment, both courts violated the law of the case doctrine on these issues.

However, waiver of policy defenses as to the post-denial plaintiffs is the main issue upon which this writ was granted. Because we recognize some validity to the argument that the trial court’s ruling on remand regarding the post-denial claims was made on different grounds from the court of appeal’s prior ruling on the waiver issue, in our discretion we will review the merits of the trial court’s ruling on the cross-motions for summary judgment de novo. Samaha v. Rau, 07-1726 (La.02/26/08), 977 So.2d 880, 882. Indemnity owed for settlement of the post-denial claims

The first issue is the amount of indemnity owed by Continental resulting from T & L’s settlement with the post-denial plaintiffs. The trial court found Continental owed the entire amount of the post-denial plaintiffs’ settlements because it breached its duty to defend. A review of the record and the law shows |17that Continental did breach its duty to defend T & L by issuing a denial of coverage and reservation of rights letter to T & L on June 6, 2003, and withdrawing from T & L’s defense. As stated above, this was done based on the mistaken belief that all of the policies contained employee exclusions, when in fact for the final 26 months of its last policy, the employee exclusion was no longer in effect. As explained in Yount v. Maisano, 627 So.2d 148, 153 (La.1993), “the insurer’s obligation to defend suits against its insured is broader than its liability for damage claims.” “The insurer’s duty to defend suits brought against its insured is determined by the allegations of the injured plaintiffs petition, with the insurer being obligated to furnish a defense unless the petition unambiguously excludes coverage.” Id. (Citing American Home Assur. Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969); Meloy v. Conoco, Inc., 504 So.2d 833 (La.1987)). “Thus, if assuming all the allegations of the petition to be true, there would be both (1) coverage under the policy and (2) liability to the plaintiff, the insurer must defend the insured regardless of the outcome of the suit.” Id. The allegations of the petition are liberally construed to determine whether they set forth grounds which bring the claim within the insurer’s duty to defend. Id.

Here, the petitions allege bodily injury from noise exposure for a wide range of years, from 1947 to 1994, some of which falls within the time the employee exclusions were not in effect. Therefore, the petitions do not unambiguously exclude coverage and Continental breached its duty to defend by withdrawing its defense in June 2003. Thus, the issue is whether Continental waived its policy defenses, including the coverage periods and the employee exclusion, by breaching its duty to defend. We find that it did not.

The trial court reasoned that Continental’s breach of the duty to defend caused a waiver of the policy defenses and exclusions benefitting Continental, | ^resulting in a finding that Continental was liable for the entire settlement amount. In so doing, the trial court confused breach with waiver. “Waiver is generally understood to be the intentional relinquishment of a known right, power, or privilege.” Steptore v. Masco Const. Co., Inc., 93-2064 (La.8/18/94), 643 So.2d 1213, 1216 (cites omitted). “Waiver occurs when there is an existing right, a knowledge of its existence and an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished.” Id. (Cites omitted.) As an insurer is charged with knowledge of the contents of its own policy, “when an insurer, with knowledge of facts indicating non-coverage under the insurance policy, assumes or continues the insured’s defense without obtaining a nonwaiver agreement to reserve its coverage defense, the insurer waives such policy defense.” Id. (Cites omitted.) “Waiver may apply to any provision of an insurance contract under which the insurer knowingly and voluntarily elects to relinquish his right, power or privilege to avoid liability, even though the effect may bring within coverage risks originally excluded or not covered.” Tate v. Charles Aguillard Ins. & Real Estate, Inc., 508 So.2d 1371, 1375 (La.1987). “Waiver principles are applied stringently to uphold the prohibition against conflicts of interest between the insurer and the insured which could potentially affect legal representation in order to reinforce the role of the lawyer as the loyal advocate of the client’s interest.” Steptore, supra at 1216. For instance, in Steptore, this Court held that the insurer waived its right to deny coverage based on its insured’s violation of a warranty as to the location of the insured’s barge because the insurer, with knowledge that the barge was not located within the area of the navigation warranty at the time of the claim, voluntarily assumed and continued the insured’s defense without reserving its rights to deny coverage. Id.

11flThe reasoning for this logic is clear; where the insurer undertakes to defend the insured with knowledge of facts indicating non-coverage under the policy, the insured is led to believe the insurer has relinquished that right and acts accordingly. From that point, the insured has the right to believe the insurer’s attorney is acting in his best interest without regard to coverage defenses the insurer has seemingly relinquished. As stated by the court of appeal in Arceneaux II, a belated disclaimer may prejudice the insured because it loses the opportunity to assume and manage its own defense. Arceneaux II, supra, 969 So.2d at 768. Therefore, the insurer cannot later avoid liability based on a coverage defense if it has assumed the defense without a reservation of rights and with knowledge of facts which would bring the claim outside the policy based on that defense.

Breach of a duty to defend, on the other hand, has nothing to do with waiver of rights in the insurance context. When the insurer breaches its duty to defend, it is not misleading the insured into believing there could be coverage under the policy. The insurer is not manifesting an intent to relinquish its right to deny coverage under the policy; it is doing the opposite by expressly denying coverage under the policy. In such a case, waiver principles simply do not apply.

T & L relies on this Court’s opinion in Thomas W. Hooley & Sons v. Zurich General Acc. & Liability Ins. Co., 235 La. 289, 103 So.2d 449 (1958), to support the trial court’s judgment that Continental’s breach of its duty to defend resulted in a waiver of its coverage defenses. In Hoo-ley, the insurer denied liability for property damage and did not provide a defense to its insured. The insured then proceeded to repair the property with the agreement of the claimant, and claimed |2othe insurer was liable to indemnify it under the terms of the policy. The insurer sought to evade liability claiming the insured violated the “no action” clause of the policy, which prohibited the insured from voluntarily settling or paying claims prior to final judgment obtained against it. This Court disagreed, holding as follows:

... by the mere denial of the insurer to its insured of any liability under the insurance policy for the damages claimed by a third person, the insurer forfeits its right to claim the benefits of the ‘no action’ clause, and the insured policyholder even in the absence of litigation may compromise the claim against him without prejudicing his right to recover from the insurer the amount of a reasonable and good faith settlement made by him. Especially when as here liability to the third person is unquestioned, and after a denial of coverage by the insurer the policyholder minimizes the loss and avoids the expenses of litigation by a reasonable compromise, the insurer should be unable to claim that reimbursement to its insured of damages clearly covered by the insurance contract is barred by such compromise which was to the ultimate benefit of the insurer.

