When utility property is damaged as a result of the actions of a driver or excavator, the insurance company cannot be named in a lawsuit by virtue of the insurance policy itself.1 The driver or excavator is the holder of that insurance policy, and as a result, case law in most states has held that a damaged third party does not have standing to sue the insurance company for failing to pay out under an insurance policy which should cover its damages.2
That said, when collecting damage claims, Weltman, Weinberg & Reis Co., LPA (Weltman) finds that insurance companies routinely refuse to pay out the limits of the policy where damages allegedly exceed the limits of the policy. Most utilities, somewhat unlike other traditional claimants, refuse to accept the policy limits where their damage may exceed those limits by thousands of dollars. Typically, the insurance company owes a duty to the damager under the insurance policy to provide a defense to the lawsuit and will not remit the limits of the policy until a judgment is rendered, or unless a release of the damager for the remaining balance is signed. However, we have seen situations where after a judgment is rendered against the driver or excavator, their insurance still refuses to pay the limits of the policy. For example, in one case the damager himself instructed his insurance company not to pay out the limits of the policy, even post-judgment, unless he was released of the additional liability above those limits. Understand, however, that taking this action may expose the insurance company to liability.
Once a judgment is rendered, the stakes change. In Ohio, direct action against the insurer after judgment is authorized by two statutes, R.C. § 3929.05 and R.C. § 3929.06. R.C. § 3929.05 speaks to the liability of the insurance company for bodily injury or death, which is not appropriate for the circumstance at hand, so focus will shift to R.C. § 3929.06, which states the following:
If a court in a civil action enters a final judgment that awards damages to a plaintiff for injury, death, or loss to the person or property of the plaintiff or another person for whom the plaintiff is a legal representative and if, at the time that the cause of action accrued against the judgment debtor, the judgment debtor was insured against liability for that injury, death, or loss, the plaintiff or the plaintiff's successor in interest is entitled as judgment creditor to have an amount up to the remaining limit of liability coverage provided in the judgment debtor's policy of liability insurance applied to the satisfaction of the final judgment.
In analyzing R.C. § 3929.06, the Eighth District Court of Appeals of Ohio stated that "the injured party may, or course, proceed against the insurer after obtaining judgment against the insured, under R.C. § 3929.06. Such procedure is well recognized and established and does not prejudice the right of the injured party in any way."3
An action by a third party against an insurance company is derivative of the action against the wrongdoer (tortfeasor). Due to the derivative nature of the action, the Court of Appeals of Ohio, Ninth Appellate District held that "in the absence of some judgment against the insured or the insured's representative, there is no legal liability to pay. The insurance company's liability is only derivative. It is only liable if the alleged tortfeasor has been found liable."4 Thus, an injured party has a substantial right on the tortfeasor's policy from the time of the injury or damage, but that right does not vest until there is a judgment against the tortfeasor.5
In the aforementioned example where the defendant advised his carrier not to pay the limits, a letter to the insurance company advising them that the utility would be exercising its rights under R.C. § 3929.06 was sufficient to convince the insurance company to pay the limits of the policy, without requiring a release of the damager of the remaining balance. However, should suit be necessary, know that sufficient case law in Ohio exists to give a utility a good faith basis to sue the insurance company directly if they refuse to pay the limits of the policy. It is important early on to retain the insurance company's initial denial letter which may contain information about the policy number and limits.
1 See Chitlik v. Allstate Ins. Co (1973) 34 Ohio App.2d 193; Overmyer Telecastng Co. Inc. v. American Home (1986) 29 Ohio App.3d 31.
2 For example, in NY, Lang v. Hanover Ins. Co., 3 N.Y.3d 350, 2004 N.Y. LEXIS 3525 (2004)(N.Y. Ins. Law § 3420 grants an injured party a right to sue the tortfeasor's insurer, but only under limited circumstances--the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment and await payment for 30 days. Compliance with these requirements is a condition precedent to a direct action against the insurance company.); See Also, Selective Ins. Co. v. Mid-Carolina Insulation Co., 126 N.C. App. 217, 1997 N.C. App. LEXIS 335 (1997); Park v. Safeco Ins. Co., 251 S.C. 410, 1968 S.C. LEXIS 182 (1968).
3 See Chitlik v. Allstate Ins. Co, 34 Ohio App. 2d 193.
4 See Lawreszuk v. Nationwide Insurance Co., 59 Ohio App. 2d 111.
5 See Hartford Accident & Indemnity Co. v. Randal, 125 Ohio St. 581.