Holtzclaw v. Falco, Inc.

• Decision Date: 10 October 1977
• Docket Number: No. 59536,59536
• Citation: 355 So.2d 1279
• Parties: James L. HOLTZCLAW v. FALCO, INC., et al.
• Court: Louisiana Supreme Court

Page 1279

355 So.2d 1279

James L. HOLTZCLAW v. FALCO, INC., et al.

No. 59536.

Supreme Court of Louisiana.

Oct. 10, 1977.

On Rehearing March 9, 1978.

John T. Campbell, Campbell, Campbell & Johnson, Minden, for plaintiff-applicant.

Steven H. Beadles, Cook, Clark, Egan, Yancey & King, Roland J. Achee and Frank M. Dodson, Nelson & Achee, Ltd., Shreveport, for defendants-respondents.

Stephen T. Victory, Larry M. Roedel, Liskow & Lewis, amicus curiae, for La. Assoc. of Defense Counsel in support of Hartford Accident & Ind. Co.

DIXON, Justice.

This is an action by the lessee of an Exxon service station which was severely damaged as a result of an intersectional collision allegedly caused through the joint negligence of defendants Garland Oller and Doyle Millican. The accident occurred when the car and boat trailer driven by Oller was struck while crossing an intersection controlled by a flashing red and amber traffic signal by a petroleum transport truck owned by Falco, Inc. and driven by Millican. After striking the car, the truck hit the service station. The traffic signal flashes red in the direction traveled by Oller and amber in the direction traveled by Millican. Prior to the institution of this action, Hartford Accident and Indemnity Company, liability insurer of Oller, entered into compromise agreements with Exxon, Falco and Fireman's Fund Insurance Company (insurer of the station building), exhausting its $5000 policy limits. Plaintiff brought this suit for loss of profit and physical damage to movable property naming both drivers, Falco, Commercial Union Insurance Company (Falco's liability insurer) and Hartford.

After trial by jury, judgment was rendered in favor of plaintiff and against defendants Oller and Hartford in the amount of $4500, and against plaintiff in his action against Millican, Falco and Commercial Union. The Second Circuit Court of Appeal reversed that part of the judgment awarding damages against Hartford but affirmed it in all other respects. Holtzclaw v. Falco, 341 So.2d 1267 (La.App. 2d Cir. 1977). We granted plaintiff's application for certiorari to review this judgment.

Plaintiff's argument that the lower courts erred in denying the liability of Millican, Falco and Commercial Union and in determining the measure of damages to be awarded against Oller is without merit. The findings of the jury are supported by the evidence in the record.

The Court of Appeal, in reversing the trial court's judgment against Hartford, relied upon our decision in Richard v. Southern Farm Bureau Casualty Insurance Co., 254 La. 429, 223 So.2d 858 (1969). This court held, in the Richard case, that ". . . where there are multiple claims arising out of an accident, the liability insurer, in entering compromise settlements pursuant to the right accorded it under the provisions of the policy, may exhaust the entire fund and thus one or more of the injured parties may find that they have little or no recourse against such insurer. . . ." 223 So.2d 858, 861.

The court in the Richard case followed the general rule in the United States, as found in encyclopedias and insurance treatises, and, probably because of the uniform jurisprudence of other states, and because compromises are favored in the law, dismissed plaintiff's argument that, since liability policies were issued "for the benefit of all injured persons," all injured persons were granted a fixed proportional share in the proceeds, which became available after the liability of the tortfeasor was established.

The court in Richard seemed to be swayed to some extent by the supposed lack of a judicial remedy for an insurance company which wanted to settle some of multiple claims from an accident. The "dilemma" presented because our concursus statute requires a fund-holder to admit liability when depositing the fund in a personal injury case is not present in the case before us, which is a contest over property damage coverage, not personal injury coverage. Only in cases of death or physical injury must an insurer admit liability in a concursus proceeding. C.C.P. 4652.

The other possible judicial remedy by which an insurer in a multiple claims case might adequately protect itself a declaratory judgments action was summarily dismissed by the court in the Richard case because it had held, in Burton v. Lester, 227 La. 347, 79 So.2d 333 (1955), that a declaratory judgments action was unavailable in tort suits. The important change in the declaratory judgments act by the adoption of the Code of Civil Procedure (specifically Art. 1871) by Act 15 of 1960 was ignored. The redactor's comment discusses in full the legislative overruling of Burton v. Lester, supra. Today, unless a reason can be found in C.C.P. 1871-1883, a declaratory judgment action cannot be defeated simply because it arises out of a tort.