103 So.2d at 452-53. While Hooley did find a waiver of a policy provision by breach of the duty to defend, the provision was unrelated to coverage and related only to a preliminary matter dealing with the insurer’s defense obligation. The narrow holding of Hooley cannot be extended to find waiver of other insurance contract provisions, particularly those related to coverage. Hooley simply stands for the proposition that where an insurer wrongfully refuses to defend its insured, the insured is free to settle the case against it without the insurer’s approval.

Here, the trial court determined “it must fashion a remedy for redress of that breach which is commensurate with the breach of the duty to defend.” However, that remedy, waiver of all policy defenses, is not supported by law. The result of the trial court’s holding is judicial legislation, imposing a penalty on the insurer that is not provided for by the legislature and is in fact on top of penalties already provided by the legislature. The duty to defend is provided in the insurance contract; therefore, its breach is determined by ordinary contract law principles and | ⅞1 the insurer is liable for the insured’s reasonable defense costs. William Shelby McKenzie and H. Alston Johnson, III, Louisiana, Civil Law Treatise: Insurance Law and Practice, Vol. 15, § 215, p. 614 (3rd Ed.2006). If the breach is found to be in bad faith, statutory penalties are imposed under La. R.S. 22:658 (now La. R.S. 22:1892). The remedy created by the lower courts in this case judicially imposes a result that would permit insureds to reap a windfall of potentially enormous profits, far beyond the natural consequences of the insurer’s bad faith breach of the duty to defend, and far beyond the scope of the insurer’s contractual undertaking.

In light of the above, we find the lower courts erred in holding Continental liable for $4,060,000.00 in indemnity for the post-denial claimants. The case was remanded for the trial court to recalculate the amount due given the court of appeal’s ruling that no waiver of coverage defenses occurred with respect to the post-denial claimants. Continental was entitled to rely on its coverage defenses on remand: namely, that the policies are occurrence based policies and some of the exposures/occurrences did not occur during the period of the policies, and that the policies contain exclusions for bodily injury to employees and these exclusions were in effect for the duration of the policies with the exception of 26 months, from December 31, 1975, to March 1, 1978. Continental submitted a detailed calculation of the amount owed as an exhibit to its motion for summary judgment on remand. Continental argues it is liable only for a pro rata share of the entire settlement based on the dates of exposure that corresponded to the policies’ coverage period and the dates when the employee exclusion was not in effect.

This argument is based on this Court’s holding in Southern Silica v. Louisiana Ins. Guar. Ass’n, 07-1680 (La.4/8/09), 979 So.2d 460. In Southern Silica, the issue presented was whether, in a long-term latency disease case, an insured claiming indemnity from the Louisiana Insurance Guaranty Association (“LIGA”), must first collect “other insurance available to the insured” from all other insurers covering the periods of exposures before attempting to collect from LIGA. Relying on Norfolk Southern Corp. v. California Union Ins. Co., 02-0369 (La.App. 1 Cir. 9/12/03), 859 So.2d 167, 198, writ denied, 03-2742 (La.12/19/03), 861 So.2d 579, this Court held that for long-latency occupational claims involving long-term exposure, liability should be allocated on a pro rata basis over all periods in which the exposure took place, including years in which the insured was uninsured. For uninsured periods, the insured is treated as being self-insured and is assigned a pro rata share. In Norfolk Southern, the court explained:

Underlying the holdings in the Louisiana cases addressing allocation in long-term losses spanning multiple policy periods is the concept that insurers may limit their liability to discrete and finite periods. The exposure theory, upon which the Louisiana allocation approach is based, relies on the principle that an insurer will only be responsible within the terms of its policy for those damages arising out of the period the policy is in effect. In short, each insurer is responsible, up to the limits of its policy, for all damages emanating from occurrences taking place during the insurer’s policy period. All damages emanating from occurrences taking place outside the policy period are covered by [other] insurer on the risk at the time[s] the occurrence[s] took place.

979 So.2d at 465-66.

Based on this established approach, Continental calculated the dates of exposure and determined that its pro rata share of the post-denial claims was $174,090.92. T & L did not challenge the calculation, but argued Continental was liable for the entire $4,060,000.00 based on waiver of its defenses. Interestingly, the trial court reproached Continental for relying on the Southern Silica/Norfolk Southern pro rata approach, stating that it “speaks clearly, emphatically and undeniably of the intentional and wrongful termination and withdrawal of a defense to their insured and a deliberate breach of their contractual duty to defend ...” Obviously, Continental’s reliance on established case law in arguing its case has nothing to do with whether it intentionally and wrongfully breached its duty to defend in 2003. Moreover, these cases clearly support Continental’s position that it is liable only for exposures occurring during the coverage periods of its policies when the employee exclusions were not in effect. Based on the evidence in the record, we can determine the indemnity due based on Continental’s motion for summary judgment — remand is unnecessary. We render judgment in favor of T & L for indemnity for the post-denial plaintiffs’ settlements in the amount of $174,090.92.

Remaining issues

The remaining issues before us need to be remanded for detailed factual considerations. The first relates to whether certain plaintiffs met the settlement criteria. The court of appeal in Arceneaux II affirmed the trial court finding that the settlements were reasonable, but remanded the case for a determination of whether certain claimants met the settlement criteria. On remand, the trial court found Continental was liable for indemnity for all 12 claimants because the settlements were reasonable. Continental argues this is contrary to the remand order because the trial court did not address the settlement criteria at all. Continental argues 10 of the claimants did not meet the hearing loss requirements [^because they are based on the wrong type of audiograms. T & L argues no specific type of audiogram is required. Based on these arguments and the fact that the trial court did not determine whether the claimants met the settlement criteria, this issue is remanded to the trial court to make a particularized determination of whether each of the 12 claimants at issue met the specific settlement criteria.

