Case Name: Elliott B. BLACK III, M.D., a Professional Medical Corporation, and Elliott B. Black, III v. FIRST CITY BANK, et al.
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1994-09-06
Citations: 642 So. 2d 151
Docket Number: No. 94-C-0423
Parties: Elliott B. BLACK III, M.D., a Professional Medical Corporation, and Elliott B. Black, III v. FIRST CITY BANK, et al.
Judges: SHORTESS, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 642
Pages: 151–157

Head Matter:
Elliott B. BLACK III, M.D., a Professional Medical Corporation, and Elliott B. Black, III v. FIRST CITY BANK, et al.
No. 94-C-0423.
Supreme Court of Louisiana.
Sept. 6, 1994.
Frank M. Buck, Jr., Robert L. Manard, III, Lee A. Archer, New Orleans, for applicant.
Michael E. Wanek, Hulse, Nelson & Wan-ek, New Orleans, for respondents.

Opinion:
JjWATS'ON, Justice.
The issue is whether LSA-R.S. 22:655 allows plaintiff Black a direct action against the insurer of the insolvent defendant, First City Bank, on a forgery and conversion claim.
JjFACTS
Plaintiff is Elliott B. Black, III, individually and as a professional medical corporation. Plaintiff Black filed suit against First City Bank when he discovered that his former office manager, Elizabeth Barksdale Nix, had forged endorsements to various checks and deposited them to her credit at the Bank. Damages from the forgery and conversion allegedly exceeded $206,000.
Suit was filed in June, 1989. In July, 1991, the Federal Deposit Insurance Corporation was substituted as a party defendant for the insolvent Bank. The FDIC was dismissed from the suit and the Bank's insurer, Virginia Surety Company, Inc., was added as a party defendant.
Virginia Surety's exception of no right of action was sustained by the trial court which concluded that a direct action was not available because the Bank's insurance policy was an indemnity policy. The court of appeal affirmed. Black v. First City Bank, 93-1401, (La.App. 4th Cir. 1/13/94), 630 So.2d 8. A writ was granted to review the judgment of the court of appeal. 94-0423, (La. 4/7/94), 635 So.2d 1141.
Virginia Surety's policy has a no action clause which states:
This bond affords coverage only in favor of the Insured and is for the sole use and benefit of the Insured. The Company shall not be hable hereunder for loss sustained by any person or organization other than the Insured unless the Insured, in its sole discretion and at its option, shall include such loss in the | Rnsured's proof of loss. No action or proceeding shall be brought hereunder by anyone other than the Insured.
The policy defines "property" very broadly to include cheeks, drafts and deposit tickets. A "Securities" endorsement covers losses resulting from the insured giving forged signature value or credit. The policy agrees to indemnify the insured for covered losses, but there is no provision protecting against the insured's insolvency. The policy does not require that the insured's loss be fixed and paid for coverage to attach.
LAW
No action clauses shield insurers from paying damage judgments against insolvent insureds. Since 1918, the Direct Action Statute has protected tort claimants against insolvent insureds by allowing direct actions against insurers. Grubbs v. Gulf Intern. Marine, Inc., 625 So.2d 495 (La.1993). Direct action statutes are remedial legislation which void no action clauses but do not otherwise alter insurers' liabilities. Morewitz v. West of England Ship Owners Mut., 896 F.2d 495 (11th Cir.1990).
LSA-R.S. 22:655(A) states in pertinent part:
No policy or contract of liability insurance shall be issued or delivered in this state, unless it contains provisions to the effect that the insolvency or bankruptcy of the insured shall not release the insurer from the payment of damages for injuries Usustained or loss occasioned during the existence of the policy,....
LSA-R.S. 22:655(B)(l)(b) provides that a direct action may be brought against the insurer alone when the insured is insolvent.
