Elbert v. LUMBERMAN'S MUTUAL CASUALTY COMPANY

• Decision Date: 17 March 1953
• Docket Number: No. 14353.,14353.
• Parties: Mrs. Florence R. ELBERT, Appellant, v. LUMBERMAN'S MUTUAL CASUALTY COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

202 F.2d 744 (1953)

Mrs. Florence R. ELBERT, Appellant, v. LUMBERMAN'S MUTUAL CASUALTY COMPANY, Appellee.

No. 14353.

United States Court of Appeals Fifth Circuit.

February 18, 1953.

Rehearing Denied March 17, 1953.

John M. Madison, Shreveport, La., Whitfield Jack, Shreveport, La., for appellant.

H. Alva Brumfield, Jr., Baton Rouge, La., and Alvin R. Christovich, New Orleans, La., amici curiae.

Chas. L. Mayer, Shreveport, La., for appellee.

Before HUTCHESON, Chief Judge, and STRUM and RIVES, Circuit Judges.

PER CURIAM.

It is ordered that the petition for rehearing in the above entitled and numbered cause be, and it is hereby denied.

RIVES, Circuit Judge (dissenting).

On the original hearing, I had strong misgivings which were submitted to my brothers, but I was unable to crystallize my thinking clearly enough to justify a dissent. Continued consideration of the question has convinced me that there is something fundamentally wrong with our legal theories when they permit the great bulk of the casualty damage suit litigation in Louisiana to clog the dockets of the federal courts, while, I understand, some of the state judges actually do not have enough litigation to keep them busy.

Suits by the injured party directly against the insurer may operate justly under the Civil Law of Louisiana where jury verdicts are not important, see Wright v. Paramount-Richards Theatres, 5 Cir., 198 F.2d 303, 306, but where there is a common law right of trial by jury, as in the federal courts, it has been repeatedly recognized that juries are more prone to find liability and to assess heavy damages against a liability insurance company than against the insured. The mere mention of insurance to a jury is reversible error in all but four states of the union, Wheeler v. Rudek, 397 Ill. 438, 74 N.E.2d 601, 4 A.L.R. 2d 761. With both the insured and the insurer present, the federal courts could, in furtherance of justice and to avoid prejudice, order separate trials as to the cause of action against the insured and as to the existence and coverage of the policy. See Rules 20(b) and 42(b), Federal Rules of Civil Procedure, 28 U.S.C.A. In the absence of the insured as a party defendant, the federal court has no adequate power to protect a defendant insurance company from that known and well recognized prejudice.¹ This Court would be naive not to realize that that factor has much to do with the bringing of most of the automobile damage suits in the federal courts rather than in the state courts of Louisiana.

The transfer of most of the casualty damage suit litigation from the state to the federal courts thus defeats any beneficent public policy of the Louisiana direct action statute intended to operate under the civil law system of Louisiana. It is further in direct conflict with the purpose of diversity jurisdiction designed to avoid "possible discrimination by state courts in favor of resident over non-resident litigants", 54 Am.Jur., United States Courts Sec. 57; and operates rather to give full play to discrimination against the casualty insurance companies.

It seems to me that federal jurisdiction should be denied or declined upon several grounds. First, it involves the unconstitutional assumption of jurisdiction over controversies between citizens of the same state of Louisiana. Second, if not actually equitable in nature, the rights and procedure are so closely akin thereto that the same principles should be applied by the federal courts as in equity suits, and it should be held (a) that the insured is an indispensable party defendant, and (b) that in the exercise of their sound discretion in matters prejudicial to the public interest and which threaten the rightful independence of state governments in carrying out their domestic policy, the federal courts should decline to exercise jurisdiction against the insurer alone.

Let us first consider the nature in law of these direct actions against the insurer. Under the law of Louisiana, an action in tort arises solely from Article 2315 of the LSA-Civil Code reading in part: "Every act whatever a man that causes damage to another, obliges him by whose fault it happened to repair it; * * *."

This action was brought against the appellee insurance company alone under the provisions of LSA-R.S. 22:655, reading in part:

"* * * The injured person or his or her heirs, at their option, shall have a right of direct action against the insurer within the terms and limits of the policy in the parish where the accident or injury occurred or in the parish where the insured has his domicile, and said action may be brought against the insurer alone or against both the insured and the insurer, jointly and in solido. * * *"

By its policy issued to the named insured, the appellee company obligated itself "to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury * * *." The right of direct action by the injured person against the insurer must be "within the terms and limits of the policy". A cause of action against the insured is the first requisite to a direct action against the liability insurer. Reeves v. Globe Indemnity Co. of New York, 182 La. 905, 162 So. 724, 735; Mock v. Maryland Casualty Company, La.App., 6 So.2d 199; Burke v. Massachusetts Bonding & Insurance Company, 209 La. 495, 24 So.2d 875. The other requisite is, of course, the existence and coverage of the policy, a matter not here in dispute.