The second remaining issue is the amount of attorney fees owed by Continental under La. R.S. 22:658 as a result of its late payment of certain defense bills submitted in November 2004. The trial court awarded $859,925.51, representing the total amount of attorney fees incurred in litigating all aspects of T & L’s third party demand from June 2003 through April 6, 2005. Continental argues the amount owed must be limited to amounts incurred in collecting the invoices submitted on November 11, 2004, and, because T & L failed to carry its burden of showing the particular fees incurred in collecting the invoices, no fees are due.

La. R.S. 22:658 (now La. R.S. 22:1892), provides:

Failure to make such payment within 80 days ... shall subject the insurer to a penalty in addition to the amount of loss, of ten percent damages on the amount found to be due from the insurer to the insured ... together with all reasonable attorney fees for the prosecution and collection of such loss.

The court of appeal found Continental’s only bad faith act was its late payment of attorney fees billed in November, 2004. Penalties for this violation were awarded and paid by Continental in the amount of $137,237.80. The court of appeal reversed the trial court’s earlier finding that Continental was in bad faith for failing to pay indemnity on the post-denial claims. Therefore, the only bad faith failure causing loss upon which attorney fees can be assessed is the collection of bills submitted in November, 2004 paid on April 6, 2005. According to the bills submitted by T & L, the total attorney fees between November 11, 2004 and March |254, 2005, were $114,415.00. These bills do not distinguish between legal fees used in defense of the claims of the third party demand and those expended to obtain reimbursement of defense costs. The attorney fees for the “prosecution and collection of such loss” are only those fees expended in prosecuting and collecting the late payment of defense costs. The case is remanded for a determination of the amount of attorney fees paid to collect on the late payment of defense bills submitted on November 11, 2004. Finally, any award of legal interest on these fees can be assessed only from the date of judgment. Sher v. Lafayette Ins. Co., 07-2441 (La.4/8/08), 988 So.2d 186, 203.

CONCLUSION

An insurer’s breach of the duty to defend does not result in a waiver of all coverage defenses when the insured seeks indemnity under the policy. Waiver of coverage defenses results when an insurer, with knowledge of facts indicating non-coverage, undertakes to defend an insured without reserving its rights to deny coverage. Here, the insurer had disclaimed coverage at the time the post-denial plaintiffs were added to the suit, and thus did not provide a defense to those claims; therefore, waiver principles do not apply. While T & L was entitled to reasonable defense costs based on this failure to defend, which Continental paid in the amount of $1,419,168.95, and penalties on any amounts which were not timely paid, T & L was not entitled to indemnity from Continental without regard to the provisions of the policies which limited Continental’s indemnity obligation. Based on the coverage defenses limiting coverage to a 26 month period and the prolonged period of exposures that resulted in the claimants’ injuries, Continental is only liable to T & L in indemnity on a pro rata basis for the exposures taking place during the coverage period. Review of the record shows the amount due in indemnity for the post-denial plaintiffs is $174,090.92. Outstanding issues 126requiring remand are a determination of whether the 12 remaining post-denial plaintiffs met the settlement criteria and the amount due those plaintiffs based on the pro rata approach, and the amount of attorney fees due T & L based on Continental’s late payment of defense bills submitted in November 2004. T & L is entitled to attorney fees incurred in collecting the invoices submitted.

DECREE

For the reasons stated herein, the judgment of the court of appeal is reversed in part and judgment is rendered against Continental in the amount of $174, 090.92 for indemnity for the post-denial plaintiffs’ settlements. The case is remanded to the trial court for a determination of whether 12 claimants met the settlement criteria and the amount due each and the amount of attorney fees due for late payment of defense costs, each determination to be made in accordance with the directives of this opinion.

REVERSED AND RENDERED IN PART; REMANDED.

      . A cumulated action is provided for in La. C.C.P. art. 463 and is "the joinder of separate actions in the same judicial demand, whether by a single plaintiff against a single defendant, or by one or more plaintiffs against one or more defendants.”

      . As will be discussed, an insurer who unconditionally undertakes the defense of its insured with knowledge of a coverage defense has been held to have waived the coverage defense. See Steptore v. Masco Const. Co., Inc., 643 So.2d 1213 (La.1994). In order to reserve its rights to assert coverage defenses while undertaking the representation of its insured, the insurer must reserve its rights to do so, typically by the issuance of a reservation of rights letter.

      . Plaintiffs stipulated the damages per plaintiff did not exceed $50,000, the threshold amount for jury trials under La. C.C.P. art. 1732(1).

      . La. C.C.P. art. 1153 provides: "[w]hen the action or defense asserted in the amended petition or answer arises out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of filing the original pleading."

      . Specifically, T & L argued that the act of bad faith was Continental’s failure to pay the defense costs within 30 days after the trial court’s grant of partial summary judgment (October 2004) and this occurred after the effective date of the amendment. The court of appeal disagreed, reasoning as follows:
      Contrary to [T & L]'s argument, the trial court's grant of partial summary judgment on the employee exclusion did not resolve the coverage issue entirely. Continental had denied coverage for any bodily injury that did not take place during one of its policy periods. Continental, therefore, was not in bad faith at that point so that there was no act of bad faith after the effective date of the amended version of the statute, and the pre-amendment version is applicable to this claim.

        Id. at 780-81.

      . Actually, as reflected in briefs to this Court, there are only 12 remanded plaintiffs at issue.

      . The panel rendering the 2007 judgment consisted of Judges Murray, Jones and Tobias. The panel rendering the 2010 judgment consisted of Judges Bagneris, Lombard, and Bo-nin. Judge Bonin dissented.

