Belanger v. Great American Indemnity Co.

• Decision Date: 05 April 1950
• Docket Number: Civ. No. 736.
• Citation: 89 F. Supp. 736
• Parties: BELANGER v. GREAT AMERICAN INDEMNITY CO. OF NEW YORK
• Court: U.S. District Court — Eastern District of Louisiana

89 F. Supp. 736

BELANGER v.GREAT AMERICAN INDEMNITY CO. OF NEW YORK

Civ. No. 736.

United States District Court, E. D. Louisiana, Baton Rouge Division.

April 5, 1950.

Odom & Belanger, Baton Rouge, La., for plaintiff.

Christovich & Kearney, New Orleans, La., for defendant.

WRIGHT, District Judge.

Plaintiff herein has brought a direct action against the defendant insurer, under Section 14.45¹ of the Louisiana Insurance Code, ActNo. 195 of 1948, which section repeals and replaces Act 55 of 1930 of the Louisiana Legislature.The complaint alleges that the defendant is the liability insurer of the Crosby Steam Gage and Valve Company of Boston, Massachusetts, and that plaintiff lost the sight of his right eye when a gauge manufactured by the Crosby Steam Gage and Valve Company exploded in his face.Jurisdiction is based on diversity of citizenship and the amount in controversy.

Defendant has filed a motion to dismiss on the ground that Section 14.45 of the Louisiana Insurance Code does not apply to the insurance policy here in suit for the reason that it was issued in Massachusetts and Section 14.45 applies only to policies issued and delivered in Louisiana.Further, the policy has a "no action" clause,² valid in Massachusetts, under which no action will lie against the insurer until the amount of the claim has been fixed judicially or by agreement between the parties with written consent of the insurer.

Plaintiff cites a list of cases decided by the Supreme Court of Louisiana, the Courts of Appeal of Louisiana and the United States District Courts sitting in both the Eastern and Western Districts of Louisiana holding that under Act 55 of 1930 there is a right to direct action against a liability insurer, regardless of where the policy was issued and delivered.These decisions, however, are all based on Act 55 of 1930, and not on Section 14.45 of the Louisiana Insurance Code, which repeals and replaces Act 55.No case has been cited wherein Section 14.45 has been applied to a policy of insurance issued and delivered in a state other than Louisiana.

Prior to the passage of Section 14.45, Act 55 of 1930 was the statute which provided for direct action against insurers.Act 55 of 1930³ provided that "it shall be illegal for any company to issue any policy against liability" except subject to the further provisions of the act.It would appear that this language would clearly restrict the application of the provisions of the act to policies of liability insurance issued in Louisiana.The courts, however, have held otherwise.Stephenson v. List Laundry and Dry Cleaners, Inc., 182 La. 383, 162 So. 19;Robbins v. Short, La.App., 165 So. 512;Duncan v. Ashwander, D.C., 16 F.Supp. 829;Rogers v. American Employers Insurance Company, D.C., 61 F. Supp. 142.The Louisiana Legislature with full knowledge of this line of jurisprudence giving extraterritorial effect to Act 55 repealed the act and enacted Section 14.45 of the Louisiana Insurance Code.The intention of the legislature to limit Section 14.45, under which the right of direct action against liability insurers is now provided, to policies of insurance issued in Louisiana is manifested by the first clause of the act which reads as follows: "No policy or contract of liability insurance shall be issued or delivered in this State, * * *."By this language it is apparent that the legislature rather than risk the possibility of Section 14.45 being declared unconstitutional as applied to out of state liability policies, specifically limited its application to policies issued in Louisiana.Under this section therefore, if the expressed intent of the legislature is to be given effect, the direct action provision does not apply to policies of liability insurance issued in states other than Louisiana.It will follow, therefore, that Section 14.45 does not apply to the policy of insurance here in suit since it was admittedly issued in Massachusetts.

There is a further and even more fundamental reason why the plaintiff cannot maintain his direct action against the insurer in this case.The policy of insurance herein relied on has a "no action" clause and is governed by the law of Massachusetts where "no action" clauses in policies of insurance are permitted under the laws of the state.The courts of last resort of Louisiana have held that this "no action" clause must give way to the direct action provision of Act 55 of 1930.Stephenson v. List Laundry and Dry Cleaners, Inc., supra;Robbins v. Short, supra;Duncan v. Ashwander, supra;Rogers v. American Employers Insurance Company, supra.These courts hold that Act 55 of 1930 is procedural and therefore the law of the forum governs its application to insurance policies rather than the law of the state where the policy was issued.These courts argue that the "no action" clause in insurance policies is a procedural provision and no substantive rights of the defendant insurer are abridged by disregarding it.

It is true that under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, this court is bound to follow the decisions of the courts of last resort of the state in cases wherein jurisdiction is based on diversity of citizenship.However, even in diversity cases, where a defense is made based on the Constitution of the United States, this court cannot follow courts of last resort of the state but must be guided by the decisions of the Supreme and appellate courts of the United States.

The defendant herein alleges that if the "no action" provision of the contract of insurance is disregarded, it will suffer loss of substantial rights, rights guaranteed to it under the Constitution of the United States, particularly the right not to have its contract validly entered into in Massachusetts impaired by the laws of the State of Louisiana, Article 1, Section 10, United States Constitution, and the right not to be deprived of its property without due process of law, Amendment 14, United States Constitution.

Defendant contends the "no action" clause is placed in its policies in states where the law permits in order that the insured will be named as the defendant in causes of action rather than the insurance company.By naming the insured as the defendant, the insurance company gets the benefit of any good will the insured may have in the state in which the action is brought and juries are less likely to "stick the insurance company".Further, the "no action" clause in effect requires the insured to assist in the defense of the action at least to the extent of not cooperating with the plaintiff in mulcting the insurance company.By bringing action in the name of the assured it is sometimes possible that the judgment, if against the defendant, will be in excess of the coverage on the policy, in which event the insured himself would be liable for the excess.This possibility insures cooperation with the insurance company by the insured in the defense of the action.The possibility also that the insurer may have a defense under the policy would tend to keep the insured cooperative while the case is being prosecuted against him.

Defendant further asks this court to take judicial notice that under Louisiana law there is an appeal on the facts as well as law, that as a result the vast majority of damage suits are tried without a jury, and consequently the awards in damages in Louisiana courts are relatively low as compared to awards of juries in similar cases brought in the federal courts on ground of diversity of citizenship — a diversity usually obtained by eliminating the insured from the action and suing the insurer directly.

In addition to the Louisiana jurisprudence cited supra, plaintiff relies on Wells v. American Employers Insurance Company, 5 Cir., 132 F.2d 316.In that case a resident of Louisiana brought a direct action suit in Texas against an insurer alleging negligence on the part of the insured.The liability policy was issued in Louisiana.The Court of Appeals held that Act 55 of 1930 was procedural and hence not applicable when the forum is a United States District Court in Texas.

It is noteworthy that Judge McCord dissented in the Wells case holdingthat Act 55 of 1930 was substantive, and subsequently concurred in the decision rendered in New Amsterdam Casualty Co. v. Soileau, 5 Cir., 167 F.2d 767, 769, 6 A.L.R.2d 128, in which the court in referring to Act 55 of 1930 said the following: "The 1930 Act is not wholly procedural, for it confers also a substantive right upon the injured party in the direct action granted such party against the insurer.Nor is the act procedural in the sense that the Federal Rules of Civil Procedure,28 U.S.C.A.followingsection 723c, are procedural; it deals neither with practice nor procedure in civil actions.If under it suit is instituted in a State court, State practice and procedure govern; if instituted in a ...