                         Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE                                         NEWS RELEASE #035


FROM: CLERK OF SUPREME COURT OF LOUISIANA



The Opinions handed down on the 1st day of July, 2014, are as follows:



BY WEIMER, J.:


2013-C -1734      JOYCE GORMAN v. CITY OF OPELOUSAS, ET AL. (Parish of St. Landry)

                  That portion of the decision of the appellate court that reversed
                  the trial court’s grant of summary judgment in favor of Lexington
                  as to Gorman is reversed, and the trial court’s judgment in this
                  regard is reinstated. The matter is remanded to the trial court
                  for further proceedings.
                  REVERSED IN PART; JUDGMENT REINSTATED IN PART; REMANDED TO THE
                  TRIAL COURT.

                  JOHNSON, C.J., dissents for the reasons assigned by Justice
                  Knoll.
                  KNOLL, J., dissents and assigns reasons.
                  HUGHES, J., dissents for reasons assigned by Justice Knoll.
07/01/14

                   SUPREME COURT OF LOUISIANA


                                 NO. 2013-C-1734

                                JOYCE GORMAN

                                      VERSUS

                        CITY OF OPELOUSAS, ET AL.

                ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
                      THIRD CIRCUIT PARISH OF ST. LANDRY



WEIMER, Justice

      An insurance company seeks review of a decision on the issue of coverage

under a claims-made-and-reported policy. The appellate court found that, under the

Direct Action Statute, an insurer cannot use the policy’s claim-reporting requirement

to deprive an injured third party of a right that vests at the time of injury. After

considering the applicable law, we find that the reporting provision in a

claims-made-and-reported policy is a permissible limitation on the insurer’s liability

as to third parties and does not violate the Direct Action Statute. Accordingly, we

reverse that portion of the court of appeal’s decision relating to the claim of the

injured third party, and we reinstate the trial court’s judgment, finding no coverage.

The matter is remanded to the trial court for further proceedings.

                    FACTS AND PROCEDURAL HISTORY

      On September 28, 2009, Brian Armstrong (Armstrong) was incarcerated at the

city jail in Opelousas when he was allegedly beaten by two other inmates. He later
died. On September 27, 2010, Armstrong’s mother, Joyce Gorman (Gorman), filed

a survival action and a wrongful death action against the city of Opelousas and its

police department (collectively the City).1 After being served with the petition, the

City filed an answer.

         In December 2010, Gorman directed discovery to the City seeking the identity

of its insurer and requesting a copy of any applicable insurance policy. When the

City failed to respond, Gorman filed a motion to compel, which was granted in June

2011. Subsequently, the City identified Lexington Insurance Company (Lexington)

as its insurer. Gorman then filed an amended petition on September 7, 2011, naming

Lexington as an additional defendant.             The amended petition was served on

September 22, 2011. Lexington answered Gorman’s petition, asserting numerous

affirmative defenses. Afterwards, Lexington filed a motion for summary judgment,

seeking to have Gorman’s direct action claim against it dismissed based on lack of

coverage because her claim had not been reported to Lexington within the policy’s

stated time limit. Gorman and the City then filed cross motions for summary

judgment on the issue of coverage.

         The Lexington policy provided:

         NOTICE:       THIS IS A CLAIMS MADE POLICY. COVERAGE IS
                       LIMITED GENERALLY TO LIABILITY FOR CLAIMS
                       FIRST MADE AGAINST YOU AND REPORTED IN
                       WRITING TO US WHILE THE COVERAGE IS IN
                       FORCE. PLEASE REVIEW THE POLICY CAREFULLY
                       AND DISCUSS POLICY COVERAGE WITH YOUR
                       INSURANCE AGENT OR BROKER.

In relevant part, the policy further stated:

         SECTION I. INSURING AGREEMENT




1
    The two inmates who allegedly harmed Armstrong were also named as defendants.

                                              2
         A.      We shall pay those amounts that the Insured becomes legally
                 obligated to pay to compensate others for bodily injury,
                 property damage, or personal injury arising out of the Insured’s
                 wrongful act. The wrongful act 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 Insured
                 and reported to us in writing during the policy period or any
                 extended reporting period we provide under this policy.[2]
                 [Emphasis in original.]

The pertinent policy period is as follows:

         POLICY PERIOD: 12:01 A.M., standard time at the address of the
         Named Insured as stated herein.
         From: 04/17/2010              To: 04/17/2011
         Name of Law Enforcement Department and Address of the Insured
         Location:
         CITY OF OPELOUSAS
         318 NORTH COURT STREET
         OPELOUSAS, LA 70570

Wrongful acts dating back to April 17, 2005, the policy’s retroactive date, are covered

by the policy. The City had also purchased a similar policy from Lexington for the

period of April 17, 2011, to April 17, 2012.

         Relying on Hood v. Cotter, 08-0215, 08-0237 (La. 12/2/08), 5 So.3d 819, the

trial court observed that “the policy language limiting coverage to those claims made

and reported during the policy period did not serve to limit [Gorman’s] right of

action.” In accordance with Hood, the trial court explained that the policy language

“provides the scope of coverage bargained for by the [City]” and recognized that any

contrary interpretation “would effectively convert [the City’s] claims made policy

into an occurrence policy,” which is contrary to “the bargained for exchange”

between Lexington and the City. Accordingly, the trial court granted Lexington’s

motion for summary judgment as to the City and Gorman, denied the cross motions

filed by the City and Gorman, and dismissed “all claims adverse to Lexington.”

2
    The “extended reporting period” provision is not pertinent to the facts of this case.

                                                   3
         On appeal by the City and Gorman, the appellate court initially found that the

City’s purchase of a separate claims-made policy for the period of April 17, 2011, to

April 17, 2012, the period in which Lexington was added as a defendant, had no

bearing on the issue of coverage. Therefore, the City’s and Groman’s “merged into

one” argument for continued coverage under the subsequent policy was rejected.

