Opinion
Civil Action No. 02-3588 c/w 04-624 Section "N" (4).
December 3, 2004
ORDER AND REASONS
The motion for partial summary judgment filed by Defendant Zurich American Insurance Company on December 2, 2003 (Rec. Doc. No. 47) asks the Court to: (1) declare that Felham Enterprises (Cayman) Limited is not an additional insured for purposes of fire loss to its own property; (2) declare that Zurich is not bound by the settlement of certain London Underwriters subscribing to another portion of the insurance risk at issue; and (3) dismiss with prejudice Felham's claims asserted under La.R.S. 22:658 and 22:1220 for bad faith penalties and attorney's fees on the grounds that Felham has no standing to bring such claims. The Court resolved the second of these three issues in the Orders and Reasons issued on August 3, 2004, and November 19, 2004 (Rec. Doc. Nos. 199 and 308). The Court now determines that Felham is not an additional insured for purposes of the builder's risk insurance coverage implicated in this lawsuit, and that, even as a loss payee, Felham has no standing under La.R.S. 22:658 and 22:1220. Accordingly, IT IS ORDERED that, to the extent stated herein, Zurich's motion for partial summary judgment (Rec. Doc. No. 47) is GRANTED.
For purposes of this motion, "London Underwriters" refers to Certain Underwriters at Lloyd's London and Certain London Insurance Companies.
Oral argument was heard on this motion, as well as others, on January 7, 2004, at which time the Court issued oral rulings on certain issues and took others under advisement. Thereafter, the Court received supplemental motions and briefs regarding certain issues through April 28, 2004. As stated herein, the second of the three main issues raised by Zurich's motion was addressed in two separate Orders and Reasons issued on August 3, 2004, and November 19, 2004, (Rec. Doc. Nos. 199 and 308). Given the somewhat complicated procedural history of this action, further consideration of the issues addressed in this Order and Reasons has been delayed by the necessity of the Court's treatment of other pressing matters arising in the course of this litigation.
LAW AND ANALYSIS
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The materiality of facts is determined by the substantive law's identification of which facts are critical and which facts are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed.2d 202 (1986). A fact is material if it "might affect the outcome of the suit under the governing law." Id.The standard for summary judgment mirrors that for judgment as a matter of law. Roberts v. Cardinal Services, Inc., 266 F.3d 368, 373 (5th Cir. 2001), cert. denied, 535 U.S. 954, 122 S. Ct. 1357 (2002). Thus, the Court must review all of the evidence in the record, but make no credibility determinations or weigh any evidence. Id. All evidence is viewed in the light most favorable to the nonmoving party, Gillis v. Louisiana, 294 F.3d 755, 758 (5th Cir. 2002), and all reasonable inferences are drawn in favor of that party. Hunt v. Rapides Healthcare Sys., L.L.C., 277 F.3d 757, 764 (2001). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L. Ed.2d 538 (1986) (internal quotation omitted).
Once the moving party carries its burden pursuant to Rule 56(c), the nonmoving party must "go beyond the pleadings and by [his] own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986); see also Matsushita Elec. Indus. Co., Ltd., 475 U.S. at 587, 106 S. Ct. at 1356; Auguster v. Vermillion Parish School Bd., 249 F.3d 400, 402 (5th Cir. 2001). If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its summary judgment burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex Corp., 477 U.S. at 325, 106 S. Ct. at 2554; see also Lavespere v. Liberty Mut. Ins. Co., 910 F.2d 167, 178 (5th Cir. 1990).
Zurich argues that Felham has no standing with respect to the builder's risk insurance coverage issued to Halter Marine Inc., or any of the remedies provided by the applicable penalty statutes, i.e., La.R.S. 22:658 and 22:1220. Felham disagrees, arguing it has standing because it (a) is the owner of the vessel that was insured, (b) is an additional insured under Halter's marine insurance package, and/or (c) is a loss payee. Even if it is not an insured for purposes of the penalty statutes, which it disputes, Felham argues that those statutes also provide remedies to third party claimants, which status Felham contends it additionally enjoys. In response, Zurich maintains that: (a) Felham's ownership status does not make it an insured; (b) Felham is an additional assured only for purposes of the liability coverage under the policy; and (c) if ever designated as a loss payee, which Zurich denies has occurred, Felham is, at most, only a "simple" or "open" loss payee, rather than a "standard" or "union" loss payee, and, thus, is not entitled to recover under the penalty statutes. Finally, Zurich argues that Felham does not qualify as a third party claimant for purposes of the penalty statutes, because it is asserting a first party claim for damage to its own property.