Two important considerations stand opposed to the result in the Richard case. The first is the public policy of the State of Louisiana with respect to contracts of liability insurance. Through the years, that policy, first announced by the court, then repeatedly enacted by the legislature, has become firmly fixed in Louisiana law.

The public policy of the State of Louisiana has been expressed in the Direct Action Statute (R.S. 22:655) since it was amended by Act 475 of 1956, a legislative expression of principles previously enunciated and almost uniformly followed by the Louisiana Supreme Court. Davies v. Consolidated Underwriters, 199 La. 459, 6 So.2d 351 (1942); West v. Monroe Bakery, 217 La. 189, 46 So.2d 122 (1950); see Jones v. Mid-South Insurance Co., 358 F.2d 887 (5 Cir. 1966). Act 253 of 1918 was the predecessor of the Louisiana Direct Action Statute. It was remedial legislation, copied after acts of New York State and Massachusetts. 11 Tul.L.Rev. 443 (1936-1937). Automobile liability policies usually provided that the insolvency of the insured released the insurance company from payment; the act of 1918 provided that it should be illegal for any company to issue any liability policy unless it contained a provision to the effect that the insolvency of the insured should not release the company, and if the insured did become insolvent an action could be maintained against the insurance company.

The 1929 Court of Appeals case of Edwards v. Fidelity and Casualty Co., 11 La.App. 176, 123 So. 162 (Orleans Cir. 1929), held that although the 1918 act allowed an action against the insurer of an insolvent "within the terms and limits of the policy," the action could be maintained by the injured person in spite of the fact that the insured had failed to give notice of the accident to the insurer, as requested by the terms of the policy. The Edwards case also held that an unsatisfied judgment against the insured was prima facie proof of his insolvency.

The legislature responded with Act 55 of 1930, further remedial legislation. The act incorporated part of the holding of the Edwards case, stating that an executory judgment against the insured was prima facie evidence of his insolvency, and created a "right of direct action against the insurer company," to be brought against the insurer alone, or against the insurer and the insured, "jointly and in solido."

The public policy of the State of Louisiana, with respect to the direct action statute, was recognized by the Louisiana Supreme Court in Davies v. Consolidated Underwriters, supra:

". . . That statute gives the injured party an immediate right of direct action against the insurer of the party responsible for the injuries. The statute expresses the public policy of this State that an insurance policy against liability is not issued primarily for the protection of the insured but for the protection of the public. . . ." 6 So.2d 351, 357.

The Davies case was followed in 1950 by West v. Monroe Bakery, supra, which repeated the public policy statement from the Davies case, and found that the protection of the injured person was the primary purpose of the remedial legislation. The Monroe Bakery had failed to give notice to its liability insurer for more than a year after the accident. The direct action statute provided that the injured person "shall have a right of direct action against the insurer company within the terms, and limits of the policy . . ." Act 55 of 1930. As against the defense of no notice by the insured, the Louisiana Supreme Court found that it was not within the injured person's power to give notice as required by the policy, and that the injured third party could not be divested of his right of action by the failure of the insured to comply with the statutory requirement of notice.

The other important consideration opposed to the result in the Richard case is that the injured person's right of direct action against the insurer is the property of the injured person, arising at the time of the act and the damage for which he seeks recovery. This property is called a litigious right (C.C. 2653, 3556(18)) and is recognized as property here and in France. XIII Tul.L.Rev. (1938-1939); Planiol, Vol. 2, § 1649 ff. (1939). Any provision in the liability policy which purports to minimize the right of an injured person to sue the insurer directly cannot be enforced without depriving the injured person of a property right. The insurer cannot rely on a policy provision which purports to give it the right to "make such . . . settlement of any claim or suit as it deems expedient" except against the other contracting party, the insured, with any more confidence than it could rely upon the "no action" clause. The direct action statute has excised the "no action" clause, and has given to the injured person a direct right of action.

The insurer does have the right to compromise and settle claims, and the law does favor compromise. But by its very nature, a compromise involves risk, and is defined as an agreement in which "every one of them prefers to the hope of gaining, balanced by the danger of...