Settoon Towing, L.L.C. v. St. Paul Surplus Lines Insurance , 720 F.3d 268 ( 2013 )

Case: 11-31030 Document: 00512279244 Page: 1 Date Filed: 06/18/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 18, 2013
No. 11-31030 Lyle W. Cayce
Clerk
In Re: In the Matter of the Complaint of Settoon Towing, L.L.C., as owner of
M/V Cathy M. Settoon, and Barge CTCO 202, their engines, tackle,
appurtenances, furniture, etc., for Exoneration from or Limitation of Liability
SETTOON TOWING, L.L.C., as owner of M/V Cathy M. Settoon, and Barge
CTCO 202, their engines, tackle, appurtenances, furniture, etc.,
Petitioner
v.
ST. PAUL SURPLUS LINES INSURANCE COMPANY, et al,
Claimants
STATE NATIONAL INSURANCE COMPANY,
Plaintiff – Appellant
NEW YORK MARINE & GENERAL INSURANCE COMPANY; FEDERAL
INSURANCE COMPANY,
Plaintiffs – Appellees
v.
SETTOON TOWING, L.L.C., a Delaware Limited Liability Company,
Defendant – Third Party Claimant
– Appellant – Appellee
v.
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No. 11-31030
ST. PAUL FIRE & MARINE INSURANCE COMPANY,
Third Party Defendant – Appellee
Appeals from the United States District Court
for the Eastern District of Louisiana
Before STEWART, Chief Judge, and GARZA and ELROD, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
This appeal arises out of an allision between the M/V CATHY M.
SETTOON (the “CATHY”), a vessel owned by Settoon Towing, L.L.C. (“Settoon”),
and an oil well. Settoon appeals the district court’s grant of summary judgment
in favor of New York Marine and General Insurance Company (“NYMAGIC”),
Federal Insurance Company (“Federal”), and St. Paul Fire & Marine Insurance
Company (“St. Paul”) (together, the “umbrella insurers”), concluding the
umbrella insurers are not liable to Settoon for damages resulting from the
allision. State National Insurance Company (“SNIC”) cross-appeals the district
court’s grant of summary judgment in favor of Settoon, finding SNIC liable to
Settoon for damages and prejudgment interest resulting from the allision. We
AFFIRM the district court’s judgment in all respects except for the calculation
of prejudgment interest. We REVERSE and REMAND for calculation of
prejudgment interest in a manner consistent with this opinion.
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I
On January, 20, 2007, the CATHY struck an oil well in Bayou Perot,
Louisiana, causing damage to the wellhead and uncontrolled discharge of oil into
the water. The captain of the CATHY did not report the allision to the United
States Coast Guard or to Settoon. The next day, the captain of the M/V
CHERYL SETTOON, another vessel owned by Settoon, saw the oil spill as it
passed by the allision site and reported the spill to the Coast Guard and
Settoon’s management. The Coast Guard conducted an investigation, and the
captain of the CATHY initially denied involvement. When the Coast Guard
confronted him with a reconstruction of the allision from the CATHY’s tracking
system on February 23, 2007, thirty-four days after the allision, the captain of
the CATHY admitted involvement. Settoon notified its insurers of the event on
February 26, 2007, thirty-seven days after the allision.
Three insurance policies belonging to Settoon are at issue in this litigation,
all of which provide excess insurance coverage over Settoon’s underlying primary
policies. SNIC insures the first layer bumbershoot policy (“Bumbershoot 1”),
which provides the first $4,000,000 of excess coverage. SNIC sent Settoon a
binder for this policy on November 8, 2006, listing the underlying insurance
policies and indicating the policy included a “Pollution Liability” endorsement.
The binder included a “Conditions” section that stated, “Warranted copies of all
underlying policies scheduled in item 5, received within 60 days of attachment.”
We interpret this as a requirement that Settoon send SNIC the full texts of its
underlying policies. The “Conditions” section also stated, “All coverages
scheduled to remain in force for the entire term . . . .” The binder stated the
insurance policy was effective from November 2, 2006 to November 2, 2007.
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On December 13, 2006, SNIC contacted Settoon stating several items were
needed to issue the policy, including copies of the underlying policies and the
premium payment. On December 28, 2006, SNIC contacted Settoon stating
SNIC received the premium payment but still required the underlying policies,
among other items. On January 10, 2007, SNIC contacted Settoon again stating
it required the underlying policies to issue the insurance policy. On January 23,
2007, three days after the allision, SNIC contacted Settoon again stating it
needed the underlying policies to issue the insurance policy. On February 7,
2007, SNIC contacted Settoon again stating it needed the underlying policies to
issue the policy. SNIC received all the underlying policies by March 1, 2007, and
sent Settoon the Bumbershoot 1 policy on March 2, 2007.
Bumbershoot 1 begins by defining the general scope of the agreement in
Section I-A, titled “Coverage.” In relevant part, the Coverage section reads:
The Policy shall indemnify the Insured . . . for the following . . . :
1) All Protection and Indemnity risks covered by the underlying
Protection and Indemnity Insurance . . . .
2) . . . marine collision liabilities . . . .
3) All other sums which the Insured shall become legally liable to
pay as damages on account of . . . b. property damage . . . .
Section III of Bumbershoot 1 is titled “Exclusions.” In relevant part, the
Exclusions section reads: “This insurance does not apply to . . . xi. Any liability
for, or any loss, damage, injury or expense caused by, resulting from or incurred
by reason of: . . . f. pollution liability.” One of the endorsements attached to the
policy is titled “Pollution Liability,” which reads:
This endorsement forms a part of the policy to which it is attached.