I. Additional Assured Status
The Court agrees with Felham that, by virtue of the contract between it and Trinity Yachts, Inc., the subcontract between Trinity and Halter, and pertinent policy language in Halter's marine insurance package, Felham is an additional insured. That status is limited, however, in that it is "only in respect of liability for bodily injury and/or property damage arising out of operations performed by or on behalf of the Named Insured." Thus, Felham's status as an additional insured for purposes of liability coverage, which is not implicated in this action, does not enable it to seek recovery of the insurance proceeds in question or accompanying relief under the penalty statutes. See Nettleton v. Audubon Ins. Co., 637 So.2d 792, 795-96 (La.App. 1 Cir. 1994) (named insured/guest passenger seeking coverage under the liability portion of the driver's insurance was not an "insured" for purposes of 22:658; his claims were asserted as a third party claimant); Moore v. Brumfield, 459 So.2d 21, 25 (La.App. 1 Cir. 1984) (insured for purposes of UM, not liability, coverage was not entitled to recover penalties and fees sought in connection with a liability claim).
See Article VI of the Global Explorer Agreement, Exhibit A to Trinity Yachts, L.L.C.'s Opposition to Zurich American Insurance Company's Motion for Partial Summary Judgment and Joinder to the Reply Brief in Support of Felham Enterprises (Cayman) Limited's Motion for Partial Summary Judgment (Rec. Doc. No. 59); Article VI of the Yacht Construction Subcontract Agreement, Exhibit B to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40); Excerpts of Halter's Marine Package Policy (Addendum No. 55, page 43 of 43), Exhibit E to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40).
See Excerpts of Halter's Marine Package Policy (Addendum No. 55, page 43 of 43), Exhibit E to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40); see also Article VI of the Global Explorer Agreement, Exhibit A to Trinity Yachts, L.L.C.'s Opposition to Zurich American Insurance Company's Motion for Partial Summary Judgment and Joinder to the Reply Brief in Support of Felham Enterprises (Cayman) Limited's Motion for Partial Summary Judgment (Rec. Doc. No. 59); Article VI of the Yacht Construction Subcontract Agreement, Exhibit B to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40).
II. Felham's Status as a Loss Payee
Zurich disputes that Felham has ever been named as a loss payee under the policy. Zurich has agreed, however, that Halter may name Felham as a loss payee at any time, i.e. even after the accident. The Court assumes, without deciding, that some action by Halter was required, in addition to it being contractually obligated to designate a third party as a loss payee, for that status to be conferred. Even so, Halter's October 18, 2002 claim letter acknowledged the $23,556,833 claim that it had submitted on October 4, 2002, on behalf of Trinity and Felham, and asked its insurers to remit payment to it, Trinity, and Felham "as their interest[s] may appear." The Court finds that Zurich has not demonstrated, as part of its summary judgment burden, that this language is not sufficient to render Felham a loss payee for purposes of the builder's risk portion of the Halter marine insurance package. Thus, for purposes of this motion, the Court assumes that Felham has been designated as a loss payee with regard to Halter's policy.
The Court notes that, under Addendum Number 55, "if required by written contract, any person, firm or organisation is included as an Additional Insured." See Note 3, supra. Neither Addendum Number 32, which addresses loss payees, nor the loss payee provision of the American Institute Builder's Risks Clauses (Feb. 8, 1979) included in the Halter insurance package, however, tracks the language in Addendum Number 55. Instead, Addendum Number 32 provides for payment to "the Insured and to those parties designated as Loss Payee(s) as their respective rights and interests may appear." See Excerpts of Halter's Marine Package Policy (Addendum No. 32, page 31 of 43 (emphasis added)), Exhibit E to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40). The loss payee provision of the American Institute Builder's Risks Clauses simply provides for payment of loss to "______ or order." Id. at page 25 of 43.
See October 18, 2002 Letter from Robert Shepherd of Halter Marine, Inc. (Z-0591-595), Exhibit A to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40); see also Excerpts of Halter's Marine Package Policy (Addendum No. 32, page 31 of 43, and American Institute Builder's Risk Clauses, page 25 of 43), Exhibit E to Felham's Motion for Partial Summary Judgment Against Zurich American Insurance Company (Rec. Doc. No. 40).
