Edwards v. Daugherty

Citation883 So.2d 932
Decision Date01 October 2004
Docket Number No. 2003-C-2103, No. 2003-C-2104.
PartiesVirginia Gail EDWARDS, As Natural Tutrix, et al. v. Edward M. DAUGHERTY, Jr., Sphere Drake Ins. Co., et al.
CourtSupreme Court of Louisiana

Frohn & Thibodeaux, David R. Frohn, Robin A. Anderson, Lake Charles, Counsel for Applicant in No. 2003-C-2103.

Lund & Davis, Clay Davis, Samuel B. Gabb, Lake Charles, Phelps Dunbar, Marshall M. Redmon, Virginia Y. Trainor, Baton Rouge, Woodley, Williams, Boudreaux, Norman, Brown & Doyle, James B. Doyle, David B. Green, Keith Prudhonne, Lake Charles, Counsel for Respondent in No. 2003-C-2103.

Lund & Davis, Clay Davis, Samuel B. Gabb, Lake Charles, Counsel for Applicant in No. 2003-C-2104.

Frohn & Thibodeaux, David R. Frohn, Robin A. Anderson, Lake Charles, Phelps Dunbar, Marshall M. Redmon, Virginia Y. Trainor, Baton Rouge, Woodley, Williams, Boudreaux, Norman, Brown & Doyle, James B. Doyle, David B. Green, Keith Prudhonne, Lake Charles, Counsel for Respondent in No. 2003-C-2104.

Galloway, Johnson, Tompkins, Burr & Smith, Kevin L. Cole, Diana L. Tonagel, for Amicus Curiae.

JOHNSON, Justice.

This matter has been before this Court on numerous occasions over the course of nearly ten years. In its latest decision, the court of appeal reached the following conclusions: (1) the surplus lines insurer may deduct from the policy limits legal fees incurred on behalf of the insured as well as those incurred on the insurer's behalf; (2) it is impermissible for the surplus lines insurer to deduct the payment of legal interest from the policy limits; and (3) prejudgment interest is recoverable on awards for future damages. We granted this writ of certiorari primarily to determine the correctness of that decision. After a careful review of the record and relevant law, we reverse the lower courts' determination that the insurer may deduct legal fees from the policy limits incurred on its own behalf. In all other aspects, the court of appeal's ruling is affirmed. We remand this matter to the trial court to calculate the remainder of the policy limits, after the deduction of defense costs, including attorneys fees incurred on behalf of the insured only, and the calculation of interest on the entire judgment from the date of judicial demand.


This litigation arises from a 1993 automobile accident in which Jaymie Edwards was struck and severely injured while attempting to direct traffic around the scene of an accident. Suit was filed on behalf of Jaymie Edwards by his co-curatrixes, Virginia Edwards, his former spouse, and Eva Edwards, his mother, and on behalf of his three children by Virginia Edwards, their natural tutrix. Named as defendants were Edward M. Daugherty, the intoxicated driver of the vehicle which struck Edwards, Daugherty's insurer, and Sheriff Wayne McElveen of the Calcasieu Parish Sheriff's Department and his insurers, one of which is Sphere Drake Insurance, P.L.C. ("Sphere Drake")1

All parties, except Daugherty, Sheriff McElveen, and Sphere Drake, were dismissed prior to trial, either by summary judgment or settlement. When trial commenced, the issues as to all parties other than the Sheriff were tried by a jury, and the issues relating to the Sheriff were tried by the trial judge. At the trial's conclusion, the jury returned a verdict finding Daugherty 67.5% at fault and the Sheriff 32.5% at fault.2 The trial judge assessed the Sheriff with 55% fault and Daugherty with 45% fault.3 The trial judge later entered a "judgment on the jury verdict" reflecting the jury's determinations.

Subsequently, plaintiffs filed a motion for judgment notwithstanding the verdict ("JNOV"), in large part because of the jury's failure to make an award for pain and suffering and loss of enjoyment of life. The trial judge granted the JNOV and revised the jury's verdict. The jury's apportionment of fault remained unchanged, but the trial judge altered the quantum awards.4

Sphere Drake had issued an "excess law enforcement liability insurance policy" in favor of Participants of Louisiana Sheriffs Risk Management Program ("LSRMP"). According to LSRMP's articles of association, "the Sheriffs of the State of Louisiana have been unable to procure adequate public liability[5] insurance in the open market at a reasonable rate." Thus, LSA-R.S. 33:1482 authorizes Sheriffs in the State of Louisiana to establish and become members of "an interlocal risk management program,"6 pool their risks, and establish a group self-insurance fund.7 Approximately fifty-five Louisiana Sheriffs are members of the LSRMP.