      . T & L’s argument that because Continental breached the insurance contract by not fulfilling its duty to defend, it cannot enforce any terms of the contract — i.e., the policy defenses — is unavailing. The principle it is trying to invoke is apparently that when one party breaches a contract and prevents one of the primary purposes from being fulfilled, the breaching party cannot force the other party to perform under the contract. Makofsky v. Cunningham, 576 F.2d 1223, 1232 (5th Cir.(La.) 1978). Here, it is not the breaching party that is trying to enforce the contract, it is T & L.

      . This exhibit sets forth each post-denial plaintiff's dates of employment and divides the number of months that fell within the coverage period by the plaintiffs total months of exposure to reach the amount due each post-denial plaintiff.

      . This figure is reached by adding the amount due each post-denial plaintiff who was employed and exposed during the coverage period. As stated in footnote 7, the amount due each plaintiff is based on ratio of the years of coverage and the years of employment/exposure to reach a percentage by which $35,000.00 is multiplied. For instance, a post-denial plaintiff who was not employed during the coverage period is entitled to no recovery. A post-denial plaintiff who was employed from June 2, 1955 through September 1, 2000 would be entitled to 4.77% of $35,000.00 because 26 months (coverage) is 4.77% of the approximately 555 months the plaintiff was employed and exposed.


source: Caselaw Access Project

author: GUIDRY, Justice.

license: Public Domain

text:
    In re Justice of the Peace Kevin J. HOFFMAN, Ward A, Parish of St. Bernard, State of Louisiana.
    No. 2011-O-0417.
    Supreme Court of Louisiana.
    July 1, 2011.

      Office of Special Counsel, Henry Nathan Bellamy, Special Counsel, John Eric Keeling, Assistant Special Counsel, for Applicant.
    Kevin J. Hoffman, Arabi, for Respondent.
    Nancy E. Rix, Commission Counsel.
   GUIDRY, Justice.

11 This matter arises from a recommendation of the Judiciary Commission of Louisiana regarding Justice of the Peace Kevin Hoffman’s failure to comply with the financial disclosure requirements of Louisiana Supreme Court Rule XXXIX (also referred to as the “reporting rule”). The Judiciary Commission (hereinafter, “Commission”) found that Justice of the Peace Hoffman failed to file his 2009 personal financial disclosure statement timely, specifically 103 days after the deadline for filing, thereby subjecting him to a monetary penalty. The Commission deemed Justice of the Peace Hoffman to have acted willfully and knowingly in failing to comply with the financial disclosure rule. Thus, the Commission recommended that Justice of the Peace Hoffman be ordered to pay a penalty of $5,150.00 and to reimburse the Commission for costs in the amount of $168.00. For the reasons set forth below, we find that Justice of the Peace Hoffman failed to comply with the financial disclosure rule, thereby subjecting him to a civil monetary penalty. We further find the record evidence supports the hearing officer’s determination that Justice of the Peace Hoffman’s failure to comply with the reporting rule was not willful and knowing. After considering the facts, circumstances, and applicable law, Justice of the Peace Hoffman is ordered to pay a civil penalty in the amount of $200.00.

1,FACTS and PROCEDURAL HISTORY

This court recently promulgated Supreme Court Rule XXXIX, which requires for the first time the filing of annual personal financial disclosure statements by judges and justices of the peace. See In re: Sanborn, 10-2051, p. 2 (La.11/30/10), 50 So.3d 1279. The rule became effective as to justices of the peace on January 1, 2010. Pursuant to Section 3 of the rule, all elected justices of the peace must file a financial statement by May fifteenth of each year, using a form prescribed by the Judicial Administrator’s Office (“JAO”) for that purpose. Rule XXXIX, Section 3(A) and (B). If a justice of the peace fails to timely file a financial disclosure statement as required by the rule, or omits any information required to be included in the statement, or the JAO has reason to believe the information included in the statement is inaccurate, the JAO must notify the justice of the peace of such failure, omission, or inaccuracy by certified mail. Rule XXXIX, Section 4(A). The notice of delinquency shall inform the justice of the peace that the financial statement must be filed, or that the information must be disclosed or accurately disclosed, or that a written answer contesting the allegation of such a failure, omission, or inaccuracy must be filed within fourteen days. Rule XXXIX, Section 4(A)(2). If the justice of the peace files the statement, provides the omitted information, or corrects the inaccurate information within the deadline, no penalties shall be assessed. Rule XXXIX, Section 4(B).

However, if the justice of the peace fails to file the statement, fails to provide the omitted information, fails to correct the inaccurate information, or fails to file a written answer prior to the fourteen-day deadline, the matter shall be referred to the Commission. Rule XXXIX, Section 4(C)(1). In turn, if the Commission determines that the justice of the peace may have failed to file the statement or failed to disclose | oor accurately disclose the required information, the matter shall be the subject of a hearing before a hearing officer. Rule XXXIX, Section 4(F).

A hearing before a hearing officer is limited to three issues: whether the justice of the peace failed to file a financial'statement; whether the justice of the peace failed to disclose or accurately disclose the required information; and whether the failure was willful and knowing. Rule XXXIX, Section 4(F)(3). The hearing officer submits a report to the Commission containing proposed findings of fact and conclusions of law, which report is then considered by the Commission. Rule XXXIX, Section 4(F)(4). If the Commission determines the justice of the peace has failed to file a statement, or failed to disclose or accurately disclose the required information, the Commission shall file the record and a recommendation with this court. Rule XXXIX, Section 4(F)(6). In that event, the Commission shall recommend the imposition of civil penalties against the justice of the peace, and shall also make a recommendation as to whether the violation was willful and knowing. Id.

Once the recommendation is filed in this court, Rule XXXIX, Section 4(F)(7) provides that the case shall be docketed “summarily” for oral argument, and the court’s judgment “shall be rendered promptly following argument.” If the court determines no violation has occurred, no penalty shall be assessed. Rule XXXIX, Section 4(F)(7). If the court determines that a violation has occurred, civil penalties of up to fifty dollars per day shall be assessed against the justice of the peace. Rule XXXIX, Section 4(F)(7)(b). Further, in the event the court determines that the Injustice of the peace acted willfully and knowingly, the court shall forward its findings for action by the district attorney in the parish where the justice of the peace is domiciled. Rule XXXIX, Section 4(F)(8).

