Fontenot v. Marquette Cas. Co.

• Citation: 258 La. 671,247 So.2d 572
• Decision Date: 04 May 1971
• Docket Number: No. 50716,50716
• Parties: Eugene FONTENOT and Cecilia Fontenot v. MARQUETTE CASUALTY CO., et al.
• Court: Louisiana Supreme Court

Page 572

247 So.2d 572

258 La. 671

Eugene FONTENOT and Cecilia Fontenot v. MARQUETTE CASUALTY CO., et al.

No. 50716.

Supreme Court of Louisiana.

May 4, 1971.

Porteous, Toledano, Hainkel & Johnson, William A. Porteous, III, New Orleans, for third party defendant and appellant.

Drury, Lozes & Curry, Felicien P. Lozes, New Orleans, for defendants, third party plaintiffs and appellees.

Porteous, Toledano, Hinkel & Johnson, William A. Porteous, New Orleans, Larry P. Boudreaux, Donald J. Greene, Geoffry D. C. Best, LeBoeuf, Lamb, Leiby & MacRae, New York City, Ronald A. Jacks, Charles W. Havens, III, Washington, D.C., for amicus curiae.

BARHAM, Justice.

The issue for determination is whether the rights of a third person damaged by a party who is insured may be exercised in a direct action for his damages against the reinsurer of the tort feasor's insolvent liability insurer. Contrary to the Court of Appeal, we hold that the treaty or contract of reinsurance here and the law do not permit a direct action by such third person against the reinsurer.

This litigation began as an action for personal injuries arising out of an automobile accident, filed in 1964 by Eugene Fontenot and his wife. Mrs. Fontenot was a guest passenger in an automobile driven by Lee Holloway, as was his wife, when Willie Louque negligently operated his vehicle and collided with the Holloway car. The following were made defendants in the original action: (1) Louque, (2) Marquette Casualty Company, the liability insurer of Louque, (3) Holloway, (4) Traders and General Insurance Company, Holloway's liability insurer, and (5) Veron Provisions Company, Inc., employer of Louque, which was sought to be held vicariously liable for Louque's negligence. Holloway and his insurer Traders answered the original petition denying negligence by Holloway and asserting negligence of Louque as the cause of the accident. The Holloways as intervening plaintiffs also filed claim against Louque, his insurer Marquette, and his employer Vernon for personal injuries.

On February 1, 1965, Marquette was judicially placed in rehabilitation (it has since gone into liquidation), all further proceedings against it were ordered stayed, and a preliminary writ of injunction was issued against it. On the basis of this order and injunction which had been issued out of the Nineteenth Judicial District Court, the trial court stayed all further proceedings against Marquette in this suit.

Answers were then filed by Louque, Marquette, and Veron to the Fontenots' original petition, and third party petitions were filed by them against Holloway's insurer Traders. Veron filed a third party petition against its employee Louque and Marquette for indemnity and contribution. The Holloways filed a supplemental third party petition against American Employers Insurance Company, the insurer of Veron; and the Fontenots by supplemental petition made American Employers a defendant. These petitions were answered by Veron and American Employers.

The Holloways, having ascertained through interrogatories that Peerless Insurance Company was Marquette's reinsurer, made Peerless a third party defendant in June, 1965, alleging that the reinsurance contract brought Peerless within the provisions of R.S. 22:943. Subsequently Veron, but not American Employers, filed a supplemental third party petition also naming Peerless Insurance Company as the reinsurer, claiming that Veron was a third party beneficiary of the reinsurance contract, and seeking indemnification from Peerless for any judgment against Veron in favor of the Fontenots and the Holloways. Peerless answered all of the petitions, denying any liability and urging that R.S. 22:943 did not apply to it under its reinsurance treaty with Marquette and that application of this statute would result in an unconstitutional impairment of the obligation of contracts.

Before the case came on for trial, the Fontenots and the Holloways compromised their claims upon the payment by American Employers of $7500.00 to the Fontenots and $30,000.00 to the Holloways. In the 'receipt and assignment agreement' the Fontenots and the Holloways agreed to '* * * release and forever discharge the said American Employers' Insurance Company, Veron Provision Company, Inc. and/or Willie J. Louque from all claims and demands whatsoever, arising from or in connection with any injuries or damages incurred by them, and they do hereby also bargain, sell, assign, transfer and set over unto the said American Employers' Insurance Company and/or Veron Provision Company, Inc. and/or Willie J. Louque, all of their rights of action which they may have in the premises against Peerless Insurance Company, reinsurer of Marquette Casualty Company and/or Marquette Casualty Company in Receivership * * *'.