...
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Exclusion xi.f. “Pollution Liability” of this policy shall not apply,
however, provided that the Insured establishes that all of the
following conditions have been met:
...
C) The discharge, dispersal, release or escape became
known to the Insured within 72 hours after its
commencement.
D) The discharge, dispersal, release or escape was
reported in writing to these underwriters within 21
days after having become known to the Insured.
...
Coverage, if any, provided by the endorsement will:
A) Apply only if such coverage is also provided in the
underlying insurance(s) . . . .
...
Such coverage, however, shall only apply excess of valid and
collectible underlying insurance.
All other terms and conditions remaining unaltered.
NYMAGIC insures the second bumbershoot policy (“Bumbershoot 2”),
which provides $5,000,000 over Bumbershoot 1. The first section under the
heading “Insuring Agreement” in Bumbershoot 2 is titled “Coverage” and reads
in pertinent part:
This Policy is to indemnify the “Assured” in respect of the
following . . .
(a) All Protection and Indemnity risks. . . .
(b) . . . Collision . . . Liabilit[y] . . . .
(c) All other sums which the “Assured” shall become legally liable to
pay . . . in respect of claims made against the “Assured” for
damages . . . on account of . . . “Property Damage” . . . .
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Under the heading “Exclusions” Bumbershoot 2 states:
This Policy Shall Not Apply: –
1. To any claim directly or indirectly in consequence of the actual or
potential discharge, dispersal, release, or escape of smoke, vapors,
soot, fumes, acids, alkalis, petroleum products or derivatives, liquids
or gases, waste materials, sewerage or other toxic chemicals,
irritants, contaminants or pollutants into or upon land, atmosphere
or any watercourse or body of water.
Under the heading “Conditions” Bumbershoot 2 lists, among other conditions,
the following:
9. NOTICE OF OCCURRENCE: Whenever the “Assured” has
information from which the “Assured” may reasonably conclude that
an “occurrence” covered hereunder involved injuries or damages
which, in the event that the “Assured” should be held liable, is likely
to involve this policy, notice shall be sent as soon as practicable to
the Company, provided, however, that failure to notify the Company
of any “occurrence” which at the time of its happening did not
appear to involve this Policy, but which, at a later date, would
appear to give rise to claims hereunder, shall not prejudice such
claims.
Endorsement #8, attached to Bumbershoot 2 and titled “Follow-Form Pollution
Endorsement (Sudden & Accidental Limitation),” further explains the pollution
exclusion and provides a buyback. The endorsement states in relevant part:
I. ABSOLUTE POLLUTION EXCLUSION
(A) In consideration of the premium charged, it is hereby agreed
that this policy shall not apply to any liability for . . . “property
damage” . . . arising out of the . . . “release” of “pollutants” into . . .
any watercourse, water supply, reservoir or body of water.
It is further agreed that the intent and effect of this exclusion is to
delete from any and all coverage’s afforded by this policy any
“occurrence”, claim, suit, cause of action, liability, settlement,
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judgement, defense costs or expenses in any way arising out of such
“release” . . . .
...
II. SUDDEN AND ACCIDENTAL BUYBACK
(A) It is hereby agreed that the above Absolute Exclusion shall not
apply provided that the Named Assured establishes that all of the
following conditions have been met:
...
(4) The occurrence became known to the assured within
72 hours after its commencement.
(5) The occurrence was reported in writing to those
underwriters within 30 days after having become
known to the assured.
...
ALL OTHER TERMS AND CONDITIONS REMAINING
UNCHANGED.
NYMAGIC, Federal, and St. Paul insure the third bumbershoot policy
(“Bumbershoot 3”), which provides $40,000,000 over Bumbershoot 2. The second
section under the heading “Excess Bumbershoot Liability” in Bumbershoot 3 is
titled “Coverage” and reads in pertinent part:
The company hereby agrees, subject to the limitations, terms and
conditions hereinafter mentioned, to indemnify the Assured in
respect of the following:
A. All Protection and Indemnity risks of whatsoever nature covered
by the underlying Bumbershoot policies.
B. . . . Collision Liabilities . . . .
C. All other sums which the Assured shall become legally liable to
pay . . . in respect of claims made against the Assured for damages
of whatsoever nature, on account of:
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...
2) Property Damage . . . .
The fourth section under the “Excess Bumbershoot Liability” heading is titled
“Conditions” and lists, among other conditions, the following “Notice of
Occurrence” condition:
Whenever the Assured has information from which the Assured may
reasonably conclude that an occurrence covered hereunder involved
injuries or damages which, in the event that the Assured should be
held liable, is likely to involve this policy, notice shall be sent to the
Company as soon as practicable, provided, however, that failure to
notify the Company of any occurrence which at the time of its
happening did not appear to involve this Policy, but which, at a later
date, would appear to give rise to claims hereunder, shall not
prejudice such claims.
Endorsement #8 attached to Bumbershoot 3 is exactly the same as Endorsement
#8 attached to Bumbershoot 2, containing the same “ABSOLUTE POLLUTION
EXCLUSION” and “SUDDEN AND ACCIDENTAL BUYBACK” provisions as
reproduced in relevant part above.