Even if Felham is a loss payee, the applicable policy language is such that it is only an "open" or "simple" loss payee. According to the Louisiana jurisprudence, "open" or "simple" loss payees are not treated as insureds for purposes of the penalty statutes. Thus, to the extent that "insured" status is required by those statutes, Felham's assumed loss payee status does not give it standing. See May v. Market Ins. Co., 387 So. 2d 1081, 1083-85 (La. 1980) (explaining difference between an open or simple mortgage clause and a standard or union mortgage clause); see also Officer v. American Eagle Fire Ins., 175 La. 581, 143 So. 500 (La. 1932); Hardy v. Commercial Std. Ins. Co., 172 La. 500, 134 So. 407 (La. 1931); Capital Bldg. Loan Ass'n. v. Northern Ins. Co., 166 La. 179, 116 So. 843 (La. 1928); Ford Motor Credit Co. v. Densmore, 705 So.2d 229, 231 (La.App. 5th Cir. 1997); 15 WILLIAM S. McKENZIE AND H. ALSTON JOHNSTON, III, INSURANCE LAW AND PRACTICE, LOUISIANA CIVIL LAW TREATISE, § 332 (2d ed. 1996 and 2003 Supp). III. Felham's Status as Owner of the M/Y ULYSSES
See Note 5, supra.
Prior to 1989, only an insured could seek penalties and attorney's fees under La.R.S. 22:658.
The Court agrees that Felham, as owner, had an insurable interest in the yacht under construction and the equipment and other materials it provided for incorporation into the yacht. See La.R.S. 22:614 (defining insurable interest for property insurance as "any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage). Nevertheless, Felham did not obtain its own insurance policy. Rather, it relied on Halter, who assumed all risk of loss to the yacht, to obtain insurance naming Felham as a loss payee for purposes of builders' risk coverage and an additional insured for liability coverage. Thus, absent evidence of an assignment of rights from Halter, any claim that Felham might have for proceeds payable by Halter's builder's risk insurance is limited to that provided by its loss payee status. Cf. Reliance Ins. Co. v. Liberty Mut. Fire Ins. Co., 13 F.3d 982, 983-94 (6th Cir. 1994) (builder's risk insurance obtained by contractor provided no protection for insurable interest of owner who was not an additional insured or loss payee on the policy); Ohio Cas. Ins. Co. v. State Farm Fire and Cas. Co., 546 S.E.2d 421, 423 (Va. 2001) (homeowners not named as additional insureds or loss payees under builder's builder's risk insurance had no express contractual right to receive payment under that policy).
See Note 3, supra.
A memorandum submitted by Felham on April 23, 2004 (Rec. Doc. No. 125), in opposition to a motion for partial summary judgment filed by Continental Insurance Company, cites two Louisiana court of appeal decisions in support of its argument that its ownership interest in the yacht under construction gives it standing to seek penalties and fees. See United States Fire Ins. Co. v. Beach, 275 So. 2d 473, 474-75 (La.App. 2d Cir. 1973), and Louisiana Fire Ins. Co. v. Royal Indem. Co., 38 So. 2d 807, 809-810 (La.App. 2d Cir. 1949). In these cases, subcontracters were found to be co-insureds under builder's risk policies obtained by the general contractor with respect to equipment and tools owned by them, because the policies in question covered the entire construction project, including the materials used in construction and builders' tools and equipment. Both decisions found coverage for the subcontractors based on evidence of the parties' intent, as evidenced by the policy language and the custom in the industry.
Here, the insured's, i.e. Halter's, intent regarding Felham's status is made evident by the two construction contracts entered into by Felham and Trinity and Trinity and Halter. Although the contracts could have been drafted to specify that Felham was to be named as an additional insured for purposes of liability coverage and builder's risk coverage, they were not. Rather, the contracts state that Felham is to be named a co-loss payee for purposes of the builder's risk insurance and an additional insured for liability purposes. The Court finds this distinction made regarding Felham's status with respect to the two types of coverage to be significant. The blanket additional insured endorsement to Halter's marine insurance package, moreover, consistently states that this status is limited to liability for bodily injury and/or property damage. Given this evidence of the parties' intent regarding the specific status to be held by Felham with respect to Halter's various types of insurance coverage, and the absence of any evidence that it is customary in the marine construction industry for the owner of a vessel under construction and/or an owner of materials to be installed in that vessel to be treated as an insured under a contractor's builder's risk policy, the Court does not find the two cases cited by Felham to be persuasive.
