Opinion ID: 1838947
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Heading Rank: 6

Heading: interpretation of the direct action statute with respect to the issues in the present case

Text: It is well settled that the Direct Action Statute is designed to facilitate the recovery of damages ex delicto; it does not authorize a direct action based solely on a breach of contract. Tyler v. Walt, 184 La. 659, 167 So. 182 (1936); Lacour v. Merchants Trust and Savings Bank, 153 So.2d 599 (La.App. 4th Cir.1963); Pennsylvania Fire Ins. Co. v. Underwriters at Lloyds London, 140 So.2d 212 (La.App. 4th Cir. 1962); McKenzie & Johnson, supra § 30 at 94. When the statute is applicable and authorizes a direct suit against a tortfeasor's insurer, the statute is read into and becomes a part of a policy written pursuant thereto, even though the policy does not contain the language required by the statute, or contains language prohibited by the statute. Olympic Towing Corporation v. Nebel Towing Company, 419 F.2d 230 (5th Cir.1969), overruled on other grounds, 783 F.2d 1296 (5th Cir.1986); Humble Oil & Refining Co. v. M/V John E. Coon, 207 F.Supp. 45 (E.D.La.1962); Dean v. Bituminous Casualty Corporation, 72 F.Supp. 801 (W.D.La.1947); Bosse v. Wolverine Ins. Co., 88 N.H. 98, 184 A. 359 (1936); Perlman v. Independence Indemnity Co. of Philadelphia, 134 Misc. 499, 235 N.Y.S. 194 (1929); Malmgren v. Southwestern Automobile Insurance Co., 201 Cal. 29, 255 P. 512 (1927); Thos. W. Leigh, Direct Actions Against Liability Insurers, 326 Ins.L.J. 633 (1949). In our opinion the Direct Action Statute is a mandate for a tort victim to bring a direct suit to recover damages for personal injury or corporeal property damage from the tortfeasor's insurer, regardless of whether the insurer has framed the policy as a liability or an indemnity contract. It would lead to absurd consequences to interpret the statute as permitting an insurer to insulate itself from such an action by framing its policy as an indemnity contract or by inserting a no action clause in its policy. At the time of Louisiana's first enactment of a direct action statute in 1918, many of the policies issued were indemnity policies requiring that loss actually be sustained, i.e., through the payment of a judgment by the insured. See Webb v. Zurich Insurance Co., 251 La. 558, 205 So.2d 398, 402 (1967); LeBouef v. Colony Insurance Co., 486 So.2d 760, 761 (La.App. 1st Cir.1986); McKenzie & Johnson, supra § 22; Comment, Legislative Efforts To Make Insurance Guarantee the Payment of Tort Claims, 46 Harv.L.Rev. 1325 (1933); James & Thornton, supra at 435-36; Comment, Direct ActionsInsurance Contracts, 13 La.L.Rev. 495 (1953); Leigh, supra, 326 Ins.L.J. 633. The legislative history is clear that the principal object of the statute was to overcome strategems of that kind by insurers to bar tort victims' direct suits to recover for personal injuries and corporeal property damage resulting from automobile collisions and other kinds of harmful impacts. See Webb v. Zurich Insurance Co., supra, 205 So.2d at 403; LeBouef v. Colony Insurance Co., id .; Symeonides v. Cosmar Compania Naviera, S.A., 494 F.Supp. 240 (M.D.La.1980). Louisiana's Act 253 of 1918 was part of a national movement to alleviate the injustice brought about by the increased use of clauses in indemnity contracts requiring actual payment or loss by the insured. See Webb v. Zurich Insurance Co., id ., LeBouef v. Colony Insurance Co., id .; Comment, supra, 46 Harv.L.Rev. at 1325-1326; James & Thornton, supra at 436-437. This movement was given its greatest impetus by the advent of the automobile, the consequent increase in the amount of insurance, and the legislative concerns for the need to compensate automobile accident victims. See Comment, supra, 46 Harv.L.Rev. at 1326. If the Direct Action Statute were to be rendered ineffective in every case in which the insurer had framed its policy as an indemnity contract, rather than as a liability policy, the statute would be reduced to a toothless absurdity, affording no real protection even to innocent vehicular accident victims, who were intended to be principal beneficiaries of the legislation. See McKenzie & Johnson, supra § 30. On the other hand, it would stretch the legislative mandate too far to