768 F.3d 374
5th Cir.2014Background
- RSUI, an excess insurer, sues American States Insurance Company (primary) for bad faith in defense, seeking to recover $2 million RSUI paid to Barrow above American's $1 million policy limit.
- Underlying suit was Barrow v. Thomas/Ameraseal; Barrow claimed extensive injuries, defense by American, and no RSUI involvement as a party.
- American settled with Barrow at the primary limit; RSUI then settled Barrow’s excess claim for $2 million after American declined to offer more.
- The district court granted summary judgment for American, holding no excess judgment existed and thus RSUI had no bad-faith claim against American.
- The court recognized a Louisiana duty to defend and indemnify, but found no adjudicated excess judgment as a prerequisite for bad-faith claims in underling cases.
- The Fifth Circuit reversed, holding that a subrogated bad-faith claim can proceed where alleged bad-faith defense caused excess liability, and remanded for merits and causation analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can RSUI pursue a subrogated bad-faith claim without an adjudicated excess judgment? | RSUI: excess-bad-faith claim allowed under Great Southwest; | American: excess-judgment prerequisite applies to all bad-faith claims; | Yes; RSUI may pursue without adjudicated excess judgment. |
| Does causation linking bad faith to excess exposure suffice to support subrogation damages? | American’s bad faith exposure caused excess liability and settlement; | Damages require adjudicated excess or a direct excess-risk showing; | Causation present; requires further factfinding on merits. |
| Is the excess insurer’s claim governed by Great Southwest subrogation principles even when no excess judgment exists yet? | Great Southwest supports subrogation for excess-cost burden caused by bad faith; | Mathies/Louque require excess judgment to proceed; | Great Southwest controls; subrogation viable with causation; remand for merits. |
Key Cases Cited
- Great Southwest Fire Insurance Co. v. CNA Insurance Companies, 557 So.2d 966 (La. 1990) (excess insurer may recover when primary’s bad faith creates excess liability)
- Mathies v. Blanchard, 959 So.2d 986 (La. Ct. App. 2007) (prematurity of bad-faith claim requires excess judgment in insured case)
- Louque v. Allstate Ins. Co., 314 F.3d 776 (5th Cir. 2002) (no extrinsic duty without risk of excess liability)
- Ragas v. MGA Ins. Co., 1997 WL 79357 (E.D. La. 1997) (consent judgment collateral; not applicable where no subrogation/without excess risk)
- Gasquet v. Commercial Union Ins. Co., 391 So.2d 466 (La. Ct. App. 1980) (settlement characterization relevance to bad-faith actions)
- Pareti v. Sentry Indemn. Co., 536 So.2d 417 (La. 1988) (fiduciary duty to insured; good-faith settlement considerations)
- St. Paul Ins. Co. of Bellaire, Tex. v. AFIA Worldwide Ins. Co., 937 F.2d 274 (5th Cir. 1991) (excess insurer's post-Great Southwest liability considerations)