The latest pertinent decision of the Supreme Court of Louisiana, West v. Monroe Bakery, 217 La. 189, 46 So.2d 122, 123, has said that the object of the statute is to confer:

"* * * substantive rights on third parties to contracts of public liability insurance, which become vested at the moment of the accident in which they are injured".

See also Fisher v. Home Indemnity Co., 5 Cir., 198 F.2d 218.

An even later opinion of the Louisiana Court of Appeals for the second circuit has spoken of the direct action statute as being procedural in nature. Churchman v. Ingram, La.App., 56 So.2d 297. The confusion and disagreement as to whether the Act was merely procedural or created a substantive right is fully set forth in an earlier opinion by Judge Dawkins, Bayard v. Traders & General Ins. Co., D.C., 99 F. Supp. 343, 346-353. The case of New Amsterdam Casualty Company v. Soileau, 167 F.2d 767, 770, 6 A.L.R.2d 128, indicates that the act is both procedural and substantive. Clearly that part of the Act which gives a right of action direct against the insurer is substantive. Just as clearly, it seems to me, that part which provides that the action may be brought against either the insurer alone or against both the insured and the insurer jointly is procedural, for the Act itself recognizes that it is just as possible for the injured person to reach the proceeds of a liability policy in an action against both the insured and the insurer as in one against the insurer alone.

The basis for this Court's holding in New Amsterdam Casualty Co. v. Soileau, supra, that the action might be maintained in the federal court by the injured person against the insurer alone was that the Act subrogates "the injured person to all the rights of the insured within the terms and limits of the policy." See also Cushing v. Maryland Casualty Co., 5 Cir., 198 F.2d 536.

"A subrogee * * * occupies the position of the party for whom he is substituted, and succeeds to the same but no greater rights. He cannot acquire any claim, security, or remedy which the creditor did not have." 50 Am.Jur., Subrogation, Section 110, page 753, and cases cited. Under the terms of the policy, the insured has a right to call upon the company to defend an action against him but until he has been adjudged responsible to pay the injured party, the insured has no right to call on the insurer to pay the damages. Instead, therefore, the statute having the effect of a legal subrogation in favor of the injured person to the rights of the insured, the operation of the statute in giving the injured person a right of action against the insurer is more accurately described by the Supreme Court of Louisiana in Ruiz v. Clancy, 182 La. 935, 162 So. 734, 736, as accomplished "by compelling the insurer to respond — within the limits of the policy — to the obligation of the insured." The Louisiana Supreme Court has said that the suit by the injured person against the insurer is still ex delicto, a suit for damages for personal injuries. Reeves v. Globe Indemnity Co., supra. Instead of the injured party being substituted as a party plaintiff in the place of the insured, it is more realistic to say that the insurer is substituted as a party defendant in the place of the insured. The overall effect of the statute, of the accident, and of the suit is to compensate the injured person by damages paid out of an asset provided by the insured.

By virtue of written provisions in its Code, Louisiana has a limited jurisdiction akin to equity in some cases "where there is no express law" or "where positive law is silent", LSA-Civil Code Art. 21. It does not have the "common law" and "equity" systems established in other states. Le Blanc v. City of New Orleans, 138 La. 243, 70 So. 212, 217; Hyman v. Hibernia Bank & Trust Co., 139 La. 411, 71 So. 598, 603; Osborn v. City of Shreveport, 143 La. 932, 79 So. 542, 545, 3 A.L.R. 955; Southern Bell Telephone & Telegraph Co. v. Louisiana Public Service Commission, 183 La. 741, 164 So. 786, 790.

The Louisiana direct action statute seems intended to produce the results permitted in common law states by statutes like, for example, the Alabama statute, Alabama Code 1940, Title 28, Sec. 12, where "the judgment creditor may proceed in equity against the defendant and the insurance company to reach and apply the insurance money to the satisfaction of the judgment." See also 19 Am.Jur., Equity, Sec. 188; 8 Appleman's Ins. Law & Practice, Sec. 4833 et seq.;...