interpret the statute to prohibit indemnity contracts and no action clauses in situations not involving personal injury or damage to corporeal property. In this respect, it seems unlikely that the legislative aim was to completely abolish such provisions in all forms of liability and indemnity insurance. The statute does not expressly prohibit indemnity contracts or no action clauses or even address them as general evils to be remedied. In the absence of such an expression, a construction of the statute as absolutely forbidding such contractual provisions in suits to recover for loss or damage to incorporeals, see La.Civ. Code art. 461 (1978), seems overbroad and quite remote from the known subjects of legislative concern, viz., the plight of victims sustaining personal injury or property damage in automobile and other accidents. Furthermore, the statute is susceptible to other, more reasonable interpretations with respect to whether a direct action against the tortfeasor's insurer is afforded a tort victim suffering only loss or damage to incorporeal property. It seems possible that the legislature either intended to deny this class of tort victims the right to a direct action altogether or that the legislative aim was to permit the parties to the insurance contract to determine whether the particular insurance policy would be amenable to direct suit except in litigation involving the critical areas of concern, viz., personal injury or corporeal damage resulting from vehicular accidents or other trauma. The latter interpretation conforms better to the context in which the statutory language occurs, the text of the law as a whole, and the purpose of the law. There is solid evidence that the legislature intended to abolish the distinction between a contract of insurance against liability and a contract of indemnity against loss for the benefit of personal injury and corporeal property damage victims, but there is little evidence of a legislative aim to do so otherwise. However, it is well settled that the statute is remedial and should be liberally construed to accomplish its purpose of affording a person suffering loss or damage a direct action against a tortfeasor's insurer. See Home Insurance Company v. Highway Insurer Underwriters, 222 La. 540, 62 So.2d 828 (1953); Ralston Purina Company v. Cone, 304 So.2d 735, 738 (La. App. 2nd Cir.1974); Cushing v. Maryland Casualty Co., 198 F.2d 536 (5th Cir.1952), vacated and remanded on other grounds, 347 U.S. 409, 74 S.Ct. 608, 98 L.Ed. 806 (1954); Lewis v. Manufacturers Casualty Insurance Co., 107 F.Supp. 465 (W.D.La. 1952); Appleman, supra § 4863; Couch, supra § 45:798. It is consistent with the principle of liberal construction to uphold the direct action when an insurer, charged with knowledge of the law, issues a policy specifically insuring against liability, rather than indemnifying against loss, in the face of the Direct Action Statute, which applies to every policy or contract of liability insurance and proclaims that all liability policies within their terms and limits are executed for the benefit of all injured persons. Moreover, because the interpretation of a legislative text strongly resembles the interpretation of a private legal document, we may interpret doubtful provisions in the light of equity, usages and the nature of the provision. See F. Geny, Methode d'Interpretation et Sources en Droit Prive Positif No. 103 (2d ed. La.St.L. Inst. trans. 1963); La.Civ.Code art. 2053. Unless the parties to the insurance contract have agreed unambiguously that the contract shall be an indemnity contract only, it would be inequitable to deny an innocent tort victim the right to bring a direct action against the insurer, even if he has sustained only loss or damage to an incorporeal. Furthermore, it appears that the usage or established practice of our courts would permit a tort victim suffering incorporeal property damage to bring a direct action against the insurer of the alleged tortfeasor when the insurance contract has been framed as one against liability rather than as an unambiguous contract of indemnity against loss. See, e.g., Ralston Purina Company v. Cone, 304 So.2d 735 (La. App. 2nd Cir.1974); Vessel v. St. Paul Fire & Marine Insurance Co., 276 So.2d 874 (La.App. 1st Cir.1973).