Articles

Divided Louisiana Supreme Court Winds Its Way Through Louisiana’s Direct Action Statute

Case:
Soileau v. Smith True Value and Rental
Louisiana Supreme Court
2012-C-1711, 2013 La. LEXIS 1536 (La. June 28, 2013)


In this case, the Louisiana Supreme Court had the opportunity to consider the effect of dismissal of an insured during trial, without explicitly reserving rights against the insurer. Here, Plaintiff sued Harry and Claire Smith and the company they owned, Smith’s True Value Hardware, and also named their insurer, Hartford, under Louisiana’s Direct Action Statute. During trial, a high-low settlement was reached, after which Plaintiff’s counsel verbally moved to dismiss “personally . . . Mr. Smith . . . Mrs. Smith and their company” from the suit, in the presence of the jury, further stating that Plaintiff did not “seek any damages personally against them.” The trial court asked whether there was any objection, and counsel for Hartford and the insured responded, “No Your Honor.” The next day, Hartford moved for a directed verdict, taking the position that Plaintiff had no right of action against Hartford, as its insured had been released and thus could not be “legally liable” as was required to trigger coverage under the policy. Additionally, Hartford argued Louisiana’s Direct Action Statute required Plaintiff to pursue both the insured and insurer, such that dismissal of the insured meant that the direct action against its insurer could no longer be maintained.

The Court first dispensed with the Hartford’s argument that its insured had to remain a party based on the wording of the Direct Action Statute, finding that since the insured was named in the suit when it was commenced, the various statutory restrictions for initiating a suit against an insurer alone were not implicated. More importantly, while acknowledging that the Direct Action Statute did not provide an independent cause of action against an insurer, but rather a procedural right of action when the plaintiff has a substantive cause of action against the insured, the Court then considered the effect of the settlement. Stating that a compromise releases only those claims clearly intended to be settled, and acknowledging that such intent is usually determined from the four corners of the compromise agreement, the Court noted that extrinsic evidence could be considered when a dispute has arisen concerning the scope of the compromise agreement.

Considering statements made in open court, the Court further reasoned that the circumstances indicated it was Plaintiff’s intent, although not expressly stated in the compromise agreement or the dismissal, to dismiss the insured only to the extent of their personal liability. Inasmuch as the insured could only be personally liable in the event of Hartford’s insolvency, the Court concluded Plaintiff intended to effect only a limited dismissal of the insured and to continue the suit for determination of the insured’s liability for damages, which Hartford would then be contractually obligated to pay. Notably, three Justices dissented and would have found both that the insured had to remain in the suit in order for Hartford to remain a Defendant under the Direct Action Statute, and that the dismissal of the insured and failure to explicitly reserve rights against Harford extinguished Plaintiff’s right of action against Hartford.

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