Insights

The Gasquet settlement has been a widely used doctrine of Louisiana insurance law since its application in litigation over 30 years ago in Gasquet v. Commercial Union Insurance Co., 391 So. 2d 466 (La. Ct. App. 1980). As part of a Gasquet settlement, Plaintiffs can expressly reserve their right to a direct action against a non-settling excess insurer for damages exceeding the settling primary insurers’ policy limits.¹ However, Gasquet settlements have traditionally been applied in the context of a single settlement between the claimant(s) and the primary insurer for some amount less than the primary insurer’s policy limits. It is less clear how Gasquet settlements are executed in cases involving multiple claimants, whose individual claims each exceed the primary policy limits, who settle separately for the full primary policy limits.

Generally, when there are multiple claims arising out of a single accident, Louisiana courts allow a liability insurer “faced with a settlement demand arising out of multiple claims and inadequate proceeds” to enter compromise settlements with one or several claimants to the exclusion of others, even when such action exhausts the entire fund, leaving one or more of the injured parties with little or no recourse against such insurer.²

Louisiana law is clear that an insurer that has settled for its policy limits (or paid its full limits responsive to a judgment) has “exhausted” its limit of liability under the policy.³ Although a primary insurer’s liability is limited to the agreed-to policy limits, a liability insurer’s duty to defend its insured is not always discharged by exhaustion of its policy limits.⁴ Further, an excess insurer cannot be forced to “drop-down” and provide coverage for damages within the primary policy’s limits—a liability that the excess carrier did not bargain for.⁵

Accordingly, one claimant could settle her claims with the primary insurer, exhausting the primary policy limits, but expressly styles that settlement as a Gasquet by reserving her rights against the non-settling excess insurer. Under Gasquet, that claimant could proceed against the non-settling excess carrier for the proceeds of the excess insurance policy above the limits of the primary policy. However, what happens if there is a second injured claimant, who also sustained damages greater than the primary policy limits and wishes to settle their claim. Must she interact with the primary insurer, who has paid out the full limits of its policy? Can she immediately take advantage of the exhaustion of the underlying policy limits by another claimant and go directly to the excess insurer to seek damages from the excess policy? Further, what would happen to the Gasquet credit if the original claimant who settled with the primary insurer did not settle for the full policy limits? Would the calculation of the Gasquet credit owed to the excess carrier take this prior settlement into account, despite being with a different claimant and occurring prior to the Gasquet settlement?

The Fifth Circuit provided some insight on this issue in Miller v. Wladyslaw Estate, 338 F. App'x 454 (5th Cir. 2009). In Miller, a tractor-trailer owned by Allied Van Lines, Inc. drove into the rear end of a Suburban occupied by members of the Guerra and Garza families.⁶ The Guerra and Garza families filed suit against Allied, which had five layers of insurance totaling $110 million. Illinois National insured the fourth layer, providing $25,000,000 in excess coverage above the $30,000,000 provided by the three underlying layers. Allied and insurers in the lower layers of coverage (the “Settling Insurers”) paid the other claimants injured in the accident for a total of $6,477,900. Therefore, there was $23,522,100 remaining in underlying coverage to settle the claims of the other claimants before Illinois National’s policy would be triggered. Subsequently, the Settling Insurers and the Guerra and Garza families entered into a settlement agreement that released all liability within the limits of the Settling Insurers’ policies in exchange for a payment of $21,000,000. In effect, the Plaintiffs waived $2,522,100 in damages, which was the difference between the settlement ($21,000,000) and the remaining limits of the Settling Insurers’ policies ($23,522,100). The Plaintiffs expressly reserved their rights to proceed against the non-settling insurers in accordance with Gasquet.⁷

Following this partial settlement, a damages-only jury trial was conducted on the Guerra and Garza claims.⁸ As a result, of the jury’s verdict, Allied incurred $38,381,550 in total liability from the accident—$31,903,650 in damages awarded to the Guerra and Garza families, and $6,477,900 paid by the Settling Insurers to other claimants injured in the same accident.⁹ The trial court applied the $30,000,000 credit to the jury’s damage award ($1,903,650) and added the $6,477,900 paid by the Settling Insurers to other claimants. As a result, the court concluded that Illinois National was liable for $8,381,550.

