TCC v. HOSP. SERV., 2010-0685 (La.App. 1 Cir. 12/8/10)

between the insurer and the loss payee. See Rushing v. Dairyland Ins. Co., 456 So.2d 599, 601-02 (La. 1984). A "simple" or "open" loss payable clause is no more than a provisional appointment by the insured of a third person to whom the policy loss proceeds shall be paid, to the extent of that person's interest. Its purpose is to protect the third person's interest, such as the mortgage balance of a mortgagee. When an insured loss occurs, the insurer is liable for the value of the loss to the extent of the policy limits and must direct payment to the loss payee up to the value of the loss payee's interest. The interest that is actually insured, however, is the insured's interest in the insured property; the loss payee does not have a separate and independent contractual right under the policy and is not considered an insured. Id. See also 15 William Shelby McKenzie H. Alston Johnson HI, Louisiana Civil Law Treatise: Insurance Law and Practice § 332 (3rd ed. 2006). Accordingly, a loss payee under a "simple" or "open" loss payable clause has no right of action against the insurer.

The trial court sustained Continental's peremptory exception of no right of action, finding that the plaintiffs had no right of action against Continental under the facts alleged in their original petition and shown at the hearing on the exception. The trial court's judgment granted the plaintiffs leave to amend their petition to allege facts supporting a right of action on their behalf against Continental. The plaintiffs did not seek supervisory appellate review of the judgment sustaining that exception, nor have they sought review of that ruling in the context of the present appeal.

Arguably, under these circumstances, the trial court's determination that the plaintiffs had no right of action against Continental under its policy for the cause of action asserted in their original petition should be considered the law of the case, as its judgment sustained rather than overruled Continental's exception. See Babineaux v. Pernie-Bailey Drilling Co., 261 La. 1080, 1092-94, 262 So.2d 328, 332-333 (La. 1972). Additionally, as we have previously noted, the plaintiffs' Amending Petition did not add any allegations relevant to Thompson's status, as opposed to TCC's status of assignee of the Hospital's rights. See n. 2, supra. Such being the case, dismissal of Thompson's claims against Continental, with prejudice, on the objection of no right of action would be justified.

Assignment of the Hospital's Rights

By written agreement dated February 6, 2008, the Hospital assigned to TCC its rights against various parties, including Continental, relating to the window system of the medical office building. The assignment of its rights against Continental provided:

[The Hospital] . . . assigns [to TCC] any and all rights against [Continental], as the Hospital's "builder's risk" or property damage carrier, as said claim may relate to the window system in the [project and any damages thereto, to the extent same was placed at issue in the [l]awsuit. This assignment is without warranty or recourse and in agreeing to this assignment [the Hospital] makes no representations regarding the existence, validity, legitimacy, or value of any such claim.

Generally, rights arising from a contract are assignable unless the law, the terms of the contract, or the nature of the contract preclude such assignment. La.C.C. art. 1984. Louisiana Civil Code article 2642 further provides:

All rights may be assigned, with the exception of those pertaining to obligations that are strictly personal. The assignee is subrogated to the rights of the assignor against the debtor.

Significantly, Louisiana Civil Code article 2653 provides the following:

A right cannot be assigned when the contract from which it arises prohibits the assignment of that right. Such a prohibition has no effect against an assignee who has no knowledge of its existence.

As a general rule, a policy of first-party property insurance is deemed to be personal and non-transferable, and this principle is embodied in the statutory standard fire insurance policy, which includes a pro-vision that the policy is not assignable without the insurer's consent. McKenzie Johnson, supra, at § 317. See also La.R.S. 22:1311(F). Continental's policy expressly provided that "[t]his policy may be assigned or transferred only with the prior written consent of [Continental]." The evidence and the pleadings demonstrate that TCC was in possession of a complete copy of Continental's policy long before the effective date of the assignment, as its attorneys attached a copy of the policy to their demand letter of July 12, 2006 to Continental, and therefore should be charged with knowledge of the policy's anti-assignment clause. There is no evidence that Continental ever consented to the assignment by the Hospital of its rights under the policy to TCC.

Despite the foregoing, the issue of the legal validity of the assignment at issue was never raised by Continental and never determined by the trial court. Although we are authorized to notice the peremptory exception of no cause of action on our own, pursuant to La.C.C.P. arts. 927(B) and 2163, we decline to do so for the foregoing reason and other important reasons. Accordingly, for our present purposes we will assume that the Hospital's assignment of February 6, 2008 was legally valid despite the policy's anti-assignment clause, and that only the procedural effect of the Amending Petition, for purposes of prescription, is ultimately before us.

