What Is a Gasquet Settlement and How Does It Work?

A Gasquet settlement is a Louisiana partial-release device that lets an injured plaintiff accept less than the full primary policy limit from the primary liability insurer while keeping the claim alive against any excess or umbrella carrier sitting above it. The name comes from Gasquet v. Commercial Union Ins. Co., 391 So. 2d 466 (La. App. 4th Cir. 1980), and the technique has been a staple of Louisiana insurance litigation ever since. It is also, as of August 1, 2024, a technique whose future is genuinely uncertain following changes to Louisiana’s Direct Action Statute.¹

How the Mechanism Works

In a Gasquet settlement, you release the primary insurer entirely and release the insured defendant from any claim that could be collected against the defendant personally. In the same document, you reserve all claims against the insured to the extent collectible coverage exists under an excess or umbrella policy.¹ The insured stays in the case as a nominal defendant so there is a party for the excess claim to attach to, but faces no personal financial exposure.

The appeal is practical. A primary carrier that wants out of the case can pay a discounted amount and walk away. The plaintiff gets money now rather than waiting for trial. The route to the higher insurance layer stays open. The whole thing works because Louisiana law treats the primary layer as fully satisfied even though the actual payment fell short of the policy limit.

The arrangement traces back to James F. Gasquet Jr., who was injured in 1976 when an airboat struck a sandbar and threw him into a tool box. The boat owner carried a $300,000 primary policy with Commercial Union and excess coverage with Stonewall. Gasquet settled with Commercial Union for $200,000, gave Stonewall a full $300,000 credit, and reserved the right to pursue Stonewall for anything above that. Stonewall argued its policy was never triggered because the primary limit had not actually been paid. The court rejected the argument: by giving Stonewall credit for the full primary limit, Gasquet closed the gap, and the excess case could proceed.²

The Gasquet Credit and Constructive Exhaustion

The concept that makes any of this work is constructive exhaustion. The primary layer is treated as spent even though the primary insurer paid less than its limit, and the excess carrier gets a dollar-for-dollar credit equal to the full primary policy limit, not just the amount the plaintiff actually received.

Run the numbers on a $300,000 primary policy settled for $200,000. If the plaintiff later wins a $500,000 judgment, the excess carrier owes $200,000, which is the judgment minus the $300,000 credit. The plaintiff absorbs the $100,000 gap as the cost of settling early.¹ Whatever discount you give the primary insurer comes directly out of your total recovery. A modest discount against a strong expected judgment can be a sensible trade. A deep discount can leave you well short of full compensation even after winning against the excess carrier.

Multi-claimant cases get messier. Courts have treated payments made by any underlying insurer to any claimant as part of the total liability subject to the Gasquet credit, so one claimant’s settlement can shrink the coverage effectively available to the others.

When a Gasquet Settlement Is Available

This tool only makes sense when the defendant carries layered coverage. A primary policy covers the first tier; an excess or umbrella policy picks up above the primary limit. Without an excess carrier above the primary, settling with the primary insurer simply ends the case because there is no higher layer to pursue.³

Layered coverage shows up most often in commercial trucking, industrial accidents, maritime injuries, and other high-exposure situations where one primary policy cannot plausibly cover the damages. In Salathe, the Parish of Jefferson had a $1 million retained limit with an excess carrier above it. The Gasquet settlement acknowledged the carrier’s entitlement to a $1 million credit while allowing the direct action against the excess layer to continue.

One trap catches people off guard. The excess carrier cannot be forced to drop down and cover damages that fall within the primary policy’s limits. Excess coverage attaches only above the primary threshold. If your total damages turn out to be below the primary limit, a Gasquet settlement can leave you worse off than a straight settlement at full value would have.

The 2024 Direct Action Statute Problem

This is the development that anyone considering a Gasquet settlement today needs to understand before anything else. Effective August 1, 2024, Louisiana overhauled its Direct Action Statute, La. R.S. 22:1269, in ways that put the mechanism’s future in serious doubt.⁴

Under the prior version of the statute, a plaintiff could directly name and sue a liability insurer. That was the foundation Gasquet settlements rested on: after settling with the primary carrier, the plaintiff brought a direct action against the excess carrier. The revised statute now prohibits plaintiffs from directly naming liability insurers except in seven specific situations:

The insured has filed for bankruptcy, or bankruptcy proceedings have been started against them.
The insured cannot pay a judgment.
The insured cannot be served or refuses to answer within 180 days.
The injury occurred between spouses or between parents and children.
The insured is deceased.
The insurer provides uninsured motorist coverage.
The insurer is defending under a reservation of rights or has denied coverage, and then only to establish that coverage exists.