The insurers sought a declaratory judgment that they are not liable for the
losses arising out of the allision because Settoon did not meet the requirements
in the endorsements, which would have provided the pollution liability excluded
by the pollution exclusions. The parties filed cross-motions for partial summary
judgment. The district court made three holdings: 1) the umbrella insurers are
not liable on the Bumbershoot 2 and Bumbershoot 3 policies because Settoon did
not comply with the 72-hour knowledge and 30-day notice provisions in the
buybacks; 2) SNIC is liable on the Bumbershoot 1 policy because it delayed
delivery of the policy to Settoon; and 3) SNIC is liable for prejudgment interest
beginning on the date Settoon made judicial demand.
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II
We review grants of summary judgment de novo, applying the same
standards as the district court. Burge v. Parish of St. Tammany, 187 F.3d 452,
464 (5th Cir. 1999). “[T]he party moving for summary judgment must
‘demonstrate the absence of a genuine issue of material fact . . . .’” Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (quoting Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986)). “An issue is ‘genuine’ if the evidence is
sufficient for a reasonable jury to return a verdict for the nonmoving party.”
Hamilton v. Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000) (per curiam)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A fact issue
is “material” if its resolution could affect the outcome of the action. Hamilton,
232 F.3d at 477 (citing Anderson, 477 U.S. at 248). When reviewing summary
judgment decisions, we construe all facts and inferences in the light most
favorable to the non-moving party. Cooper Tire & Rubber Co. v. Farese, 423 F.3d
446, 454 (5th Cir. 2005).
We review interpretations of insurance policies de novo. Old Republic Ins.
Co. v. Comprehensive Health Care Assocs., Inc., 2 F.3d 105, 107 (5th Cir. 1993).
Likewise, we review interpretations of state law de novo, Bayou Steel Corp. v.
Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 642 F.3d 506, 509 (5th Cir. 2011),
“resolving questions of Louisiana law the way the Louisiana Supreme Court
would interpret the statute based upon prior precedent, legislation, and relevant
commentary.” Commerce & Indus. Ins. Co. v. Grinnell Corp., 280 F.3d 566, 570
(5th Cir. 2002) (internal quotation marks omitted).
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III
Settoon asserts the umbrella insurers are liable despite Settoon’s failure
to provide them notice within 30 days. To provide the pollution liability
excluded by the pollution exclusion, Bumbershoot 2 and Bumbershoot 3 require
the following condition be met in the pollution endorsement: “(5) The occurrence
was reported in writing to those underwriters within 30 days after having
become known to the assured.” Settoon asserts its non-compliance with the 30-
day notice provision is not cause for barring liability for three reasons: 1) the
insurers must, but cannot, show they were prejudiced by the delay; 2) when the
30-day notice provision is read alongside the general “Notice of Occurrence”
provision in the Bumbershoot 3 policy, it is clear that delays beyond 30 days are
permitted when the insured does not immediately realize the occurrence gives
rise to a claim; and 3) Louisiana’s doctrine of impossibility excuses Settoon’s
failure to provide notice within 30 days. Settoon is mistaken on all three counts;
the umbrella insurers are not liable because Settoon failed to provide notice
within 30 days.
A
First, Settoon asserts the insurers are required to, but cannot, show
prejudice from the delay. The parties rely on Texas law a great deal in debating
whether the insurers must show prejudice resulting from the late notice. This
case arises under Louisiana law, so Texas law is informative but not controlling.
In interpreting Texas law, we have drawn a distinction between “occurrence”
policies, where “any notice requirement is subsidiary to the event that triggers
coverage,” and “claims-made” policies, where “notice itself constitutes the event
that triggers coverage,” in deciding whether the insurer is required to show
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prejudice as a result of late notice. See Matador Petroleum Corp. v. St. Paul
Surplus Lines Ins. Co., 174 F.3d 653, 658–59 (5th Cir. 1999). Matador involved
a 30-day notice provision in a pollution buyback very similar to the one at issue
here, and we held, “The nature of St. Paul’s and Matador’s bargain . . . resembles
the nature of the bargain underlying a ‘claims-made’ policy. Accordingly, we see
no reason to apply a prejudice requirement and not to hold the parties to the
specific terms of their bargain.” Id. at 659; see also Certain Underwriters at
Lloyd’s London v. C.A. Turner Constr. Co., 112 F.3d 184, 189 (5th Cir. 1997)
(interpreting Texas law to require strict compliance with notice provision in
pollution endorsement where pollution exclusion was clear). In a pair of
decisions after Matador, the Texas Supreme Court held that even in claims-
made policies, insurers must show prejudice to defeat liability where the insured
does not comply with a notice provision that is a condition precedent in the main
body of the policy. Fin. Indus. Corp. v. XL Specialty Ins. Co., 285 S.W.3d 877,
879 (Tex. 2009); Prodigy Commc’ns Corp. v. Agric. Excess & Surplus Ins. Co., 288
S.W.3d 374, 375 (Tex. 2009). Those cases applied Texas law and did not address
notice provisions in endorsements.
Only one Louisiana case has addressed the interpretation of notice
provisions in exceptions to exclusions under Louisiana law, but then only
tangentially. Smith v. Reliance Ins. Co. of Il., 807 So. 2d 1010, 1023 (La. Ct.
App. 2002) (Daley, J., concurring). The concurring opinion contrasted the
position of the insurer in that case, which cited Matador for the proposition that
notice requirements in buyback endorsements must be strictly construed, with
the position of the insured, which asserted Louisiana law, unlike the Texas law
holding in Matador, requires a showing of prejudice. Id. The concurring opinion
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explicitly recognized Louisiana law does not squarely answer the question: “This
unresolved question of law, whether to strictly apply the notice requirements of
a Limited Buy Back Endorsement, is an issue upon which the trial court has not
yet ruled. This [is an] open question of law . . . .” Id.