The instant case is the first recommendation filed by the Commission against a justice of the peace pursuant to Rule XXXIX. Two similar cases involving a justice of the peace have also been decided this date. See In re: Flaherty, 11-0418 (La.07/01/11), 66 So.3d 461; In re: Thomas, 11-0572 (La.07/01/11), 66 So.3d 466.

Justice of the Peace Hoffman (hereinafter, “Respondent”), who is not an attorney, assumed office as the justice of the peace for Ward “A” of St. Bernard Parish in January 2009. In 2009, the JAO made a presentation at the Attorney General’s training conference for justices of the peace regarding the May 15, 2010 deadline for filing the personal financial disclosure statement for 2009 (hereinafter referred to as the “2009 statement”). Respondent was in attendance at this session; however, he did not file his 2009 statement by May 15, 2010. After a JAO staff attorney contacted him to inquire about his non-compliance, Respondent requested another filing form be sent to him. The form was faxed to Respondent on June 3, 2010, at the number he provided, but he did not immediately file his financial disclosure statement. Accordingly, on June 16, 2010, the JAO sent Respondent a notice of delinquency advising him that the 2009 statement “must be filed no later than fourteen (14) business days after receipt of this notice of delinquency, or by July 8, 2010.” The notice of delinquency also stated that failure to file the 2009 statement by the deadline “shall result in the imposition of penalties as provided in Section 4 |sof Rule XXXIX.” Respondent did not submit a written response to the notice of delinquency by July 8, 2010. On July 23, 2010, the JAO referred the matter to the Commission, based upon his failure to timely file the 2009 statement. Respondent eventually filed the 2009 statement on October 19, 2010, after the Commission filed a Formal Charge against him.

This matter was set for a hearing before a hearing officer on November 19, 2010. Respondent appeared and testified at the hearing, although he had not filed an answer to the Formal Charge. A JAO staff attorney also testified. In his comments to the hearing officer, Respondent admitted he had received notice of his need to file the disclosure statement and apologized for not doing so timely, stating, “There is no excuse. I’m not going to waste anybody’s time with stories and shenanigans and this other stuff.... I will be first in line next year to get it done.” Respondent explained, however, that he had thought the financial disclosure form was “tax related,” and therefore he assumed the extension he had obtained to file his federal tax return applied to the filing of the personal financial disclosure statement. Respondent acknowledged his error in this regard and stated he “did make a mistake.”

Following the hearing, the hearing officer filed findings of fact and conclusions of law with the Commission. In his report, the hearing officer found that Respondent was contrite about his admitted failure to timely file his 2009 Statement, and that he accepted responsibility for his failure. The hearing officer further found that | fiRespondent’s conduct was not willful and knowing, reasoning:

JP Hoffman admitted that he knew he should have filed the 2009 Statement by May 15, 2010. Although JP Hoffman’s conduct in failing to file 2009 Statement timely was undeniably negligent and frankly inexcusable, the hearing officer, nevertheless, declines to find that JP Hoffman willfully and knowingly violated the Reporting Rule. There is no evidence that JP Hoffman acted in bad faith or purposefully chose not to file the 2009 Statement to obtain any personal or professional gain. See Sanborn[]. This is a case of mere neglect, not willful and knowing disobedience of the Reporting Rule.

Following the filing of the report containing the hearing officer’s findings, the Commission invited, but did not order or require, Respondent to appear before the Commission on January 21, 2011, to make a statement in response to the hearing officer’s report. Respondent did not attend the January meeting.

On March 1, 2011, the Commission filed its recommendation in this court. In its report, the Commission adopted all of the hearing officer’s proposed conclusions of fact and law except the finding that Respondent’s failure to file the 2009 statement was not willful and knowing. The Commission reasoned that Respondent admitted he knew he should have filed the 2009 Statement by May 15, 2010, but did not file it; therefore, his conduct was “knowing.” Further, by ignoring the filing deadline of which he was fully aware, Respondent voluntarily and intentionally did not file the 2009 statement timely. Thus, the Commission found his failure to file the statement timely was also “willful.” While the Commission found no dishonest motive on the part of Respondent, it declined to extend to him the benefit of the doubt that was extended by the court in In re: Morvant, 09-747 (La.6/26/09), 15 So.3d 74, and Sanborn, supra.

Based upon these findings, the Commission determined that the burden of 17persuasion was satisfied. The Commission calculated the length of the delay from the deadline set forth in the delinquency notice, July 9, 2010, to be 103 days, using the date Justice of the Peace Hoffman submitted a hard copy of his financial disclosure statement to the JAO, October 19, 2010. Accordingly, the Commission recommended Respondent be ordered to pay $5,150.00 in penalties, citing the former version of Section 4(F)(7), which has since been amended to provide for a penalty of up to fifty dollars per day. See Note 2, supra. The Commission further recommended Respondent be ordered to reimburse the Commission $168.00 in costs.

DISCUSSION

After our review, we find the record establishes by clear and convincing evidence that Respondent did not timely file his financial disclosure. See Sanborn, p. 4, 50 So.3d at 1281. Indeed, Respondent admitted his failure before the hearing officer. Accordingly, the imposition of a civil sanction is appropriate.