Gorman v. City of Opelousas, 12-1468, p. 3 (La.App. 3 Cir. 5/1/13), 111 So.3d

1195 (unpublished). Applying Murray v. City of Bunkie, 96-297, p. 5 (La.App. 3

Cir. 11/6/96), 686 So.2d 45, 48, the appellate court held that the reporting provision

in the City’s policy could be applied to defeat the City’s alternative claim under the

April 17, 2010-April 17, 2011 policy and affirmed the grant of summary judgment in

Lexington’s favor insofar as it pertained to the City.

         After observing this court’s refusal to address the issue of coverage in the

context of an injured third party’s claim in Livingston Parish Sch. Bd. v. Fireman’s

Fund Am. Ins. Co., 282 So.2d 478 (La. 1973), the appellate court resorted to its prior

decisions in Murray and Pittman v. Nutmeg Ins. Co., 97-524, p. 5 (La.App. 3 Cir.

3/6/98), 708 So.2d 832, 834, for guidance in resolving the issue of coverage as to

Gorman. Relying on Murray, the appellate court recognized that the Direct Action

Statute gave Gorman a vested right at the time the tort was committed that “could not

be taken away because of the insured’s failure to notify the insurer - a condition over

which the plaintiff had no control.” Gorman, 12-1468 at 5, quoting Murray, 96-297

at 8, 686 So.2d at 50. The court would not allow the policy’s reporting provision to

serve “as a coverage defense against third parties who had no knowledge of the

provision and who had taken steps to pursue their legal remedies”3 so as to deprive

the injured third party of “her vested rights under the direct action statute.”

3
    See Gorman, 12-1468 at 5, quoting Pittman, 97-524 at 5, 708 So.2d at 834.

                                               4
Accordingly, the trial court’s grant of summary judgment against Gorman was

reversed, and the matter was remanded for further proceedings.

         Lexington’s subsequent writ application to this court was granted4 to address

whether the Direct Action Statute affords an injured third party a vested right that

cannot be taken away because of an insured’s failure to report a claim to the insurer

under a claims-made-and-reported policy as found in Murray. Relying on the

reporting provision in its policy, Lexington contends that the appellate court

improperly disregarded this court’s decision in Hood and imposed insurance

coverage on Lexington where none existed.

                                       DISCUSSION

         An insurance policy is a contract between the insured and insurer and has the

effect of law between them. See La. C.C. arts. 1906 & 1983; Peterson v. Schimek,

98-1712, p. 4 (La. 3/2/99), 729 So.2d 1024, 1028. “The role of the judiciary in

interpreting an insurance contract is to ascertain the common intent of the insured and

insurer as reflected by the words in the policy.” Peterson, 98-1712 at 4, 729 So.2d

at 1028, citing La. C.C. art. 2045. “When the words of an insurance contract are clear

and explicit and lead to no absurd consequences, courts must enforce the contract as

written and may make no further interpretation in search of the parties’ intent.”

Peterson, 98-1712 at 4-5, 729 So.2d at 1028, citing La. C.C. art. 2046. Where a

policy unambiguously and clearly limits coverage to claims made and reported during

the policy period, such limitation of liability is not per se impermissible. See Hood,

08-0215, 08-0237 at 18, 5 So.3d at 830; Anderson v. Ichinose, 98-2157, p. 7 (La.

9/8/99), 760 So.2d 302, 306, citing Livingston Parish Sch. Bd., 282 So.2d at 481.



4
    See Gorman v. City of Opelousas, 13-1734 (La. 11/8/13), 129 So.3d 522.

                                               5
       According to the pertinent terms of the City’s policy, Lexington agreed to pay

claims on behalf of the City if three conditions occur:

       1) the wrongful act occurs on or after the retroactive date of the policy, but
       before the end of the policy period;

       2) the claim for the wrongful act is first made against the City during the policy
       period; and

       3) the claim is reported to Lexington in writing during the policy period.

Satisfaction of all three conditions is required for coverage under the Lexington

policy.5 The City was undisputedly informed that Lexington’s liability is limited by

these terms.

       Therefore, coverage under the Lexington policy was effective only if Gorman’s

claim was both made and reported within the applicable policy period.                      See

Livingston Parish School Board, 282 So.2d at 481, citing 7 APPLEMAN,

INSURANCE LAW AND PRACTICE (Supp.1972), § 4262. Under this type of policy,

the risk of a claim incurred but not made, as well as a claim made but not reported,

is shifted to the insured. See Anderson, 98-2157 at 7, 760 So.2d at 306 n.6, citing

Bob Works, Excusing Nonoccurrence of Insurance Policy Conditions in Order to

Avoid Disproportionate Forfeiture: Claims-Made Formats as a Test Case, 5 Conn.

L.J. 505, 546 (1999). “The purpose of the reporting requirement [in a claims-made

policy] is to define the scope of coverage [purchased by the insured] by providing a

certain date after which an insurer knows it is no longer liable under the policy.”

Resolution Trust Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir. 1994) (applying Louisiana



5
  See Hood , 08-0215, 08-0237 at 18, 5 So.3d at 830 (addressing the “event that triggered policy
coverage,” that is, “a claim being first made and reported during the policy period); see also
Anderson, 98-2157 at 6, 760 So.2d at 305, quoting Sol Kroll, The Professional Liability Policy
“Claims Made,” 13 Forum 842, 843 (1978) (addressing “the event and peril being insured”); 15 W.
SHELBY McKENZIE & H. ALSTON JOHNSON , INSURANCE LAW AND PRACTICE , LOUISIANA CIVIL
LAW TREATISE , § 6.25 at 598-99 (4th ed. 2012).