Id.
Id.
The two cases cited by Halter involved inland construction of buildings, i.e., a residence in Bossier City, Louisiana, and a motel in Monroe, Louisiana.
IV. Felham's Status as a Third Party Claimant
La.R.S. 22:1220 allows a "claimant" to recover penalties under certain circumstances. Similarly, La.R.S. 22:658 authorizes awards of penalties for certain "third party claimants." Neither statute, however, defines the terms "claimant" or "third party claimant." The Louisiana Supreme Court has indicated that the broad term "claimant," as it is used in La.R.S. 22:1220, includes both insureds and third party claimants. See Theriot v. Midland Risk Ins. Co., 694 So.2d 184, 188 and nn. 5-6 (La. 1997). Zurich contends that Felham does not qualify as a third party claimant for purposes of the penalty statutes, because it is asserting a first party claim for damage to its own property.
In considering whether Felham can invoke third party claimant status for purposes of the penalty statutes, the Court is guided by the well-established principle that La.R.S. 22:1220 and 22:658 are penal in nature, and "must be strictly construed in favor of a limited expansion of third party rights rather than a drastic expansion of such rights." Langsford v. Flattman, 864 So. 2d 149, 151 (La. 2004); see also Theriot, 694 So. 2d at 186. In addition, the Court is mindful of the concepts that "first party insurance" generally is understood to provide coverage for the insured against loss or damage sustained by it, whereas "third party insurance" covers liability of the insured to another person. See 14 COUCH ON INSURANCE § 198:3 ("first party" insurance, e.g., property insurance, protects the insured's own actual losses and expenses; "third party" insurance protects the insured from actual or potential monetary liability to a third party, e.g., liability insurance); 6 C.J.S. Insurance § 861 ("Where [an] insured is seeking coverage against loss or damage sustained by insured for damage to his own property, the claim is first party in nature. If, however, [an]insured is seeking coverage against liability of insured to another, the claim is third party in nature."); see also Alcorn Bank and Trust Co. v. United States Fid. and Guar. Co., 705 F.2d 128, 130 (5th Cir. 1983) (summary calendar) (liability insurance policy provides third party, not first party, coverage); Manuel v. Louisiana Sheriff's Risk Mgmt. Fund, 664 So. 2d 81, 85 (La. 1995) ("[l]iability policies are written for the benefit of third parties, who suffer injury or damages because of actions of the insured") (internal citations omitted).
Available legislative history from 1989 and 1990 for La.R.S. 22:1220 and 22:658 arguably reflects the Louisiana Legislature's familiarity with and acceptance of these concepts. Specifically, the 1989 amendments to La.R.S. 22:658 added the phrases "first party claimant and third party claimant" to that statute's text, and gave limited penalty rights to third party claimants for the first time. Committee meeting minutes from 1989 also (1) reflect discussion of a distinction being drawn in the amendments between "first party losses" and "third party losses" so as to "eliminate confusion when dealing with an insured and his contract and a third party in paying his claim"; (2) refer to a policyholder submitting "proof of loss for a third party claimant"; and (3) contain a reference to a hypothetical situation where the insurer indicates to a "third party" that the insurer knows "the damages incurred were caused by its insured." Committee meeting minutes from 1990 additionally reflect discussion of a version of House Bill 625, which ultimately enacted La.R.S. 22:1220, and a modified version Senate Bill 320, which amended La.R.S. 22:658, that distinguished "owner insurers" and "third party insurers."
See House Bill 1269 (various versions), 1989 Regular Session, Louisiana Legislature; Minutes of Meeting, House Commerce Committee (Louisiana Legislature), June 14, 1989; Theriot, 694 So. 2d at 188-89.
See Minutes of Meeting, House Commerce Committee (Louisiana Legislature), May 24, 1989, at pp. 10 and 12.
See Minutes of meeting, House Commerce Committee (Louisiana Legislature), June 20, 1990, at p. 10.