Having found Respondent in violation of Rule XXXIX, we next decide whether his violation was “willful and knowing” under Rule XXXIX, Section 4(F)(8). Although Respondent’s conduct was certainly negligent and inexcusable, we find the record evidence supports the hearing officer’s conclusion that Respondent did not willfully and knowingly violate Rule XXXIX. As we explained in San-born, the financial disclosure rule is a newly adopted rule of this court, applicable to justices of the peace for the first time in 2010, and “there is little guidance regarding its implementation.” Sanborn, p. 6, 50 So.3d at 1282. There is no evidence Respondent acted in bad faith or purposely chose not to file his financial disclosure statement to Robtain some personal or professional gain. See Id., 50 So.3d at 1282-83. As in Sanborn, this is a case of “mere neglect,” not willful and knowing disobedience of the financial disclosure rule. We thus acknowledge that some leniency is appropriate, given the financial disclosure rule became effective as to justices of the peace only in 2010, and given the possibility that justices of the peace, who are not necessarily attorneys, may have confused the financial disclosure rule with other financial reporting requirements. See Flaherty, 11-0418. We nevertheless caution justices of the peace that in future such leniency or benefit of the doubt will not be extended now that the financial disclosure rule has been in effect for more than one year. As we noted in Sanborn, judges, as well as justices of the peace, are held to a high standard, and they are “often called upon to enforce deadlines on litigants before [their courts], and must likewise show respect for the deadlines this Court has imposed on all judges [and all justices of the peace] of this State, without exception.” Sanborn, pp. 6-7, 50 So.3d at 1283.

We next turn to an appropriate penalty for Respondent’s failure to file his financial disclosure statement timely under Rule XXXIX, Section 4(F)(7)(b), as recently reenacted by this court. We find that a civil penalty of $200.00 is appropriate under the facts and circumstances of this case.

CONCLUSION

We find the record establishes that Justice of the Peace Hoffman failed to comply with the financial disclosure requirement of Rule XXXIX, thereby subjecting him to a civil monetary penalty. We further find that his failure to comply with the financial disclosure rule did not rise to the level of a willful and knowing violation. Accordingly, Justice of the Peace Hoffman is ordered to pay a civil penalty to the State of Louisiana, Judicial Branch, in the amount of $200.00, no later than thirty |fldays from the finality of this judgment.

      . If the Commission decides no violation has occurred, no recommendation is made to this court, and no penalties are assessed against the justice of the peace. Rule XXXIX, Section 4(D).

      . Sections 4(F)(7)(a) and (b) of Rule XXXIX were recently repealed and reenacted to provide for penalties of up to one hundred dollars per day for judges and up to fifty dollars per day for justices of the peace. This rule change became effective on May 18, 2011, and is applicable to all cases pending on its effective date and will remain in full force and effect thereafter until amended or changed through future orders of this court.

      .The Commission previously filed a similar recommendation against an elected judge. In Sanborn, this court found the judge failed to file an annual financial disclosure statement by the deadline set forth in Rule XXXIX, but his violation was not willful and knowing. The court imposed a penalty of $2,400.00 against the judge.

      . The delinquency notice was sent by certified mail to two addresses for Respondent, but both mailings were returned by the Post Office as undeliverable.

      . The case record does not contain a copy of the financial disclosure statement actually filed with the JAO by Respondent for year 2009; however, Section 5 of Rule XXXIX provides that all financial statements filed pursuant to this rule are matters of public record.

      . Section 2(B) of Rule XXXIX permits an elected judge to file his or her financial disclosure statement within thirty days of the filing of his or her federal tax return, "taking into consideration any extensions filed by the individual, provided the individual notifies the [JAO] prior to the deadline provided in Subsection A of this Section of his or her intention to do so." There is no similar provision applicable to justices of the peace in Section 3 of Rule XXXIX; instead, the justice of the peace must certify that he or she has "filed his or her federal and state income tax return, or has filed an extension of time for filing such tax return.” Rule XXXIX, Section 3(C)(2).

      . Although Rule XXXIX does not specify a burden of proof, see Sanborn, p. 4, 50 So.3d at 1281, the Commission found the Office of Special Counsel in this case had proven the charge by clear and convincing evidence.

      . Rule XXXIX does not address the imposition of costs incurred by the Commission. In San-born, supra, the court declined to assess costs. We similarly decline to impose costs in this case.


text:
    In re Justice of the Peace Charles FLAHERTY, District 3, Parish of LaSalle, State of Louisiana.
    No. 2011-O-0418.
    Supreme Court of Louisiana.
    July 1, 2011.
    Office of Special Counsel, Henry Nathan Bellamy, Special Counsel, Michael Bewers, Assistant Special Counsel, for Applicant.
    Charles Flaherty, Trout, for Respondent.
    Nancy E. Rix, Commission Counsel.
   GUIDRY, Justice.

| TThis matter arises from a recommendation of the Judiciary Commission of Louisiana regarding Justice of the Peace Charles Flaherty’s failure to comply with the financial disclosure requirements of Louisiana Supreme Court Rule XXXIX (also referred to as the “reporting rule”). The Judiciary Commission (hereinafter, “Commission”) found Justice of the Peace Flaherty failed to file his 2009 personal financial disclosure statement timely, specifically 104 days after the deadline for filing, thereby subjecting him to a monetary penalty. The Commission deemed Justice of the Peace Flaherty to have acted willfully and knowingly in failing to comply with the financial disclosure rule. Thus, the Commission recommended that Justice of the Peace Flaherty be ordered to pay a penalty of $5,200.00 and to reimburse the Commission for costs in the amount of $360.50. For the reasons set forth below, we find Justice of the Peace Flaherty failed to comply with the financial disclosure rule, thereby subjecting him to a civil monetary penalty. We further find the record evidence supports the hearing officer’s determination that Justice of the Peace Flaherty’s failure to comply with the reporting rule was not willful and knowing. After considering the facts, circumstances, and applicable law, Justice of the Peace Flaherty is ordered to pay a penalty in the amount of $200.00.

| ¡¡.FACTS and PROCEDURAL HISTORY

Supreme Court Rule XXXIX, recently promulgated by this court, requires for the first time the filing of annual personal financial disclosure statements by judges and justices of the peace. See In re: San-born, 10-2051, p. 2 (La.11/30/10), 50 So.3d 1279. Pursuant to Section 3 of the rule, all elected justices of the peace must file a financial statement by May fifteenth of each year, using a form prescribed by the Judicial Administrator’s Office (“JAO”) for that purpose. Rule XXXIX, Sections 3(A) and (B). The rule became effective with regard to justices of the peace on January 1, 2010. We have discussed this rule and its requirements pertaining to justices of the peace in a companion case decided this date. See In re: Hoffman, 11-0417 (La.07/01/1), 66 So.3d 455. The instant case is the second of three cases decided this date involving a justice of the peace who has been charged with failing to file timely the personal financial disclosure statement required by Rule XXXIX. See In re: Hoffman, supra; In re: Thomas, 11-0572 (La.07/01/11), 66 So.3d 466.

