In re Combustion, Inc.

960 F.Supp. 1051

In re COMBUSTION, INC.

Civil Action No. 94 MDL 4000.

United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.

January 10, 1997.

MEMORANDUM AND ORDER

HAIK, District Judge.

Before the Court are four motions to Dismiss the Plaintiffs' Direct Action Claims: Motion by Avondale's Insurers for Partial Summary Judgment declaring their maximum Liability to the Plaintiffs to be $24 Million Dollars and Dismissing Plaintiffs' Direct Action Claims; Joint Motion for Summary Judgment filed on Behalf of Bellefonte Underwriters Insurance Company and Compass Insurance Company as alleged Insurers of Williams-McWilliams Regarding Louisiana's Direct Action Statute, Motion for Summary Judgment by First Horizon Insurance Company on the Application of the Direct Action Statute, and Motion for Summary Judgment by Carrier as alleged Insurer of Williams-McWilliams Company, Inc. Regarding Louisiana's Direct Action Statute. The Plaintiffs' Class opposes each Motion.

After careful study of the briefs, hours of oral argument on the 3rd and 18th of October, 1996, review of the parties' supplemental briefs, and for the reasons that follow, this Court hereby DENIES each Motion.

Motion by Avondale's Insurers

Plaintiffs sued Avondale and a host of other Defendants in 1986 for injuries and property damage allegedly arising out of their exposure to toxic substances at the Combustion site. This Court allowed the Plaintiffs to sue the Defendants' insurers in June 1995 pursuant to Louisiana's Direct Action Statute, La.R.S. 22:655. In July 1995, the Plaintiffs entered into a settlement agreement with Avondale. As part of this settlement agreement between Avondale and the Plaintiffs, Avondale "stipulate[d] to entry of judgment (`the judgment') granting judgment in favor of the Plaintiff Class and against Avondale Industries, Inc. in the sum of $24.000,000 . . ." Subscription to Combustion Litigation Preliminary Settlement Agreement Settling Forth Specific Terms of the Settlement Between Avondale and the Plaintiff Class. In addition to an elaborate payment and credit algorithm, Avondale "asign[ed] ... to the Plaintiff Class all of Avondale's rights, titles and interests in the proceeds of any and all primary, excess and umbrella insurance policies that may provide coverage to Avondale for the tort claims asserted in the Combustion Litigation." Id. Avondale reserved all rights against its insurers to pursue CERCLA damages. Id. This Court formally approved the "Consent Judgment" entered into by Avondale and the Plaintiffs on February 8, 1996.

The Plaintiffs contend that they have the option of either executing by way of the assignment of rights against Avondale's insurers, i.e. either stepping into the shoes of the insured and litigating coverage and reasonableness of the settlement, or pursuing the insurers via direct action where the Plaintiffs must prove both liability on the part of Avondale and contract coverage. By assignment, the Plaintiffs agree that their recovery would be no greater than $24 million. However, if the Plaintiffs pursue the direct action, they contend that it is the trier of fact, not the contract between Avondale and the Plaintiffs, who determines liability and damages without limitation.

Travelers argues that as a result of the consent judgment, the only course of action for the Plaintiffs against Avondale's insurers is the assignment, and any recovery as a result of such action is capped at $24 million. In addition, the Insurers contend that the consent judgment between Avondale and the Plaintiffs acts as a final judgment as to the Plaintiffs and the Insurers, barring the Plaintiffs' direct action claim because of the doctrine of res judicata. Finally, the Insurers argue that even if the direct action is a viable option, Plaintiffs' damages should be capped at § 24 million.

I

This Court has exclusive jurisdiction over all claims brought under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq, and discretionary power pursuant to 28 U.S.C. § 1367(a) to exercise jurisdiction over supplemental state law claims. This Court has previously held that Louisiana law governs all direct actions pursuant to La.R.S. 22:655. Therefore, Louisiana law governs the resolution of this dispute.