                                               6
law). Once the policy period and reporting period expire, the insurer can “close its

books” on that policy. See Id.

         Although the September 28, 2009 wrongful act occurred after April 17, 2005

and before April 17, 2011, and Gorman’s September 27, 2010 claim was made

between April 17, 2010 and April 17, 2011, as required, Gorman’s claim was not

reported to Lexington until September 22, 2011, which is after the policy period

expired on April 17, 2011. The occurrence of only the first two of the policy’s

required conditions was insufficient to trigger coverage. Absent a timely reporting,

one of the conditions needed to trigger coverage under the applicable Lexington

policy did not occur. Therefore, the Lexington policy did not provide coverage to the

City for the wrongful act alleged by Gorman.6

         Because an insurer’s ability to limit its liability and impose reasonable

conditions on the obligations it assumes by its contract is restricted by statute and/or

public policy,7 Gorman urges that the application of the claims-made-and-reported

provisions in the Lexington policy to her claim is against public policy and violates

statutory law. Gorman’s right to sue Lexington arises out of the Direct Action

Statute, which provides that an injured person, at his or her option, “shall have a right

of direct action against the insurer within the terms and limits of the policy.” La. R.S.

22:1269(B)(1).8 Louisiana R.S. 22:1269(D) further provides:




6
   As indicated, the lower courts agreed that the reporting provision in the Lexington policy was
enforceable as between the two contracting parties (the City and Lexington). See Gorman, 12-1468
at 5. The City did not take a writ.
7
    See Livingston Parish Sch. Bd., 282 So.2d at 481.
8
 Prior to the 2008 renumbering of the statutes in the Louisiana Insurance Code, the substance of La.
R.S. 22:1269 was found in La. R.S. 22:655. See 2008 La. Acts 415, § 1, effective January 1, 2009.
For consistency in references and to prevent confusion, this provision is referred to as La. R.S.
22:1269 in this opinion although prior decisions may have been based on La. R.S. 22:655.

                                                 7
              It is also the intent of this Section that all liability policies within
       their terms and limits are executed for the benefit of all injured persons
       and their survivors or heirs to whom the insured is liable; and, that it is
       the purpose of all liability policies to give protection and coverage to all
       insureds, whether they are named insured or additional insureds under
       the omnibus clause, for any legal liability the insured may have as or for
       a tortfeasor within the terms and limits of the policy. [Emphasis
       added.]

“The Direct Action Statute affords a victim the right to sue the insurer directly when

a liability policy covers a certain risk.” Anderson, 98-2157 at 9, 760 So.2d at 307.

The Direct Action Statute “does not, however, extend the protection of the liability

policy to risks that were not covered or were excluded by the policy (at least in the

absence of some mandatory coverage provisions in other statutes).” Id.

       Limitations on an insurer’s ability to contract are imposed by La. R.S. 22:868,

which, in pertinent part, provides:9

               B. No insurance contract delivered or issued for delivery in this
       state and covering subjects located, resident, or to be performed in this
       state ... shall contain any condition, stipulation, or agreement limiting
       [the] right of action against the insurer ... to a period of less than one
       year from the time when the cause of action accrues in connection
       with all other insurances unless otherwise specifically provided in this
       Code.

              C. Any such condition, stipulation, or agreement in violation of
       this Section shall be void, but such voiding shall not affect the validity
       of the other provisions of the contract. [Emphasis added.]

The emphasized language in La. R.S. 22:868(B) prohibits Louisiana-issued policies

from containing any provision that would limit a “right of action against [an] insurer

... to a period of less than one year.”

       Based on the protection statutorily afforded to the public, Gorman urges that

La. R.S. 22:1269(B)(1) and 868(B) confer substantive rights to injured third parties,



9
   Prior to the 2008 renumbering, the substance of La. R.S. 22:868 was found in La. R.S. 22:629.
See 2008 La. Acts 415, § 1, effective January 1, 2009. For consistency in references, this provision
is referred to as La. R.S. 22:868 in this opinion.

                                                 8
which vest when the injury occurs. In West v. Monroe Bakery, 217 La. 189, 46

So.2d 122 (1950) (plurality opinion), which involved an occurrence policy,10 this

court recognized that the Direct Action 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.” Id. 46 So.2d at 129-30,

quoting Davies v. Consolidated Underwriters, 199 La. 459, 6 So.2d 351, 357

(1942) (emphasis omitted). In so holding, this court observed:

                It is quite evident that, except in very rare cases, the party injured
         by the negligence of another has no knowledge as to whether or not that
         other is insured, and if he has ordinarily no knowledge as to whether
         there is any insurance at all, then, clearly, he has no knowledge as to
         who the insurer may be if there is one. It is therefore not within his
         power to give the notice as required by the policy, and, if notice is
         essential to his recovery, his right must, as we have stated, depend upon
         the other party. We do not think such was the intention of the
         legislators.

West, 46 So.2d at 126, quoting Edwards v. Fidelity & Casualty Co., 123 So. 162,

163 (La.App. Orleans 1929). Thus, where a third person is not at fault in the insurer’s

failure to receive timely notice as required by an occurrence policy, the third party

cannot be made liable for the insured’s breaching of an agreement with an insurer.

See West, 46 So.2d at 130.

