California "Direct Action" Statute Given Broad Interpretation by Court of Approval
January, 2002
People ex rel. City of Willits v. Certain Underwriters at Lloyd’s of London,
97 Cal.App.4th 1125, 118 Cal.Rptr.2d (1st Dist.)
This case addressed the scope of the “direct action” provision of California Insurance Code §11580. Section 11580(a) requires certain insurance policies to have the direct action provision, and section 11580(b) specifies what the provision must contain. A policy that is required to have such a provision, but does not, shall nevertheless be construed as if it contains the provision. Section 11580(b) allows judgment creditors who have judgments against policyholders arising from bodily injury, death, or property damage to sue directly any carrier (“on the policy and subject to its terms and limitations”) that was obligated to have the direct action provision in its policy under section 11580(a). The issue in Willits was whether the scope of section 11580(b) should be determined by its own language or by the language of section 11580(a).
On one hand, section 11580(b) does not limit to the types of property damage judgments subject to the section. On the other hand, section 11580(a) specifies policies against liability for “injury suffered by another person” and “loss of or damage to property caused by draught animals or any vehicle” as those which must have direct action provisions. The underlying judgment at issue in Willits arose from environmental contamination. The insurers argued that since section 11580(a) refers to property damage caused by “draught animals or any vehicle,” section 11580(b) does not apply to property damage judgments other than those arising from damages caused by draught animals or vehicles.
The appellate court disagreed with the insurers, holding that while an insurance policy may be required by section 11580(a) to have a direct action provision, the scope of the provision is determined by the wording of section 11580(b); the scope is not limited to property damage caused by draught animals or vehicles. The court observed that after the enactment of section 11580, “Insurers have responded by inserting the required language (commonly referred to as the ‘no action’ clause) in their general liability policies.”
Under Willits, a policy that does not provide any liability coverage for personal injury or for “loss of or damage to property caused by draught animals or any vehicle,” and does not contain a “direct action” provision, would apparently not be a basis for a section 11580 action against the insurer. However, with a few exceptions noted in section 11580(a) (i.e., workers’ compensation policies and policies of nonadmitted Mexican insurers), and after entry of a final “bodily injury, death, or property damage” judgment against the policyholder, any other liability policy that covered the loss could be the subject of a direct action.
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