When an Article 2315 cause of action is alleged, a direct action has been available under LSA-R.S. 22:655. See, for example, Vessel v. St. Paul Fire & Marine Insurance Co., 276 So.2d 874 (La.App. 1st Cir.1973), where a direct action was allowed against an attorney's malpractice insurer; Gray & Company, Inc. v. Ranger Insurance Company, 292 So.2d 829 (La.App. 1st Cir.1974), where a direct action was allowed against an insurance agency's errors and omissions insurer; Champion v. Panel Era Mfg. Co., 410 So.2d 1230 (La.App. 3d Cir.), writ denied, 414 So.2d 389 (La.1982), where a direct action was allowed against an insulation manufacturer's products liability insurer; and Fidelity Nat. Bank of Baton Rouge v. Aetna Cas. and Sur. Co., 584 F.Supp. 1039 (M.D.La.1984), where a direct action was allowed on a bankers' blanket bond.
Forgery (LSA-R.S. 14:72) and conversion through bank fraud (LSA-R.S. 14:71.1) are crimes which may also constitute torts. See Oge v. Resolute Insurance Company, 217 So.2d 738 (La.App. 3d Cir.1969), and Bryson v. Bates-Crumley Chevrolet Co., 171 So. 605 (La.App. 2d Cir.1937). Criminal |sstatutes may provide guidelines for civil tort liability. Pierre v. Allstate Insurance Company, 257 La. 471, 242 So.2d 821 (1970).
The Louisiana Insurance Code defines the kinds of insurance in LSA-R.S. 22:6. Liability insurance is defined in subsection (4) as:
Insurance against the liability of the insured for the death, injury or disability of an employee or other person, and insurance against the liability of the insured for damage to or destruction of another person's property.
There is no codal definition for indemnity insurance. In a broad sense, the term liability insurance "includes both contracts of indemnity against loss and contracts of insurance against liability." Quinlan v. Liberty Bank and Trust Co., 575 So.2d 336, 348 (La.1990).
Quinlan decided that LSA-R.S. 22:655 allows a direct action for personal injury and corporeal property damage. When the insurance contract is clearly one of indemnity, a direct action for incorporeal property damage is not available. Under Quinlan, a direct action for incorporeal property damage is available when there is ambiguity as to whether the policy is one of liability or indemnity. Justice Hall's concurrence points out that the Quinlan distinction is not in the statute, which does not distinguish between corporeal and incorporeal loss. We now conclude that the distinction is inconsistent with the remedial purpose of the Direct Action Statute.
^CONCLUSION
The no action clause in Virginia Surety's insurance policy conflicts with the Louisiana Direct Action Statute if the policy is liability insurance. Against what did the policy insure the Bank? Against liability for various and sundry negligent acts or omissions, including the giving of credit on forged instruments. The policy provided that if the Bank became liable to a third party for honoring a forgery, then the insurer would pay the Bank. No real difference exists between this provision and simply providing that the insurance company would be hable to the third party. Making the process two steps instead of one does not alter the fact that the insurance company provided insurance to the Bank against liability. In fact, the pohcy does not even require that the Bank's loss be fixed or paid before the insurer becomes Hable.
This pohcy which purports to allow an insurer to collect a premium and escape liability if the insured becomes bankrupt is one of the exact evils sought to be prohibited by the Direct Action Statute.
There is no indication that the Louisiana Insurance Code uses the term liability insurance in a narrow sense. On the contrary, the absence of a definition for indemnity insurance indicates that the term is used in a broad Usense. The Bank's insurance pohcy is a hability pohcy which covers Black's Article 2315 tort claim.
Allowing a direct action here effects the remedial purpose of the Direct Action Statute. Because the insured is insolvent, the insurer is directly responsible for the "loss occasioned during the existence of the poh-cy."
For the foregoing reasons, Virginia Surety's exception of no right of action is dismissed. The judgment of the court of appeal is reversed, and the matter is remanded to the trial court for farther proceedings.
REVERSED AND REMANDED.
SHORTESS, J., concurs.
ORTIQUE, J., concurs in the result.
MARCUS and KIMBALL, JJ., dissent and assign reasons.
. Pursuant to Rule IV, Part 2, § 3, Lemmon, J. was not on the panel which heard and decided this case. See the footnote in State v. Barras, 615 So.2d 285 (La.1993); Judge Melvin A. Shortess, Court of Appeal, First Circuit, sitting in place of Justice James L. Dennis.