In Louisiana, an insurer is not liable where a claims-made policy requires
notice within the policy period but notice is not given until after the policy
period. Hood v. Cotter, 5 So. 3d 819, 824–25, 830 (La. 2008). The notice
provision in the main body of the policy “provides the scope of coverage
bargained for by defendant.” Id. at 829; see also Vitto v. Davis, 23 So. 3d 1048,
1053 (La. Ct. App. 2009) (holding requirement of notice within policy period in
the main body of the policy controls scope of coverage by insurer even though
injured third party bringing suit could not have known of claim within policy
period because of wrongdoing of insured). Hood reasoned, “[T]he purpose of the
claims-made-and-reported requirement is to ease problems in determining when
a claim is made or whether an insured should have known a claim was going to
be made.” Hood, 5 So. 3d at 827 (citing Livingston Parish Sch. Bd. v. Fireman’s
Fund Am. Ins. Co., 282 So. 2d 478 (La. 1973)).
In an earlier case interpreting Louisiana law, this circuit held where
“immediate notice” is an express condition precedent to coverage in the main
body of the policy, “failure to comply with the provision precludes coverage” and
“prejudice need not enter the calculation.” Joslyn Mfg. Co. v. Liberty Mut. Ins.
Co., 30 F.3d 630, 633–634 (5th Cir. 1994). Where policy holders are “consumers
unlikely to be conversant with all the fine print of their policies,” strict
adherence to notice provisions that are conditions precedent is not as important
as when “both parties are sophisticated businesses, which are expected to be
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conversant with the terms of their contracts.” Id. at 634 (citing MGIC Indem.
Corp. v. Cent. Bank of Monroe, La., 838 F.2d 1382, 1387 (5th Cir. 1988)); see also
Jackson v. State Farm Mut. Auto. Ins. Co., 29 So. 2d 177, 179 (La. 1946) (holding
delayed-notice cases must balance equities, including prejudice and discovery of
injury, in case where injured party was ordinary consumer). On the other hand,
where notice is not a condition precedent to coverage, an “insurer cannot deny
coverage merely because its insured failed to give notice of loss as soon as
practicable” without a showing of prejudice. Peavey Co. v. M/V ANPA, 971 F.2d
1168, 1172 (5th Cir. 1992). Louisiana case law does not directly address
whether, to deny recovery, an insurer must show prejudice resulting from an
insured’s non-compliance with a condition precedent in an endorsement that
requires notice within a set time period after an occurrence. See Smith, 807
So. 2d at 1023 (Daley, J., concurring).
Whether a notice provision is a “condition precedent” to recovery depends
on the language of the policy; we have held that “the words ‘condition precedent’
mean exactly what they say, and failure to comply with this provision
preclude[s] recovery, regardless of whether prejudice [is] shown.” Gulf Island,
IV v. Blue Streak Marine, Inc., 940 F.2d 948, 955 (5th Cir. 1991) (citing MGIC,
838 F.2d at 1385–86). Gulf Island, IV went on to state that certain language
short of the exact phrase “condition precedent” may not be sufficient to make a
notice requirement a condition precedent to recovery:
The Lloyd’s policy requires notice only when the assured “may
reasonably conclude” that a covered occurrence has taken place.
This language falls short of the express condition precedent
language that we held in MGIC and Auster Oil [& Gas, Inc. v.
Stream, 891 F.2d 570 (5th Cir. 1990)] was necessary to make giving
notice a condition precedent to recovery.
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Gulf Island, IV, 940 F.2d at 956.
Turning to the insurance contracts at issue, we hold the umbrella insurers
are not liable to Settoon regardless of prejudice to the umbrella insurers. First,
it is clear that the notice condition in the endorsement is a “condition precedent”
despite not using the precise phrase “condition precedent.” The buyback clearly
indicates the notice provision is a condition precedent to recovery under the
endorsement. The absolute pollution exclusion states, “It is . . . agreed that the
intent and effect of this exclusion is to delete from any and all coverage’s . . . any
. . . claim . . . in any way arising out of [pollution].” The buyback states, “It is
hereby agreed that the above Absolute Exclusion shall not apply provided that
the Named Assured established that all of the following conditions have been
met . . . .” Settoon must “establish” that the “conditions” have been met in order
for the absolute pollution exclusion not to apply. Short of the exact phrase
“condition precedent,” there is almost no stronger language that could establish
a “condition precedent” to recovery. Further, Settoon is a sophisticated business,
not an ordinary consumer. Cf. Joslyn Mfg., 30 F.3d at 633–34. Therefore, we
analyze the notice provision in the buyback as a condition precedent directed at
a sophisticated business.
The bargain here “delete[s] from any and all coverage[]” pollution liability
unless the insured gives notice within 30 days of the occurrence. Pollution
liability is not stripped away because of a violation of the notice provision;
rather, non-compliance prevents the exception to the exclusion from taking effect
in the first instance, meaning the pollution exclusion remains in effect. In
Louisiana a violation of a provision mandating notice within the policy period
allows the insurer to avoid liability, Hood, 5 So. 3d at 824–25, because the notice
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provision determines the scope of coverage bargained for, Vitto, 23 So. 3d at
1053. Here, the notice provision in the buyback reflects the allocation of risk the
parties bargained for. Therefore, holding the umbrella insurers liable where the
conditions of the buyback were not met would alter the terms of the parties’
bargain. Because Settoon did not comply with the 30-day notice provision, which
is a condition precedent to recovery under the buyback, the umbrella insurers
are not liable under the Bumbershoot 2 and Bumbershoot 3 policies.