The prevailing rule nationwide is that an insurance policy provision that prohibits the policy's assignment or the assignment of any rights under the policy after loss, except with the insurer's consent, is against public policy. See 2 Lee R. Russ Thomas F. Segalla, Couch on Insurance § 34:2 (3rd ed. 2010). Louisiana jurisprudence is divided on this question, with at least one older case subscribing to the foregoing rule. See Geddes Moss Undertaking Embalming Co. v. Metro. Life Ins. Co., 167 So. 209, 210 (La.App. Orl. Cir. 1936). However, a more recent case, involving the assignment of claims under a property insurance policy following Hurricane Katrina, enforced an antiassignment clause in accord with the plain language of La.C.C. arts. 1984 and 2653. See R.L. Lucien Tile Co. v. Am. Sec. Ins. Co., 08-1190, pp. 6-7 (La.App. 4th Cir. 3/11/09), 8 So.3d 753, 756-57. The U.S. Fifth Circuit Court of Appeals has now certified the question to our supreme court. In re Katrina Canal Breaches Litigation, 613 F.3d 504, 512 (5th Cir. 2010). Certification was granted on October 29, 2010. In re Katrina Canal Breaches Litigation, 2010-CQ-1823(La.10/29/10).

The assignment of a right is effective against the debtor only from the time the debtor has actual knowledge, or has been given notice of the assignment. La.C.C. art. 2643. When the plaintiffs initially filed suit against Continental, Continental had no notice or reason to believe that a valid cause of action under its policy, by a person having the legal right to assert one, had been filed against it. Further, the plaintiffs' original petition asserted claims only for their own losses and damages, some of which were attributable to delays unrelated to the hurricanes. The plaintiffs did allege in their original petition that TCC "individually and on behalf of [the Hospital] placed [Continental] on notice of damages sustained to the project as a result of Hurricanes Katrina and Rita and specifically owner alleged water intrusion." But it was not until the filing of the Amending Petition on April 15, 2009, that TCC, "as assignee of [the Hospital]," actually asserted new "claims for damages suffered to [ sic] [the Hospital] as a result of Hurricanes Katrina and Rita, including damage to the window system which was under construction[.]"

Parenthetically, it would also appear that practically all of the elements of contractual damages claimed in the original petition were clearly excluded under the builder's risk and property coverages of the policy and could not have been made by even the Hospital itself as insured.

An assignee acquires no greater rights than his assignor. DaimlerChrysler Services of N. Am., L.L.C. v. Sec'y, Dep't of Revenue, 07-0010, p. 8 (La.App. 1st Cir. 9/14/07), 970 So.2d 616, 621, writ denied, 07-2374 (La.2/1/08), 976 So.2d 725. An assignee is also governed by the same prescriptive rules applicable to his assignor. Westenberger v. State ex rel Dep't of Educ., 333 So.2d 264, 270 (La.App. 1st Cir. 1976). Until the Hospital's assignment was effective, the plaintiffs had no right or cause of action against Continental, and upon acquiring the assignment TCC succeeded only to those existing rights and causes of action that the Hospital had as of that time. Any individual cause of action that the Hospital had against Continental under either the builder's risk or property coverages was by then prescribed under former La.R.S. 22:658.3. The after-acquired assignment of February 6, 2008 could not operate retroactively to cure the plaintiffs' deficient original petition and to bootstrap a timely right of action against Continental in their favor, unless the Amending Petition procedurally related back to the time of filing of the original petition.

Relation Back of the Amending Petition

The plaintiffs characterize then-Amending Petition as an amended petition; Continental characterizes it as a supple-mental petition. As the trial court held, the distinction is important, primarily with regard to the issue of prescription. See 1 Frank L. Maraist, Louisiana Civil Law Treatise: Civil Procedure § 6.10 (2nd ed. 2008). Thus, its proper characterization is ultimately determinative of the central issue of this appeal.

An amended petition either restates the allegations of a claim that were imperfectly stated in the original petition, or adds a new claim that existed, but was not pleaded, at the time when the original petition was filed. See Maraist, supra. Louisiana Code of Civil Procedure article 1153 sets forth the conditions under which the allegations of an amended petition are given retroactive effect to the date of filing of the original petition:

When the action . . . asserted in the amended petition . . . arises out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of filing the original pleading.