Illinois National appealed the trial court’s calculation, asserting that it should not have considered the Settling Insurers’ payments to other claimants based on plain language in Gasquet: “the excess insurer is given a credit for the policy limits of the primary insurer.”¹⁰ The Fifth Circuit found this interpretation of Gasquet too rigid. Gasquet did not involve settlements or judgments with other injured parties. Therefore, the Gasquet Court did not have to differentiate between the underlying insurers’ “policy limits” and the insurers’ “available policy limits.”¹¹ In Miller, at the time of trial on the Guerra and Garza claims, Illinois National had already paid $6,477,900 to the other claimants involved in the accident, reducing the underlying insurers’ available policy limit to $23,522,100. Accordingly, the Fifth Circuit found that the $6,477,900 paid to the other claimants should be included in the calculation of the credit granted to Illinois National.¹²

Therefore, $30,000,000 credit received by Illinois National reduced the total liability incurred by the insured, not just the damages awarded to the Guerra and Garza claimants at the trial. By including the previous payment in the calculation of the credit owed to Illinois National after judgment on the Guerra and Garza claims, Illinois National was $6,477,900 closer to its layer of excess coverage at the commencement of the Guerra and Garza trial. However, because Illinois National was not obligated to pay any part of the first $30,000,000 of liability incurred by its insured, which was “precisely what Illinois National bargained for as an excess insurer,” the Fifth Circuit believed this was the correct result.¹³

The Fifth Circuit’s decision in Miller suggests that, when calculating the credit owed to an excess insurer, any money paid by any underlying insurer as part of any settlement—whether a Gasquetsettlement or not—with any claimant as a result of a single accident will be included in the total liability of the insured and offset by the value of the Gasquetcredit. Significant ambiguity remains as to the application of Gasquet settlements in the context of multiple, but separate, claimants. This uncertainty necessitates that Louisiana attorneys—representing an insurance company providing any layer of coverage—consider the application of Gasquet when crafting a litigation strategy.

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[1] Gasquet v. Commercial Union Insurance Co., 391 So. 2d 466, 471–72 (La. Ct. App. 1980).

[2] See e.g., Pride Transp. v. Cont'l Cas. Co., 804 F. Supp. 2d 520, 525 (N.D. Tex. 2011) aff'd, 511 F. App'x 347 (5th Cir. 2013) (citing Holtzclaw v. Falco, Inc., 355 So. 2d 1279 (La.1977); Merritt v. New Orleans Pub. Serv., 421 So. 2d 1000, 1001 (La. Ct. App. 1982).

[3] Pareti v. Sentry Indem. Co., 536 So. 2d 417, 421, 1988 La. LEXIS 2433, *10 (La. December 12, 1988).

[4] Id. 419. The Louisiana Supreme Court held:

We hold [] that once the liability insurer exhausted its policy limits through a good faith settlement, it was no longer obligated to defend the insured in the separate action based on the same accident. We do not suggest, however, that a liability insurer's duty to defend its insured will always be discharged by exhaustion of its policy limits. [O]ur holding today is premised upon both the language of the policy before us and the facts of this particular case.

Id. at 18–19.

[5] La. Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 93-C-0911 (La. 1/14/94) n.1, 630 So. 2d 759, 760 (“Drop down coverage occurs when an insurance carrier of a higher level of coverage is obligated to provide the coverage that the carrier of the immediately underlying level of coverage has agreed to provide.”).

[6] Miller v. Wladyslaw Estate, 338 F. App’x 454, 455 (5th Cir. 2009). Two passengers, Cindy Guerra and Jennifer Garza, died in the accident after the Suburban was engulfed in flames. Two others, Lisa Guerra and Joe Alfaro, were horribly burned. Nine other vehicles were involved in the accident.

[7] Id.

[8] Id.

[9] Id. at 456.

[10] Gasquet, 391 So. 2d at 471.

[11] Miller, 338 F. App’x at 456.

[12] Id.(the Fifth Circuit believed this interpretation was more “consistent with Illinois National’s excess insurance policy.”).

[13] Id.