Appendix — Industrial Risk Insurers v. Cotton Bros. Baking Co.

la

APPENDIX

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

No. 90-4128

COTTON BROTHERS BAKING COMPANY, ING.,

Plaintiff-A ppellee,

INDUSTRIAL RISK INSURERS,

Defendant-T hird-Pa rty

Plaintiff-Appellant,

V.

BAKER PERKINS Foop MACHINERY, INC.,

Third-Party Defendant-

Appellant.

COTTON BROTHERS BAKING COMPANY, INC.,

Plaintiff-A ppellee,

BAKER PERKINS, INC.,

Defendant-A ppellant.

BAKER PERKINS, INC.,

Plaintiff-A ppellant,

COTTON BROTHERS BAKING COMPANY, INC.,

Defendant-A ppellee.

2a

Appeals from the United States District Court

for the Western District of Louisiana

Sept. 13, 1991

Before POLITZ, WILLIAMS, and JONES, Circuit

Judges.

POLITZ, Circuit Judge:

This appeal poses complex damages and liability issues

resulting from a fire at Cotton Brothers Baking Co., Inc.,

a bakery in Alexandria, Louisiana, on Friday, February

13, 1981. Multiple suits resulted. The matters were tried

in part by a jury and in part by the bench and the

ultimate judgments are now before us on appeal. For

the reasons assigned we modify those judgments and, as

modified, affirm.

Background

At the time it was severely damaged by fire, Cotton

Brothers Baking Co., Inc., was one of eight subsidiaries

of Cotton Bros., Inc. Each subsidiary was independently

incorporated and occupied a single location, but the com-

panies operated as a single integrated enterprise in the

commercial baking industry. Gene Cotton served as presi-

dent and CEO of the parent company and of each sub-

sidiary, and the membership of the boards of directors of

each company was identical.

The damage to the Alexandria bakery was substantial

and its effect was felt throughout the Cotton Bros. organi-

zation. In order to minimize the impact on production as

a whole, Cotton Bros. shifted some of the prior Alexandria

production to other facilities and purchased products from

competitors for resale under the Cotton label.

3a

Cotton Bros. contacted Baker Perkins, Inc., a Michigan

industrial baking supplier, about replacement of the two

principal pieces of equipment destroyed in the fire, an

oven and a rack proofer. After substantial negotiations

and site surveys, Baker Perkins contracted with Cotton

Bros. Baking Co., Ine. to install the equipment. The

initial submission was an offer by Baker Perkins dated

February 20, 1981, and included an accelerated installa-

tion price of $1,354,820. Another proposal, which did not

placement cost differential, contemplated a “start-up” date

eight months later than that specified in the final agree-

ment.’ The initial offer included the following details:

SHIPPING AND INSTALLATION

SCHEDULE ACCELERATED

INSTALLATION

Order Placement 2-22-81

Shipment 5- 1-81

Start Erection 6-12-81

Final Shipment 6-26-81

start-up [sic] 9-21-81

Schedule predicated on order placement by February

22, 1981. Any delay in order placement beyond that

date will directly effect [sic] final dates of shipment,

erection and final start-up beyond those listed above.

Despite the timing calling for order placement by Febru-

ary 22, the proposal was accepted verbally by Cotton

Bros. on March 6, 1981, followed by a signing on March

19. This final submission constituted a counter-proposal

which Baker Perkins approved and accepted on May 14,

1981. Start-up actually occurred in the late spring of

1982.

‘Some equipment was replaced rather than repaired. “Start-up”

refers to resumption of baking production.