In contrast to an amended petition, a supplemental petition is filed for the purpose of "setting forth items of damage [or] causes of action . . . which have become exigible since the date of filing the original petition . . ., and which are related to or connected with the causes of action . . . asserted therein." La.C.C.P. art. 1155. A supplemental petition may therefore be used to add a new cause of action related factually to a previously existing cause of action, even though the new claim does not, properly speaking, arise out of the original cause of action. The new or supplemental cause of action, however, does not relate back in time to the date of the original petition; prescription of the new cause of action would generally be held to be interrupted as of the date of filing of the supplemental petition.

The supreme court in King v. Ill Nat'l Ins. Co., 08-1491 (La.4/3/09), 9 So.3d 780, held that an inchoate right to file suit is strictly personal and not subject to involuntary seizure by a writ of fieri facias. In doing so, the supreme court discussed, but did not specifically decide, whether an unexercised or inchoate right to institute a lawsuit may be conventionally assigned. Id. 08-1491 at p. 9, 9 So.3d at 786. However, it did make the following observations that are relevant for our purposes:

A decision to file a lawsuit is premised on an individual's subjective judgment. Fundamentally, such a conscious determination is dictated by one's mind and will, exhibited exclusively through the exercise of his or her own volition by actively filing or refraining from filing suit. As such, it is a strictly personal right not subject to involuntary relinquishment

. . . .

Id., 08-1491 at p. 12, 9 So.3d at 788. (Emphasis added.)

Here, the Hospital never exercised its "strictly personal" right to file suit against Continental. Thus, its rights under the policy were not litigious rights asserted in a pending and timely legal action against Continental, but unexercised or inchoate rights. Because the Hospital never assigned to TCC its "strictly personal right" to exercise its discretion to file suit against Continental prior to the date of the plaintiffs' original petition, the filing of the plaintiffs' original petition did not interrupt prescription on the Hospital's cause of action against Continental under the policy. Even assuming as we do that the Hospital eventually assigned its inchoate rights under the policy to the plaintiffs, including the "strictly personal" accessory right to file suit against Continental, there was no evidence introduced at the hearing on the exception that it did so prior to the date of the written assignment of February 6, 2008.

Likewise, there was no evidence that TCC had any express or implied authority or mandate to act for the Hospital in presenting a claim against Continental under its policy by means of the letter of July 12, 2006. Thus, the mere notice of TCC's claim by letter, even if purportedly made on behalf of the Hospital as insured, would not have served as notice for purposes of preserving TCC's later-acquired rights from the running of prescription. Only notice in the form of "formal legal demands" is sufficient to interrupt prescription under La.C.C. art. 3462. See Smith v. Cutter Biological. 99-2068, pp. 34-5 (La.App. 4th Cir. 9/6/00), 770 So.2d 392, 411. As the court in the cited case observed, "[i]f mere knowledge of an occurrence that could result in a timely action were sufficient to interrupt prescription, most causes of action would be imprescriptible." Id. at p. 35, 770 So.2d at 411.

In arguing that the allegations and claims of their Amending Petition relate back to the time of filing of their original petition, the plaintiffs rely upon our decision in Kinchen v. Metro. Prop. Cas, Ins. Co., 04-1894 (La.App. 1st Cir. 9/23/05), 923 So.2d 678, writ denied, 05-2368 (La.3/31/06), 925 So.2d 1256, and argue that it controls the proper disposition of this matter. That case arose from the accidental shooting death of the plaintiffs son by another young man in a house owned by the mother of a third young man. The plaintiff originally filed suit against the shooter, the owner of the premises, and the owner's liability insurer. The plaintiff settled with the shooter, but the owner and her insurer moved for summary judgment on the issue of liability. While the motion was pending, the plaintiff filed an amended petition adding the owner's son as a defendant and alleging his solidary liability with the defendant insurer, in its capacity as his insurer. We held that the different capacity in which the insurer was originally named did not affect the interruption of prescription as to the claim against it in the capacity of the son's insurer, and that the interruption of prescription against the insurer also interrupted prescription as to its insured as solidary obligor. Id., 04-1894 at pp. 6-7, 923 So.2d at 681.

