Direct Action — a lawsuit between an injured party and the tortfeasor's liability insurer
for payment under a liability policy. Basic contract law provides that only
parties that are in privity of contract have "standing," or the
right, to file suit to have that contract enforced. In the insurance context,
this means that only the policyholder has standing to enforce a liability
policy issued by a liability insurer. If the policyholder injures a third
party, that third party is not in privity of contract with the liability
insurer, and at common law, the injured third party has no standing to file
suit directly against the insurer to enforce the insurer's indemnity
obligations. Because courts refused to allow injured parties to directly sue
liability insurers, some state legislatures enacted special statutes, called
"direct action" statutes, which authorize injured parties to directly
sue a tortfeasor's liability insurer. However, the injured party must meet
all of the statutory requirements in order to proceed with a direct action.
Typically, state "direct action" statutes require that the injured
party must file one lawsuit against the tortfeasor, obtain a judgment against
the tortfeasor, and file a second lawsuit against the tortfeasor's
liability insurer within a set amount of time (e.g., 30 days) from the date on
which the judgment is entered.