4a

Cotton Bros. also filed a claim with its insurer, In-

dustrial Risk Insurers (IRI), under policies protecting

against both fire property damage to equipment and busi-

ness interruption. Significantly, the policies did not list

Cotton Bros., Inc. as an insured but, instead, named three

of the subsidiaries and five separate premises. The busi-

ness interruption policy provided in pertinent part:

SECTION I

A. Recovery in the event of loss hereunder shall

be the ACTUAL LOSS SUSTAINED by the In-

sured resulting directly from such interruption

of business, but not exceeding the reduction in

gross earnings less charges and expenses which

do not necessarily continue during the interrup-

tion of business, for only such length of time as

would be required with the exercise of due dili-

gence and dispatch to rebuild, repair or replace

such described property as has been damaged or

destroyed, commencing with the date of such

damage or destruction and not limited by the

date of expiration of this Policy. Due considera-

tion shall be given to the continuation of normal

charges and expenses, including payroll expense,

to the extent necessary to resume operations of

“the Insured with the same quality of service

which existed immediately preceding the loss.

SECTION IIi

A. EXPENSES RELATED TO REDUCING LOSS.

—This Policy Also covers:

1. such expenses as are necessarily incurred for

the purpose of reducing loss under this Policy

(except expense incurred to extinguish a fire),

and

2. such expenses, in excess of normal, as would

necessarily be incurred in replacing any finished

5a

stock used by the Insured to reduce loss under

this Policy, but in no event shall the aggregate

of such expenses exceed the amount by which the

loss otherwise payable under this Policy is hereby

reduced.

IRI, which was involved in the Cotton Bros. decision to

accept the accelerated Baker Perkins contract, hired a

team of accountants to audit the records of Cotton Bros.

and to adjust claims arising from the interruption of

business policy. Cotton Bros. also assembled a group for

the same purpose, composed of in-house personnel and

accountants from its retained accounting firm, Ernst &

Whinney. By their own admission, neither the Ernst &

Whinney personnel nor the Cotton Bros. in-house staff

had any experience with interruption of business insur-

ance claims. They relied on the expertise—and good faith

—of IRI’s accountants to accurately calculate those losses.

The Cotton Bros. team submitted a document to the IRI

team entitled “Methodology for Computing the Cost of

Business Interruption,’ which the district court found

contained patent errors in application of business inter-

ruption insurance. IRI accepted the document without

comment and made no effort to assist Cotton Bros. in

correcting errors.” Additionally, IRI insisted that as Cot-

ton Bros., Inc. was not a named insured, only the damages

directly related to Cotton Bros. Baking Co. (the Alex-

andria bakery entity), could be used to calculate losses.

*The methodology involved a line-item reimbursement by IRI

for identifiable extra costs that were incurred as a result of the

business interruption. The district court found this approach

operated as nothing more than an extra expense policy, ‘ta form

of insurance coverage to reimburse the insured for specific items

of extra expense over and above the normal expense which the

insured incurred. ...” The district court further found that as

early as 1970 both IRI and Cotton Bros. intended that a full and

complete business interruption policy be confected, rather than an

extra expense policy.

6a

IRi’s payments to Cotton Bros. under the business inter-

ruption policy eventually totaled $3,585,761.97.

Once Cotton Bros., with IRI support, approved the ac-

celerated purchase agreement with Baker Perkins to re-

place destroyed equipment, IRI substantially changed its

position with respect to the amount it owed Cotton Bros.,

and, further, the insurance policy under which that

amount was to be paid. Initially approved as a fire insur-

ance recovery, the payment was then changed, minus the

acceleration premium, into a business interruption re-

covery, for which IRI stood to benefit because it could take

a credit against Cotton’s gross earnings loss. Eventually

IRI paid the lower estimate and purported to advance the

remaining acceleration as an expediting expense, repay-

able if Baker Perkins failed to perform timely its acceler-

ated schedule.

Several lawsuits resulted. Cotton Bros. Baking Co. sued

Baker Perkins in the Western District of Louisiana for

damages arising from the latter’s delay in completing the

installation of the oven and proofer. Baker Perkins coun-

terclaimed for the $209,000 unpaid balance on the original

contract, and other ancillary equipment installation con-

tracts. Baker Perkins also filed an action in the Eastern

District of Michigan against Cotton Bros. for an amount

and under causes of action identical to its counterclaim

in the parallel action. That case was transferred to the

Western District of Louisiana, where Cotton Bros. coun-

terclaimed, asserting the same claims as Cotton Bros.

