Court Opinion

ID: 3467523
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:33:48.677482+00
Date Added: 2024-06-11T14:08:01.361075
License: Public Domain

I cannot agree with the opinion of my associates on the question of law which is principally involved here, and, in order to set forth clearly my view, I deem it advisable to restate the entire case.
Mr. and Mrs. Nicholas Rome brought this suit against London Lancashire Indemnity Company of America, which corporation had issued a policy of liability insurance to New Orleans City Park Improvement Association. Plaintiffs claimed damages for the death of their minor son, who was drowned in the swimming pool operated by the said association in the city park of New Orleans. The suit is brought directly against the insurance carrier under the provisions of Act No. 55 of 1930 and the association itself is not made a party defendant.
Defendant insurance carrier, by exception of no right or cause of action, challenged the right of plaintiffs to maintain an action against it, contending that New Orleans City Park Improvement Association exercises only governmental functions delegated to it by the state of Louisiana, and that, therefore, since it is exempt from liability for loss resulting from the torts of its employees or agents, defendant, its insurer, cannot be held liable for such loss.
When the matter was first before us on exception (156 So. 64), we held that since the petition charged that the said association was operating the swimming pool as a proprietary function and for profit, and since there was also a further allegation "that the fee charged for the use of the said pool by the said Association was and is the same fee as the customary fee charged by private corporations operating swimming pools in the City of New Orleans," we should remand the matter that evidence might be introduced touching upon the question of whether or not the said pool was being operated as a proprietary function and for profit. We then granted a rehearing and in 157 So. 175, 176, on rehearing, held that the New Orleans City Park Improvement Association could not, within the limits of city park, operate any business as a proprietary function and for profit and that, therefore, regardless of the allegations of the petition, we were required to assume, as a matter of law, that the said swimming pool was not being operated as was alleged in plaintiff's petition.
However, the Supreme Court granted a writ of certiorari and on review that court held (181 La. 630, 160 So. 121) that, in view of the fact that the petition contained the allegations to which we have already referred, it could not be presumed in the absence of proof that the said swimming pool was not being so operated for profit and as a proprietary function. The Supreme Court, therefore, overruled the exception of no right or cause of action and reinstated our original decree, remanding the matter that evidence touching upon the question referred to might be introduced. *Page 144 
The evidence was then adduced in the district court and a judgment rendered in favor of defendant London  Lancashire Indemnity Company, and, from this judgment, plaintiffs have appealed.
There are two questions which are involved and which must be answered before it becomes necessary, or even possible, to consider the evidence touching upon the facts of the case. Both of these questions were referred to in the two opinions rendered by us and in the opinions rendered by the Supreme Court. The first is whether or not, under the facts as shown by the record, it appears that the said association was operating the swimming pool as a proprietary function, and the second is whether the insurer may be held liable in a direct action against it regardless of whether there could have been a judgment rendered against the association had it been made a party defendant.
The evidence concerning the charges made by the association for the use of the pool is confined to the testimony of Mr. Hypolite Dabezies, chairman of the swimming pool committee of the New Orleans City Park Improvement Association. He testified that a "charge is made of a sufficient amount to cover the costs of operation." He stated that when the pool was erected it was determined to attempt to fix a charge for the use thereof which would produce as nearly as possible the exact amount of the costs of operating the said pool and that, although, in the year during which the accident in question occurred, the actual gross revenues from the pool had exceeded the actual gross expenses of operation by about $500, this result was not entirely correct because there had not been taken into consideration the cost of water which the city of New Orleans furnished free, nor any sum for repairs or depreciation. He said, also, that there were no salaries charged in connection with the executive management of the pool nor of any portion of the park, though, of course, lifeguards and other employees connected with the pool were paid for their services. It thus appears that, as a matter of fact, the only charge made for the use of the pool is based on the actual cost of operation as nearly as it is possible to estimate the charge necessary to accomplish that result and that the sole and only purpose and object of the association is to derive sufficient funds to operate the pool for the benefit of the general public.
In our original decision, which decision was adopted by the Supreme Court as correct, we considered a great many cases involving the question of whether or not a charge made for the operation of public playgrounds, recreation centers, etc., could be considered as changing the character of the operations from governmental to proprietary, and we reached the conclusion that "where the city or governmental agency engages in a proprietary function for profit, the exemption from liability for tort is forfeited, unless the case can be brought within the exception to the rule that the charge or fee was merely incidental to the discharge of the governmental function and not for the purpose of revenue or gain." It would serve no useful purpose to review the many authorities which we cited at that time.
