Legal Definitions - direct-action statute

A direct-action statute is a specific type of law that allows an individual who has been injured or suffered damages to directly sue the insurance company of the person or entity responsible for the harm. Ordinarily, an injured party must first sue the at-fault individual or entity (the "insured") and then, if successful, seek payment from their insurer. However, a direct-action statute provides an exception, permitting the injured party to bypass the insured and bring a lawsuit directly against the insurer under certain circumstances, which vary by state.

Here are some examples illustrating how a direct-action statute might apply:

• Example 1: Unavailable Insured

  Imagine a pedestrian is severely injured by a car whose driver flees the scene. The police manage to identify the vehicle's owner through license plate records, but the owner has since moved out of the country and cannot be located to be served with legal papers for a lawsuit.

  In a state with a direct-action statute, the injured pedestrian could potentially sue the car owner's insurance company directly to recover medical expenses and other damages. This statute provides a legal pathway when the responsible party is unreachable, ensuring the injured party still has a means to seek compensation from the available insurance policy.

• Example 2: Deceased or Insolvent Insured

  Consider a situation where a person is injured in a serious car accident caused by another driver. Before the injured party can file a lawsuit, the at-fault driver tragically passes away, and their estate has no significant assets beyond their insurance policy.

  A direct-action statute in this situation would allow the injured party to file a lawsuit directly against the deceased driver's auto insurance company. This avoids the complex and often fruitless process of suing an insolvent estate, ensuring that the injured party can still pursue a claim against the available insurance coverage.

• Example 3: Post-Judgment Enforcement

  Suppose a small business owner successfully sues a contractor for significant damages due to faulty construction work and obtains a court judgment. However, the contractor then declares bankruptcy and liquidates their assets, leaving no personal funds to pay the judgment.

  If a direct-action statute applies in this context, the business owner could then directly sue the contractor's liability insurance company to compel payment of the judgment. This allows the injured party to enforce a judgment against the insurer when the original at-fault party is no longer able to satisfy the debt.