B
Second, Settoon points out that although the 30-day notice provision is
present as a condition in the pollution endorsement, the notice provision in the
bodies of the main Bumbershoot 2 and Bumbershoot 3 policies requires notice
“as soon as practicable” and provides that “failure to notify the Company of any
occurrence which at the time of its happening did not appear to involve this
Policy, but which, at a later date, would appear to give rise to claims hereunder,
shall not prejudice such claims.” Settoon asserts this notice provision in the
main body of the policy must be given effect because the endorsement includes
a clause stating, “All other terms and conditions remaining unchanged” and does
not include a ranking clause that would have given precedence to provisions of
the endorsement over provisions of the main body of the policy. By reading the
two provisions together, Settoon maintains delays of notice beyond 30 days are
permitted because the occurrence “did not appear to involve this Policy” until the
captain of the CATHY confessed his vessel’s involvement in the allision. The
umbrella insurers respond that the “Notice of Occurrence” provision does not
apply to claims under endorsements, but rather only to claims under the main
body of the policy, because it speaks of occurrences “covered hereunder.”
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Where an insurance policy is clear, we do not engage in further
interpretation beyond the plain meaning of the words. See LA. CIV. CODE art.
2046 (“When the words of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of the parties’
intent.”); La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 763
(La. 1994) (“The parties’ intent as reflected by the words in the policy determine
the extent of coverage.” (citing Trinity Indus., Inc. v. Ins. Co. of North America,
916 F.2d 267, 269 (5th Cir. 1990))). Where a policy’s words are subject to
different interpretations, we resolve ambiguities in favor of the insured.
Coleman v. Sch. Bd. of Richland Parish, 418 F.3d 511, 517–18 (5th Cir. 2005).
Additionally, we read each insurance policy as a whole. Id. at 517.
“[E]ndorsements affixed to a policy of insurance are to be construed in
connection with the printed provisions of the policy and the entire agreement
harmonized, if possible, but in the event of irreconcilable conflict, the
endorsement or rider prevails.” Zurich Ins. Co. v. Bouler, 198 So. 2d 129, 131
(La. Ct. App. 1967); see also Smith v. Burton, 928 So. 2d 74, 79 (La. Ct. App.
2005) (“Documents evidencing the complete contract, such as binders and riders,
when executed together for that purpose, must be read together.”). In contract
interpretation in the context of insurance policies, “the specific controls the
general.” Smith, 928 So. 2d at 79.
Here, under Louisiana law primacy is given to the endorsement over the
main body of the policy. See Zurich Ins. Co., 198 So. 2d at 131. That is, the
liability provisions of the policy do not encompass pollution liability until the
conditions of the endorsement are met. The absolute pollution exclusion
specifically states, “It is . . . agreed that the intent and effect of this exclusion is
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to delete from any and all coverage’s afforded by this policy any . . . claim . . . in
any way arising out of [pollution].” The buyback then states this language will
not apply “provided that” notice is given within 30 days. Therefore, even
assuming without deciding that Settoon complied with the notice requirement
in the main body of the policy, the absolute pollution exclusion remains in effect
because Settoon did not meet the notice condition in the buyback.
C
Third, Settoon asserts Louisiana’s doctrine of impossibility excuses its non-
compliance with the 30-day notice provision. It is true that under Louisiana law,
an insurer cannot impose a penal reduction in benefits for failure to comply with
a notice provision. Mansour v. State ex rel. State Emps. Grp. Benefits Program,
694 So. 2d 1096, 1100 (La. Ct. App. 1997) (holding insurer liable despite
insured’s non-compliance with 72-hour notice provision where insurer could not
show prejudice and where insured could not comply with notice provision
because of condition insured against, which was a heart attack); see also
Hayward v. Carolina Ins. Co., 51 So. 2d 405, 407 (La. Ct. App. 1951) (holding
insurer cannot rely on failure to serve prompt notice when insured gave notice
immediately after discovery of claim and in absence of fraud or prejudice to
insurer). This case law, however, is not an application of the doctrine of
impossibility, which is codified as follows: “An obligor is not liable for his failure
to perform when it is caused by a fortuitous event that makes performance
impossible.” LA. CIV. CODE art. 1873. The doctrine applies to failures to perform
obligations. Id. An insured party is not contractually obliged to satisfy
conditions precedent, so the doctrine of impossibility is inapplicable. Therefore,
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we hold the doctrine of impossibility does not excuse Settoon’s failure to provide
notice within 30 days.
D
The umbrella insurers are not liable to Settoon because Settoon failed to
comply with the 30-day notice provision in the buyback. Therefore, we need not
reach the issue of whether Settoon complied with the 72-hour knowledge
provision. The district court did not err in holding the umbrella insurers are not
liable to Settoon.
