Resolving a “long-deferred issue,” the Supreme Court of Rhode Island has ruled that a third party could not bring an action against an insurance company without having first obtained judgment against its insured.
The Case
Christian Lanoie, a manager for a barbecue vendor, rented a box truck from Christy's Auto Rentals, Inc., to transport barbecue equipment back to the vendor's home base after the equipment had been used at a seasonal fair in Topsfield, Massachusetts.
At the time he signed the rental agreement, Mr. Lanoie declined to purchase the “Liability Protection” option, and he so indicated by signing his initials to a section of the agreement that acknowledged that he “agree[d] to be responsible for all damage or loss [he might] cause to others.”
When Mr. Lanoie returned the rental vehicle to Christy's, a corner of it was damaged as a result of its having collided with a concession trailer at the fair. The concession trailer was owned by Dean and Flynn Fiesta Shows and it incurred damages of $1,300, which Christy's paid.
Several months later, Christy's sued Mr. Lanoie to recover the amount it had paid to Dean and Flynn and to obtain compensation for the damage to Christy's vehicle.
At the same time, Christy's filed a declaratory judgment action against Massachusetts Homeland Insurance Company, from which Mr. Lanoie had acquired a personal automobile insurance policy.
The trial court granted summary judgment in favor of Homeland, concluding among other things that Christy's lacked standing.
The trial court acknowledged that the Rhode Island Supreme Court had “never firmly decided this,” but noted that “in Rhode Island and most other jurisdictions,” an injured party lacked standing “to maintain a direct action for damages against a tortfeasor's insurer until and unless the injured party secured a judgment against the tortfeasor.”
Christy's appealed to the Supreme Court of Rhode Island, contending that the trial court had incorrectly determined that it did not have standing to pursue the declaratory judgment action.
The Rhode Island Supreme Court's Decision
The court affirmed.
In its decision, the court explained that, in prior cases, it had explicitly reserved judgment on the standing question that Christy's raised but that it was going to grapple with the “long-deferred issue.”
It then ruled that Christy's suit failed because it had “not alleged an injury in fact.” In the court's view, Christy's asserted injury – that it was “damaged as a result of Mr. Lanoie's negligence and breach of the [r]ental [a]greement and his liability insurer has refused to indemnify him” – was completely “conjectural” and “hypothetical” unless and until there was an unsatisfied final judgment in Christy's tort action against Mr. Lanoie.
Because Christy's lacked standing to pursue its declaratory judgment action against Homeland, Homeland was entitled to judgment as a matter of law, and the trial court properly granted Homeland's motion for summary judgment, the court held. The court added that Christy's did not remain without a remedy, reasoning that its tort action against Mr. Lanoie offered Christy's a “procedurally proper avenue” to pursue the damages to which it believed it was entitled. If Christy's were to succeed in obtaining judgment against Mr. Lanoie and was unable to collect on that judgment from him, it would then have a legally cognizable interest that was “no longer hypothetical,” the court concluded.
The case is Christy's Auto Rentals, Inc. v. Massachusetts Homeland Ins. Co., No. 2016-104-Appeal (R.I. April 8, 2019). Attorneys involved include: For Plaintiff: Michael R. De Luca, Esq., Stephen J. Sypole, Esq. For Defendants: Todd J. Romano, Esq., C. Russell Bengtson, Esq., John A. Donovan III, Esq., Judah H. Rome, Esq.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].