Gorman v. City of Opelousas
| Decision Date | 01 July 2014 |
| Docket Number | No. 2013–C–1734.,2013–C–1734. |
| Citation | 148 So.3d 888 |
| Parties | Joyce GORMAN v. CITY OF OPELOUSAS, et al. |
| Court | Louisiana Supreme Court |
An insurance company seeks review of a decision on the issue of coverage under a claims-made-and-reported policy. The appellate court found that, under the Direct Action Statute, an insurer cannot use the policy's claim-reporting requirement to deprive an injured third party of a right that vests at the time of injury. After considering the applicable law, we find that the reporting provision in a claims-made-and-reported policy is a permissible limitation on the insurer's liability as to third parties and does not violate the Direct Action Statute. Accordingly, we reverse that portion of the court of appeal's decision relating to the claim of the injured third party, and we reinstate the trial court's judgment, finding no coverage. The matter is remanded to the trial court for further proceedings.
On September 28, 2009, Brian Armstrong (Armstrong) was incarcerated at the city jail in Opelousas when he was allegedly beaten by two other inmates. He later died. On September 27, 2010, Armstrong's mother, Joyce Gorman (Gorman), filed a survival action and a wrongful death action against the city of Opelousas and its police department (collectively the City).1 After being served with the petition, the City filed an answer.
In December 2010, Gorman directed discovery to the City seeking the identity of its insurer and requesting a copy of any applicable insurance policy. When the City failed to respond, Gorman filed a motion to compel, which was granted in June 2011. Subsequently, the City identified Lexington Insurance Company (Lexington) as its insurer. Gorman then filed an amended petition on September 7, 2011, naming Lexington as an additional defendant. The amended petition was served on September 22, 2011. Lexington answered Gorman's petition, asserting numerous affirmative defenses. Afterwards, Lexington filed a motion for summary judgment, seeking to have Gorman's direct action claim against it dismissed based on lack of coverage because her claim had not been reported to Lexington within the policy's stated time limit. Gorman and the City then filed cross motions for summary judgment on the issue of coverage.
The Lexington policy provided:
NOTICE: THIS IS A CLAIMS MADE POLICY. COVERAGE IS LIMITED GENERALLY TO LIABILITY FOR CLAIMS FIRST MADE AGAINST YOU AND REPORTED IN WRITING TO U.S. WHILE THE COVERAGE IS IN FORCE. PLEASE REVIEW THE POLICY CAREFULLY AND DISCUSS POLICY COVERAGE WITH YOUR INSURANCE AGENT OR BROKER.
In relevant part, the policy further stated:
The pertinent policy period is as follows:
Wrongful acts dating back to April 17, 2005, the policy's retroactive date, are covered by the policy. The City had also purchased a similar policy from Lexington for the period of April 17, 2011, to April 17, 2012.
Relying on Hood v. Cotter, 08–0215, 08–0237 (La.12/2/08), 5 So.3d 819, the trial court observed that “the policy language limiting coverage to those claims made and reported during the policy period did not serve to limit [Gorman's] right of action.” In accordance with Hood , the trial court explained that the policy language “provides the scope of coverage bargained for by the [City]” and recognized that any contrary interpretation “would effectively convert [the City's] claims made policy into an occurrence policy,” which is contrary to “the bargained for exchange” between Lexington and the City. Accordingly, the trial court granted Lexington's motion for summary judgment as to the City and Gorman, denied the cross motions filed by the City and Gorman, and dismissed “all claims adverse to Lexington.”
On appeal by the City and Gorman, the appellate court initially found that the City's purchase of a separate claims-made policy for the period of April 17, 2011, to April 17, 2012, the period in which Lexington was added as a defendant, had no bearing on the issue of coverage. Therefore, the City's and Gorman's “merged into one” argument for continued coverage under the subsequent policy was rejected. Gorman v. City of Opelousas, 12–1468, p. 3 (La.App. 3 Cir. 5/1/13), 111 So.3d 1195 (unpublished). Applying Murray v. City of Bunkie, 96–297, p. 5 (La.App. 3 Cir. 11/6/96), 686 So.2d 45, 48, the appellate court held that the reporting provision in the City's policy could be applied to defeat the City's alternative claim under the April 17, 2010–April 17, 2011 policy and affirmed the grant of summary judgment in Lexington's favor insofar as it pertained to the City.