         The appellate courts are divided on the issue of whether this principle applies

in the context of a claims-made-and-reported policy. In Williams v. Lemaire,

94-1465, p. 5 (La.App. 4 Cir. 5/16/95), 655 So.2d 765, 768, and Murray, 96-297 at

8, 686 So.2d at 50, the courts refused to distinguish between claims-made policies

and occurrence policies in the application of this principle, finding that the

enforcement of the reporting provision in claims-made policies also deprives injured

third parties of their right of action under the Direct Action Statute. However, in

10
     An occurrence policy differs from the claims-made-and-reported policy at issue in this matter.

                                                  9
Reichert v. Bertucci, 94-1445 (La.App. 4 Cir. 1/31/95), 650 So.2d 821, 823, Case

v. Louisiana Medical Mut. Ins. Co., 624 So.2d 1285, 1289 (La.App. 3 Cir. 1993),

and Bank of Louisiana v. Mmahat, 608 So.2d 218, 221 (La.App. 5 Cir. 1992), the

courts declined to apply the principle of West in the context of claims-made policies,

relying on this court’s pronouncement in Livingston Parish Sch. Bd. that the

limitation of liability in a claims-made policy is not per se invalid as against public

policy. See Livingston Parish Sch. Bd., 282 So.2d at 481.

         In Livingston Parish Sch. Bd., 282 So.2d at 482-83, this court rejected the

public policy attack made on a claims-made-and-reported policy in connection with

an insured’s claim;11 however, this court did not resolve this issue in the context of

an injured third party’s claim.12 Later, in Anderson, when presented with the

opportunity to address the issue, this court declined to do so because the injured third

party’s claim had been neither timely made nor reported to the insurer during the

policy period as required by the policy. See Anderson, 98-2157 at 8 n.7, 760 So.2d

at 306 n.7.

         Finally, this court considered the enforceability of a reporting provision in a

claims-made policy against an injured third party in Hood where the patient’s claim



11
     This court in Livingston Parish Sch. Bd. reasoned:

         No reasonable expectation of coverage by the insured was defeated by the
         unambiguous provisions clearly limiting coverage to those claims made during the
         policy period.

                ....

               In effect, the insured received what he paid for by the present policy, with
         premiums presumably reduced to reflect the limited coverage.

Id., 282 So.2d at 482-83.
12
   The Livingston Parish Sch. Bd. court acknowledged that, in some non-renewal situations,
enforcement of such a provision may be against public policy. See Id., 282 So.2d at 481 n.4.

                                                10
for medical malpractice had been neither first made against the doctor nor reported

to the doctor’s insurer during the policy period as required by the policy.

Consideration of the public policy concerns was necessary in Hood because the claim

had been both made and reported less than one year from the date of the acts giving

rise to the patient’s medical malpractice action.13 In resolving the issue of coverage

under those circumstances, this court, in Hood, considered whether the public policy

expressed by the Direct Action Statute would allow an insurer to deny a patient

coverage where the doctor failed to properly report the claim to his insurer. In

reversing the appellate court’s decision in favor of the injured third party,14 this court

recognized that the Direct Action Statute “grants a procedural right of action

against an insurer where the plaintiff has a substantive cause of action against the

insured.” Hood, 08-0215, 08-0237 at 17-18, 5 So.3d at 829 (emphasis added).

       After examining the policy, the Hood court held that the provisions relating to

the making and reporting of claims did “not limit plaintiff’s right to bring his suit”

against the insurer. Hood, 08-0215, 08-0237 at 18, 5 So.3d at 829. Rather, these

provisions provided “the scope of coverage bargained for by [the insured].” Id. The

policy’s denial of coverage to the insured for the injured third party’s claim did not

13
   In Hood, the medical treatment was provided from April through August of 2003, and the patient
was discharged in September of 2003. Suit was filed by the patient against the doctor on April 29,
2004, with the malpractice insurer being added as a defendant on February 15, 2005, in connection
with a policy of insurance that was in effect from January 1, 2003 to January 1, 2004. The doctor
did not renew the policy and refused the insurer’s offer of “‘tail coverage’ that would have insured
him against claims that arose from medical incidents occurring during the policy period, but were
first made and reported after that period.” Hood, 08-0215 at 2-3, 5 So.3d at 820-21.
14
  The appellate court in Hood affirmed the trial court’s denial of the insurer’s motion for summary
judgment on the issue of coverage, finding:

       [b]ecause the policy provision at issue in this case effectively reduced the prescriptive
       period for making a claim against [the insurer] to less than the statutorily-mandated
       period, the policy provision is in violation of the statutory law that prohibits the
       limiting of a right of action against an insurer to less than one year.

Hood v. Cotter, 06-1390, p. 8 (La.App. 1 Cir. 12/28/07), 978 So.2d 988, 994.

                                                  11
limit the injured third party’s right of action, as La. R.S. 22:1269 “does not extend the

protection of the liability policy to risks that were not covered by the policy unless

another statute requires a mandatory coverage provision.” Hood, 08-0215, 08-0237

at 18, 5 So.3d at 829-30. The court reasoned: “To hold otherwise would effectively

convert a claims-made policy into an occurrence policy and change the bargained-for

exchange between the insurer and the insured.” Id., 08-0215, 08-0237 at 18, 5 So.3d

at 830. Because claims-made policies are not per se impermissible or against public

policy,15 this court declined to interpret La. R.S. 22:868 as prohibiting a provision that

makes coverage dependent on a claim being first made and reported during a policy

period.16 Id. As in Anderson, the event that triggered policy coverage in Hood

simply had not occurred during the applicable policy period. Id. Therefore, the

enforcement of the policy provisions on the making and reporting of claims does not

deprive an injured third party of a right of action under the Direct Action Statute.

