Sikes v. Prime Holdings Insurance Services, Inc.Sikes v. Prime Holdings Insurance Services, Inc.
SO ORDERED.
SIGNED June 26, 2025.
JOHN W. KOLWE
UNITED STATES BANKRUPTCY JUDGE
RULING ON MOTION TO DISMISS AND ORDER
Before the Court is Prime Insurance Company‘s (“Prime“) Motion to Dismiss Complaint or, Alternatively, to Abstain from Adjudicating or to Sever Count 3 (ECF #11), seeking dismissal of the claims against it asserted by Plaintiff Lucy G. Sikes, Chapter 7 Trustee (the “Trustee“). Having considered the parties’ briefing, the arguments at the hearing, and the applicable law, the Court concludes that the Motion should be granted and the claims against Prime dismissed.
In this adversary proceeding, the Chapter 7 Trustee seeks to avoid a release that the late Debtor, Mr. Thompson, signed, which the Trustee claims resulted in Mr. Thompson releasing a valuable bad faith claim against Prime (Count 1). The Trustee also asserts that bad faith claim against Prime for its conduct in handling litigation against Mr. Thompson, as outlined below (Count 3). (The only other claim set out in the Complaint, Count 2, is a professional malpractice claim against an attorney for the Debtor and the attorney‘s employer that is not relevant to Prime.) The essential question is whether Mr. Thompson, who was not a named insured under the Prime policy at issue but was treated as a covered driver under certain mandatory provisions of the Louisiana motor vehicle law, was entitled to assert a bad faith claim against Prime himself under Louisiana insurance law as if he were a named insured. If Louisiana insurance law does not provide him with the right to assert a bad faith claim against Prime, then the Trustee‘s claims against Prime in this adversary proceeding fail as a matter of law, and Prime‘s Motion to Dismiss must be granted. On the other hand, if Mr. Thompson had the right to assert a bad faith claim against Prime, then the Court must determine whether the Trustee‘s Complaint has set out a basis for maintaining the claim here.
Rule 12 Standard
Prime seeks dismissal of the Trustee‘s claims against it for failure to state a claim upon which relief can be granted under
Factual Allegations and Background
According to the Trustee‘s First Supplemental and Amending Complaint (ECF #2), which the Court must view in the light most favorable to the Trustee, this case arises out of a March 21, 2017 motor vehicle accident that occurred when the late Debtor, Elvis Dean Thompson, drove his 18-wheeler into the back of a vehicle driven by Tracy Day, which caused her vehicle to collide with another vehicle (the “Accident“).5 At the time of the Accident, Mr. Thompson was in the course and scope of his employment with Terry Graham Trucking Incorporated (“TGTI“), which owned the truck in question.6 The Trustee also asserts:
6. Thompson and TGTI were insured by Prime Insurance Company (“Prime“) under commercial business auto insurance policy number SC1701534. (“The Policy.“) On its face, the Policy provided $1,000,000.00 in coverage. But, the Policy also contained a “Scheduled Drivers Endorsement” (PCA-99-03) that provided that “No Coverage shall be provided under this Policy for any covered Auto which is being used or operated by anyone other than the driver(s) or operator(s) scheduled on this Policy.” Only two drivers were named in the Policy: (1) Philip Ray Scott; and (2) Courtney Eugene Graham. Thus, Elvis Thompson was an “unlisted driver.”
Id., ¶ 6.
Notwithstanding the fact that Mr. Thompson was an unlisted driver, the Trustee asserts that the insurance policy provided insurance coverage to Mr. Thompson with respect to third parties under
Thus, according to the Complaint, Mr. Thompson was not listed in the policy itself and was only covered by the Prime policy as an unlisted driver using the truck “with the express or implied permission of such named insured.” The Prime policy provided for $1,000,000 in coverage, but the Complaint points out that the policy contained a provision that could have limited Prime‘s exposure to Mr. Thompson as someone entitled to coverage under the policy but not a named insured:
9. However, at Section I, par. B, of the Policy titled “Liability Exclusions” the Policy provides:
In the event that any of the exclusions stated in this Policy are found by a court of law to be unenforceable or in contradiction to applicable law in regards to a specific Claim, the invalid provision is to be interpreted as providing the minimum insurance coverage required under the financial responsibilities laws, in place of the invalid exclusion, for such Claim.
Because Elvis Dean Thompson was an unlisted driver, Prime could easily have limited its liability for all claims arising from the crash of March 31, 2017 to $300,000.00, which is the minimum required statutory limits for a policy insuring a commercial truck like Thompson was driving.
Id., ¶ 9.