Justice of the Peace Flaherty (hereinafter, “Respondent”), who is not an attorney, was an elected justice of the peace for LaSalle Parish, District 3, during the entire calendar year of 2009, and he is currently in his third term as a justice of the peace. In 2010, the JAO made a presentation at the Attorney General’s training conference for justices of the peace regarding the May 15, 2010 deadline for filing the personal financial disclosure statement for 2009 (hereinafter referred to as the “2009 statement”). Respondent was in attendance at this session; however, he did not file his 2009 statement by May 15, 2010. A JAO staff attorney attempted to contact Respondent to inquire about his non-compliance, but he could not be reached by telephone. Accordingly, on June 16, 2010, the JAO sent Respondent a notice of delinquency by certified mail, which Respondent received on June 25, 2010. The | .¡notice of delinquency advised Respondent that the 2009 statement “must be filed no later than fourteen (14) business days after receipt of this notice of delinquency, or by July 8, 2010.” The notice of delinquency also stated that failure to file the 2009 statement by the deadline “shall result in the imposition of penalties as provided in Section 4 of Rule XXXIX.” Respondent did not submit a written response to the notice of delinquency by July 8, 2010. On July 23, 2010, the JAO referred Respondent’s matter to the Commission, which issued a Formal Charge on September 27, 2010, based upon his failure to timely file the 2009 statement.

This matter was set for a hearing before a hearing officer on November 4, 2010. Respondent appeared and testified at the hearing, although he had not filed an answer to the Formal Charge. A JAO staff attorney, also testified. At the conclusion of the November 4, 2010 hearing, Respondent hand-delivered his 2009 statement to the staff attorney, having completed it during the course of the hearing.

In his testimony before the hearing officer, Respondent admitted he knew that the personal financial disclosure statement for justices of the peace had “to be filled out and mailed in on time.” However, he clearly did not understand the difference between that form and the legislative auditor’s financial statement (hereinafter referred to as the “auditor’s form”) which justices of the peace are required to file pursuant to La.Rev.Stat. 24:51s. Indeed, while attending the Attorney General’s training conference for justices of the peace in March 2010, Respondent completed a personal financial disclosure statement for justices of the peace and turned it in to the “folks down there, apparently the wrong people [presumably referring to 1 representatives of the Attorney General’s office]. I think I was supposed to mail it in ... to the Secretary of State’s office.” Respondent then completed an auditor’s form on October 20, 2010, and mailed a copy of it to the JAO, believing this was the same requirement as the personal financial disclosure statement for justices of the peace. Despite the best efforts of the hearing officer to explain that the forms are not the same, by the end of the hearing, it was evident that Respondent still did not understand the difference between them. However, Respondent appeared at oral argument of his ease before this court, and he assured the court he now understands there are two financial disclosure forms and they are required to be filed with different entities.

... [A] justice of the peace ... must file a certification with the legislative auditor indicating the amount of funds related to his official duties that he received for the fiscal year. Also he shall annually file with the legislative auditor sworn financial statements ....

Respondent was also questioned regarding his receipt of the delinquency | ^notice. He admitted he did sign for the certified mail on June 25, 2010, but explained that he did not open the letter at that time because he was “in the middle of cutting and hauling hay.” Instead, he simply left the envelope in his “old hay truck,” which he then parked and “didn’t get back in it for a while.” Respondent testified that he found the letter and read it only after the Formal Charge was served on him in October 2010.

Following the hearing, the hearing officer filed findings of fact and conclusions of law with the Commission. In his report, the hearing officer found that Respondent admitted, and the evidence clearly showed, that he did not timely file his 2009 statement. Turning to the issue of whether Respondent’s conduct was willful and knowing, the hearing officer noted that Rule XXXIX does not define the phrase “willful and knowing,” and this court has not interpreted the meaning of the phrase as used in Rule XXXIX. Nevertheless, giving the words their generally prevailing meaning, the hearing officer found that Respondent’s conduct was not willful and knowing, reasoning:

As shown by the testimony at the hearing, JP Flaherty came into the hearing not knowing what the JA’s Form was. According to his testimony, he thought it was a revision of the Auditor’s Form. As a judicial officer, he should have known that he was required to comply with the financial reporting requirements of the Reporting Rule, but he, in fact, did not know how to comply. The hearing officer has concluded that JP Flaherty was sincere in his belief that he had filed whatever financial statement he thought he needed to file on the JA’s Form when he completed the JA’s Form that had been distributed to him at the JP Conference and gave it to a person he believed was authorized to accept it. JP Flaherty’s culpability in failing to file the 2009 JA’s Statement timely may be somewhat mitigated by the fact that 2010 was the first year that the JA’s Form was required to be filed by justices of the peace, the fact that JP Flah-erty does not have a legal background and did not understand the Reporting Rule, and the fact that the | r,address to which the JA’s Form was to be mailed was not on the form itself such that there should have been no confusion on his part regarding where the 2009 Statement was to be mailed. JP Flaherty was, however, clearly negligent in failing to open the envelope in which the Delinquency Notice was mailed immediately after he received it. As a judicial officer, he should have known from the return address on the envelope and from the fact that it was mailed certified mail return receipt requested that the contents of the envelope involved a matter of some importance and urgency. Thus, although JP Flaherty’s violation of the Reporting Rule was not willful or knowing, he was clearly negligent in not filing the 2009 JA’s Statement by the deadline in the Delinquency Notice. [Internal footnotes omitted.]

Following the filing of the report containing the hearing officer’s findings, the Commission invited, but did not order or require, Respondent to appear before the Commissioners on January 21, 2011, to make a statement in response to the hearing officer’s report. Respondent did not attend the January meeting.