IV
The district court held SNIC cannot rely on the specific terms in the
Bumbershoot 1 buyback because SNIC delayed delivery of the policy in violation
of LOUISIANA REVISED STATUTES Annotated § 22:873(A) (2012), which, subject to
payment of the premium, requires insurers to deliver policies within a
reasonable period of time after issuance. SNIC did not give Settoon the policy
until months after Settoon’s premium payment. Therefore, the district court
held SNIC liable to Settoon on the Bumbershoot 1 policy. On cross-appeal, SNIC
asserts the terms of the policy are applicable for two reasons: 1) SNIC did not
“issue” the policy when it sent the binder, so the delivery obligations of
§ 22:873(A) do not apply; and 2) delayed delivery in violation of § 22:873(A) does
not free Settoon from the policy terms if Settoon was not prejudiced by a lack of
knowledge of the terms, and Settoon was not prejudiced. Because delayed
delivery in violation of § 22:873(A) prevents SNIC from relying on the exclusions
in the policy and the conditions precedent of the exceptions to the exclusions,
whether or not the delay caused prejudice to Settoon, we hold SNIC is liable to
Settoon.
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A
“We may affirm the district court’s judgment on any basis supported by the
record,” United States v. Roussel, 705 F.3d 184, 195 (5th Cir. 2013); however,
“[t]he general rule of this court is that arguments not raised before the district
court are waived and will not be considered on appeal.” Celanese Corp. v. Martin
K. Eby Constr. Co., Inc., 620 F.3d 529, 531 (5th Cir. 2010). SNIC did not argue
before the district court that § 22:873(A) does not apply to its delay in delivering
the policy because SNIC did not “issue” the policy until Settoon sent the
underlying policies. Rather, SNIC’s primary argument before the district court
was that it complied with the statute by delivering the binder that stated the
effective date of the policy was November 2, 2006.
Admittedly, in one paragraph of its summary judgment motion SNIC
contended the only reason the policy did not “issue” until March 2, 2007 was that
Settoon delayed in delivering the underlying policies. It is clear from the context
of the brief that SNIC did not mean to argue in this paragraph that § 22:873(A)
did not apply because SNIC did not “issue” the policy for purposes of the
statute’s delivery requirement; rather, SNIC used this paragraph to argue
Settoon should not be advantaged by its own delay in sending the underlying
policies. SNIC maintained throughout its summary judgment motion that it
delivered the policy in compliance with § 22:873(A) by delivering the binder.
Thus, the district court did not have an opportunity to decide whether
§ 22:873(A) was applicable on SNIC’s “issuance” theory because Settoon and
SNIC disputed only whether SNIC’s delivery of the binder sufficed for
compliance with the statute’s delivery requirement. See Celanese Corp., 620
F.3d at 531. Accordingly, SNIC waived its assertion that § 22:873(A)’s delivery
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requirement is inapplicable because it did not “issue” the policy until after
Settoon sent the underlying policies.
B
SNIC asserts the terms of Bumbershoot 1 are applicable because the
delayed delivery of the policy did not prejudice Settoon, as Settoon had
knowledge of the terms regardless of the delivery timing. Settoon asserts
prejudice is not a relevant factor under Louisiana law and, in any event, Settoon
was in fact prejudiced because it could not have known of Bumbershoot 1’s
specific terms. Louisiana statutory law provides:
Subject to the insurer’s requirements as to payment of premium,
every policy shall be delivered to the insured or to the person
entitled thereto within a reasonable period of time after its issuance.
LA. REV. STAT. Ann. § 22:873(A) (2012).
In Louisiana Maintenance Services, Inc. v. Certain Underwriters at Lloyd’s
of London, 616 So. 2d 1250 (La. 1993), the Louisiana Supreme Court held an
insurer could not rely on an exclusion to deny recovery where the insurer
violated § 22:873(A) by failing to deliver the policy and where the insured
“reasonably assumed that its liability . . . was covered.” Id. at 1253. Louisiana
Maintenance Services did not explicitly state whether it relied on both grounds
in denying the insurer the right to rely on the exclusion, but it strongly
suggested the statutory violation was enough standing alone. Id. (“Insurance
policy exclusions are not valid unless clearly communicated to the insured. . . .
Since Lloyd’s failed to comply with the statutory requirement of delivery, it could
not rely on its policy exclusions.”). The Louisiana Supreme Court did, however,
explain that the insured reasonably thought the insurer covered the claim
(because of the specific needs of the insured) and concluded the insurer acted in
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an arbitrary and capricious manner. Id. The Court explained the statute
“require[s] that an insured be informed of a policy’s contents. Notice of any
exclusionary provisions is essential because the insured will otherwise assume
the desired coverage exists.” Id. at 1252.1
A Louisiana appellate court relied on Louisiana Maintenance Services in
holding an insurer did not violate § 22:873(A) when it delivered the policy to the
association it insured but not to each individual within the association. Naquin
v. Fortson, 774 So. 2d 1277, 1280 (La. Ct. App. 2000). Naquin held delivery to
the association complied with the statute and also relied on the fact that “the
principles underlying the delivery requirement were met in this case; that is,
[the insured] was clearly aware that automobile liability coverage was excluded
under the [insurer’s] policy.” Id. The statutory compliance alone, however,
seems to have been enough to allow the insurer to rely on the exclusion. Id. at
1279 (“If an insurer fails to comply with the statutory requirement of delivery,
it cannot rely on its policy exclusions.” (citing La. Maint. Servs., 616 So. 2d at
1253)).
We hold a finding of prejudice is not required to disallow reliance on the
policy terms and endorsement provisions. Louisiana Maintenance Services
1
A Louisiana appellate court applying Louisiana Maintenance Services held an insurer
did not violate § 22:873(A) where it delivered the policy after the event giving rise to the claim
but within a reasonable time period (two months) and where the insured had knowledge of the
relevant exclusion. MacLaff, Inc. v. Arch Ins. Co., 978 So. 2d 482, 488–89 (La. Ct. App. 2008).
