XL Specialty Ins. Co. v. Bollinger Shipyards, Inc.

954 F.Supp.2d 440

XL SPECIALTY INSURANCE CO.

v.BOLLINGER SHIPYARDS, INC., et al.

Civil Action Nos. 12–2071, 12–2098.

United States District Court, E.D. Louisiana.

June 24, 2013.

Mark Lynn Clark, Robert Jeffrey Bridger, Brown Sims, PC, Abigayle Clary McDowell Farris, Carmelite M. Bertaut, Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann, LLC, New Orleans, LA, David S. Toy, Francis I. Spagnoletti, Spagnoletti & Co., Kenneth D. Engerrand, Michael A. Varner, Brown Sims, PC, Houston, TX, for Plaintiff.

Robert Seth Reich, Michael T. Wawrzycki, Reich, Album & Plunkett, LLC, Metairie, LA, for Defendants.

ORDER AND REASONS

SARAH S. VANCE, District Judge.

Before the Court is defendant Continental Insurance Company's motion for partial summary judgment on the bad faith claims under Louisiana Revised Statutes §§ 22:1892 and 22:1973 brought against them by Bollinger Shipyards, Inc., Bollinger Shipyards Lockport, L.L.C., and Halter–Bollinger Joint Venture, L.L.C. (collectively “Bollinger”) under La.Rev.Stat. Ann. § 22:1892 and La.Rev.Stat. Ann. § 22:1973. For the following reasons, the Court GRANTS defendant's motion and dismisses Bollinger's claims that Continental is liable to pay bad faith penalties under Louisiana Revised Statutes §§ 22:1892 and 22:1973.

I. Background

In a previous suit, the United States sued Bollinger in connection with the failure of eight Coast Guard vessels that Bollinger converted from 110–foot patrol boats to 123–foot patrol boats between 2000 and 2006.¹ The United States alleged the following causes of action in that suit: violation of the False Claims Act (FCA), common law fraud, negligent misrepresentation, and unjust enrichment. The claims were based on allegations that Bollinger knowingly manipulated structural calculations regarding the strength of the hulls to induce the Coast Guard to proceed with the program to convert the vessels from 110 feet to 123 feet. The suit sought over $200 million in damages. On January 30, 2013, the Court dismissed the complaint in that suit, and granted the United States leave to amend its False Claims Act and fraud claims. The United States has filed a motion to reconsider the Court's order on the motion to dismiss and Bollinger has filed a motion to dismiss the United States' amended complaint. Both motions are pending before the Court.

The issue in the present case is the extent to which Bollinger's defense and potential liability in the underlying suit are covered under insurance policies issued by the defendant insurance companies. From 2000 to 2008 Bollinger carried primary general liability insurance provided by XL Specialty Insurance Company. From 2000 to 2004 and 2009 to 2010 Bollinger also carried excess general liability coverage provided by Continental. Neither party disputes that there is $26 million in underlying primary insurance beneath Continental's excess policies.

In July 2011, Bollinger placed Continental, as well as other insurers, on notice of the government's claims in Civil Action No. 12–cv–0920. Continental issued a reservation of rights letter to Bollinger on August 22, 2011. Continental notified Bollinger's agent that it was premature to ask Continental to provide a defense to Bollinger since the primary limit of $26 million had not been exhausted. Continental said it could not take a coverage position until the position of the primary carrier, XL Specialty, was known.

XL initiated this action on August 13, 2012, seeking a declaration as to whether its policies afforded coverage to Bollinger for the allegations made by the United States. On August 15, 2012, an action that Bollinger had filed against XL and Continental in the 17th Judicial District Court for the Parish of Lafrouche, seeking coverage and bad faith damages, was removed to this Court and consolidated with the suit initiated by XL. Bollinger's petition alleged that Continental was liable to cover certain claims that exceeded the insurance limits of primary carriers and that Continental had refused to accept coverage. Bollinger alleged that it was entitled to the full amount due under the policy, as well as to penalties under Louisiana Revised Statutes §§ 22:1892 and 22:1973 for Continental's failure to pay Bollinger's claims in a timely manner without good cause. Continental filed an answer denying the allegations made by Bollinger and counterclaimed seeking a declaration as to whether its policies afforded coverage to Bollinger based on the allegations made by the United States. Continental then filed a motion for partial summary judgment on the bad faith claims under Louisiana Revised Statutes §§ 22:1892 and 22:1973.

