While it’s easy to say that Louisiana is a direct action state, and to define it, how does it actually work in practice? That’s the real issue. I suspect that many coverage lawyers, outside the Pelican State, don’t fully appreciate the nuts and bolts of it. There’s certainly more that I could learn. For this explanation, and what else is important about Louisiana liability coverage law, I turned to Richard Petre, Jr. of Onebane Law Firm in Lafayette, Louisiana.

Good choice on my part. Richard is the author of Louisiana Liability & Property Coverage Law: A Handbook for the Busy Practitioner (3d ed.). Richard is in his 40th year of practice and has handled over one hundred jury trials. His practice includes insurance coverage, insurer bad faith, personal injury, civil rights, arson, and construction litigation. He’s even handled capital cases as both a prosecutor and defense counsel

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Louisiana has a reputation for being a challenging jurisdiction for liability and property insurers, but the Louisiana Civil Code, with its different nomenclature (predial servitudes, immovable and movable property) and its stated emphasis on legislation and custom as authoritative sources of law, is not the reason.

Yes, Louisiana does have a direct action statute. Under that statute, La. R.S. 22:1269, an injured claimant can sue directly liability insurers. The plaintiff must also sue the tortfeasor insured, unless the insured is involved in bankruptcy proceedings or has been adjudged bankrupt, is insolvent, cannot be served, or is a parent or spouse of the plaintiff. Unless there are coverage issues involved, juries do not get to see the policy or learn what the policy limits are, but they obviously know that the insured defendant has insurance coverage.

In cases involving more than one liability insurer, plaintiffs’ lawyers, after filing suit, have made at times a “Gasquet settlement,” where plaintiff settles with one liability insurer; the plaintiff agrees not to execute any excess judgment against the insured, who remains in the lawsuit as a nominal defendant; and the plaintiff reserves his rights against all other liability insurers.

And some cases have allowed the plaintiff, after filing suit, to actually dismiss the insured and still maintain suit against the liability insurer. Those courts have found that the direct action statute requires only that the insured be initially sued, not that suit against the insured be maintained. Soileau v. True Value, 144 So.3d 771 (La. 2013). Further, some Louisiana courts have rejected the insurer’s argument that, because the policy only covers damages that its insured becomes “legally obligated to pay,” the insured’s release should also result in dismissal of the insurer.

Louisiana courts readily find an “occurrence” under liability policies, stating that whether an accident occurred must be determined from the claimant’s point of view. In construction defect and intentional act cases, Louisiana courts will find an occurrence.

With construction cases, our Supreme Court, reversing a line of court of appeal cases, has found that the work product exclusions in CGL policies are not ambiguous. Supreme Services v. Sonny Greer, Inc., 958 So.2d 634 (La. 2007).

To determine when property damage occurs, Louisiana courts typically use the manifestation test, though it has been noted that our courts have “not uniformly adopted” the manifestation theory. Mangerchine v. Reaves, 63 So.3d 1049, 1058 (La. App. 1 Cir. 2011). In long-term environmental cases involving property damage and in continuous-exposure cases involving bodily injury, Louisiana courts have generally used the exposure test. Grefer v. Travelers Ins. Co., 919 So.2d 758 (La. App. 5 Cir. 2005); Cole v. Celotex Corp., 599 So.2d 1058 (La. 1992). In repeated-exposure cases, the number of victims may determine the number of occurrences under the policy. Lombard v. Sewerage and Water Bd., 284 So.2d 905 (La. 1973).

The Louisiana Supreme Court has largely limited the scope of the pollution exclusion, finding that the exclusion should apply only to industrial polluters or to true environmental damages. Doerr v. Mobil Oil Corp., 774 So.2d 119 (La. 2000).

With automobile insurance, the minimum liability limits are $15,000 per person and $30,000 per accident for bodily injury, and $25,000 for property damage. La. R.S. 32:900(B). And Louisiana has a “no pay, no play” law where the owner or operator of a motor vehicle who fails to have at least the minimum compulsory insurance limits cannot recover the first $15,000 of bodily injury damages and the first $25,000 of property damage. La. R.S. 32:866. But the statute contains a number of exceptions.

With the duty to defend, Louisiana courts thus far have strictly applied the “eight corners test,” and have not looked to evidence outside the pleadings. An insurer failing to provide a defense does not waive its coverage defenses. Arceneaux v. Amstar Corp., 66 So.3d 438 (La. 2011). But an insurer, which has knowledge of facts indicating noncoverage, and assumes the defense of an insured without obtaining a nonwaiver agreement, waives all coverage defenses then known to the insurer. Steptore v. Masco Const. Co., 643 So.2d 1213 (La. 1994).

And in a long latency occupational-disease case, the Louisiana Supreme Court has adopted the pro-rata allocation method, holding that defense costs should be prorated among insurers (based on their time on the risk during the exposure period) and the insured (based on the time during the exposure period when the insurer did not have insurance coverage). Arceneaux v. Amstar Corp., 200 So.3d 277 (La. 2016). The Court rejected the joint and several allocation method where the insurers pay all defense costs. The Court did not address whether the pro-rata allocation method will be used in long-term property damage cases.

In a major 2015 decision, the Louisiana Supreme Court found that a liability insurer can breach its duty to settle even though it did not receive a firm settlement demand. Kelly v. State Farm Fire & Casualty Company, 169 So.3d 328 (La. 2015). When liability is clear and damages readily exceed the policy limit, an insurer will be found in bad faith if it refuses to pay legal interest as well as its policy limit. Hodge v. American Fidelity Ins. Co., 486 So.2d 233 (La. App. 3 Cir. 1986).

La. R.S. 22:1973 in subsection (A) imposes a general “duty of good faith and fair dealing” on insurers, and in subsection (B) imposes six specific duties on insurers that, if knowingly done, breach the statute’s duty of good faith. Until Kelly v. State Farm Casualty Company, 169 So.3d 328 (La. 2015), the consensus in Louisiana was that the enumerated acts in subsection (B) were not illustrative, but constituted an exclusive list of the types of conduct that could violate this statute. However, in Kelly, the Louisiana Supreme Court found that, under the general duty language in subsection (A), an insured could bring a claim against his insurer for breach of the duty to settle, even though that duty was not enumerated in subsection (B). Under R.S. 22:1973, insurers have to pay the settlement proceeds within 30 days of a written settlement agreement, and insurers have to pay insureds within 60 days of receipt of satisfactory proof of loss (under R.S. 22:1892, the time period is 30 days). And under the 1973 statute, the claimant can recover those damages actually caused by breach of the duty and a penalty of two times the amount of those damages; or a penalty of up to $5,000, even if the insurer's breach of a duty did not cause damages. It should be noted that Louisiana does not authorize punitive damages for insurer bad faith.

Finally, Louisiana does not like jury trials as much as some other states: To the consternation of automobile insurers, a plaintiff pleading a cause of action in excess of $50,000 is needed for a jury trial. And Louisiana elects its judges—all of them.