After observing this court's refusal to address the issue of coverage in the context of an injured third party's claim in Livingston Parish Sch. Bd. v. Fireman's Fund Am. Ins. Co., 282 So.2d 478 (La.1973), the appellate court resorted to its prior decisions in Murray and Pittman v. Nutmeg Ins. Co., 97–524, p. 5 (La.App. 3 Cir. 3/6/98), 708 So.2d 832, 834, for guidance in resolving the issue of coverage as to Gorman. Relying on Murray , the appellate court recognized that the Direct Action Statute gave Gorman a vested right at the time the tort was committed that “could not be taken away because of the insured's failure to notify the insurer—a condition over which the plaintiff had no control.” Gorman, 12–1468 at 5, 129 So.3d 522, quoting Murray, 96–297 at 8, 686 So.2d at 50. The court would not allow the policy's reporting provision to serve “as a coverage defense against third parties who had no knowledge of the provision and who had taken steps to pursue their legal remedies”3 so as to deprive the injured third party of “her vested rights under the direct action statute.” Accordingly, the trial court's grant of summary judgment against Gorman was reversed, and the matter was remanded for further proceedings.
Lexington's subsequent writ application to this court was granted4 to address whether the Direct Action Statute affords an injured third party a vested right that cannot be taken away because of an insured's failure to report a claim to the insurer under a claims-made-and-reported policy as found in Murray . Relying on the reporting provision in its policy, Lexington contends that the appellate court improperly disregarded this court's decision in Hood and imposed insurance coverage on Lexington where none existed.
An insurance policy is a contract between the insured and insurer and has the effect of law between them. See La. C.C. arts.1906 & 1983; Peterson v. Schimek, 98–1712, p. 4 (La.3/2/99), 729 So.2d 1024, 1028. “The role of the judiciary in interpreting an insurance contract is to ascertain the common intent of the insured and insurer as reflected by the words in the policy.” Peterson, 98–1712 at 4, 729 So.2d at 1028, citing La. C.C. art.2045. “When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties' intent.” Peterson, 98–1712 at 4–5, 729 So.2d at 1028, citing La. C.C. art.2046. Where a policy unambiguously and clearly limits coverage to claims made and reported during the policy period, such limitation of liability is not per se impermissible. See Hood, 08–0215, 08–0237 at 18, 5 So.3d at 830 ; Anderson v. Ichinose, 98–2157, p. 7 (La.9/8/99), 760 So.2d 302, 306, citing Livingston Parish Sch. Bd., 282 So.2d at 481.
According to the pertinent terms of the City's policy, Lexington agreed to pay claims on behalf of the City if three conditions occur:
Satisfaction of all three conditions is required for coverage under the Lexington policy.5 The City was undisputedly informed that Lexington's liability is limited by these terms.
Therefore, coverage under the Lexington policy was effective only if Gorman's claim was both made and reported within the applicable policy period. See Livingston Parish School Board, 282 So.2d at 481, citing 7 Appleman, Insurance Law and Practice (Supp.1972), § 4262. Under this type of policy, the risk of a claim incurred but not made, as well as a claim made but not reported, is shifted to the insured. See Anderson, 98–2157 at 7, 760 So.2d at 306 n. 6, citing Bob Works, Excusing Nonoccurrence of Insurance Policy Conditions in Order to Avoid Disproportionate Forfeiture: Claims–Made Formats as a Test Case, 5 Conn. L.J. 505, 546 (1999). “The purpose of the reporting requirement [in a claims-made policy] is to define the scope of coverage [purchased by the insured] by providing a certain date after which an insurer knows it is no longer liable under the policy.” Resolution Trust Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir.1994) (applying Louisiana law). Once the policy period and reporting period expire, the insurer can “close its books” on that...
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