The evidence which this record now contains justifies the conclusion that the fee charged "was merely incidental to the discharge of the governmental function and not for the purpose of revenue or gain." It is true that, in the particular year in question, the cost of operating the pool itself was $5,968.80, whereas the gross revenues therefrom was $6,413.55, but there are three things which must be taken into consideration — one is the expense of water and other such items which have not been included, the second is the fact that no funds have been set up for repairs and rehabilitation of the pool when such repairs become necessary, and the third and most important is that, though a small profit may appear for that particular year it is obvious that the sole purpose of the association was to attempt to produce a revenue as nearly as possible equal to the expense. There may be years, of course, in which a small profit will result from the charging of a fixed fee, but it is equally obvious that there may be other years in which a loss will result, and it is evident that, if it be held that exemption from liability results only where there is no profit at all, then, in order to be on the safe side, an association such as that under discussion would find it necessary to fix a charge which would result in a slight loss each year, otherwise there would always be the danger that potential tort liability might come into existence. The real question is not whether or not a small profit or a small loss results, but whether the bona fide purpose of the association is to fix the charge at a figure which will not produce *Page 145 
profit, but which will approximately offset the actual cost of operation.
In view of the evidence, I feel that the charge that the pool was being operated as a proprietary function and for profit has not been sustained and that, therefore, there could have been no recovery against the association itself had the association been made a party defendant.
The next question and one which has given much concern is whether or not, regardless of the absence of liability in the association itself, the insurance carrier which issued a policy of liability insurance may, because of the provisions of Act No. 55 of 1930, be held in a direct action where the principal to which the policy was issued may not, as a matter of law, be itself held.
This question was adverted to in the original opinion rendered by us but was not discussed; nor was it discussed in the majority opinion rendered by the Supreme Court. It was, however, discussed by Mr. Chief Justice O'Niell in a concurring opinion in which he expressed the view that, whether or not the municipal corporation may be held liable, the insurer of the municipal corporation may not be heard to shield itself behind the personal immunity which might have been asserted by the association had the suit been brought against it. Because of the views expressed in that concurring opinion, we gave to the question considerable thought when it was presented to us in the matter of Loustalot et al. v. New Orleans City Park Improvement Association et al.,164 So. 183. In that case there was presented squarely the question now under consideration and we reached the conclusion that since no action could have been brought against the defendant governmental agency, no action could be brought independently and directly against the insurance carrier of the said agent in that case, as here, New Orleans City Park Improvement Association. We considered and discussed two decisions rendered by the Supreme Court of Louisiana in each of which there is language which may be construed as indicative of the view that there may be a direct action against the insurer even where the principal to whom the policy is issued may not be sued.
These cases are Edwards v. Royal Indemnity Company,182 La. 171, 161 So. 191, and Ruiz v. Clancy, 182 La. 935, 162 So. 734. We found, however, that in each of those cases there was a substantial difference which we felt authorized the view that neither was necessarily controlling nor decisive of the legal question which we were considering, and which we found most confusing.
In the Edwards Case the plaintiff married the principal defendant the day after she had filed suit against him. Therefore, the immunity of the husband to suit by her and the incapacity of plaintiff to prosecute the suit against her husband did not exist at the time the suit was filed because, at that time, he was not her husband.
The situation which was presented in Ruiz v. Clancy, supra, we also considered in the Loustalot Case as one presenting only relative and not absolute immunity. In that case there was involved the question of whether children basing their action on the tort of their father might bring suit against the insurance carrier of the owner of the automobile, which was being operated by the father of the children. The contention was that, since the children could not have sued the father, had the father lived, they could not maintain the action in question. The Supreme Court held that the minor children of the deceased, though they could not have sued the father, might maintain an action against the administrator of the father's estate after his death, and that, therefore, they might maintain the direct action against the insurer of the owner of the automobile which he was operating; in other words, that there might be a direct action.
We, therefore, concluded in the Loustalot Case that neither of the cases mentioned required the adoption of the view that, where there has never existed a right to sue the principal and the exemption from liability, because of immunity, is absolute, the insurer may be sued in a direct action.