Baking Co. in the original action. Baker Perkins moved,

inter alia, to dismiss all claims for damages asserted by

Cotton Bros. given that the insurance contract named

Cotton Bros. Baking Co. The district court promptly

denied that motion, which came after three and one-half

years of litigation in which Cotton Bros. had admitted

Baker Perkin’s allegation that the two parties had entered

into a valid contract. The district court did, however,

dismiss Cotton Bros. Baking Co.’s claims against Baker

7a

Perkins. A jury determined that Baker Perkins had

breached the contract, that Cotton Bros. had sustained

$2,065,575 in damages resulting from the breach, and

that Cotton Bros. was 35%¢ responsible for the breach.

Accordingly, the district court awarded Cotton Bros.

$1,242,624 plus legal interest from the date of judicial

demand in the Baker Perkins case. The district court

directed a verdict in Cotton Bros.’ favor in Baker Perkins’

suit for $209,000.

In an action consolidated with the Baker Perkins suit,

Cotton Bros. Baking Co. and Cotton Bros. brought suit

in the Western District of Louisiana against IRI claiming

damages under the business interruption policy. After a

bench trial involving substantial taking of evidence, the

trial court reformed the original insurance policy to make

and include Cotton Bros., Inc., as a named insured at all

relevant times, entered judgment in favor of Cotton Bros.

Baking Co. and Cotton Bros. for the $324,735 “advanced”

by IRI in the accelerated contract dispute, and awarded

state law insurer-delay penalties, attorney’s fees, and pre

judgment interest. Additionally, the court awarded Cot-

ton Bros. $4,498,000 in damages* plus penalties, attor-

ney’s fees and prejudgment interest less $427,460.67

credit to be equitably applied upon payment of IRI’s

judicial obligation to Cotton Bros. The credit was ap-

plied by the court based on an acceptance by Cotton Bros.

that the amount ought not be clasified as earnings dam-

ages. Finally, the district court ordered IRI subrogated to

* Cotton Bros. introduced evidence indicating its actual earnings

were a loss of $2,535,000 and its projected earnings were $3,361,000,

resulting in a reduction of gross earnings of $5,896,000. These

projections were based on a business interruption period running

from February 13, 1981 through September 25, 1982. The trial

court, however, determined that the business interruption period

terminated on May 8, 1982, when the replacement oven and proofer

went into operation. The court, accordingly, adjusted the $5,896,000

figure to $4,498,000, based on proportionately reduced actual earn-

ings of negative $1,933,926 and projected earnings of $2,564,073.

8a

the Cotton Bros. recovery in the Baker Perkins action,

contingent upon IRI’s payment of all other obligations

resolved in that litigation.

Dissastisfaction abounded. Baker Perkins and IRI

timely appealed.

Analysis

Before us are appeals, as noted, from both a bench

trial and a jury trial. At the bench trial, the district

court construed an unambigous contract and awarded

damages based on calculations related to that contract.

Such construction presents a question of law for which

our review is de novo. Southern Natural Gas Co. v.

Pursue Energy, 781 F.2d 1079 (5th Cir. 1986).

The IRI Litigation

IRI raises three issues on appeal. First, it asserts that

the trial court erred by not crediting the $3,585,761.97

which IRI had already paid under the business interrup-

tion policy against the $4,498,000 judgment awarded be-

low. The judgment was for claims under section IA of

the business interruption policy designed to compensate

Cotton Bros. for the actual loss incurred as a result of the

fire. The district court had found that the $3,858,761.97

paid by IRI under the line-item methodology ought not be

treated as payments for Cotton Bros.’ actual Joss sustained

because the line-item approach was not fueled by any

measure of earnings. The court thus treated the amount

as costs incurred in mitigation of the net loss caused by

the fire, payable under sections IIIA of the policy.

