GHR Energy Corp. v. Carboline Co.

744 F. Supp. 1408

GHR ENERGY CORP., et al. v. CARBOLINE COMPANY, et al.

No. 87-1165.

United States District Court, E.D. Louisiana.

September 7, 1990.

Michael G. Crow, William B. Gaudet, New Orleans, La., for TransAmerican.

Philip E. Henderson, Henderson, Hanemann & Morris, Houma, La., for defendants, Intern. Ins. Co. and U.S. Fire Ins. Co.

ORDER AND REASONS

MENTZ, District Judge.

Before the Court is the motion of defendants, United States Fire Insurance Company ("U.S. Fire") and International Insurance Company ("International"), for summary judgment. The Court had taken this matter under submission by an Order which was entered April 9, 1990. After reviewing the motion, memoranda of counsel, the record and the law, the Court hereby denies the motion for the reasons set forth below.

FACTS

This motion arises as a consequence of the settlement entered into between the plaintiff, TransAmerican Refinery Corporation ("TRC"),¹ the defendants, Sun Company ("Sun") and Carboline Company ("Carboline"), and some of their respective insurers at various coverage levels, collectively the "settling defendants." After considerable discovery was conducted in this matter, the settling defendants and the plaintiff executed a settlement of all claims between them in mid-December of 1989. The insureds, Carboline and Sun, along with the settling insurers, were totally and completely released. However, there were several defendants, insurers at various coverage levels, that did not join in the settlement. The movers in the instant matter are two of the excess insurers who were among the "non-settling defendants."

ANALYSIS

The issue presented to the Court in this motion is whether the settlement and complete release of a tortfeasor would release that tortfeasor's insurer or excess insurer. Despite the well-briefed positions, the question is not easily resolved. The case law on the subject is somewhat confusing, as is illustrated by the fact that both sides to this motion cite many of the same cases to support their respective positions. In the final analysis, however, the Court believes that the result reached must center on the intentions of the parties to the Settlement Agreement, as well as on its effects.

Section 18 of the Settlement Agreement sets forth the law governing this transaction:

This Settlement Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana in all respects, including matters of construction, validity, enforcement and interpretation.

In construing the intentions of the parties to this transaction, we are guided by Louisiana Civil Code article 3073, which speaks directly to the intentions of parties and the effects of settlement agreements:

Transactions regulate only the differences which appear clearly to be comprehended in them by the intention of the parties, whether it be explained in a general or particular manner, unless it be the necessary consequence of what is expressed; and they do not extend to differences which the parties never intended to include in them.

The renunciation, which is made therein to all rights, claims and pretensions, extends only to what relates to the differences on which the transaction arises.

La.Civ.Code Ann. art. 3073 (West 1952 & Supp.1990).

The movers argue that because Carboline and Sun have been completely exonerated as a result of the Settlement Agreement, Carboline and Sun are no longer liable to the plaintiffs. Since they are no longer potentially liable, they cannot become "legally obligated" to pay plaintiffs as a result of that liability. The insuring agreements used by U.S. Fire and International in both their policies require payment by the insurance companies on behalf of the insured the loss which the insured may sustain by reason of its liability. U.S. Fire and International argue that since the Settlement Agreement extinguishes all liability of Sun and Carboline, their obligation to indemnify their insureds is also extinguished; therefore, regardless of the wording of the Settlement Agreement, the plaintiff cannot have reserved rights to proceed against them.

Courts generally have required that in order for there to be a valid reservation of rights against a non-settling insurer, the issue of the insured's liability must remain unsettled and viable for the amount of insurance provided in the insurance policy of the non-settling insurer. See Futch v. Fidelity & Casualty Company, 246 La. 688, 166 So.2d 274 (La.1964). In Futch, the tortfeasor was driving an automobile owned by another person. Allstate Insurance Company had the primary coverage on the vehicle. Fidelity & Casualty Company was the insurer on the defendant driver's own vehicle and, under the clause relating to operation of non-owned automobiles, was excess to the Allstate policy. Allstate settled with the plaintiff for an amount within its policy limits. The plaintiff released Allstate and its insured completely, but reserved rights against F & C in its capacity of excess insurer. F & C brought a motion for summary judgment claiming that by operation of the settlement it was also released.

The Louisiana Supreme Court stated that before the effect of extinguishment and release is determined, the first step is to decide whether the settlement between plaintiff, the primary insurer, and the tortfeasor produced the legal effect of wholly releasing and remitting the latter's obligation to plaintiffs for all consequences of the tortfeasor's negligence. Id. at 166 So.2d 277. Because the plaintiffs had reserved their rights in the release to proceed against F & C, the court found that it was not the intention of the plaintiffs to release an obligation which could not and did not accrue under the policy of insurance issued by Allstate. Id. (citing Futch v. Fidelity & Casualty Company, 136 So.2d 724, 729 (La.App. 2nd Cir.1961)). The court, agreeing with the court of appeals below, found that "the settlements were intended to relate only to the release of Allstate as primary insurer in consideration of the sums paid by it to plaintiffs and did neither pertain to F & C's unaccrued excess coverage under its policy, nor to the tortfeasor's liability for damages in excess of the amount of Allstate's primary liability." Id.²

Since the "renunciation ... extends only to what relates to the differences on which the transaction arises," the court concluded that:

The only differences between plaintiffs and Allstate at the time of the compromises related to the latter's primary liability to plaintiffs for the negligence of its insured.... and anything beyond those differences was without legal effect.

Id. (citing La.Civ.Code art. 3073). In other words, the settlement executed by the plaintiffs, Allstate, and Allstate's insured pertained only to the tortfeasor's liability up to and including the limits of Allstate's primary policy. Under this analysis, Allstate would not have been legally able to compromise and settle the portion of the tortfeasor's negligence beyond its own coverage. Hence, F & C's portion of the tortfeasor's liability had not been compromised.

The movers in the present motion would have this Court put the proverbial cart before the horse. They quote the following language from Futch:

It, of course, cannot be gainsaid that, if the legal obligation of F & C's insured to plaintiffs has been wholly extinguished by remission or release, F & C is not liable under its policy for its contract is to pay on behalf of its insured only when its insured is legally liable for damages.

Id. The movers go on to say that since Carboline and Sun have been completely released as a result of the Settlement Agreement, and therefore are no longer liable, the movers must also be released because their obligation to indemnify is contingent upon the liability of their insureds. See Bergeron v. Gifford-Hill & Co., 137 So.2d 63 (La.App. 3rd Cir.1962). However, this point has been overruled by Futch, which found that absent a clear intent to release a non-settling insurer, a settlement between the plaintiff, the tortfeasor, and some of the tortfeasor's insurers leaves viable those claims of the plaintiff against the non-settling insurers. Wirick v. Wyble, 300 So.2d 571, 573 (La.App. 3rd Cir.1974).

The movers in the present motion have misinterpreted the Futch analysis. A release of the tortfeasor does not eliminate the insurer's responsibility for the tortfeasor's liability. Before the effect of the alleged extinguishment by release is determined the first step, as noted in Futch above, is to decide whether the settlement between TRC, the settling insurers, and Carboline and Sun produced the legal effect of wholly releasing and remitting Carboline's and Sun's obligations to plaintiffs for all consequences of their alleged negligence. The focus of this decision, therefore, is on ascertaining the intent of the...