II. STANDARDA. Summary Judgment Standard

Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994). When assessing whether a dispute as to any material fact exists, the Court considers “all of the evidence in the record but refrains from making credibility determinations or weighing the evidence.” Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir.2008). All reasonable inferences are drawn in favor of the nonmoving party, but “unsupported allegations or affidavits setting forth ‘ultimate or conclusory facts and conclusions of law’ are insufficient to either support or defeat a motion for summary judgment.” Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir.1985) (quoting Wright & Miller, Fed. Prac. and Proc. Civ.2d § 2738 (1983)).

If the dispositive issue is one on which the moving party will bear the burden of proof at trial, the moving party “must come forward with evidence which would ‘entitle it to a directed verdict if the evidence went uncontroverted at trial.’ ” Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263–64 (5th Cir.1991). The nonmoving party can then defeat the motion by either countering with sufficient evidence of its own, or “showing that the moving party's evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party.” Id. at 1265.

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 burden by merely pointing out that the evidence in the record is insufficient with respect to an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See id. at 324, 106 S.Ct. 2548. The nonmovant may not rest upon the pleadings, but must identify specific facts that establish a genuine issue for trial. Id. at 325, 106 S.Ct. 2548;see also Little, 37 F.3d at 1075 (“Rule 56 ‘mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.’ ”) (quoting Celotex, 477 U.S. at 332, 106 S.Ct. 2548).

B. Penalties for Failing to Pay Insurance Claims

Louisiana law authorizes the recovery of bad faith penalties from insurers who fail to pay legitimate claims under two nearly identical provisions. Under La.Rev.Stat. Ann. § 22:1892(A)(1), “all insurers ... shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured.” If an insurer refuses to pay a claim within 30 days of receiving satisfactory proof of loss, and its failure to do so is found to be “arbitrary, capricious, or without probable cause,” then section 22:1892(B)(1) provides that the insurer is subject to pay a penalty equal to 50% of the loss, or one thousand dollars, whichever is greater. In addition, section 22:1973 requires insurers to act in good faith and provides for penalties if an insurer fails to pay a claim within sixty days after receipt of satisfactory proof of loss when “such failure is arbitrary, capricious, or without probable cause.” § 22:1973(B)(5). Both Section 22:1892 and Section 22:1973 cover an insurer's duty to defend an insured if required under the terms of a policy. See Sanders v. Wysocki, 631 So.2d 1330, 1335 (La.Ct.App.1994)writ denied,637 So.2d 156 (La.1994) (Section 22:1892); Credeur v. McCullough, 702 So.2d 985, 987 (La.App. 3 Cir.1997) (Section 22:1973). “A plaintiff may be awarded penalties under only one of the two statutes, whichever is greater.” Dickerson v. Lexington Insurance Co., 556 F.3d 290, 297 (5th Cir.2009). Nonetheless, a plaintiff may recover attorneys' fees under section 22:1892 while seeking damages and penalties under section 22:1973. Id.

A party seeking relief under either statute has the burden of establishing three things: (1) the insurer received a satisfactory proof of loss; (2) the insurer failed to pay the claim within the applicable statutory period (thirty or sixty days); and (3) the insurer's failure to pay the claim was arbitrary and capricious. Id.; see also Talbert v. State Farm Fire & Cas. Ins. Co., 971 So.2d 1206, 1212 (La.App. 4th Cir.2007). An insurer is charged with receiving a satisfactory proof of loss when the insurer has adequate knowledge of the loss. Cotton Bros. Baking Co. v. Indus. Risk Insurers, 941 F.2d 380, 386 (5th Cir.1991). The phrase “arbitrary and capricious” means a “vexatious refusal to pay,” “without reasonable or probable cause or excuse.” Dickerson, 556 F.3d at 300. An insurer has not acted arbitrarily and capriciously “when it withholds payment based on a genuine (good faith) dispute about the amount of a loss or the applicability of coverage.” Id....