The Louisiana Supreme Court vacated that opinion on appeal, however, in an opinion that
reads in its entirety, “There exist genuine issues of material fact that require a trial on the
merits. The decision of the court of appeal and the trial court are vacated. The case is
remanded to the trial court for further proceedings.” MacLaff, Inc. v. Arch Ins. Co., 996 So.
2d 1080, 1080–81 (La. 2008). Because the basis for the Louisiana Supreme Court’s decision
is opaque, we do not rely on the appellate court opinion, any part of which could be an
incorrect espousal of Louisiana law.
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indicates delayed delivery in violation of § 22:873(A) is enough to prevent SNIC
from relying on the pollution exclusion in the main body of the policy regardless
of prejudice to Settoon. See La. Maint. Servs., 616 So. 2d at 1253 (“Since [the
insurer] failed to comply with the statutory requirement of delivery, it could not
rely on its policy exclusions.”). The Louisiana Supreme Court’s explanation of
the purpose of § 22:873(A) was not essential to its holding; rather, what was
essential was the violation of the statute. Id. at 1252–53; see also Naquin, 774
So. 2d at 1279–80. Therefore, under Louisiana law an insurer cannot take
advantage of favorable policy terms where it delayed delivery of the policy after
the insured payed the premium. La. Maint. Servs., 616 So. 2d at 1253.
Moreover, even if Settoon could have known of the pollution exclusion, it could
not have known of the specific terms of the pollution buyback endorsement prior
to receiving the policy and endorsements. SNIC cannot rely on the pollution
exclusion or specific terms of the buyback because it delayed delivery of the
policy and endorsements to Settoon after Settoon paid the premium. The district
court did not err in holding SNIC is liable to Settoon.
V
SNIC asserts that even if it is liable to Settoon, it is not liable for
prejudgment interest because federal maritime law, not Louisiana law, controls.
Further, SNIC asserts that if it is liable for prejudgment interest, the interest
should be calculated from the date Settoon paid for the allision, not from the
date of judicial demand. SNIC is incorrect in its first assertion: SNIC is liable
for prejudgment interest because Louisiana law controls. SNIC is correct,
however, in its second assertion: prejudgment interest should be calculated from
the date Settoon paid for the allision.
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A
SNIC is liable for prejudgment interest because Louisiana law applies over
federal maritime law. This circuit created a three-part instructive test for
determining whether federal maritime or state law controls a disputed issue in
Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 886–87 (5th Cir. 1991). The three
factors are: “(1) whether the federal maritime rule constitutes entrenched federal
precedent; (2) whether the state has a substantial and legitimate interest in the
application of its law; (3) whether the state’s rule is materially different from the
federal maritime rule.” Id. at 886 (internal quotation marks and citations
omitted).
The first prong of the three-factor test asks whether federal law is
entrenched. Id. “In the absence of preexisting entrenched federal maritime law
. . . [t]he application of unfamiliar federal maritime rules engenders undesirable
uncertainty among maritime actors.” Id. at 888. In order to determine whether
federal law was entrenched, Anh Thi Kieu analyzed our circuit precedent and
concluded that although the language in our precedent recognized the federal
law at issue in that case, it did not have to apply the federal law, so the federal
law was not entrenched. Id. at 888–89. The same conclusion is warranted here.
Where a primary and excess policy are drafted together in a “carefully
dovetailed, integrated program in which each [insurer] had significant interests
at stake,” this circuit has held under maritime law the excess insurer is liable
for prejudgment interest on the amount owed by the primary insurer that
exceeds the primary policy’s limit. Alcoa S.S. Co. v. Charles Ferran & Co., 443
F.2d 250, 255 (5th Cir. 1971). Alcoa Steamship specifically held, “But we do not
make this as a choice of law for general (or Louisiana) application.” Id. Rather,
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Alcoa Steamship limited the holding to the carefully crafted insurance plan,
where “[o]bviously what was in mind was what has occurred here—a Court
holding that despite the fixed ceiling of [a certain amount], the law requires
payment of interest thereon.” Id. at 256. In the context where both the primary
and excess insurer were liable to the insured, the court required the excess
insurer to pay any prejudgment interest beyond the limits of the primary
insurance policy. Id. This circuit relied on Alcoa Steamship fifteen years later
to hold, “[A] marine insurer is not liable for interest in excess of its policy limits
unless language in the policy so provides.” Ryan Walsh Stevedoring Co. v. James
Marine Servs., Inc., 792 F.2d 489, 493 (5th Cir. 1986).
Ryan Walsh and Alcoa Steamship addressed situations where both
primary and excess insurers were liable, and held the excess insurers were liable
for prejudgment interest beyond the limits of the primary insurers. Ryan Walsh,
792 F.2d at 493; Alcoa S.S., 443 F.2d at 256. Whether the primary or excess
insurer was held liable, the insured received prejudgment interest as
contemplated in the drafting of the policies.2 Our precedent has not applied the
Alcoa Steamship rule where no insurer would be liable for prejudgment interest.
Therefore, the Alcoa Steamship rule is not entrenched federal maritime law in
this context, where there is no excess insurance liability beyond Bumbershoot 1.
The second Anh Thi Kieu factor asks whether Louisiana has a substantial
interest exceeding the interest of maritime law. Anh Thi Kieu, 927 F.2d at 886.