         Because this court, in Hood, considered the issue of whether the Direct Action

Statute preserves an injured third party’s claim against an insurer where the insured

failed in his reporting obligation, Lexington is correct in its assertion that the

appellate court in this case erred in disregarding the Hood decision. Relying on the

fact that her claim, unlike that in Hood, was made during the applicable policy period

as required by the Lexington policy, Gorman urges that Hood does not govern in this


15
   See Anderson, 98-2157 at 7, 760 So.2d at 306, citing Livingston Parish Sch. Bd., 282 So.2d
at 481.
16
     The Hood court explained that La. R.S. 22:868:

         [D]oes not mandate coverage, but prohibits any condition, stipulation or agreement
         in an insurance contract from limiting a right of action against the insurer to a period
         of less than one year from the time when the cause of action accrues, was not violated
         as the claims-made coverage provision did not impermissibly limit plaintiff’s cause
         of action.

Hood, 08-0215, 08-0237 at 18-19, 5 So.3d at 830.

                                                   12
case. Although factually distinguishable, we find that the court’s reasoning in Hood

nevertheless applies in this case.17

       Based on the holding in Hood, in the absence of coverage to the City, as

discussed previously, Gorman was not deprived of her rights under the Direct Action

Statute, as that statute does not extend any greater right to the injured third party who

was damaged by the insured. See First Am. Title Ins. Co. v. Titan Title, LLC, 2011

WL 5854683 *2-3 (M.D. La. 2011) (citing Hood as “determinative”); Vitto v. Davis,

09-0498, p. 6 (La.App. 3 Cir. 11/4/09), 23 So.3d 1048, 1052 (relying on Hood). Any

right that Gorman might have had under the Lexington policy did not vest at the time

of her son’s injury.        To hold otherwise would effectively convert the City’s

claims-made-and-reported policy into an occurrence policy, resulting in the judicial

modification of the bargained-for exchange between the insurer and insured.18 We

recognize that an injured third party rarely has knowledge of the identity of the

insurer of the party responsible for an injury, making it nearly impossible for an

injured third party to give notice to the insurer. Rather, the injured third party

generally has to rely on the insured, which has an interest in ensuring the availability

of the coverage it purchased, to comply with the reporting provision in its policy.

Although we can contemplate no logical reason why the City would not report a claim

for which it apparently purchased insurance coverage, we decline, under the facts of

this case, to hold the insurer liable for the City’s failure to report the claim as required




17
  In light of this court’s holding in Hood, the appellate court’s reliance on Murray and Pittman
was improper.
18
   A variety of coverages is typically available to an insured. Presumably, premiums are calculated
in accordance with the amount of protection undertaken by the insurer. See Livingston, 282 So.2d
at 482-83. In effect, the City received what it paid for by the present policy, with premiums
potentially adjusted to reflect the limited coverage.

                                                13
by the Lexington policy. A contrary finding would, where there is no evidence of

fraud or collusion, punish the insurer for the inactions of its insured.

       At least in terms of an available funding source if Gorman prevails in her

lawsuit, there is little doubt that Gorman has been prejudiced by the City’s delay in

answering discovery and revealing the identity of its insurer.19 However, this court

has previously considered and rejected arguments based on equity in this context.

Although insurance policies “are executed for the benefit of all injured persons,” such

protection is limited by the “terms and limits of the policy.” La. R.S. 22:1269(B)(1)

& (D); Hood, 08-215, 08-237 at 18, 5 So.3d at 829. Louisiana R.S. 22:868 simply

does not mandate coverage where none exists. See Hood, 08-0215, 08-0237 at

18-19, 5 So.3d at 830.

       The existence of a subsequently-issued Lexington policy does not dictate a

contrary result on the issue of coverage. Despite the similarities between the April

17, 2010-April 17, 2011 policy and the April 17, 2011-April 17, 1202 policy, there

is one very important difference–the defined policy period. The policy in effect for

the period of April 17, 2011, to April 17, 2012 (during which period the claim was

reported to Lexington) did not extend the policy period for the policy that was in

effect from April 17, 2010, to April 17, 2011. A judicial expansion of policy

coverage would circumvent the insurance contract that was mutually entered into by

the parties and create insurance protection where none existed. See Resolution Trust

Corp., 31 F.3d at 292. Coverage under each policy here requires “[a] claim for a

19
    Even though payment of a resulting judgment, if any, by the City is discretionary in that an
appropriation would be required and the City’s assets cannot be seized to satisfy a judgment, we are
not free to modify the terms of the policy that were bargained for by the City and Lexington. See
La. Const. art. XII, § 10(C) (governing the effects of judgments, the seizure of public property and
public funds, and the payment of judgments); La. R.S. 13:5109(B)(2) (governing the payment of a
judgment rendered against a political subdivision); Peterson, 98-1712 at 5, 729 So.2d at 1029
(“Courts lack the authority to alter the terms of insurance contracts under the guise of contractual
interpretation when the policy’s provisions are couched in unambiguous terms.”).

                                                14
wrongful act shall be first made against the Insured and reported to us in writing

during the policy period.” The plain terms of the policies must be enforced. See La.

C.C. art. 2046; Peterson, 98-1712 at 4-5, 729 So.2d at 1028. Clearly, the policy

required that the claim be first made and reported in the same policy period for there

to be coverage.

                                   CONCLUSION

      The provisions of the Lexington policy are undisputedly clear and

unambiguous.      Provisions on the making and reporting of claims in a

claims-made-and-reported policy are not per se impermissible as against public

policy. Under the City’s policy, the event and peril insured against is based on

making and reporting of the claim within the period specified by the policy. 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. Therefore, the trial court correctly granted

summary judgment in favor of Lexington as to the City and Gorman, and the

appellate court erred in reversing summary judgment relative to Gorman.

                                      DECREE

      That portion of the decision of the appellate court that reversed the trial court’s

grant of summary judgment in favor of Lexington as to Gorman is reversed, and the

trial court’s judgment in this regard is reinstated. The matter is remanded to the trial

court for further proceedings.

