How to Dismiss Direct Action Against Excess Insurer When Trucking Company Has Sufficient Coverage

Many excess insurance carriers get nervous when sued under Louisiana’s Direct Action Statute and want us to get them dismissed.

However, under the Direct Action Statute (La. R.S. 22:1269), a plaintiff can bring suit directly against an insurer if  the insurance policy was issued in Louisiana or if the accident or injury occurred in Louisiana.
The Direct Action statute does NOT distinguish between a primary liability insurer and an excess carrier. In fact, the definitions section of the Insurance chapter defines an insurer as “includ[ing] every person engaged in the business of making contracts of insurance, other than a fraternal benefit society.” La. R.S. 22:46. Later in the Chapter, there is an explanation of “stop-loss insurance coverage” which is excess coverage but there is no distinction between an excess insurer and a primary or self-insurer.
Though there are few, the cases that include excess carriers do not support dismissal under the Direct Action statute. In fact, all of the reported cases  required an excess carrier to provide coverage even when the limits of the primary or self-insurance policies were not actually paid but when the primary insurer was given credit for paying the limits.
From the jurisprudence, there is an obvious inference that the courts prefer to find coverage than limit it.  An excess insurer could not be dismissed from  a lawsuit by a  summary judgment under the terms of the Louisiana Direct Action statute; however, summary judgment could be possible under the terms of the policy after additional discovery is conducted.
For example if the trucking company were  self-insured for $2 million and it was established by admissions that the total damages would not exceed $2 million, then on could show that excess coverage is not necessary. 
While we typically do  not want to give the plaintiff the information without her asking for it that there is so much coverage available, one could, through requests for admissions, medical records, and possibly experts, a defense attorney could ultimately get the excess carrier dismissed.
A typical way that claims against insurers (and excess insurers) has been denied under the direct action statute, is make the policy a “claims-made” policy.
Typical claims-made insurance policies require claims to be both made and reported within the applicable policy period. Under this type of policy, the risk of a claim incurred but not made, as well as a claim made but not reported, is shifted to the insured. See, generally, Bob Works Excusing Non-Occurrence of Insurance Policy Conditions in Order to Avoid Disproportionate Forfeiture: Claims-Made Formats as a Test Case, 5 CONN. INS. L.J. 505, 546 (1999).
“The purpose of the reporting requirement [in a claims-made policy] is to define the scope of coverage [purchased by the insured] by providing a certain date after which an insurer knows it is no longer liable under the policy.” Resolution Trust Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir. 1994). Thus, once the policy period and reporting period expire, the insurer closes its books on that policy.
The Louisiana Supreme Court in Gorman v. City of Opelousas, 2014 WL 2937129 (La. Aug. 25, 2014) held that a claims-made policy provision requiring a claim to be made and reported within the period specified by the policy was not violative of public policy because of Louisiana’s direct action statute.The Louisiana Supreme Court in Gorman focused its analysis on its prior decision in Hood v. Cotter, 08-0215, 08-0237, 5 So.3d 819 (La. 12/2/08). In Hood, the plaintiff patient’s claim for medical malpractice was neither first made against the doctor nor reported to the insurer during the policy period as required by the policy.
In Hood, the Court considered whether Louisiana’s public policy as expressed in the direct action statute would permit insurer’s to deny coverage to the patient where the doctor had failed to properly report the claim to the insurer. In reversing the prior court decision in favor of the injury party in Hood, the Louisiana Supreme Court had recognized that the direct action statute “grants a procedural right of action against an insurer where the plaintiff has a substantive cause of action against the insured.” Hood, 08-1215, 08-0237 at 17-18, 5 So.3d at 829.
Thus, the Louisiana Supreme Court, as a follow up to the Hood decision has now recognized that in the claims-made insurance policy context the insured’s failure to report the claim as required by the policy will bar coverage irrespective of Louisiana’s direct action statute.
If you would like to visit more about the Louisiana Direct Action statute or any other matter pending (or not) in Louisiana or Texas, feel free to contact me.
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