In this the trial court erred. Failure to credit IRI for

its prior payments would result in a double recovery by

Cotton Bros. The Louisiana courts have underscored the

importance of applying business interruption insurance

in a manner which avoids double recovery.

We hold that the business interruption clause in

the policy in this case is unambiguous. The language

9a

of the policy sets forth the formula for calculating

the amount of actual loss by an insured when busi-

ness is interrupted, and allows the business to re-

main in the same financial condition as before the

loss. Although the policy is designed to protect the

insured, it is also designed to prevent the insured

from being placed in a better position than if no loss

or interruption of business had occurred.

United Land Invesiors, Inc. v. Northern Ins. Co., 476 So.2d

432, 436 (La.App.1985) (emphasis original). While the

methodology used did not reflect accurately the lost earn-

ings experienced by Cotton Bros., the payments nonethe-

less represented compensation for lost earnings. The

$4,498,000 calculated by the trial court as the actual loss

Cotton Bros. sustained includes the difference between

projected earnings had there not been a fire $2,564,073),

and actual earnings during the period of business inter-

ruption (a loss of $1,933,926). The loss figure did not

include the $3,585,761.97; if it did, then actual earnings

during the interruption period would be _ (positive)

$1,651,835.97, and the reduction in gross earnings (pro-

jected minus actual) only $912,238.03.

The court would have been correct in excluding the

$3,585,761.97 had an equal amount been excluded from

the actual loss figure based on expenses incurred by Cot-

ton Bros. Simply stated, if these line-item expenses were

not included in the actual earnings figure, then Cotton

Bros. lost $1,933,926 during the business interruption

period. However, review of the record discloses no such

exclusion from actual losses. Accordingly, the Cotton

Bros, judgment against IRI for claims under section IA

of the business interruption policy is modified to

$912,238.03.

The Accelerated Premium

IRI next contends that the trial court erred by award-

ing Cotton Bros. the $324,735 which IRI deducted from

payments to Cotton Bros. for having replaced rather

10a

than repaired its oven and proofer, and for having done

so at an accelerated schedule.* We disagree. The facts

attendant to the March 6, 1981 acceptance by Cotton of

IRI’s draft of a proof of loss reflected IRI’s willingness

to pay $1,188,425 under the fire policy, and $165,575

under the business interruption policy.’ The fire policy

figure included the $159,160 replacement cost of the oven

and proofer.

Immediately after the meeting, Cotton Bros. verbally

accepted the Baker Perkins proposal discussed at the

March 6 meeting. We perceive no error in the district

court’s recounting of the subsequent facts:

Cotton was committed. IRI then refused payment.

Now Cotton was compromised. Cotton had exercised

extraordinary diligence in its efforts to rebuild and

restore in the shortest time as possible to the evident

benefit of both IRI and itself. It had been successful

in securing the contractor most capable of doing a

competent job in the shortest time possible. It had

settled its claim against IRI for the loss of the

proofer and the oven for a sum proposed by IRI’s

own agent. IRI now refused to pay. Incredible!

The trial court then determined that IRI’s decision to

deny the coverage—and later to recast a partial payment

as an “advance” on the chance of Baker Perkins’ timely

completion of the work—was a strong-arm attempt to

*The amount represents the cost differential of replacement

rather than repair, $159,160, plus the acceleration premium,

$165,575. Cotton Bros. does not quibble with the deduction of an-

other $182,655, representing the cost of a cascade apparatus,

equipment used to load the proofer.

5 See Notes from Insurance Meeting 6, March 6, 1981. Exhibit

122A. “Tom Simpson advised that Mr. Bud Jarratt had gotten

with the IRI and they prepared another partial settlement of the

claim. They have agreed to pay $531,200 on the proofer and

$658,045 on the oven which totals $1,189,245.”

lla

deny the existence of an enforceable agreement. With

respect to the $159,160 cost differential, the trial court

properly, therefore, held IRI to the agreement it had

forged on March 6, 1981, by awarding judgment in favor

of Cotton Bros.