If the Supreme Court had felt that the immunity of the principal, whether relative or absolute, was not important, and that, in any event, the insurer might be sued directly, regardless of the status of the principal, then it seems that there was no necessity for the extended discussion into which the court entered in both of the cases and in which it evidenced a necessity for reaching the conclusion that, in each of the cases, the immunity of the tort-feasor was merely relative and not absolute.
It is said that one of the reasons, if not the principal reason, for the recognition of *Page 146 
the rule of immunity of a governmental agency from liability for damage resulting from tort is the fact that the public fisc is involved; that any judgment would decrease the public funds, which are dedicated to other purposes.
From this premise it is argued that where, as here, there is an insurer and that insurer is sued directly and no judgment is sought against the governmental agency, the reason for applying the rule of immunity does not exist because the payment of the judgment will be made not from the public fisc, but from the private funds of the insurer.
But the truth of the matter is that the result of a judgment holding that, in a suit of this kind, the insurer may be held liable will be the prompt increase in the premium rate which the insured will be required to pay and which all other similar governmental agencies will also be required to pay on similar policies.
In the fixing of their rates, insurers do not dispense charity. Their premiums must produce, in the aggregate, a sum sufficient to pay all losses and to leave something for operating expenses and for reasonable profits to shareholders.
In Corpus Juris, Vol. 32, Verbum "Insurance," at page 1193, it is said that:
"The amounts of premiums are based on the amount of liability for which the company may become liable under the policy."
In Encyclopedia of Social Sciences (The Macmillan Company, 1932), Vol. 8, page 101, in an article on the principles underlying the making of insurance premium rates, appears an interesting discussion in which it is stated that the risk involved must be taken into consideration and that the rate must be based on the principal that, if a large number of persons, whose businesses involve similar risks, should associate themselves together for the creation of an insurance fund, each would pay into the common fund an amount which, if added to the amounts paid in by all the others, would create a total sufficient to pay all the losses and leave a reasonable amount for operating costs. A similar discussion is to be found in Encyclopedia Britannica, Vol. 12, page 452. If it is established that an association of this kind may be liable in a matter of this kind, then the rate which the insurer will immediately charge will, theoretically at least, in the end and in the aggregate, accumulate a fund equal to the amount of all losses which will have to be paid.
There may be cases in which an association such as that involved here may be liable for the torts of its employees, or may be liable as the result of the nature of the business in which it engages. In this very case the Supreme Court has already held that, if the charge made was more than commensurate with the cost of operating the pool, or, if the charge made was based competitively, with those made by other private swimming pools, there might be liability. Furthermore, it may be that in the future some court will hold that such an association may be liable for damage caused by defective sidewalks. It has already been firmly established that municipalities are liable for such damage.
Taking these contingencies into consideration, it is obviously advisable that such an association as defendant's principal should protect its possible liability by the purchase of liability insurance. As we have already shown, the rate of premium on such insurance is necessarily based on the reasonable possibility of liability. If the insurer will be liable only for such risks as the principal could be held for, then the risk assumed by the insurer will be small and the premium low. But if the insurer may be held liable for all risks solely by reason of the fact that it is an insurer and regardless of whether the principal is a governmental agency exercising a governmental and not a proprietary function, then the risk is as great as if the principal were a private corporation, or a private agency, and the rate which the insurer will find it necessary to charge will be the same as that which would be charged against a private corporation, or a private agency. As I have shown, the charge which must be made against a private corporation or a private agency must be sufficient to produce, in the aggregate, an amount sufficient to pay all losses.
It thus follows that in the end and in the aggregate the premiums which are paid by the insured should equal and, in fact, should slightly exceed the amounts which the insurer must pay out for losses sustained in behalf of the insured. In other words, the principal pays the losses out of premiums through the intermediary, which is the insurer. Therefore, since, through premiums which the association will be required to pay, if there is any liability directly in the insurer, the public fisc of the *Page 147 
association will be immediately and directly affected by any decision holding that the insurer may be held liable directly and regardless of the immunity of the principal.
Having shared the views which were set forth in the Loustalot Case, I cannot at this time adopt any other conclusion than that, regardless of the evidence concerning the negligence or nonnegligence of the employees of the association, and this evidence I have not considered, there can be no liability in the insurance carrier of the defendant association.
I respectfully dissent.