      REVERSED IN PART; JUDGMENT REINSTATED IN PART;

REMANDED TO THE TRIAL COURT.




                                          15
07/01/14



                     SUPREME COURT OF LOUISIANA

                               NO. 2013-C-1734

                               JOYCE GORMAN

                                    VERSUS

                        CITY OF OPELOUSAS, ET AL.

           ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
                THIRD CIRCUIT, PARISH OF ST. LANDRY



JOHNSON, C.J., dissents for the reasons assigned by Knoll, J.
07/01/14

                      SUPREME COURT OF LOUISIANA

                                  NO. 2013-C-1734

                                 JOYCE GORMAN

                                       VERSUS

                         CITY OF OPELOUSAS, ET AL.


KNOLL, Justice, dissenting.

      In this matter, we are presented with the issue left unanswered in Anderson

v. Ichinose, 98-2157, n.7 (La. 9/8/99), 760 So.2d 302, 306, n.7, of “whether a

claims-made insurer may raise, in an action by the victim of the insured’s tort, the

defense of a non-prejudicial failure of the timely notified insured to give notice to

the insurer during the policy period.” Because I disagree with the legal resolution

of this issue by the majority, I respectfully dissent.

      In Anderson, with Justice Lemmon as organ for the court, we held claims-

made policies do not violate public policy in a situation where the claim was

neither timely made nor reported to the insurer. We, however, left open the

question of whether a third party victim, who is denied coverage under a claims-

made policy because the timely notified insured failed to notify the insurer timely,

may resort to the public policy provisions of the Direct Action statute to obtain

coverage. The majority herein holds the Direct Action statute affords a victim the

right to sue the insurer directly when a liability policy covers a certain risk, but

does not extend the protection to risks not covered or excluded by the policy.

Accordingly, because the Lexington policy only covered claims made and reported

within the policy period, the majority finds the Direct Action statute does not
mandate coverage where none exists and, thus, confers no cause of action on

Gorman. This reasoning, in my view, is in error.

      As the majority noted, the Direct Action statute provides “[t]he injured

person or his survivors or heirs … shall have a right of direct action against the

insurer within the terms and limits of the policy.” La. Rev. Stat. § 22:1269(B)(1).

The statute further provides:

             C. It is the intent of this Section that any action brought under
      the provisions of this Section shall be subject to all of the lawful
      conditions of the policy or contract and the defenses which could be
      urged by the insurer to a direct action brought by the insured,
      provided the terms and conditions of such policy or contract are not in
      violation of the laws of this state.
             D. It is also the intent of this Section that all liability policies
      within their terms and limits are executed for the benefit of all injured
      persons and their survivors or heirs to whom the insured is liable….

La. Rev. Stat. § 22:1269.

      The majority focuses heavily upon the phrase “the terms and limits of the

policy” in its analysis without first examining the legality of those very terms and

limits under our law. In Livingston Parish Sch. Bd. v. Fireman’s Fund Am. Ins.

Co., 282 So.2d 478 (La. 1973), this Court explained: “in the absence of conflict

with a statute or public policy, insurers may by unambiguous and clearly

noticeable provisions limit their liability and impose such reasonable conditions as

they wish upon the obligations they assume by their contract.” 282 So.2d at 481.

It logically follows, when a liability policy or contract, which is executed for the

benefit of all injured persons, contains terms and conditions in violation of the laws

of this state, including those enacted for the protection of the public interest, then

the action brought by the injured party is neither subject to those conditions nor to

the defenses arising there under. See La. Civ. Code art. 7 (“Persons may not by

their juridical acts derogate from laws enacted for the protection of the public

interest.”). In my view, the notice requirement herein conflicts with the policy and



                                          2
intent of the Direct Action statute and effectively restricts the vested rights of

injured parties by allowing coverage to be defeated in an otherwise timely and

valid claim when an insured without good cause blatantly fails to give notice.

       At its most basic, the direct action is an application of the principle of

contract law that a third-party beneficiary may sue to enforce a contract made for

his benefit even though not himself a party to the agreement—a quasi stipulation

pour autrui. William Shelby McKenzie and H. Alston Johnson, III, 15 La. Civ. L.

Treatise, Insurance Law & Practice § 2:6 (4th ed.). It was initially enacted to

insure the payment of judgments arising out of an injury caused by an insured,

who, due to insolvency or bankruptcy, could not pay, but had contracted for

liability insurance covering the tort action. Id. at § 2:2. It has since evolved into a

true right of direct action, and one of its most distinctive characteristics is how by

its language and its judicial interpretations it “almost entirely remove[s] the

insurance contract from governance by the established principles of contract law.

The contract becomes one infused with important public policy concerns, and

candidly described as written for the benefit of a non-party: the person injured by

the blameworthy conduct of one of the contracting parties.” Id. at § 2:6. This

concept is nowhere more evident than in the interpretation of the language of the

statute granting a direct action to the injured person “within the terms and limits of

the policy.”

       This phrase upon which the majority herein so heavily relies has been

present in the statute since its inception in 1918.1 However, unlike the majority,

our courts have since even then found:


1 In Act 253 of 1918, the Legislature made it a misdemeanor for a company to issue any policy
“against liability unless it contains a provision … that the insolvency or bankruptcy of the
assured shall not release the company from the payment of damages for injury sustained or loss
occasioned during the life of the policy.” See McKenzie & Johnson, supra § 2:2 (quoting 1918
La. Acts 253). “In such a case, i.e., the insolvency of the insured, ‘an action may be maintained



                                               3
       the words “terms and limits of the policy” were not intended to
       include the requirement of notice, but referred only to the amount
       which might be recovered and to those other warranties and
       conditions with which it was within the power of plaintiff to comply.