The acceleration premium, which the district court

apparently erroneously lumped in with the fire insurance

policy, should have been treated as an expediting ex-

pense, given its mitigating effect on Cotton Bros.’ losses.

The contractually-mandated test is not, as IRI suggests,

whether the accelerated schedule was met by Baker

Perkins, but, instead, whether the expense was one

“necessarily incurred for the purpose of reducing loss

under [the business interruption] Policy.” * The district

court found that the Cotton Bros. contract with Baker

Perkins under the accelerated scheduling plan was just

such an expense. IRI points to no contrary evidence. The

trial court did not err.‘

insurance: Its Theory and Practice 103 (1986) (emphasis orig-

inal) :

It should also be noted that, in the application of the ex-

pediting expense provision, a different timing approach may

be taken than in the case of the basic business interruption

loss. In the case of expediting expense, hindsight must be

used because only after the fact is it possible to determine

whether or not there was an actual savings and how much

it is. This should create no problem because the two compen-

sation provisions have entirely different purposes and each

stands on its own feet.

7IRI’s contention that Cotton Bros.’ award of the $324,735 con-

stitutes unjust enrichment is without merit. IRI argues that it

advanced Cotton Bros. the funds in order to pay Baker Perkins,

but that Cotton Bros. has not paid the money over to Baker Per-

kins. Cotton Bros. could only be unjustly enriched in the first

instance to the extent that it received a judgment beyond the

amount which it owes or has paid Baker Perkins. Baker Perkins

and Cotton Bros. stipulate that of the $209,000 owing to Baker

Perkins, only a portion relates to expediting expenses, 7.e., the

12a

Statutory Penalties

In its final enumeration of error,, IRI challenges the

district court’s assessment of a 12% statutory penalty

on monies awarded to Cotton Bros. under the IRI policies.

IRI contends that the district court misapplied the ap-

plicable state statute, La.R.S. § 22:658, which subjects

insurers found “arbitrary, capricious, or [acting] with-

out probable cause” to a 12% penalty plus reasonable

attorney’s fees, upon failure to make payment within 60

days of receipt of proof of loss.* Proof of loss is defined

as that point in time when the insurer had adequate

knowledge of the loss. Hart v. Allstate Ins. Co., 487 So.2d

823 (La.1983). The district court’s assessment of penal-

ties was based on its finding that IRI effected a “stone-

walling” stratery in every aspect of its dealings with

Cotton Bros. The strategy began with a continuing—

and unjustified, in light of its lonestanding relationship

with Cotton Bros.—contention that only the accounts of

the Alexandria bakery, and not Cotton Bros. in toto, were

applicable to the business interruption loss calculations.

IRI also provided little, and at times incorrect, advice to

its insured on the correct methodology for calculation of

business losses. The district court found that IRI’s in-

struction to its accounting team ‘“‘was intended to induce

error by Cotton. The instruction was made for the illicit

purpose of inhibiting and defeating Cotton’s right to file

any claim for earnings damages under Section IA and

ITA of the policy. The stonewall position of IRI was ar-

bitrary, capricious, in bad faith and without probable

cause.” Simultaneously, the dispute regarding the Baker

Perkins replacement contract was simmering, in a situa-

tion described supra, for which the district court specifi-

cally imputed to IRI an attempt to strong-arm its insured

into an unfavorable bargaining position.

acceleration premium. Our holding with respect to the companion

Baker Perkins litigation disposes of the funds in question, leaving

no party unjustly enriched.

8 Since amended to require payment within 30 days.

13a

The characterization of an insurer’s failure or refusal

to pay is a question of fact, Smith v. State Farm Fire &

Cas. Co., 695 F.2d 202 (5th Cir.1983), and propriety of

assessment of insurer penalties is likewise, “in part a

factual determination,” United Land Investors, 476 So.2d

at 438. IRI’s arguments leave us unpersuaded that the

district court, sitting as the trier of fact, was clearly

erroneous in its factual findings.