Consistent with this legislative history, recent Louisiana Supreme Court jurisprudence has confirmed that those persons who, having suffered a harm as a result of an insured's tortious conduct, seek payment, by means of the Louisiana Direct Action Statute, La.R.S. 22:655, from the insured's liability insurer are "third party claimants" for purposes of the penalty statutes. See, e.g., Langsford, 864 So. 2d at 151; Theriot, 694 So. 2d at 185-88; Manuel, 664 So. 2d at 84-85. As previously stated, however, the insurance claims at issue here are not liability claims. Rather, the claims asserted by Felham and Halter against Zurich involve damage suffered by the property that is the subject of the builder's risk insurance at issue, and do not require, or assume, tortious conduct by the insured. This distinction is significant because builder's risk insurance — unlike liability insurance or even, for example, life insurance — is not a type of insurance that typically contemplates claims being made by someone other than the insured. Indeed, Felham's assumed entitlement, as an open or simple loss payee, to any portion of the proceeds payable under this policy is derived from and exists only as a result of Halter's right, as the insured, to recover those proceeds.
In Manuel, the Louisiana Supreme Court referred to La.R.S. 22:1220 as providing "a means by which insured and third-party claimants can exercise their rights under insurance policies 'executed for the benefit of all injured persons.'" 664 So. 2d at 84-85. In the two preceding sentences, the Manuel Court, citing the Louisiana Direct Action statute, La.R.S. 22:655, stated that "liability policies exist and are 'executed for the benefit of all injured persons,'" and, further, that "[l]iability policies are written for the 'benefit of third parties, who suffer injury or damages because of actions of the insured.'" See Manuel, 664 So. 2d at 85 (quoting La.R.S. 22:655 and Descant v. Administrators of the Tulane Educ. Fund, 639 So.2d 246, 251 (La. 1994)).
Given these circumstances, and in keeping with the rule of strict construction applicable to these statutes, the Court declines, in the absence of stronger legislative and/or jurisprudential support, to construe the terms "claimant" and "third party claimant" in La.R.S. 22:658 and 22:1220 to provide standing to Felham, who seeks recovery of penalties and/or attorney's fees associated with insurance proceeds payable because the insured property has been damaged. Insofar as La.R.S. 22:658 and 22:1220 are concerned, such claims are first party claims to be asserted by an insured; they are not those to be asserted by a third party claimant.
The Court assumes that another person may be subrogated to an insured's right to recover penalties and/or attorney's fees under La.R.S. 22:658 and La.R.S. 22:1220. See generally Great Southwest Fire Ins. Co. v. CNA Ins. Cos., 557 So. 2d 966, 971 (La. 1990), and Vaughn v. Franklin, 785 So. 2d 79, 90-92 (La.App. 1st Cir. 2001) (on application for reh'g), writ denied, 798 So. 2d 969 (La. 2001). Although Halter may not object to doing so, Felham has not demonstrated that Halter has assigned any of the rights that it may have to penalties and/or attorney's fees under these statutes. The Court does not find the October 18, 2002 loss payee designation, or the loss payee policy provisions, alone sufficient to accomplish such transfer and subrogation. Cf. General Finance Co. of La, Inc. v. Universal Auto. Ins. Co., 139 So. 48-50 (La.Ct.App. 1932) (because loss payee clause did not specifically grant statutory penalty and attorney's fees to mortgagee, court refused to assume the parties intended to divest the insured of those rights). In the event of such an assignment and subrogation, Felham would be limited to the claim(s) for penalties and/or attorney's fees that could be asserted by Halter.
Finally, even if Felham were allowed to invoke third party claimant status for purposes of the penalty statutes, certain Louisiana courts have held, and this Court agrees, that the relief provided with respect to La.R.S. 22:658(A)(1) and 22:1220(B)(5) is available only to insureds. See Langsford, 864 So. 2d at 151 (22:1220(B)(5)); Woodruff v. State Farm Ins. Co., 767 So. 2d 785, 789-90 (La.App. 4 Cir. 2000) (La.R.S. 22:658(A)(1)); Marie v. John Deere Ins. Co., 691 So. 2d 1327, 1335 and n. 5 (La.App. 1 Cir. 1997) (citing Nettleton v. Audubon Ins. Co., 637 So. 2d at 795-96) (22:658). Thus, relief under these particular subsections of the penalty statutes would be precluded for this additional reason.
Given its determination that Felham does not have standing to seek any relief provided by La.R.S. 22:658 or 22:1220, the Court does not address the merit of Felham's claims with respect to other subsections of these statutes.