Death in the City: Gorman's Flawed Application of the Direct Action Statute to Insured Political Subdivisions

• Author: Grant Tolbird
• Position: J.D./D.C.L., 2016, Paul M. Hebert Law Center, Louisiana State University.
• Pages: 583-617

Death in the City: Gorman’s Flawed Application of

the Direct Action Statute to Insured Political

Subdivisions

TABLE OF CONTENTS

Introduction .................................................................................. 584

I. History of the Direct Action Statute ............................................. 587

A. The Legislature Seeks to Protect the Public from

Insolvent Tortfeasors .............................................................. 587

B. Amendments and Jurisprudential Interpretations

Further Public Policy Considerations ..................................... 589

II. Death in the City: Facts and Procedural History of

Gorman v. City of Opelousas ....................................................... 592

III. Dissecting Gorman’s Understanding of the Direct Action

Statute ........................................................................................... 596

A. Does the Direct Action Statute Grant a Procedural or

Substantive Right? .................................................................. 597

1. The Gorman Opinions Rely on Jurisprudence to

Come to Different Conclusions ....................................... 597

2. The Supreme Court Has Interpreted the Direct Action

Statute as Granting a Procedural Right for Over

60 Years ........................................................................... 598

B. How Does the Direct Action Statute Affect Claims-

Made-and-Reported Policies?................................................. 601

1. Gorman’s View on the Relevance of the

Distinctions Between Occurrence Policies and

Claims-Made-and-Reported Policies in Light

of the Direct Action Statute ............................................. 601

2. Coverage Under Different Types of Policies is

Triggered in Different Manners ....................................... 602

3. The Coverage for Which the Parties Bargained

Determines the Insurer’s Obligation................................ 604

C. Does the Notice Requirement in the City’s Policy

Violate Public Policy? ............................................................ 606

1. Gorman Finds the City’s Policy Is Permissible Under

the Direct Action Statute ................................................. 606

2. Insured Political Subdivisions Are Analogous to

Insolvent Insureds ............................................................ 608

584 LOUISIANA LAW REVIEW [Vol. 76

3. Political Subdivisions Are More Likely to Mistakenly

Fail to Report Claims to Their Insurers than

Individuals or Corporations ............................................. 610

IV. Legislative Solution: An Amendment to the Insurance Code ...... 613

Conclusion .................................................................................... 616

INTRODUCTION

The Opelousas police arrested Brian Armstrong on the evening of

September 27, 2009, for “disturbing the peace due to intoxication” after

he disrupted an Alcoholics Anonymous meeting.1 By sunrise, he was

dead.2 No policeman stopped by Mr. Armstrong’s cell, which held three

other inmates, between midnight and six o’clock.3 During the time when

the police left the cell unattended, two of the inmates attacked and killed

Mr. Armstrong, while the other inmate yelled for a policeman to help.4 No

help arrived.5

Mr. Armstrong’s mother, Ms. Joyce Gorman, sued the city of

Opelousas and the Opelousas Police Department6 for their role in her son’s

death.7 In December 2010, Ms. Gorman asked the City to identify its

liability insurer.8 After failing to comply with discovery requests for seven

months, the City finally named Lexington Insurance Company as its

liability insurer.9

In September 2011, Ms. Gorman joined Lexington as a defendant in

her lawsuit against the City.10 Lexington moved for summary judgment,

contending that the claims Ms. Gorman asserted were not covered under

the City’s claims-made-and-reported policy, because the City had not

provided Lexington with written notice of her claim until after the policy

had expired.11 The trial court granted Lexington’s motion for summary

Copyright 2015, by GRANT TOLBIRD.

1. State v. King, 124 So. 3d 623, 625 (La. Ct. App. 3d 2013).

2. Id. at 626.

3. Id.

4. Id.

5. Id.

6. Both defendants are referred to as “the City” throughout this Note.

7. Gorman v. City of Opelousas, 148 So. 3d 888, 890 (La. 2014).

8. Id.

9. Id.

10. Id.

11. Id. at 890–91 (The policy stated as follows: “The wrongful act [for which

the City is liable] shall take place on or after the retroactive date, but before the

end of the policy period, and shall arise solely in your capacity as a law

enforcement agency. A claim for a wrongful act shall be first made against the

2015] COMMENT 585

judgment.12 The court of appeal reversed, holding that “the contractual

notice provision cannot be used to deprive Gorman of her vested rights

under the direct action statute [sic].”13

The Louisiana Supreme Court, in a four-to-three opinion, reversed the

court of appeal and reinstated the trial court’s grant of Lexington’s motion

for summary judgment.14 Like the circuit split that existed prior to

Gorman,15 the majority opinion and the dissent wildly diverged on basic

application of the Direct Action Statute,16 which permits an injured

plaintiff to sue the tortfeasor’s insurer directly.17 Ultimately, the Court

deprived Ms. Gorman of her ability to recover against Lexington, because

the City refused to provide Lexington with notice of Ms. Gorman’s

claim.18 Ms. Gorman was thus forced to settle her lawsuit against the

City,19 as no court could compel the City to pay her any damages that a

court may have awarded her.20

The competing opinions in Gorman reveal the deep disagreement over

the application of the Direct Action Statute within the Louisiana Supreme

Court, among the lower courts, and between the state and federal courts. The

majority and the dissent differed substantially on the resolution of the

following three issues: (1) whether the Direct Action Statute grants a

Insured and reported to us in writing during the policy period . . . .”) (emphasis in

original).

12. Id. at 891.

13. Gorman v. City of Opelousas, No. 12-1468, 2013 WL 1831075, at *3 (La.

Ct. App. 3d May 1, 2013), rev’d, 148 So. 3d 888 (La. 2014).

14. Gorman, 148 So. 3d at 898 (“The City’s failure to report Gorman’s claim

to Lexington during the applicable policy period as required precludes coverage.

Absent coverage, Gorman was not deprived of a right under the Direct Action

Statute.”).

15. See, e.g., Murray v. City of Bunkie, 686 So. 2d 45, 50 (La. Ct. App. 3d

1996) (finding that the notice requirement in a claims-made-and-reported policy

was unenforceable); but see Reichert v. Bertucci, 650 So. 2d 821, 823 (La. Ct.

App. 4th 1995) (finding that the notice requirement in a claims-made-and-

reported policy did not violate public policy).

16. Gorman, 148 So. 3d at 895–96 (citing Hood v. Cotter, 5 So. 3d 819, 829

(La. 2008)). The majority asserted that the Direct Action Statute confers “a

procedural right of action,” allowing an injured third person to sue the tortfeasor’s

insurer directly. Id. at 896. The dissent argued that the Direct Action Statute

bestows on injured third persons a substantive cause of action against the

tortfeasor’s insurer. See id. at 898 (Knoll, J., dissenting).

17. LA. REV. STAT. ANN. § 22:1269(B)(1) (2009).

18. Gorman, 148 So. 3d at 898.

19. Motion to Dismiss, Gorman v. City of Opelousas, No. 10-C-4849-D (La.

Dist. Ct. Sept. 29, 2014).

20. LA. CONST. art. XII, § 10(C); LA. REV. STAT. ANN. § 13:5109(B)(2) (2012)

(“Any judgment rendered in any suit filed against . . . a political subdivision . . .

shall be exigible, payable, and paid only . . . out of funds appropriated for that

purpose by the named political subdivision . . . .”).