A More “Direct Action”

The Louisiana Supreme Court recently announced a decision that could alter the impact of Louisiana’s “Direct Action Statute.” See Soileau v. Smith True Value and Rental, et. al., 2012-1711, — So. 3d —.

In Soileau, the injured plaintiff initiated suit after a John Deere front-end loader malfunctioned. She settled with a number of parties but proceeded to trial against the store from which the machinery was rented, the store’s owners (collectively, the Smiths) and the Smiths’ insurer, Hartford Insurance Company.

The plaintiff sued Hartford under Louisiana’s Direct Action Statute, which was enacted to provide plaintiffs with a “direct” right of action against a tortfeasor’s insurance company. In many other states, a plaintiff cannot sue a tortfeasor’s insurer directly as this cause of action is not permitted by the common law. Insured Lloyd’s v. Bobo, 156 S. E. 2d 518 (Ga. App. 1967).

Generally, the Direct Action Statute allows a plaintiff to assert a claim against both the insured and its insurer. However, suit may be brought against the insurer only in the few exceptions outlined in the statute.

The plaintiff’s original petition in Soileau complied with the statute because it joined both Hartford and its insureds, the Smiths. During the trial, the plaintiff verbally dismissed the Smiths from the suit, not seeking “any damages personally against them.”

Following the dismissal, Hartford was the only party who remained. The plaintiff did not expressly reserve any rights against Hartford who then sought dismissal on two grounds:

  1. Hartford according to its policy was obligated it to pay only “those sums that the insured becomes legally obligated to pay as damages.” Because Hartford’s insureds were fully released (and therefore could not be “legally obligated to pay damages”), Hartford denied liability.
  2. Hartford also asserted that the dismissal terminated the plaintiff’s right to sue Hartford under the Direct Action Statute because none of the six circumstances allowing suit to be brought against Hartford alone existed.

The trial court rejected both of Hartford’s arguments. The jury found for the plaintiff in the amount of $9.4 million and allocated 15% of the fault to the Smiths. Judgment was then rendered against Hartford. Hartford appealed. The Third Circuit Court of Appeal agreed with Hartford’s arguments and dismissed it from the suit. The Louisiana Supreme Court accepted writs.

In a 4-3 decision, the Supreme Court held that the plaintiff maintained her right of action against Hartford despite the dismissal. The Court accepted the plaintiff’s position that she intended to reserve her rights against Hartford and cited to Civil Code article 1802 which provides that the renunciation of rights against one solidary obligor “must be express.” Therefore, because the plaintiff did not expressly release Hartford, its release would not be presumed.

The majority also ruled that the Direct Action Statute did not bar the plaintiff’s claim against Hartford. Under the Court’s reasoning, the circumstances outlined in the Direct Action Statute are relevant only at the time suit is filed. Thereafter, after suit is “brought,” a plaintiff can freely dismiss the insured and maintain its suit against the insurer alone.

The Court expressed that its holding is consistent with the statute because the naming of the Smiths in the caption of the suit allowed the jury to recognize that the suit was not just against a “company.” In support, the Court quoted from one of the drafters of the Direct Action Statute who testified as follows:

[T]he purpose of the bill is to permit the trier of fact to see that there are two human beings involved, a plaintiff and an insured defendant, rather than just a victim and a company.

However, the plaintiff’s counsel in Soileau was allowed to inform the jury during closing arguments that Hartford was the only defendant left in the lawsuit and that the Smiths could not be held liable.

Three justices dissented.

One dissenting opinion reasoned that Hartford should not be held liable because it could never be liable for the conduct of a dismissed insured who could not be “legally liable to pay damages.”

All dissenters complained that the majority’s holding will, in effect, allow plaintiffs to sidestep the requirements of the Direct Action Statute. Justice Guidry wrote that the majority ruling will allow plaintiffs to “circumvent” the direct action. Justice Victory added that the Court’s holding allows a “plaintiff to name the insured along with the insurer as defendants in order to comply with the statute, but then dismiss the insured and proceed at trial against the insurer alone…” 

The true impact of Soileau remains to be seen.


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