Nolan v. Commonwealth Nat. Life Ins. Co.
1996 WL 631075, 688 So. 2d 581 (1997)
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Rule of Law:
For a bad faith breach of a contract whose object is the payment of money, damages are limited to the sum owed plus legal interest. Nonpecuniary damages for mental anguish and attorney's fees are not recoverable unless specifically authorized by statute, provided for in the contract, or if the obligor intended through their failure to perform to aggrieve the feelings of the obligee.
Facts:
- In June 1991, Reggie Nolan, an independent insurance agent, entered into a contract with Commonwealth National Life Insurance Company to sell its policies for commissions.
- The contract contained a forfeiture clause stating Nolan would lose all commissions if he induced any policyholder to relinquish a Commonwealth policy.
- In 1993 and 1994, Commonwealth significantly increased the premium rates for its Medicare supplement policies, which Nolan had been selling in large numbers.
- Observing a high attrition rate among Nolan's clients, Commonwealth sent surveys to former policyholders in January 1994, asking if their agent had encouraged them to switch plans.
- Based on six returned surveys indicating Nolan had encouraged clients to switch, Commonwealth terminated its contract with Nolan in February 1994.
- Commonwealth informed Nolan he had forfeited all his vested commissions for violating the contract's forfeiture provision.
Procedural Posture:
- Reggie Nolan sued Commonwealth National Life Insurance Company in a Louisiana district court (the trial court) for breach of contract.
- Nolan sought recovery of unpaid commissions, general damages for mental anguish, and attorney's fees.
- Following a bench trial, the district court found that Commonwealth had breached the contract in bad faith by fabricating a reason to terminate Nolan and withhold commissions.
- The trial court awarded Nolan his unpaid commissions ($19,796.68), plus $10,000 in general damages for mental anguish and $7,500 in attorney's fees.
- Commonwealth, as Defendant-Appellant, appealed the judgment to the Court of Appeal of Louisiana, Second Circuit, challenging only the awards for general damages and attorney's fees.
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Issue:
Under Louisiana law, does a bad faith breach of a commercial contract to pay money entitle the obligee to recover nonpecuniary damages for mental anguish and attorney's fees, in addition to the unpaid sum and legal interest?
Opinions:
Majority - Caraway, J.
No. A bad faith breach of an obligation to pay money does not, by itself, permit the recovery of nonpecuniary damages or attorney's fees. Under La.C.C. art. 2000, damages for the breach of an obligation to pay money are limited to the sum owed plus legal interest, and the obligee "can recover no more." While La.C.C. art. 1997 allows for recovery of all direct damages from a bad faith breach, this does not override the specific rule for money debts in Article 2000. Nonpecuniary damages under La.C.C. art. 1998 are available only when the contract is intended to gratify a nonpecuniary interest or when the obligor intended to aggrieve the obligee's feelings. Here, the commercial contract's purpose was pecuniary, and there was no proof that Commonwealth intended to cause humiliation beyond the ordinary frustration of non-payment. Attorney's fees are not recoverable unless authorized by statute or contract, neither of which applies here.
Dissenting in part - Norris, J.
Yes, as to the general damages for mental anguish. The record shows Commonwealth's breach was not merely in bad faith but was fraudulent and malicious, demonstrated by the alteration of survey forms. This conduct satisfies the second paragraph of La.C.C. art. 1998, as it shows Commonwealth "intended, through [its] failure, to aggrieve the feelings of the obligee." Nolan provided credible testimony of substantial stress and anguish, including physical symptoms, resulting from Commonwealth's intentional actions. The trial court's factual finding that Nolan suffered compensable mental anguish was not clearly wrong and should be affirmed.
Analysis:
This decision reinforces the strict limitation on damages for the breach of a contract to pay money in Louisiana, even in cases of undisputed bad faith. It clarifies that the general provision for bad faith damages in La.C.C. art. 1997 does not supersede the specific rule of La.C.C. art. 2000, which caps damages at the principal plus interest. The case establishes a high bar for recovering nonpecuniary (mental anguish) damages in commercial contract disputes, requiring proof of a specific intent to "aggrieve the feelings" of the other party, beyond the mere malicious failure to pay. This ruling narrows the potential liability for parties breaching monetary obligations and reaffirms the traditional "American Rule" regarding attorney's fees.