The Complaint asserts that four lawsuits were filed in Louisiana state court against Mr. Thompson, TGTI, and Prime, along with other parties not relevant here, based on the Accident and that both Prime and the defense counsel it appointed, Paul Eckert, engaged in misconduct in connection with the lawsuits.8 (Mr. Eckert and his law firm are also named defendants in this adversary proceeding.) Specifically, the Complaint alleges that “Prime appointed conflicted defense counsel, failed to reserve its rights to contest coverage, failed to keep TGTI or Thompson apprised of their exposure or the proceeding lawsuits and made no good faith effort to timely settle these suits and extricate its insureds from what was from the start a clearly and substantially certain excess judgment.”9 With respect to Mr. Eckert, the attorney appointed by Prime, the Complaint alleges that he represented Mr. Thompson, TGTI, and Prime simultaneously without any reservation of rights notice and with no non-waiver agreement with either Mr. Thompson or TGTI, which the Trustee claims resulted in a waiver of Prime‘s coverage defense under Louisiana law, notwithstanding Mr. Eckert‘s attempt to raise the coverage defense approximately three years into his conflicted representation.10 In short, the Trustee claims that Prime‘s actions exposed Mr. Thompson and TGTI to multi-million dollar judgments.11
Highly relevant to this adversary proceeding, TGTI asserted a cross-claim against Prime in one of the state court actions based on Prime‘s alleged bad faith.12 The Complaint alleges that both TGTI and Mr. Thompson had bad faith claims against Prime worth millions of dollars apiece, that Prime paid the owner of TGTI $75,000 to release its bad faith claim against Prime, and that Prime paid a private investigator to track down Mr. Thompson, then basically homeless, to pay him $1,000 on May 4, 2022 to waive any bad faith claim he might have against Prime.13 The Complaint claims that Mr. Thompson had limited education and did not understand what he was signing or how big a potential claim he was giving up.14
Prime filed this Motion to Dismiss (ECF #11) on March 31, 2025. The Motion raises a number of arguments, but the dispositive one for purposes of this ruling is that although Mr. Thompson was insured under the policy with respect to third parties under mandatory provisions of Louisiana‘s motor vehicle laws (i.e.,
Analysis
Prime‘s Motion to Dismiss puts forward a number of arguments, but the primary question is whether Mr. Thompson, who was not a named insured under the Prime policy, could have asserted a bad faith claim against Prime under Louisiana‘s insurance laws. If Mr. Thompson did not have a right to assert a bad faith claim against Prime, then the Trustee cannot assert that claim now, notwithstanding the fact that Mr. Thompson agreed to waive such a claim for $1,000. Put another way, if Mr. Thompson never could have asserted the bad faith claim against Prime, then neither can the Trustee. Thus, the Court will start with that determination for Count 3 because it could moot Count 1.
The Trustee‘s bad faith claim against Prime arises out of
For reference, the pre-repeal version of
A. An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.
I.(1)(a) An insurer, including but not limited to a foreign line or surplus line insurer, owes to its insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer that breaches the duties of this Subsection shall be liable for any proven economic damages sustained as a result of the breach. . . .
These statutes only refer to an “insured,” which on the face would not seem to be very helpful in determining whether anyone provided coverage under the policy can sue for bad faith, or whether only a named insured can. Prime cites a host of case law for the proposition that only the named insured, i.e., someone in contractual privity with the insurer, can bring a bad faith claim under the statutes.15 The Court has reviewed Prime‘s authority and finds it to be valid, and the Court‘s own research reaches the same conclusion that only a named insured under the policy may bring such a claim.
First, as Prime correctly notes, because both
The definitional section of Title 22, Part XXVI, in which the statute in question appears, defines “insured” as the party named on the policy.
La. R.S. 22:1212, B . Had the legislature meant to address only the rights of “insureds,” it would have been unnecessary to use the phrase “insureds or claimants” in the act. Moreover, Subsection C of the act, which stipulates the penalties which may be awarded for its violation, provides that in addition to the damages to which a “claimant” is entitled, the “claimant” may be awarded penalties. We have no trouble concluding that the legislature intended to provide a right of action directly in favor of third-party claimants in certain situations when it enactedLa. R.S. 22:1220 . We are unwilling to suppose that the legislature failed to understand the distinction between “insureds” and “claimants” when it enactedLa. R.S. 22:1220 .
694 So. 2d at 188. The definitional statute the Court referred to,
Thus, the Louisiana Supreme Court has concluded that to assert a bad faith claim against an insurer, the “insured” must be in contractual privity with the insurer, i.e., be a named insured. As Prime points out, the Louisiana Supreme Court expanded on this reasoning in Smith v. Citadel Insurance Co., 285 So.3d 1062 (La. 2019), emphasizing that the duty of good faith grows out of the contractual relationship:
Although the duty of good faith owed by the insurer to the insured is codified in
La. R.S. 22:1973 , the bad faith cause of action by an insured against the insurer does not rest solely on this statute. The duty of good faith is an outgrowth of the contractual and fiduciary relationship between the insured and the insurer, and the duty of good faith and fair dealing emanates from the contract between the parties. In the absence of a contractual obligation, the duty of good faith does not exist.