We find the circumstances of the Kinchen case clearly distinguishable from those of the present case, and its actual legal rationale inapplicable to this case. In the first place, the plaintiffs cause of action in Kinchen was delictual in nature and the defendant insurer's policy was a liability policy, subject to the Louisiana Direct Action Statute, La.R.S. 22:1269 (formerly La.R.S. 22:655), thereby according legal rights to the third-party claimant to proceed directly against the insurer. Secondly, the plaintiff asserted factual allegations supporting a finding of solidary liability, based upon the factual relationship between the insureds and the shooter as alleged joint tortfeasors. The shooter, the owner, and the insurer, in its capacity as the owner's insurer, had not yet been dismissed when the amended petition joining the owner's son as defendant and alleged joint tortfeasor was filed. Most importantly, the plaintiff had a viable, existing cause of action in tort against the owner's son when the original petition naming the insurer as defendant was filed. Finally, because we found that suit was timely filed against the owner's son and the defendant insurer in its capacity as his insurer by reason of their solidary liability, we expressly pretermitted discussion of whether the allegations of the amending petition related back to the original petition under La.C.C.P. art. 1153. Kinchen, 04-1894 at p. 7, 923 So.2d at 681.

As emphasized by Continental, its policy provided only first-party property coverage for the Hospital and any other insureds; it was not a liability or indemnity policy under which the plaintiffs were authorized to bring a direct action against Continental pursuant to the Louisiana Direct Action Statute, La.R.S. 22:1269. Continental correctly observes that its policy did not insure the construction project, for the benefit of all parties involved; it insured only the Hospital, its insured, against losses and damage to its property and related interests covered under the policy. Because the allegations of the plaintiffs' original petition did not effectively assert any right of action on their part under the policy nor any other legal obligation on the part of Continental to-ward the plaintiffs for any cause of action alleged, Continental could not have been solidarity liable with any other defendant to the plaintiffs, such that the filing of suit against such a defendant would serve to interrupt prescription under La.C.C. art. 1799.

"[U]pon strict analysis, . . . it is not the property which is insured, but the rights of the insured party; the intention is to avert any loss or damage that the insured might sustain because of a covered risk to the property." 1 Lee R. Russ Thomas F. Segalla, Couch on Insurance § 1:11 (3rd ed. 2010).

Because Continental's alleged liability to the plaintiffs is not based in tort, La.C.C. art. 2324(C), under which suit against a joint tort feasor interrupts prescription against other joint tortfeasors, has no application. It is also questionable whether any potential liability of Continental to the plaintiffs under its policy would have been solidary with that of any other defendant for the particular damages claimed, given the differing nature of the plaintiffs' separate causes of action against the various defendants. Because of our disposition of this matter, we need not reach that issue.

The more recent case of Taylor v. Babin, 08-2063 (La.App. 1st Cir. 5/8/09), 13 So.3d 633, writ denied, 09-1285 (La.9/25/09), 18 So.3d 76, while involving different facts, nevertheless provides guidance on the dispositive issues, including the issue of relation back of an amended or supplemental petition. The original plaintiffs, Taylor and Ledet, were injured in 2003 in a boating accident caused by the negligence of Foret, who was intoxicated and uninsured. The plaintiffs sued Foret, and obtained judgments against him in 2006. Foret later contended that his attorneys committed legal malpractice in 2004 by failing to secure his discharge in bankruptcy from the tort claim, and assigned his malpractice claim to the plaintiffs in an attempt to satisfy the judgments against him. The plaintiffs then sued Foret's former attorneys based upon the assignment, alleging that Foret discovered the malpractice in 2006. The defendant attorneys excepted on the grounds that the plaintiffs had no right of action, because legal malpractice claims were not assignable under Louisiana law. The plaintiffs then amended their petition to add Foret and his wife as plaintiffs and to bring a claim on their behalf for mental anguish. The defendant attorneys excepted to the amended petition on the basis of prescription and other grounds. The trial court sustained the exceptions, holding that the original plaintiffs had no right of action against the defendant attorneys, and that the Forets' claims were prescribed.

On appeal, as a matter of first impression, we held that legal malpractice claims are not assignable "based on positive law, jurisprudence, and public policy." Taylor, 08-2063 at pp. 12-13, 13 So.3d at 641. Because the original plaintiffs therefore had no legally cognizable right of action against the defendant attorneys for mal-practice, the defendant attorneys argued that the amended petition was "essentially a new cause of action." Id., 08-2063 at p. 15, 13 So.3d at 643. We agreed, and further held that the amended petition adding the Forets as plaintiffs did not relate back to the date of filing of the original petition under La.C.C.P. art. 1153. Id., 08-2063 at pp. 14-16, 13 So.3d at 643-44. Because the original petition did not interrupt prescription on the later-added malpractice claims of the Forets, those claims asserted in the amended petition (properly speaking, the supplemental petition) were prescribed. Id., 08-2063 at p. 16, 13 So.3d at 644.

