On November 15, 2019, the Louisiana First Circuit Court of Appeal issued an opinion on the effect of settlement on an insurer’s duty to defend. The case, Champagne v. USAA Cas. Ins. Co., 2019-0334 (La. App. 1 Cir. 11/15/19), came to the Court following cross-motions for summary judgment filed by the insurer, USAA Casualty Insurance Company (USAA), and SELA Pizza #2 d/b/a Marco’s Pizza (SELA), the employer of USAA’s insured. USAA’s motion had been granted by the trial court, and SELA’s denied.
Champagne v. USAA Cas. Ins. Co. – Factual Background
Champagne v. USAA Cas. Ins. Co. stemmed from a November 6, 2013 automobile accident, in which USAA’s insured, while out delivering pizza as part of her job for SELA, rear-ended another vehicle. USAA’s policy covering its named insured, the delivery driver’s father, had policy limits of $30,000.00 per person and $60,000.00 per accident. Prior to suit, USAA actively tried to settle plaintiffs’ claims for these policy limits, and USAA tendered checks for its policy limits to the plaintiffs in May of 2014 and reissued the checks several times when they were not cashed and became stale. Plaintiffs then filed suit on September 26, 2014, naming USAA and American Safety Indemnity Company (ASIC), among others, as defendants. ASIC was an excess non-owned automobile liability insurer for SELA.
The Gasquet Release Error
On December 5, 2014, plaintiffs’ counsel wrote USAA’s attorneys, agreeing in writing to settle the plaintiffs’ claims on the following terms:
- USAA will tender its limits and reissue settlement checks;
- Plaintiffs will not attempt to collect any judgment against [delivery driver] over and above the policy limits once a judgment is taken; and
- Plaintiffs will pursue any and all efforts to collect a judgment over the policy limits against [delivery driver]’s employer or their insurance provider.
This arrangement has the hallmarks of a Gasquet Release, which is seen often in transportation litigation, especially when there is a smaller personal insurance policy providing primary coverage and other sources of insurance in addition to or in excess of the primary policy.
In a true Gasquet Release, USAA would have obtained a release of the delivery driver’s and SELA’s excess exposure and allowed plaintiffs to still pursue claims against remaining available insurance, including the excess non-owned automobile liability policy provided by ASIC. However, USAA failed to include a release of SELA’s excess exposure in the settlement, despite SELA being an additional insured under USAA’s policy, which provided primary coverage for the underlying loss. USAA had been obligated to defend and indemnify SELA in addition to its delivery driver, up to its policy limit, and Louisiana jurisprudence does not generally allow insurers to tender their policy limits without providing a defense, which USAA had just done. The settlement arrangement was not therefore a true Gasquet Release, and the omission of SELA’s excess exposure from USAA’s release created additional litigation between SELA and USAA.
Demand for Defense and Indemnity and Appeal
SELA filed a motion for summary judgment demanding defense and indemnity from USAA. USAA filed a cross-motion for summary judgment seeking dismissal of SELA’s claims for defense and indemnity. In light of USAA’s settlement, the trial court granted USAA’s motion and denied SELA’s, and SELA appealed.
On appeal, SELA appropriately argued, among other theories, that SELA was an insured of and entitled to defense from USAA, that USAA was not relieved of its duty to defend SELA by a potential future settlement, and that USAA’s duty to defend SELA was primary to ASIC despite USAA’s prior settlement. USAA’s policy provided that USAA’s duty to settle or defend ends when their limits of liability for those coverages is paid or tendered. SELA argued that this provision was ambiguous in that “paid or tendered” was undefined.
The Court rejected this argument, finding that “SELA relies on a strained interpretation of the USAA policy to argue that USAA, having paid the full policy limits in connection with a settlement entered into 2014, was obligated to bear the cost of defending SELA over several more years of litigation as long as SELA and its insurers desired to defend the case,” despite USAA having no ability to settle those claims, as USAA had issued checks for its policy limits and had no control over SELA’s commercial policy with limits in excess of $1,000,000.00. The Court, therefore, found no genuine issue of material fact that USAA met its policy language requirements and that its policy limit payments were “paid or tendered” when its checks for its policy limits were given to the plaintiffs. SELA had also made bad faith claims against USAA, though these, too, were dismissed summarily, and the dismissal was affirmed on appeal.
The outcome makes economic sense given the limits of insurance available under the different policies, but the appellate court’s reasoning may be faulty in light of Louisiana laws on an insurer’s duty to defend and the requirements of good faith and fair dealing associated with Louisiana insurance contracts.
Proper Use of the Gasquet Release
The Gasquet Release is often an effective tool for a primary insurer to faithfully discharge its duty to defend its insured while at the same time exiting litigation on an economic basis. Such a release also preserves plaintiffs’ claims against other insurers or sources of recovery while relieving a tortfeasor of personal liability. However, insurers must be mindful of their duty to defend and protect against excess exposure for all insureds. In Champagne, USAA could have done this simply by including a release of SELA’s excess exposure in the release of its primary insured, the delivery driver.