Fifth Circuit Holds Direct Action Barred By Insured’s Untimely Claim Reporting

by Traub Lieberman Straus & Shrewsberry LLP

In its recent decision in First Am. Title Ins. Co. v. Cont'l Cas. Co., 2013 U.S. App. LEXIS 4153 (5th Cir. Feb. 28, 2013), the United States Court of Appeals, applying Louisiana law, had occasion to consider whether an insured’s failure to report a malpractice claim prior to its policy’s expiration precluded the underlying plaintiff’s right to bring a direct action against the insurer.
Continental Casualty Company insured Titan Title, LLC under a claims made and reported legal malpractice policy in effect for the period August 16, 2008 to August 16, 2009. During the policy period, Titan, and its principal, were named as defendants in a lawsuit alleging they were negligent in issuing title insurance policies on behalf of its client, plaintiff First American Title Insurance Company. The insureds, however, failed to report the lawsuit to Continental while the malpractice policy was in effect. First American subsequently learned of the policy and gave notice of the claim to Continental in January 2010. It later amended its complaint to add Continental as a direct defendant pursuant to Louisiana’s Direct Action Statute.
The lower court granted Continental’s motion for summary judgment, concluding that First American could not recover under the policy since neither the insureds, nor First American, reported the claim to Continental during the policy period. In reaching its decision, the lower court reasoned that if the plaintiff could subvert the policy’s claims made and reporting requirement, then the policy would improperly be transformed into an occurrence policy, which would negate the bargained-for-exchange between Continental and its insured. On appeal, the Fifth Circuit acknowledged the lack of Louisiana state court guidance on the issue, requiring an “Erie guess” on the issue. The court concluded that the district court properly predicted how a Louisiana court would rule, since Louisiana state courts have held in other contexts that the Direct Action Statute does not alter the scope of coverage under an insurance policy, and that it does not give plaintiffs greater policy rights than enjoyed by insureds.  See, e.g., Anderson v. Ichinose, 760 So. 2d 302 (La. 1999); Robicheaux v. Adly, 779 So. 2d 1048(La. Ct. App. 3d Cir. 2001).
With this in mind, and given Louisiana’s rigid enforcement of claims made and reporting policy requirements, the court concluded that the failure of the insured to report the claim while the policy was in effect was binding on First American’s right to insurance benefits. In this connection, the court cited to its earlier decision in Resolution Trust Corp. v. Ayo, 31 F.3d 285 (5th Cir. 1994), noting that “[w]hile the absence of prejudice-preventing notice generally does not bar a third-party action under the Direct Action Statute, the absence of claim-triggering reporting can prevent such an action because relaxing this reporting requirement expands coverage, which ‘constitutes prejudice as a matter of law.”
In reaching its decision, the court considered First American’s argument that failure to report a claim during the policy period should be considered in the same light as late notice of occurrence or suit under an occurrence policy, which Louisiana courts have held does not operate to the detriment of injured third-parties. The court rejected this reasoning, drawing a clear distinction between occurrence-based policies and claims made and reported policies:
Unlike occurrence policies, where a third party's claim vests at the time of the injury or occurrence … a claims-made-and-reported policy establishes certain conditions precedent to coverage…Claim-triggering reporting is one of these conditions. By serving as a required element for establishing a claim under a claims-made-and-reported policy's insuring clause, claim-triggering reporting "allow[s] the insurer to 'close its books' on a policy at its expiration and therefore 'attain a level of predictability unattainable under standard occurrence policies.'" … In exchange for the assurance that it will be liable for only those claims that are made and reported to it during the policy's effective term, an insurer may make certain concessions, such as accepting a lower policy premium. In light of the delicate balance in these policies, we strictly construe notice and reporting requirements in claims-made policies because of their important role in defining the scope of different in scope of temporal coverage.
First American’s argument, concluded the court, would improperly expand the policy’s scope of coverage, and the bargained-for-exchange between Continental and its insured. As such, the Fifth Circuit concurred with the lower court’s reasoning that allowing First American to recover under the policy under such circumstances would effectively transform the policy from a claims-made policy into an occurrence-based policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Traub Lieberman Straus & Shrewsberry LLP | Attorney Advertising

Written by:

Traub Lieberman Straus & Shrewsberry LLP

Traub Lieberman Straus & Shrewsberry LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.