A consent judgment is a bilateral contract wherein parties adjust their differences by mutual consent and thereby put an end to a lawsuit with each party balancing hope of gain against fear of loss. La.C.C. art. 3071; Plaquemines Parish Government v. Getty Oil Company, 673 So.2d 1002, 1005 (La.1996)(citing Preston Oil Co. v. Transcontinental Gas Pipe Line Corp., 594 So.2d 908, 913 (La.App. 1st Cir.1991)). A compromise agreement which forms the basis for a consent judgment gets its binding force and effect from the consent of the parties. Bonaventure v. Pourciau, 577 So.2d 742 (La.App. 1st Cir.1991). The interpretation of the consent judgment (i.e. the contract between the parties) is the determination of the common intent of the parties. La.C.C. art. 2045. The intent of the parties is, of course, reflected in the wording of their settlement agreement, and the most telling indication in this regard is a reservation by the plaintiff to proceed against the non-settling parties. GHR Energy Corp. v. Carboline Company, 744 F.Supp. 1408, 1410 (E.D.La.1990)(citing Futch v. Fidelity & Casualty Company, 246 La. 688, 166 So.2d 274, 277 (1964)).

Louisiana 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. GHR Energy Corp. v. Carboline Company, 744 F.Supp. 1408, 1409 (E.D.La.1990); see also Futch v. Fidelity & Casualty Company, 246 La. 688, 166 So.2d 274 (1964). The first step is to determine whether the settlement between [the plaintiff and the tortfeasor] produced the legal effect of wholly releasing the tortfeasor's obligation to the plaintiffs for all consequences of the tortfeasor's negligence. Id. 166 So.2d at 277. It is important to remember that the tortfeasor's liability beyond that which was settled has not actually been compromised because it has not yet accrued. By releasing the tortfeasor, the plaintiff is in fact only waiving its claim against the tortfeasor, while preserving its claim for that same liability against the [non-settling insurer]. GHR Energy Corp. v. Carboline Company, 744 F.Supp. at note 2.

II

None of Avondale's insurers consented to the settlement agreement. The parties to the negotiations, at all times, were only Avondale and the Plaintiffs. At no time did any of the Insurers offer nor could they be enticed to participate in the negotiations. Even at the "eleventh hour" of settlement negotiations, when Avondale and the Plaintiffs were ready to consummate a settlement, Travelers was again offered the opportunity arid refused to join in the settlement agreement. Therefore, the benefit of the bargain resulting from this agreement is not available to and may not arbitrarily be invoked by a stranger to the compromise, absent clear language stating otherwise in the settlement document. Travelers has riot offered any such language.

Instead, Travelers bravely represents to the Court that because Travelers was bound by its insurance contract with Avondale to pay Avondale's cost of defense, Avondale wore two hats at the negotiating table, its own and Travelers. Indeed, the argument continues, Avondale owed a duty to Travelers to protect Travelers' interest in the negotiations. Further, when asked hypothetically at oral argument if Travelers would agree to pay the amount of the cap, $24,000,000, if coverage was found in Phase IV, Travelers responded that the Insurers would fight the reasonableness of the settlement. In essence, the Insurers refused to negotiate, refused to join the agreement when it was being consummated, and refuse to consent to it now, yet ask the Court to allow them the benefit of a cap to protect the Insurers if liability and damages are found at trial to exceed $24 million.

This Court finds no clear evidence of the Travelers' consent to the terms of the settlement agreement between Avondale and the Plaintiffs. Therefore the terms of the agreement are only binding as to Avondale and the Plaintiffs.

III

The Plaintiffs reserved their right to pursue their claims against Avondale's insurers. Part 5 of the Settlement Agreement states that "[i]n light of the insurers' refusal to provide coverage and/or participate in settlement. it may become necessary to file ... actions, third party claims and/or other suits or claims against the insurers." Avondale further agreed to cooperate in the prosecution...