Gasquet settlements are not mentioned anywhere in the revised statute. Nothing explicitly prohibits them, but the practical problem is obvious: the technique historically contemplated a direct action against the excess carrier, and that route is now closed in the ordinary case. If you cannot force the excess carrier into the lawsuit, much of the point of the structure disappears.⁴

The listed exceptions may preserve Gasquet functionality in some scenarios. If the insured is deceased or insolvent, the plaintiff can still bring a direct action and the traditional framework could apply. UM claims also remain viable for direct action. For a routine case involving a solvent, living insured with primary and excess coverage, the path forward is unclear. Louisiana courts have not yet squarely addressed how Gasquet settlements function under the new statute, so anyone considering this approach should treat the question as genuinely unsettled.

Who Defends the Nominal Defendant

The revised statute also creates a defense-obligation puzzle. Under the old framework, the excess carrier could be brought directly into the litigation and would typically handle the defense. Now, if the excess carrier is not a named party, it may have no obligation to defend the insured at all. Many excess policies give the carrier a right to defend rather than a mandatory duty. The primary carrier’s defense obligation arguably ended when it settled, especially if it tendered its full policy limits. The insured can end up as a nominal defendant with no one paying for the lawyer.

Drafting the Release

Release language is where these settlements most often fall apart. A poorly drafted release can accidentally discharge the excess carrier the plaintiff intends to sue and end the case.

The release must identify every insurance layer by name, policy number, and coverage limit, taken directly from the policy declarations rather than from memory or correspondence. The original Gasquet release specifically named Commercial Union as the primary insurer being released and Stonewall as the excess carrier whose coverage was being preserved.²

The critical component is the reservation of rights clause. It must explicitly state that the plaintiff reserves all claims against the insured to the extent collectible excess coverage exists. Without that clause, or with vague language, a court can read the release as a full discharge of all claims against all parties.¹ The release should also state the exact credit amount the excess carrier will receive, so there is nothing to argue about later.

Louisiana Civil Code Article 1803 adds another reason for care. A remission of debt to one solidary obligor benefits the other obligors in the amount of that person’s share.⁵ If the release language is not carefully limited, an excess carrier can argue that the settlement extinguished more than the plaintiff meant to give up. The reservation clause is the safeguard against that argument, and it has to be airtight.

Medicare Liens and Tax Treatment

If the plaintiff is a Medicare beneficiary, both the primary settlement and any later judgment against the excess carrier trigger federal repayment obligations under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b). Medicare may have made conditional payments for injury-related treatment and has a right to recover from any settlement or judgment proceeds.⁶

The settlement should be reported to the Benefits Coordination and Recovery Center promptly so Medicare can identify related claims. After a Conditional Payment Notice is issued, you have 30 days to respond with documentation showing which claims are unrelated to the injury. Missing that window means Medicare issues a demand letter for the full conditional payment amount without reducing it for attorney fees or costs.⁶

Timing matters in a Gasquet scenario. The primary settlement triggers a reporting obligation while the claim against the excess carrier is still ongoing. Medicare will continue to accumulate conditional payments for ongoing treatment, so the lien amount may grow between the primary settlement and the final resolution. Keep Medicare informed and request updated conditional payment letters before each settlement phase.

On taxes, 26 U.S.C. § 104(a)(2) excludes damages received on account of personal physical injuries or physical sickness from gross income, whether paid as a lump sum or periodic payments. Punitive damages are the main exception and remain taxable.⁷ For a Gasquet settlement, both the primary carrier’s payment and any later judgment against the excess carrier qualify for the exclusion as long as the underlying claim is rooted in physical injury. Non-physical components such as emotional distress not stemming from a physical injury may be taxable, and investment income on a lump-sum recovery is taxable as well.

1
United States Court of Appeals for the Fifth Circuit. United States Court of Appeals for the Fifth Circuit Opinion 23-30431
2
CaseMine. Gasquet v. Commercial Union Ins. Co.
3
FindLaw. Salathe v. Parish of Jefferson Through Department of Sewerage
4
Louisiana State Legislature. Louisiana Revised Statutes 22:1269
5
LSU Law Center. Louisiana Civil Code Online
6
Centers for Medicare and Medicaid Services. Conditional Payment Information
7
Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness