Opinion
Civ. No. 98-3322, SECTION "T" (2).
March 2, 2000.
This cause came before the Court for a bench trial on January 10, 2000. The plaintiff, Marine Holdings, Inc. ("Marine Holdings"), owner of the M/V MISS TONI, sued the defendant, Paradigm Insurance Company ("Paradigm"), asserting coverage under a Hull Insurance policy for damages resulting from a March 8, 1997 allision. Plaintiff further contends that Paradigm did not make a good faith effort to settle the claim in violation of Louisiana Revised Statutes ("R.S.") 22:1220 and 51:1402 et seq. which therefore entitles the plaintiff to penalties and attorney's fees. The suit was originally filed in the 32nd Judicial District Court for the Parish of Terrebonne, State of Louisiana, before its removal to Federal District Court — Eastern District of Louisiana based upon diversity jurisdiction.
The Court, having heard the testimony at trial, having considered the record, the evidence, the memoranda submitted by the parties, the law and applicable jurisprudence, now makes the following findings of fact and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure. To the extent that any conclusion of law is deemed to be a finding of fact, it is adopted as such; and likewise, any finding of fact that is deemed to be a conclusion of law is so adopted.
FINDINGS OF FACT
1. Marine Holdings is the owner of the MN MISS TONI, as stipulated to by the parties at trial.
2. Paradigm Insurance Company issued a policy of insurance, Hull Policy No. PH950040, insuring the hull of the M/V MISS TONI owned by Barnacle Marine Management, Inc., now Marine Holdings, Inc., for the period of May 10, 1996 to May 10, 1997, as stipulated to by the parties at trial.
3. On or about March 8, 1997, the MN MISS TONI with four barges in tow, allided with the Columbia Locks on the Ouachita River, near Columbia, Louisiana, as stipulated to by the parties at trial.
4. David J. Knowles, marine surveyor, arrived on the day of the allision to survey the damage. He further examined the damage at the shipyard on April 4, 1997.
5. Knowles prepared a report dated August 20, 1997, whereby sixteen (16) items of damage were reported. The report included invoices for repair estimates which amounted to $229,389.41.
6. David Held, marine surveyor, likewise surveyed the damage shortly after the allision and further at the shipyard on April 4 and 5, 1997. Held prepared a report of the damage sustained to the hull and machinery. His report dated April 10, 1997, found the same sixteen (16) items of damage to the vessel. Upon this initial report, Held approved a total cost for casualty related repairs in the amount of $40,554.00.
7. Both Knowles and Held subsequently revised their original opinions. When deposed, Knowles disallowed certain items as being non-casualty related which he had originally included resulting in a figure of $118,778.94. At trial, Knowles further excluded three additional items which resulted in a total casualty related figure in the amount of $102,478.94. Held subsequently amended his report on September 15, 1997, to add $15,451.09 for port main reverse and reduction gear damage attributable to this accident, bringing his total to $56,005.09. Additional revisions were made by Held to the total estimate of damages resulting in a figure of $83,015.47.
8. The Court finds the testimony and opinion of David Knowles to be the most credible and accurate out of David Held, Louis Sanson and David Knowles.
9. Based upon the opinion of marine expert David Knowles, the Court finds that the damage to the propeller was attributable to the casualty.
10. Furthermore, based upon the opinion of marine expert David Knowles, the Court finds that the cables, shackles, chains, face wires, and lights were lost at the time of the collision when the four barges broke apart.
11. The uncontroverted testimony established that the vessel hit the locks on the starboard side, not the port side. While Held approved the damage of the port side gears, the starboard gear damage was not approved; whereas Knowles attributed both the port and starboard damage to this accident. Knowles opined that the metal fragments found in the gear were of recent origin. Based upon the testimony and evidence submitted, this Court finds that the damage to the starboard side gears was causally related to this occurrence.
12. Knowles not only surveyed the damage but also remained at the shipyard to supervise the repairs conducted on the M/V MISS TONI. Knowles originally believed that he had been hired by defendant, Paradigm, but later found out that that was not the case.
13. Paradigm had Knowles' initial survey report and Held's initial and two subsequent survey reports as of October 1, 1997. On this date, the same was forwarded to an independent marine surveyor Paradigm hired to reconcile the discrepancies between the two surveyors and opine as to the damages caused by this accident.
14. After having met with David Held, Lou Sanson wrote Paradigm on December 10, 1997, informing it that $88,234.25 was approved as casualty-related claims.
15. Upon inquiry of Dian Schawb of Gulf Coast Marine to Nancy Cumberland of Paradigm in October 1997, regarding settlement of the claim submitted September 4, 1997, Paradigm responded November 10, 1997, requesting a "proof of loss statement", while acknowledging receipt of both Knowles and Held's survey reports.
16. When asked about a specific proof of loss form required, Paradigm stated that it did not have an official proof of loss form, but that customarily a statement in writing from the assured setting forth the specific damages claimed as well as a survey report constituted a sufficient proof of loss claim.
17. On May 11, 1998, a proof of loss claim was submitted by Marine Holdings, with full reservation of rights, pointing out that this was not the Insured's first notice of claim. The Insured asserted that the submission of the survey report of David Knowles in September 1997 constituted a "satisfactory proof of loss."
18. Receipt of this proof of loss claim was acknowledged by Paradigm in correspondence dated May 22, 1998.
19. On June 2, 1998, Paradigm extended an offer to settle this matter in the amount of $39,015.47, after subtracting credits and deductibles from the amount approved for this incident.
20. On August 17, 1998, Paradigm extended a second offer to settle in the amount of $55,515.47, again subtracting from the amount approved from this incident deductibles and settlement of other claims.
21. As such, while Paradigm made two separate offers to settle, no formal tender of any funds was ever made by Paradigm to its insured.
22. The Paradigm policy has a $10,000.00 deductible.
CONCLUSIONS OF LAW
1. This suit was originally filed in Louisiana State Court and removed to Federal Court based upon diversity jurisdiction.
2. "[T]he interpretation of a contract of marine insurance is — in the absence of a specific and controlling federal rule — to be determined by reference to state law." INA of Texas v. Richard 800 F.2d 1379 (5th Cir. 1986) citing Ingersoll-Rand Financial Corp. v. Employers Ins. of Wausau, 771 F.2d 910, 912 (5th Cir. 1985). Moreover, state law governs whether or not attorney's fees lie in the context of a marine insurance dispute. Id. As such, Louisiana law is applicable in this case.
3. A sue and labor clause in a marine insurance policy reimburses the insured for expenditures made after an occurrence to prevent or mitigate a loss for which the insurer would be liable. The clause allows recovery only of expenditures made to avert or minimize a loss for which the underwriter would be liable. Destin Trading Corp. v. Royal Insurance Co. of America, 1990 WL 238988 (E.D.La.).
4. Based upon conclusion of law #3, the Paradigm policy issued in this case contains a valid Sue and Labor Clause.
5. Surveyor, David Knowles, acted as a supervisor at the shipyard to protect all interests and his fee bill is reasonable for the services rendered to prevent or mitigate a loss for which Paradigm would be liable. As such, his surveyor fee is covered under the Sue and Labor Clause of the policy.
6. Plaintiff is entitled to recover damages, inclusive of the surveyor's fee, in the amount of $102,478.94 less the $10,000.00 deductible for a total of $92,478.94 from Paradigm.
7. As there was no proof offered by Paradigm at trial for any offset, the credits originally claimed by defendant in the PreTrial Order are hereby deemed abandoned.
8. R.S. 22:1220 provides:
A. An insurer, . . . owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.
B. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer's duties imposed in Subsection A:
(5) Failing to pay the amount of any claims due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause.
C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.
9. Based upon finding of fact #16, the submission of September 1997 to Paradigm constituted a satisfactory proof of loss. Plaintiffs submission consisting of Knowles' survey report along with invoices for the repairs required, was lacking in what was "customary" for Paradigm only insofar as it did not come directly from the Insured. The Insurer was however on notice of the claim and submitted Knowles' report along with that of its surveyor to an independent marine expert consultant for his opinion so that Paradigm could better evaluate the claim. The subsequent submission made by plaintiff was merely a form which reasserted the same claim set forth by Knowles' report.