Edwards v. Fidelity & Cas. Co. of New York, 11 La. App. 176, 178, 123 So. 162,

163 (Orleans 1929)(emphasis added). In West v. Monroe Bakery, 217 La. 189, 46

So.2d 122 (1950), this Court squarely faced the interpretation of this phrase and

concluded:

              It is illogical to construe “terms and limits of the policy” to
       mean one thing in one section of [the Direct Action statute](the same
       section that existed in Act 253 of 1918) and another entirely different
       thing in a later section, when all the sections relate to the same
       subject-the responsibility of a liability insurer to those who sustain
       injury for which the assured shall be found liable. Hence, what was
       said in the Edwards case as to the effect of “terms and limits of the
       policy” is equally applicable to the present set of circumstances.

217 La. at. 202, 46 So.2d at 127.

       The West court also explained our jurisprudence consistently upheld the

statutorily granted right against the insurer “regardless of a stipulation to the

contrary between the insurer and the insured in the policy contract and regardless

of dilatory conduct on the insured’s part in giving notice.” Id. at 191, 46 So.2d at

123.    I agree with this long-standing jurisprudence and find the majority’s

statement that “[a]ny right that Gorman might have had under the Lexington policy

did not vest at the time of her son’s injury,” Slip Op. at 13, is a legally erroneous

statement. A tort victim’s rights do not go in and out of vestment. Her substantive

cause of action against the insured vested upon her son’s death. Whether her

action was covered under the policy and whether she can proceed against

Lexington is another matter.




within the terms and limits of the policy by the injured person or his or her heirs, against the
insurer.’” Id.



                                               4
      Clearly, the Direct Action statute grants Gorman a right of action against the

insurer “within the terms and limits of the policy.” This is a “CLAIMS MADE”

policy, in which “COVERAGE IS LIMITED GENERALLY TO LIABILITY FOR

CLAIMS FIRST MADE AGAINST YOU AND REPORTED IN WRITING TO

US WHILE THE COVERAGE IS IN FORCE”:

      We shall pay those amounts that the Insured becomes legally
      obligated to pay to compensate others for bodily injury, property
      damage, or personal injury arising out of the Insured’s wrongful act.
      The wrongful act 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 Insured and reported to us in writing
      during the policy period or any extended reporting period we provide
      under this policy.

See Slip Op. at 2-3.

      It is undisputed the date of the wrongful act fell within the policy period, the

act arose solely in the insured’s capacity as a law enforcement agency, and

Gorman timely made the claim against the insured within that same policy period

in accordance with the terms and limits of the policy. At that time, her right of

direct action was fully conferred.     Although the majority reads the reporting

requirement as a term of the contract, this requirement is for all intents and

purposes a notice requirement and, as such, does not fall within the “terms and

limits of the policy” as historically defined by this Court. See West, 217 La. at.

191, 46 So.2d at 123; see also Edwards, 11 La. App. at 178, 123 So. at 163. While

the failure to notify can be invoked against the insured, its failure to notify the

insurer—a condition over which Gorman had no control—cannot take away the

vested right of a third-party beneficiary who did all within her power to preserve

her rights. Therefore, I find our Direct Action statute confers a right of action in

Gorman against Lexington for the tragic death of her son and agree with the court

of appeal the notice provision could not be used as a coverage defense against a



                                          5
third party victim who had no knowledge of the provision and who had taken steps

to pursue her legal remedies. See Gorman v. City of Opelousas, 12-1468, p. 3 (La.

App. 3 Cir. 5/1/13)(unpub’d)(quoting Pittman v. Nutmeg Ins. Co., 97-524, p. 5 (La.

App. 3 Cir. 3/6/98), 708 So.2d 832, 834).

       Nevertheless, even if the reporting requirement would somehow be

constituted as a term or limit of the policy contractually negotiated by the parties, I

still would recognize Gorman’s direct action against Lexington because in my

view the notice requirement derogates from the public policy behind our Direct

Action statute. As previously stated, the statute was enacted from its inception to

protect tort victims from insolvent tortfeasors by extending to them the insurance

for which said tortfeasor contracted. McKenzie & Johnson, supra, §2:2. Given the

payment of a judgment by the City is discretionary, see La. Const. art. XII, §10(C)

and La. Rev. Stat. 13:5109(B)(2),2 Gorman is essentially facing an insolvent

insured and should be granted the benefit the City contracted for—coverage for

liability for wrongful acts committed and subsequent claims made during the

policy period—as she properly took all the necessary steps to preserve and pursue

the legal remedies afforded to her by the Legislature in our Direct Action statute.


2As we explained in Newman Marchive Partnership, Inc. v. City of Shreveport, 07-1890 (La
4/8/08), 979 So.2d 1262,

       … the constitution delegated to the legislature the power to determine how money
       judgments rendered against the state would be executed. La. Const. art XII, §
       10(C). The legislature acted on this authority when it passed LSA-R.S.
       13:5109(B)(2), stating, “[a]ny 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 ....” (Emphasis
       added).… LSA-R.S. 13:5109(B)(2) envisions that whenever a judgment is
       rendered against the state, a state agency, or a political subdivision of the state,
       the judgment is payable only out of funds appropriated “for that purpose,” i.e.
       money set aside specifically to satisfy a particular judgment. Id. This is in accord
       with what we previously stated in Hoag [v. State, 2004-0857 (La.12/1/04), 889
       So.2d 1019], that “La. R.S. 13:5109(B) is a clear expression of legislative intent;
       judgments rendered against the state are payable only by specific appropriation by
       the legislature.” 2004-0857, p. 5, 889 So.2d at 1023 (emphasis added).