285 So. 3d at 1069 (citations omitted, emphasis added).
In Team Contractors, L.L.C. v. Waypoint NOLA, L.L.C., 780 F. App‘x 132, 135 (5th Cir. 2019), the Fifth Circuit reiterated that only a named insured may bring a bad faith claim:
Under Louisiana law, an “insured” is “the party named on a policy or certificate as the individual with legal rights to the benefits provided by such policy.”
La. Stat. Ann. § 22:1962(B) . When the statute refers to a “person insured by the contract,” it contains the specific language referring only to an entity named as an insured. Waypoint argues that while it is not an “insured,” the statute imposes a duty to not only the insured, but also to a “claimant.” Though that is true generally of subsection (A), Waypoint‘s claim is based entirely on paragraph (B)(5), which refers more specifically to a “person insured by the contract.” Because paragraph (B)(5) uses the specific language of “person insured by the contract,” it limits the insurer‘s duty to only named insureds.As Waypoint notes, substituting “insured” for “person insured” would moot the distinction that the legislature made between “the insured,” “the claimant,” and “any person.” Subsection (A) first creates a duty to the insured of good faith and fair dealing, and then to the insured or the claimant to make a reasonable effort to settle claims.
Id. § 22:1973(A) . However, in paragraph (B)(5), the use of the word “claimant” is used only in reference to the “person insured by the contract” having a cause of action for failure to pay claims in bad faith. A “person insured by the contract” does not include third-party claimants. See Toerner v. Henry, 812 So. 2d 755, 758 (La. Ct. App. 2002)(noting that the provisions are subject to strict interpretation). Louisiana courts have consistently applied that interpretation. The Louisiana Supreme Court held in 2004 that while the statute uses the word “claimant,” it is only applicable to a person insured by the contract, which excludes a third-party claimant. Langsford v. Flattman, 864 So. 2d 149, 151 (La. 2004). Waypoint attempts to distinguish Langsford from the present case by arguing that it is a third-party beneficiary to the professional liability contract, not a victim of an automobile accident like the plaintiff in Langsford. We see no reason why the principle in Langsford cannot be applied here. Langsford held that “a third party claimant such as plaintiff is not a person insured by the contract for purposes of
La. R.S. 22:1220(B)(5) .” Id. The Court in Langsford was not deciding this as a one-off; it cited Louisiana appellate courts in support of the general proposition that the jurisprudence has held that a third-party claimant has no cause of action under the statute. Id. The Louisiana appellate courts have all held that only named “insureds” may bring a suit for bad faith damages. See e.g., Toerner v. Henry, 812 So. 2d 755, 757-58 (La. Ct. App. 2002); Moxley v. Cole, 736 So. 2d 249, 256 (La. Ct. App. 1999); Smith v. Midland Risk Ins. Co., 699 So. 2d 1192, 1197 (La. Ct. App. 1997); Armstrong v. Rabito, 663 So. 2d 512, 514 (La. Ct. App. 1995).
780 F. App‘x at 134-35 (emphasis added).
Based on the Louisiana Supreme Court‘s clear interpretation of the relevant statutory language, which the Fifth Circuit has applied without controversy, it would seem the Court must conclude that only an insured in contractual privity with the insurer may bring a bad faith claim against the insurer. It is undisputed that Mr. Thompson was not in contractual privity with Prime and was not a named insured under the policy, only a person entitled to coverage pursuant to the expansive motor vehicle laws under
Despite this seemingly overwhelming line of authority, the Trustee argues that
The Trustee is making essentially a policy argument, that this must be what the legislature meant, but that argument is not supported by the applicable statutes and relevant case law. This Court finds that the Louisiana Supreme Court has already decided this issue, and in the absence of contrary authority, it will follow the clear rule that only someone in contractual privity with the insurer, i.e., a named insured, not someone merely provided coverage under the policy under
Conclusion
Mr. Thompson was not a named insured and was not in contractual privity with Prime. Accordingly, under the applicable statutes, as interpreted by the Louisiana Supreme Court, he could not have brought a bad faith claim against Prime under
Order
For the reasons set out in this opinion,
IT IS ORDERED that Prime‘s Motion to Dismiss (ECF #11) is GRANTED, and the claims against Prime are DISMISSED WITH PREJUDICE.