In short, due to high risk associated with the LSRMP, traditional insurance was largely unavailable to it due primarily to the extraordinary cost of insurance. To meet the special needs of entities such as the LSRMP, Louisiana has allowed certain "approved unauthorized insurers,"8 to sell insurance on a "surplus lines"9 basis. In this instance, Sphere Drake is a surplus lines carrier.10

The Sphere Drake policy covers sums "that the insured becomes legally obligated to pay as damages because of bodily injury... caused by any person whilst acting within the course and scope of their employment." It is a claims made policy, and it provides $1,000,000.00 liability coverage per claim, with the $1,000,000.00 coverage being an aggregate for each sheriff's department and $2,000,000.00 liability coverage is the aggregate for all of the sheriff's departments who are members of the LSRMP. Under the policy, Sphere Drake's liability was excess of an $850,000.00 self-insured retention fund maintained by the LSRMP, which in turn, was excess of a $100,000.00 per claim per sheriff/$300,000.00 aggregate per sheriff's department self-insurance. In short, the policy is an aggregate one, and as claims are made and paid, as defense costs are incurred, the $1,000,000.00 is reduced.

During the JNOV proceedings, plaintiffs expressed concern that the limits of the Sphere Drake policy were being depleted and argued that the judgment rendered against Sphere Drake should be amended to award them Sphere Drake's policy limits of $1,000,000.00. Sphere Drake asserted that its policy is an aggregate policy with a limit that steadily decreases as claims for payments from other Louisiana sheriffs are paid during the policy year. Therefore, any judgment against it must contain the wording "subject to its policy limits."

The trial judge addressed plaintiffs' concerns regarding the depletion of the policy limits, noting that Lloyds of London, as the Sheriff's excess insurer, is obligated to pay "another million dollars" to satisfy the judgment. Counsel for Sphere Drake stipulated on the record that at least $750,000.00 of its policy limits was available to satisfy a portion of the judgment against the Sheriff. The trial judge cautioned that he was "not going to allow the insurance company to go and write off costs to reduce that [$750,000.00]." The trial court entered judgment against Sphere Drake in the amount of $1,756,022.50, "subject to its policy limits."

Sheriff McElveen and Sphere Drake appealed, and the court of appeal affirmed the trial court's judgment, except for the portion of the JNOV affirming the jury's allocation of fault. The court of appeal amended that portion of the judgment to "harmonize the jury's fault assessment with the trial judge's." Thus, the Sheriff was cast with 55% fault and Daugherty with 45% fault. Edwards v. Daugherty, 97-1542 (La.App. 3 Cir. 3/10/99), 729 So.2d 1112,writs denied, 99-1393, 99-1434 (La.9/17/99), 747 So.2d 1105. Regarding plaintiffs' concern that the limits of the Sphere Drake policy were being depleted, the court of appeal stated:

If Sphere Drake fails to pay its policy obligation, the trial judge retains the authority to enforce the judgment cast against it. We deem it premature to entertain plaintiffs' fear that Sphere Drake will not fully honor its contractual undertaking or that it will attempt to exhaust the available policy limit to avoid satisfying their claims. Plaintiffs are not without a remedy.

Edwards, 729 So.2d at 1140.

Sphere Drake then filed a petition to deposit the policy proceeds into the registry of the court, alleging that its aggregate policy limits were being depleted while plaintiffs' claims were being litigated. Thereafter, Sphere Drake deposited $334,000.00 into the court's registry. According to Sphere Drake, under the terms of its policy, that amount was all that remained of the $1,000,000.00 policy limit. It asserted that the reduced figure resulted from the terms of the policy, which included payments for defense costs and payments made to other claimants from the policy.

Plaintiffs withdrew the funds from the court's registry and began efforts to collect additional funds from Sphere Drake. Plaintiffs filed a judgment debtor rule against Sphere Drake and subsequently seized the only asset identified by Sphere Drake, a bank account with a balance of approximately $3,200.00.

On May 9, 2000, plaintiffs obtained a judgment declaring that "Sphere Drake P.L.C. remains liable to plaintiffs, Virginia Gail Edwards, et al., in the amount of [$1,000,000.00], plus judicial interest from April 12, 1994, which is the date of judicial demand, less any payments Sphere Drake P.L.C. may have previously provided to plaintiffs."11

Sphere Drake appealed the May 9, 2000 judgment, and the court of appeal found that the judgment was an improper substantive change of the original judgment. The appellate court concluded that the portion of the Sphere Drake policy, which permitted the reduction of the limit of the liability due to the payment of defense costs, expenses, and interest, violated public policy. The court of appeal concluded that the policy limits were $1,000,000.00. Edwards v. Daugherty, 00-0606 (La.App. 3 Cir. 12/6/00), 776 So.2d 557.

This Court granted Sphere Drake's application for writ of certiorari in part, stating:

The ruling of the court of appeal is vacated

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