Legal Definitions - direct action

The term direct action refers to a lawsuit filed by one party directly against another, rather than pursuing a claim indirectly through an intermediary. This concept appears in several distinct legal contexts:

• When an Insured Sues Their Own Insurance Company: This occurs when an individual or entity who holds an insurance policy sues their own insurance provider. This type of direct action typically arises when the insured believes their insurer has wrongfully denied a claim, failed to pay the full amount owed under the policy, or acted in bad faith.

  • Example: A small business owner has a commercial property insurance policy. After a fire significantly damages their storefront, they file a claim. However, their insurance company disputes the extent of the damage and offers a settlement far below the actual repair costs and lost income. The business owner then files a lawsuit directly against their own insurance company to compel them to pay the full benefits outlined in their policy.

    Explanation: This is a direct action because the business owner is suing their own insurer to enforce the terms of their contract, rather than suing the party who caused the fire (if any) or another entity.

• When an Injured Party Sues the At-Fault Party's Insurer Directly: In certain jurisdictions or specific circumstances, a person who has been harmed by another party may be permitted to sue the at-fault party's insurance company directly, without first suing the individual or entity responsible for the harm. This is often allowed when the at-fault party's liability is clear, and the law permits bypassing the insured to go straight to their insurer.

  • Example: A construction worker is injured on a job site due to faulty equipment. In a state that permits direct actions against insurers in such cases, the worker might file a lawsuit directly against the construction company's general liability insurance provider for their medical expenses and lost wages, instead of suing the construction company itself first.

    Explanation: This is a direct action because the injured worker is pursuing compensation directly from the insurance company that covers the responsible party, rather than initiating legal action against the construction company as the primary defendant.

• When a Shareholder Sues a Corporation to Enforce Personal Rights: A shareholder can file a direct action against a corporation when the corporation's actions have harmed the shareholder personally, or violated their individual rights as a shareholder. This is distinct from a "derivative action," where a shareholder sues on behalf of the corporation for harm done to the corporation itself.

  • Example: An investor owns shares in a publicly traded company and is entitled to receive annual dividend payments. The company's board of directors, without a valid legal reason, decides to withhold these payments specifically from this investor, while continuing to pay other shareholders. The investor could file a direct action lawsuit against the corporation to demand the payment of their rightful dividends.

    Explanation: This is a direct action because the investor is suing the corporation to protect and enforce their own personal right to receive dividends, which was directly violated by the company's action.