07-1890 at pp. 6-7, 979 So.2d at 1267 (emphasis in original).



                                                6
      In West, this Court explained:


             It is quite true that [insured’s] failure to give notice to his
      insurer would have prevented his recovery from the insurer, had he
      himself paid the judgment * * * but that is because [the insured] had
      so contracted. As between parties to a contract, the contract itself is
      the law of the case. Here, however, the law of the case is not found
      solely within the four corners of the policy of insurance, but is
      contained primarily in the statute to which we have referred.
             ….
             We are told that it works a hardship on the insurer to be called
      on to defend an action of this kind, as he has had no prior knowledge
      of the accident and is not in a position to make a defense. As to the
      hardship and disadvantage under which the insurer labors, and the
      difficulty under which the injured party finds himself we think that the
      ends of the justice require that the benefit of the doubt should be given
      to the injured party, who is in no way at fault, and whose loss was
      caused entirely by some one else, as against the insurer who has
      entered into the contract with full knowledge of the statute and for a
      monetary consideration.

217 La. at 126, 46 So.2d at 198-200 (quoting Edwards v. Fidelity & Cas. Co. of

New York, 11 La. App. 176, 123 So. 162 (Orleans 1929))(Italics in original). The

Court then concluded:

             As indicated in the reasoning of the Edwards case, the injured
      party might be deprived entirely of the benefits granted him by [the
      Direct Action statute] were the Courts to hold that any and every
      failure of the insured, after the accident, to comply with every
      exacting requirement of the policy would defeat recovery by the
      injured party. For instance, the insurance company might put a
      condition in the policy that telegraphic notice of an accident must be
      given to its home office within twenty-four hours of its occurrence
      and in the event of failure to give such notice, the policy protection
      would not cover the accident. The policyholder, being in possession of
      the policy, would at least have the opportunity of finding out that such
      a telegram was necessary and protect his rights, but the injured party,
      after the accident, is often in the hospital, or if less fortunate, he may
      have lost his life, and he or his heirs may be some days or weeks
      becoming familiar with the full facts surrounding his injury. The
      injured party or his heirs have no copy of the contract of insurance
      and may not even know for many weeks that such a policy was in
      existence, much less what its terms and conditions require.
             …. 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.
      Frequently the insured is financially irresponsible and the only
      recourse of a person injured by the negligence of the insured is against



                                          7
      his insurance carrier. But rarely has the injured party knowledge as to
      who may be the insurer of the party responsible for his injuries. It is
      therefore not within his power to give a notice as required by the
      policy and the enforcement of a policy provision requiring notice to
      be given by the insured automatically and without any action on his
      part deprives him of the right of action granted by law. It is not
      desirable that he should be divested of such action, and that result
      should not obtain except in a very clear case. This is not such a case.
      By maintaining plaintiffs’ action, the defendant company is not
      deprived of any substantial right. Its liability remains contingent and
      is dependent upon proof of the negligence of [the insured], the driver
      of the automobile.”

Id. at 129-30, 46 at 208-10 (quoting West v. Monroe Bakery, 39 So.2d 620 (La.

App. 2d Cir. 1949)(Kennon, J., dissenting))(Italics in original).

      While much could be made of the fact the policies in both West and

Edwards upon which it relied were occurrence policies, I “see no meaningful

distinction between the loss of rights suffered by an injured third party for failure

to give notice under an occurrence policy and the loss of rights suffered by an

insured third party for failure to give notice under a ‘claims made’ policy.”

Murray v. City of Bunkie, 96-297, p. 8 (La. App. 3 Cir. 11/6/96), 686 So.2d 45, 50,

writ denied, 97-0514 (La. 5/9/97), 693 So.2d 767. In both instances, injured third

parties become vested with rights under our Direct Action statute, and in both

instances, the enforcement of the notice provisions would deprive injured third

parties of their rights under the Direct Action statute when it was not within their

power to give notice. Such a divestment is in direct derogation of our law and the

policy and intention of the Legislature in granting the direct action. See La. Rev.

Stat. § 12:1269(C); La. Civ. Code art. 7.

      Significantly, our Legislature explicitly prohibits insurance contracts from

containing “any condition, stipulation, or agreement limiting [the] right of action

against the insurer … to a period of less than one year from the time when the

cause of action accrues….”       La. Rev. Stat. § 22:868(B).        By restricting the




                                            8
contractual freedom of the parties, the Legislature thus ensures the protection

afforded by our rules of prescription. The provision in the Direct Action statute

prohibiting compliance with terms and limits “in violation of the laws of this State”

likewise restricts the ability of the contracting parties to limit the tort victim’s right

of action against the insurer.      Here, the notice requirement coupled with the

insured’s blatant and unjustified failure to provide notice would not only limit, but

effectively destroy the tort victim’s right of action in an otherwise timely filed suit,

and as such, it should be void as against the public policy provisions of our Direct

Action statute. See La. Civ. Code art. 7 (“any act in derogation of such laws

[enacted for the protection of the public interest] is an absolute nullity”); see also,

La. Rev. Stat. § 22:868(C)(“any such condition … shall be void”).

      Accordingly, I would find the contractual notice provision cannot be used to

deprive the injured third party of her vested rights under the Direct Action statute

and affirm the judgment of the Court of Appeal.




                                            9
07/01/14


                    SUPREME COURT OF LOUISIANA

                                No. 2013-C-1734

                              JOYCE GORMAN

                                      versus

                       CITY OF OPELOUSAS, ET AL


           ON WRIT OF REVIEW TO THE COURT OF APPEAL,
                         THIRD CIRCUIT,
                      PARISH OF ST. LANDRY



HUGHES, J., dissenting.

     I respectfully dissent for the reasons assigned by Justice Knoll.




                                        1