10. Based upon finding of fact #14 and conclusion of law #9, Paradigm had sufficient information as of December 1997, to evaluate the claim and make a tender.
11. Under Louisiana law, "an insurer will be found to have acted in bad faith for refusing to tender an undisputed amount of the claim." American Gulf VII, Inc. v. Otto Candies, Inc, et al., 1997 WL 566250 (E.D.La.) citing Ken Brady Ford, Inc. v. Roshto, 607 So.2d 1062 (La.Ct.App. 3d Cir. 1992); Real Asset Management, Inc. v. Lloyd's of London, 61 F.3d 1223 (5th Cir. 1995).
12. In this case, while Paradigm disagreed with the Insured as to the amount of damage related to this accident, at no time did it tender the amount which was undisputably causally related. As such, it is the finding of this Court that Paradigm acted in bad faith.
13. Plaintiff seeking penalties for insurer's breach of good faith and fair dealing has the burden of proof. Ramirez v. Ware, 680 So.2d 1302 (La.App. 2 Cir. 1996). A showing of actual damages sustained must be made by plaintiff for double-damage penalty provision to apply, but proof of damages is not required for a $5,000 penalty. Matter of Hannover Corp. of America v. State Farm Mutual Automobile Ins. Co., 67 F.3d 70 (5th Cir. 1995).
14. Insured, upon proving that insurer breached one of the statutory duties of good faith and fair dealing, is entitled to penalties regardless of whether insured also proves actual damages resulting from that breach. Brinston v. Automotive Casualty Ins. Co., 703 So.2d 813 (La.App. 4 Cir. 1997), rehearing denied. Actual damages are not required for a court to award up to $5,000.00 in penalties for an insurance company's breach of its duty of good faith and fair dealing. Haas v. Audubon Indem. Co. 722 So.2d 1022 (La.App. 3 Cir. 1998), writ granted in part, judgment amended 737 So.2d 736 (La. 1999).
15. The plaintiff argued that the failure to act in good faith in settling this claim caused financial difficulties which Marine Holdings could not overcome resulting in the demise of the company. While this Court does not dispute that the failure to settle this claim created financial hardship, this Court finds that it was not proven by a preponderance of the evidence that this fact alone brought about the demise of the company. Furthermore, the evidence presented did not sufficiently establish the actual damages sustained.
16. Based upon conclusion of law #12 whereby this Court found that the defendant acted in bad faith, a penalty is appropriate. Two times the actual damages sustained can not be established based on the testimony presented. The defendant is however assessed a penalty in the amount of $5,000.00 based upon conclusions of law #13 and #14.
17. Statute imposing on insurer duty of good faith and fair dealing and duty to adjust claims fairly and promptly and to make reasonable efforts to settle does not authorize award of attorney fees. Spear v. Tran, 682 So.2d 267 (La.App. 4 Cir. 1996), rehearing denied, writ denied 699 So.2d 500 (La. 1997).
18. Based upon conclusion of law #17, the plaintiff is not entitled to attorney's fees.
The Court notes that R.S. 22:658 does provide for the recovery of attorney's fees; however, plaintiff only asserted violation of R.S. 22:1220 and 51:1402 in its Petition and further in the Pre Trial Order. The plaintiff first asserted a claim under R.S. 22:658 in its Proposed Findings of Fact and Conclusions of Law and Post Trial Memoranda. Simply, this is insufficient to expand the scope of the pleadings.
19. State law governs award of prejudgment interest in diversity cases. Harris v. Mickel, 15 F.3d 428 (5th Cir. 1994). Whereas, postjudgment interest in diversity cases is controlled by federal statute 28 U.S.C. § 1961. Nissho-Iwai Co., Ltd. v. Occidental Crude Sales, Inc., 848 F.2d 613 (5th Cir. 1988).
Accordingly, there will be judgment in favor of the plaintiff, Marine Holdings, Inc., and against the defendant, Paradigm Insurance Company, in the amount of $97,478.94 along with judicial interest and costs.
New Orleans, Louisiana, this 2nd day of March, 2000.