Anh Thi Kieu explained a state has “a substantial and legitimate interest” if “the
local state interest materially exceeds the comparative maritime concerns in the
2
One Eleventh Circuit case that dealt with only one insurance policy relied on Alcoa
Steamship and Ryan Walsh to disallow prejudgment interest beyond the policy’s limit.
Steelmet, Inc. v. Caribe Towing Corp., 842 F.2d 1237, 1244 (11th Cir. 1988).
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controversy.” Id. at 887 (emphasis removed). There, we held “Texas has a
material interest in ensuring that marine insurance underwriters do not
invalidate the insurance protection of Texas citizens on the basis of
misrepresentations that were neither willfully or intentionally asserted.” Id. at
887–88. Similarly, here Louisiana has an interest in compensating insured
parties with prejudgment interest when insurers wrongfully deny recovery,
especially where insurers violate Louisiana statutory law—in this case
§ 22:873(A) governing delivery of insurance policies.
The third Anh Thi Kieu factor asks whether there is a material difference
between state and federal law. Anh Thi Kieu, 927 F.2d at 886. “[A]pplication
of state law inconsistent with the core principles of maritime law would defeat
the reasonably settled expectations of maritime actors. . . . [S]tate law should not
be applied unless it bears a reasonable similarity to the federal maritime
practice.” Id. at 887 (internal quotation marks and citations omitted). Unlike
the federal law of Alcoa Steamship and Ryan Walsh, the Louisiana courts have
held primary and excess insurers are liable for prejudgment interest on their
portion of liability, even if the interest exceeds policy limits. Moon v. City of
Baton Rouge, 522 So. 2d 117, 127 (La. Ct. App. 1987) (“[The requirement to pay
prejudgment interest] applies to primary as well as excess insurers, making each
liable for the interest attributable to their proportionate share of the total
judgment.”). This is a difference from federal law. See Ryan Walsh, 792 F.2d at
493. This is not, however, a case where “application of state law inconsistent
with the core principles of maritime law would defeat the reasonably settled
expectations of maritime actors” because Louisiana “law shares the concern of
federal maritime law” that insurers should be liable for prejudgment interest,
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even if the allocation of that interest is different. Anh Thi Kieu, 927 F.2d at 887.
Therefore, this factor adds little weight to SNIC’s assertions, especially when
weighed against the other two factors. As a result, the Anh Thi Kieu factors lead
us to conclude Louisiana law should be applied to the issue of prejudgment
interest. Accordingly, SNIC is liable to Settoon for prejudgment interest.
B
SNIC is correct to assert the interest should be calculated from the date
Settoon paid out its obligations rather than the date Settoon made judicial
demand. As the above analysis indicates, Louisiana law is applicable to liability
for prejudgment interest. See Part V.A. supra. Under Louisiana law, interest
is calculated from the date of judicial demand only for “ex delicto” damages. LA.
REV. STAT. Ann. § 13:4203. Louisiana law distinguishes between “ex delicto” and
“ex contractu” damages:
The Louisiana Court of Appeals explained that “the
classical distinction between ‘damages ex contractu’ and
‘damages ex delicto’ is that the former flow from the
breach of a special obligation contractually assumed by
the obligor, whereas the latter flow from the violation
of a general duty owed to all persons.”
Amoco Prod. Co. v. Tex. Meridian Res. Exploration Inc., 180 F.3d 664, 672 (5th
Cir. 1999) (alterations removed) (quoting Davis v. LeBlanc, 149 So. 2d 252, 254
(La. Ct. App. 1963)).
Here, the insurance obligations are “ex contractu” because they “flow from
the breach of a special obligation contractually assumed by the obligor.” Davis,
149 So. 2d at 254. SNIC’s obligation is contractual, arising out of SNIC’s
agreement to pay Settoon for Settoon’s liability for damage to third parties;
SNIC’s obligation does not arise out of a general duty SNIC owes all persons or
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out of its agreement to pay Settoon for damage to Settoon (even though the
underlying incident with the third party was a tort). “The general rule in
Louisiana is that legal interest runs from the due date of the obligation in
question.” Am. Cyanamid Co. v. Elec. Indus., Inc., 630 F.2d 1123, 1129 (5th Cir.
Unit A 1980). In this case the obligation was due on the date Settoon paid for
the damage from the allision, which is the date Settoon suffered the insured-
against loss because it lost the funds it paid to third parties. See Arceneaux v.
Amstar Corp., 969 So. 2d 755, 785 (La. Ct. App. 2007) (holding insurer liable to
insured for prejudgment interest on amount insured paid in settlement to third
parties from date insured paid third parties, not from date of judicial demand).
The outcome may be different were SNIC providing recovery for damage to
Settoon resulting from an accident or a tort caused by a third party because in
that case the damage to Settoon would arise at the time of the accident or tort.
That is not our case. Cf. id. (“. . . [The insured] argues that this is a tort suit in
which [the insurer] was joined as a direct defendant; thus, interest on an award
against [the insurer] is due from the date of judicial demand. . . . This argument
. . . overlooks that the present dispute is solely a contractual dispute between
[the insured] and [the insurer].”). Accordingly, SNIC is liable for prejudgment
interest from the date Settoon paid third parties for the damage caused by the
allision because that is when SNIC’s obligation arose.
VI
For these reasons, we AFFIRM the district court’s judgment in all respects
except for the calculation of prejudgment interest. We REVERSE and REMAND
for calculation of prejudgment interest in a manner consistent with this opinion.
27