The plaintiffs argue on appeal that "[t]he mere fact that a different cause of action was asserted in the Amending Petition is insufficient to properly establish the exception of prescription." (Emphasis added.) This proposition, standing alone, is generally correct. However, our law, as interpreted in the jurisprudence, holds that in order for the doctrine of relation back to apply and to circumvent the effect of prescription, a new cause of action asserted in an amended petition (1) must have been in existence at the time the original petition was filed; (2) must have been vested in the plaintiffs at that time; and (3) must arise out of "the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading." See La. C.C.P. art. 1153.

The plaintiffs' Amending Petition for the first time made claims for the Hospital's property losses or damages actually covered by the policy, a cause of action for items of damages never claimed before by the plaintiffs or, for that matter, by the Hospital. The Hospital's claims assigned to TCC derive from the insurance contract, the transaction upon which the Hospital's contractual cause of action against Continental was based, and not the separate construction contract between the Hospital and TCC, the transaction upon which the plaintiffs' original petition was primarily based. The Amending Petition therefore "has the characteristics of a new lawsuit rather than an amended [petition]." See Taylor, 08-2063 at p. 16, 13 So.3d at 644, citing Summit Office Park, Inc. v. U.S. Steel Corp., 639 F.2d 1278, 1284 (5th Cir. 1981). It is thus "tantamount to assertion of a new cause of action which would have otherwise prescribed." See Ray v. Alexandria Mall, 434 So.2d 1083, 1087 (La. 1983). This circumstance militates against relation back of the Amending Petition under the criteria enunciated in Ray and the analogous case of Giroir v. S. La. Med. Ctr., 475 So.2d 1040 (La. 1985).

Because a civil action by definition can be brought only by a person having a right of action, it stands to reason that an action instituted by a person determined to have no right of action cannot serve as an "action" sufficient to interrupt prescription. See La.C.C.P. art. 681 and La.C.C. art. 3462. Here, the plaintiffs had no valid right of action against Continental at the time they filed their original petition. The relation back theory embodied in La.C.C.P. art. 1153 assumes that there is a legally viable claim to which the pleading can relate back. Naghi v. Brener, 08-2527, p. 10 (La.6/26/09), 17 So.3d 919, 925. Prior to the effective date of the assignment, the Hospital was the only person who had the right to make the decision to file suit against Continental, but instead exercised its exclusive volition to refrain from doing so. Because of the "strictly personal" character of the right to file suit, the plaintiffs' right to do so can be given legal effect only from the effective date of the assignment, and the assignment could not retroactively cure the initial absence of a right of action by the plaintiffs.

The separate contractual relationship between the Hospital as assignor and TCC as assignee, as distinguished from their original contractual relationship, did not exist prior to the date of the assignment, and thus TCC as assignee had no right to judicially enforce the rights it acquired by assignment until that time. See La.C.C.P. art. 698. TCC's newly-acquired right of action asserted in the Amending Petition likewise did not arise and become exigible until the date of the assignment by the Hospital to TCC, but the Hospital's cause of action and rights under Continental's policy had by then prescribed. Because the Amending Petition was therefore, properly speaking, a supplemental petition that did not relate back to the date of the original petition, any purely derivative cause of action acquired by TCC by assignment from the Hospital was first asserted well over a year from the extended prescriptive date, and is therefore prescribed under former La.R.S. 22:658.3. The Amending Petition, regardless of how it was styled or captioned, cannot relate back under La.C.C.P. art. 1153, as that article applies only to amended petitions, not supplemental petitions. See Smith v. Cutter Biological, 99-2068, pp. 33-7 (La. App. 4th Cir. 9/6/00), 770 So.2d 392, 410-13.

For all of the foregoing reasons, and for the sound reasons expressed by the trial court, we conclude on our de novo review of this matter that the derivative causes of action asserted by the plaintiffs against Continental under its policy issued to the Hospital were prescribed, and that the trial court's judgment sustaining Continental's peremptory exception of prescription was correct as a matter of law. Dismissal of Thompson's causes of action against Continental is also warranted based upon its failure to assert a right of action on its behalf against Continental in the Amending Petition. See n. 7, supra. The trial court's judgment dismissing the causes of action of the plaintiff-appellants, TCC Contractors, Inc. and Thompson Construction Company, Inc. against the defendant-appellee, Continental Casualty Company, is accordingly affirmed. All costs of this appeal are assessed to the plaintiff-appellants.

AFFIRMED.

CARTER, C.J., concurs in the result only.