Courts Address Circumstances that Support Summary Judgment Dismissing Claims of Bad Faith Against Insurers

Primary insurance policies include the duty to defend aninsured in connection with a covered loss. The insurer is sometimes presentedwith the question of whether a defense is owed when many of the allegations arenot apparently covered by a particular policy. In this circumstance, how doesan insurer determine its obligation? The law provides the answer: the “eightcorners” rule—do the four corners of the policy unambiguously exclude coveragein all respects when viewed within the context of the four corners of thepetition? If the answer is “no,” the duty to defend arises. Mossy Motors,Inc. v. Cameras America, 2004-0726 (La. App. 4 Cir. 3/2/05), 898 So.2d 602,606.

Courts generally hold that the duty to defend the caseextends to ALL claims, not just the covered claims. This duty can often provequite costly, especially when non-covered claims are high-value or involveextensive factual development or testimony to defend. In some instances, theanswer under the eight corners analysis is not so clear. The safe choice forthe insurer is to provide a defense and hire separate counsel to handle thecoverage side of the case.

In this scenario, where an insurer has serious coveragedefenses, but agrees to provide the defense, when does the duty to defend terminate?The Louisiana First Circuit Court of Appeal recently ruled on this issue againin Ponchartrain Natural Gas System, K/D/S Promix, L.L.C. and Acadian GasPipeline System v. Texas Brine Company, L.L.C., No. 2018 CA 0254 (La. App.12/12/19), stating:

“Our previous decisions in the related sinkhole appeals clearly set out the well-established rule of law that an insurer' s duty to defend terminates once the undisputed facts establish, or a judicial determination is made, that the claims asserted are not covered under the policy. See Florida Gas, 272 So. 3d at 551; Pontchartrain, 264 So.3d at 553- 54; Crosstex, 240 So.3d at 1032.”

So, the duty to defend ends when undisputed facts establishOR a judicial determination is made that the asserted claims are not covered.Of course, who is to say that the facts are “undisputed” without a judicialdetermination that confirms this conclusion. An insurer couldunilaterally determine that facts are undisputed and terminate the defensebefore a judicial determination, but if the court does not agree, the insurermay have issues. Accordingly, the safe course is to await a judicialdetermination before an insurer terminates the defense.

It is important to distinguish the duty of an excess carrierbecause such policies generally do not provide an obligation to defend.Instead, the excess carrier may exercise its “right to defend.”

In 2024, the Louisiana Legislature revised La. R.S. 22:1269, the Louisiana Direct Action Statute, to provide an injured person “shall have no right of direct action against the insurer” unless one of several exceptions applies. This legislation took effect on August 1, 2024. Since its effective date, litigants in Louisiana have debated whether this change to the law was substantive or procedural. If the amendment were procedural, it would apply to all cases filed after August 1, 2024. If substantive, the changes would only apply when the accident occurred after August 1, 2024.

While several Federal Court cases previously addressed this issue, no Louisiana appellate court had done so until the Louisiana Fourth Circuit Court of Appeal issued its ruling in Hurel v. National Fire and Marine Ins. Co., et at.

In Hurel, the plaintiff filed suit on October 1, 2024, naming the insurer and other parties as defendants in a case filed in connection with a motor vehicle accident. The insurer filed an Exception of No Right of Action, Motion to Strike, and a Motion in Limine, on the basis that the amendment to the Direct Action Statute prohibited the plaintiff from (1) naming the insurer in the case caption and (2) presenting evidence of insurance coverage at trial. In response, the plaintiff argued that the amendment could not apply because the accident occurred before the effective date of the statutory amendment. The trial court denied the exception, the motion to strike and the motion in limine.

On appellate review, the Louisiana Fourth Circuit cited prior jurisprudence that routinely found the Direct Action Statute granted a procedural right of action against an insurer where the plaintiff has a substantive cause of action against the insured. The Court found the recent amendments “removed the procedural right of action against an insurer.” The plaintiff had a procedural right of action, but it became operative only when, and if, that right was invoked timely— that is before the amendment went into effect.

After August 1, 2024, the plaintiff had no right or interest in a direct action against the insurer. Thus, because the plaintiff did not have a statutory right of direct action against the insurer, the Court granted the insurer’s exception. For the same reasons, the court of appeal also granted the insurer’s Motion in Limine to prevent plaintiff from disclosing insurance coverage to the jury and granted its Motion to Strike the insurer’s name from the case caption.

Reference:

Hurel v. Nat'l Fire & Marine Ins. Co., 2025-0049 (La. App. 4 Cir. 3/11/25), --- So.3d ---, 2025 WL 762645.

A Louisiana litigant has a right to appeal a judgment rendered against it at trial and has two options to appeal the judgment. The litigant can take a suspensive appeal, which suspends the execution of the judgment pending the outcome of the appeal, or it can take a devolutive appeal, which does not. La. C.C.P. art. 2124 provides that when the judgment if for a sum of money, a party seeking a suspensive appeal must post security, or a bond, “equal to the amount of the judgment,” including interest.

What happens when a monetary judgment is cast against an insurer (and its insureds) and the amount of the judgment exceeds the limits of the insurer’s policy? Can the insurer be required to post bond in excess of its policy limits to suspensively appeal the judgment? The Louisiana Supreme Court recently addressed this issue and ruled an insurer is required to post a security bond covering only its policy limits.

In Martinez v. Am. Transp. Grp. Risk Retention Grp., Inc., a jury cast judgment against a transportation group, its driver, and its insurer for damages the plaintiff sustained in a motor vehicle accident. The trial court rendered a judgment in the amount of $2,802,054.66, which was in excess of the $1,000,000 limits of the insurer’s policy. The insurer moved for a suspensive appeal and requested a reduced bond because its insured was no longer in existence and could not post a bond. Nevertheless, the trial court set the appeal bond at $2,802,054.66, plus interest. The insurer posted a bond in the amount of its policy limits plus interest and costs and sought appellate review of the trial court’s appeal bond order.

The Supreme Court observed that the contracts clauses of the federal and state constitutions prohibit the enactment of any law “impairing the obligation of contracts.” Therefore, the Court found that to require an insurer to post a bond for suspensive appeal in excess of its policy limits would render meaningless, and therefore impair, the terms of the insurance contract setting the policy’s limits. Thus, the Martinez court should have set security to allow the insurer to suspensively appeal the portion of the judgment up to its policy limit.

However, the Court refused to reduce the suspensive appeal bond for all the defendants cast in judgment. Instead, the Court ruled the insurer could suspensively appeal the judgment up to the amount of its policy limits, stay execution of that portion of the judgment, and devolutively appeal the remainder of the case for its insureds.

References:

Martinez v. Am. Transp. Grp. Risk Retention Grp., Inc., 2023-01716 (La. 10/25/24) 2024 WL 4579047.