The Alabama Direct Action Statute After A.B. v. Nationwide: When Notice Rules Defeat the Statute’s Purpose
- Inge Johnstone
- Jan 29
- 3 min read
The Alabama Direct Action Statute is meant to give an injured tort victim a path to insurance proceeds after securing a judgment. The Eleventh Circuit’s recent decision in A.B. v. Nationwide shows how Alabama’s late-notice precedent has been interpreted to undercut this purpose.
What the Eleventh Circuit Did—and Why It Matters
In A.B. v. Nationwide, the court applied Alabama law as articulated in Travelers Indemnity Co. v. Miller and Nationwide v. Estate of Files. Under these cases, which both involved a direct action by a tort victim against a tortfeasor’s insurer, the Alabama Supreme court held that since no reasonable excuse had been offered as to why the insured tortfeasor had not given timely notice, the insurer was entitled to judgment as a matter of law. The court rejected arguments by the tort victims that the notice given by them had been timely. In these cases, late notice was judged exclusively from the insured’s perspective. If the insured offers no reasonable excuse for delay, coverage is forfeited—without any requirement that the insurer show prejudice.
Applying that rule, the Eleventh Circuit held that A.B., the injured minor plaintiff, could not reach policy proceeds under Alabama’s direct-action statute because Barrow, the tortfeasor failed to provide timely notice.
The Structural Problem the Case Exposes
Unfortunately, the policy and logic behind the Eleventh Circuit’s decision become strained once we know the facts: Barrow was sued and found liable for invasion of privacy for having then ten-year old A.B., in 2013, meet him in a motel room where he dressed her in lingerie and ogled her. She filed suit in 2018 and her attorney gave immediate notice to Nationwide. Nationwide defended Barrow for three years before being released from the duty to defend in a declaratory judgment action.
As to Barrow, was he going to report this to Nationwide? How would that conversation go? Should the victim be cut-off from recovery due to the tortfeasor’s failure to report the “occurrence” under these circumstances. Shouldn’t it matter that the insurer received notice of the suit in a timely manner and had an opportunity to defend? Unfortunately, it didn’t.
Because the tortfeasor—someone with every incentive not to cooperate—failed to provide timely notice or an excuse, the victim’s statutory recovery vanished. The injured party’s rights were made entirely contingent on the conduct of the wrongdoer.
The facts of this case show a need for reconsideration of this line of cases.
When Notice Law Collides With the Direct Action Statute
Alabama courts have long described the injured party’s interest under the direct action statute as a derivative “hypothecation” of the insured’s rights. Over time, that concept has hardened into a rule that assumes aligned incentives between insured and victim.
A.B. demonstrates how false that assumption can be—particularly in cases involving conduct that an insured has an incentive not to report. The very situations where direct action rights matter most are those where tortfeasors are least likely to protect coverage.
Two Possible Solutions.
One solution would be legislative: amend the direct action statute to require that late-notice defenses be analyzed from the injured party’s perspective, not the tortfeasor’s.
Another potential change would be require insurers to show actual prejudice before denying coverage based on late notice, as many jurisdictions already do. In contract law, only a material breach of a contract excuses performance by the other party. Similarly, if an insurer cannot show prejudice by late notice, an insurer should not be able to use it to disclaim coverage.
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