On March 1, 2011, the Commission filed its recommendation in this court. In its report, the Commission adopted all of the hearing officer’s proposed conclusions of fact and law except the finding that Respondent’s failure to file the 2009 statement was not willful and knowing, but rather simply negligent. The Commission acknowledged that Respondent’s testimony before the hearing officer suggested a basic inability to identify the form required for the 2009 statement as distinguished from the legislative auditor’s form. However, in finding Respondent’s conduct had involved more than mere negligence, the Commission noted that (a) Respondent admitted he did not pay close attention at the justice of the peace training session when the issues of financial disclosure and its importance were discussed; (b) when he received a certified letter, return receipt requested, from the JAO regarding his failure to file the 2009 statement, Respondent put the letter in his truck and forgot about it; (c) despite the fact that this court devoted significant resources to assisting 1 .judicial officers in understanding Rule XXXIX and what constitutes timely compliance, Respondent did not seek further assistance, in part because he disregarded a certified letter sent to him by the JAO, so he was not aware of the resources that were at his disposal, and (d) the report that justices of the peace are required to submit is not complicated and is far less onerous than the form required of the judges of this state, which was at issue in Sanborn, supra.

Based upon these findings, the Commission determined that the burden of proof was satisfied. The Commission calculated the delay to be 104 days from the deadline given in the delinquency notice, July 9, 2010, to the date Respondent attempted to file a financial disclosure form, albeit the incorrect one, with the JAO, October 20, 2010, rather than the date he actually completed and presented to the JAO staff attorney the proper financial disclosure statement, November 4, 2010. Accordingly, the Commission recommended that Respondent be ordered to pay $5,200.00 in penalties to the Státe of Louisiana, Judicial Branch, using the fifty dollar per day penalty provided in former Rule XXXIX, Section 4(F)(7). The Commission further recommended that Respondent be ordered to reimburse the Commission $360.50 in costs.

DISCUSSION

After our review of the record, we find the evidence establishes that Respondent did not timely file his financial disclosure statement, either by clear and convincing evidence or by a preponderance of the evidence. See Sanborn, p. 4, 50 So.3d at 1281. Respondent admitted his failure to file the 2009 statement before the hearing officer, even though his testimony revealed that he was sincerely confused about the different financial disclosure forms required of justices of the peace. Accordingly, the imposition of a civil sanction is appropriate.

Having found Respondent in violation of Rule XXXIX, we next decide whether his violation was “willful and knowing” under Rule XXXIX, Section 4(F)(8). Although Respondent’s conduct was clearly negligent, we find the record evidence supports the hearing officer’s conclusion that Respondent did not willfully and knowingly violate Rule XXXIX. There is no evidence Respondent acted in bad faith or purposely chose not to file his disclosure statement to obtain some personal or professional gain. See Hoffman, supra; Sanborn, 50 So.3d at 1282-83. As in Hoffman and Sanborn, this is a case of “mere neglect,” but not willful and knowing disobedience of the financial disclosure rule. Indeed, we find leniency and the benefit of the doubt are appropriate in this case, given that the financial disclosure rule became effective as to justices of the peace only in 2010 and given the fact that Respondent, who is not an attorney, sincerely confused the financial disclosure statement required by the court’s Rule XXXIX with the financial statement to be provided to the legislative auditor.

We next decide an appropriate penalty for Respondent’s failure to file his financial disclosure statement timely under Rule XXXIX, Section 4(F)(7)(b), as recently reenacted by this court. We find that a civil penalty of $200.00 is appropriate under the facts and circumstances of this case.

CONCLUSION

We find the record establishes that Justice of the Peace Flaherty failed to comply with the financial disclosure requirement of Rule XXXIX, thereby subjecting |9him to a civil monetary penalty. We further find that his failure to comply with the financial disclosure rule did not rise to the level of a willful and knowing violation. Accordingly, Justice of the Peace Flaherty is ordered to pay a civil penalty to the State of Louisiana, Judicial Branch, in the amount of $200.00, no later than thirty days from the finality of this judgment.

      . La.Rev.Stat. 24:513(J)( 1 )(cc) provides in pertinent part as follows:

      . Unfortunately, this mailing was sent in error to the court’s former address at 301 Loyola Avenue. It was returned to Respondent by the Post Office marked "return to sender, not deliverable as addressed, unable to forward.”

      . The hearing officer observed that Respondent had received correspondence to which he did not respond, a fact that could lead one to conclude he had “just ignored them purposely.” When the hearing officer gave Respondent "the opportunity to tell me why that’s not true,” the following exchange occurred:
      JP Flaherty: No, sir, I didn’t willfully ... It’s just negligence on my part. I should have filled it out when I first got the correspondence from Ms. Elliott at the Legislative Auditor's Office.
      The hearing officer: Let me point out something to you ... so this never happens to you again. They’re two different things we're talking about. And the only one that concerns us here today is a financial disclosure statement that's required by the Louisiana Supreme Court and is administered by the Judicial Administrator who is Dr. Collins. The Legislative Auditor’s report is something—
      JP Flaherty: That’s a whole different thing?
      The hearing officer: —that the Legislative Auditor requires. That’s totally different. ... The document we’re concerned about this morning is the financial disclosure document, which is the first time that the JPs have ever had to file it was this year.
      JP Flaherty: Yes, sir.
      The hearing officer: So that’s — I want to make that clear.
      JP Flaherty: Okay. Well, I knew that form was different. I thought — you know, I thought it was the same form and they just revised the thing, but—

      . Sections 4(F)(7)(a) and (b) of Rule XXXIX were recently repealed and reenacted to provide for penalties of up to one hundred dollars per day for judges and up to fifty dollars per day for justices of the peace. This rule change became effective on May 18, 2011, and is applicable to all cases pending on its effective date and will remain in full force and effect thereafter until amended or changed through future orders of this court.

      . Rule XXXIX does not address the imposition of costs incurred by the Commission. In San-born, supra, the court declined to assess costs. We similarly decline to impose costs in this case.