As the case then stood, the parties to the action were Veron against Peerless on its third party claim and the Holloways against Peerless on their intervention and third party demand which had been 'assigned' to Veron, American Employers, and Louque. Neither Louque, American Employers, ¹ Traders, nor the Fontenots asserted any claim against Peerless in these proceedings. A stipulation was reached by the parties remaining in litigation in which it was noted among other things that the Fontenots and the Holloways had been paid by American Employers and assignments made by them of all their claims.

Trial was had on the merits on the stipulation, depositions, policies, and other instruments which were submitted to the trial court, and that court rendered judgment holding Louque at fault and liable for the full compromise settlement to Veron and American Employers. The trial court dismissed the demands of all three parties plaintiff against Peerless. American Employers and Veron appealed (although there was no pleading upon which American Employers could appeal) to the Fouth Circuit Court of Appeal, which reversed the trial court's judgment as to Peerless and granted judgment in favor of Veron and American Employers ² in the amount of $27,500.00. That court expressed doubt as to the Fontenot assignment and doubt that any claim for indemnification remained. Nevertheless it made its award for the full compromise amount of $37,500.00 less the $10,000.00 limit as to any reinsurance payment, or a total of $27,500.00. See 235 So.2d 631.

Certiorari was granted on the application of Peerless, 239 So.2d 344. The relator Peerless raises interesting exceptions of no right of action and no cause of action (no valid assignment and no right to claim indemnification), as well as lack of indispensible parties (the other two 'assignees' and the receiver of liquidator of Marquette and the Commissioner of Insurance). We pretermit any examination of these exceptions since our holding disposes of the claims against relator in full and in its favor.

An understanding of reinsurance--its history, purpose, and function--is essential to a determination of the issue before us. Olson, Reinsurers' Liability to the Insolvent Reinsured, 41 Notre Dame Law. 13 (1965); Thompson, Reinsurance (4th ed. 1966), Chapts. 1, 3, 5, 6, 9, 10, and 13; Reinarz, Property and Liability Reinsurance Management (1969), Chapts. 1 and 4; Golding, A History of Reinsurance (2nd ed. 1931); and Hone v. Mutual Safety Insurance Company, 1 Sandf. 137 (N.Y.Super.Ct.1847). Reinsurance is a contract by which one insurance company agrees to indemnify another in whole or in part against loss or liability which the latter has incurred under a separate contract as insurer of a third party. It is neither double insurance nor coinsurance 'because regardless of the nature of the liability of the original insurer and the reinsurer, they are not coliable to the original insured, nor liable to him in the same degree'. 19 Couch on Insurance 2d § 80.2. Reinsurance is a method by which an insurance company distributes all or part of its potential losses to another insurance company in order to reduce the extent of its possible loss under any policy or policies it has issued. The insurer, or ceding company, allots to the reinsurer, or assuming company, that possible liability which in its judgment may exceed the amount its financial structure should safely assume on any one risk. Thompson, op. cit. supra at 24. The Court of Appeal correctly said:

'Reinsurance is a standard practice of insurers, small and large. The smaller insurer, with assets not greatly in excess of minimum requirements, cannot financially withstand individually large losses. Even a very large company may consider it imprudent to have too many eggs in one basket, as it were, by remaining alone as the bearer of very large risks. An insurer which might easily carry the individual risks of 1,000 lives insured for $1,000 each might be unable or unwilling to carry the risk of one life insured for $1,000,000; or might carry the fire etc. insurance on 100 $10,000 buildings but be unable or unwilling to carry one $1,000,000 building. It is wholly unlikely that the 1,000 persons would die at once, or the 100 buildings be destroyed at once. But the death of one person insured for $1,000,000, or the destruction of the one $1,000,000 building, could require payment of proceeds equal to the requirements for the 1,000 lives or the 100 buildings.

'An insurer which is offered a risk it does not wish to carry alone may itself spread the risk by obtaining 'reinsurance' from other insurers, on a suitable basis such as for a percentage share of the risk, or for the excess over the original insurer's retained portion.

'Of course the original insurer which issues a policy remains liable to its insured for the full amount of the insured risks. But as between that insurer and the reinsurers the final loss on the maturity of the risk will fall upon the reinsurers to the extent their contracts stipulate.

'The original insured is usually unaware of the existence of reinsurance, did not bargain for it, and in...