Subro … no!
An insurer of a general contractor which suffered a $713,084 loss based upon the poor performance of the GC’s roofing subcontractor sought by subrogation to recover against the CGL policy of the roofing subcontractor. The matter was filed in state court in Louisiana and removed to federal court in New Orleans.
The insurer for the roofer pushed back on two principal grounds: the inability of the GC’s insurer to file a “direct action” against the sub’s insurer (pursuant to Louisiana Direct Action statute, La. R.S. 23:1269), and on the basis of a “no action” clause within the defendant insurer’s policy. Ruling on a summary judgment filed by the defendant insurer, the court agreed with both of those defenses.
Concerning the Louisiana Direct Action statute, the court found that the claims of the general contractor to which the GC’s insurer had subrogated were purely contract claims. In connection therewith, the court wrote: “The Louisiana Direct Action Statute… is a vehicle for a tort victim to bring a direct suit ‘to recover damages for personal injury or corporeal property damage from the tortfeasor's insurer.’ … The act was designed to correct the perceived injustice created by ‘insurer's avoidance of tort victims' direct suits by use of “no action” clauses in insurance policies.’ … Still, while the Louisiana Direct Action statute is designed to ‘facilitate the recovery of damages ex delicto; it does not authorize a direct action based solely on a breach of contract.’”
Indeed, the very same provision that the Direct Action statute was designed to overcome – a “no action” clause – was asserted by the defendant insurer as an absolute defense which prevented the suit by the GC’s carrier. The “no action” clause stated in pertinent part that no party could directly sue the roofer’s insurer in a suit “asking for damages from an insured,” unless there has been “an agreed settlement or … a final judgment against an insured….” The court specifically noted that an “agreed settlement” was defined by the policy to be a written settlement to which the roofer’s insurer had agreed and which the roofer’s insurer had signed.
Under the circumstances of the case – and even though the subrogated plaintiff insurer added the insured roofer as a defendant in the case against the roofer’s CGL carrier – the court found both that the “no action” clause was enforceable and that none of the exceptions set forth above applied.
The federal court held that in order for the plaintiff insurer to sue the sub’s CGL carrier, either the plaintiff insurer or its insured (the GC) “would be required to exact a final judgment against [the subcontractor] or enter into a settlement agreement with [both the subcontractor and its insurer].” As neither exception was met, the subrogation claim against the roofer’s insurer was dismissed.