The court did err, however, in assessing statutory

penalties on the entire $4,498,000 which it awarded Cot-

ton Bros. on the business interruption policy, as well as

the $324,735 awarded on the fire policy. In the first

instance, having modified the former judgment to

$912,238.03, we would affirm the assessment of penalties

only as applied to that amount; howevef, the trial court

committed further error by assessing penalties on

amounts already advanced by IRI to its insured. IRI’s

contention that the district court erroneously attached a

statutory penalty on a portion of the funds which the

court ordered “equitably credited” to IRI upon payment

of all sums awarded at bar, is well taken. That amount,

$427,460.67, was advanced to Baker Perkins; IRI cannot

now be held to pay a penalty for not having acvanced

that sum of money. This would have the effect of compen-

sating Cotton Bros. for the loss of the use of funds of

which it, in fact, had use. We therefore modify the dis-

trict court’s award of statutory penalties to reflect a

12% penalty on the $484,877.36 difference between the

judgment and the credit.

Having affirmed the $324,735 in whole, however, we

affirm the penalties with respect to that additional

amount.

The Baker Perkins Litigation

In the companion action also, before the court, Baker

Perkins first argues that the district court erred by

holding that Cotton Bros., rather than Cotton Bros. Bak-

ing Co., was permitted to recover for breach of the re-

l4a

placement contract. Baker Perkins correctly advances the

notion that under Louisiana law a corporation is not per-

mitted to bring a cause of action on behalf of a wholly-

owned subsidiary corporation, Eximco, Inc. v. Trane Co.,

737 F.2d 505 (5th Cir.1984), and that there must be

privity of contract for recovery for a breach. Impressive

Builders, Inc. v. Ready Mix, Inc., 585 So.2d 1844 (La.

App. 1988). The trial court did not, however, entertain

an impermissible lawsuit; instead, it properly concluded

that Cotton Bros. rather than Cotton Bros. Baking Co.

was the proper party to the contract. This was within the

equitable powers of the district court. As the Louisiana

Court of Appeal informs:

“In interpreting contractual provisions about which

there exists some doubt, a court must seek the true

intention of the parties, even, if to do so necessitates

a departure from the literal meaning of the agree-

ment.” In such cases, the law is never so inflexible

as to bind parties to a contract which neither in-

tended.

... The established method of resolving a mutual

mistake in a contract is reformation of the agreement

to reflect the true intent of the parties.

Placid Refining Co. v. Privette, 523 So.2d 865, 868 (cita-

tions omitted), vacated on rehearing on other grounds,

523 So.2d 870 (La.App.1988).

The district court’s action, which came in response to a

motion by Baker Perkins to amend was appropriate in

the instant ease, given the underlying procedural posture

of the case. The original suit was, in fact, Cotton Bros.

Baking Co.’s action against Baker Perkins, an action

brought in the Western District of Louisiana. Four days

later, Baker Perkins brought its suit against Cotton Bros.,

Inc., alleging inter alia, a contract with the parent com-

pany and seeking recovery for the unpaid balance of the

contract price.

15a

The district court interpreted Baker Perkins’ motion

to amend as an eleventh-hour ploy to defeat the Cotton

Bros. counterclaim (filed as a Rule 13(a) compulsory

counterclaim) by disclaiming the existence of a contract

it had spent three and one-half years urging in litigation.

In light of Baker Perkins’ longstanding business relation-

ship with Cotton Bros., its acceptance of earlier payments

for the contract from Cotton Bros. (not Cotton Bros.

Baking Co.), its frequent correspondence with Cotton

Bros. during the negotiations for the contract, and Baker

Perkins’ over-three-year delay in seeking leave to amend

its complaint to change the name of the defendant, the

court acted within its discretion in holding Baker Perkins

to the facts it had alleged and which its defendant,

Cotton Bros., candidly and appropriately had admitted.

Our holding in Hall v. Aetna Casualty and Surety Co.,

617 F.2d 1108 (5th Cir.1980), presents an analogous

situation. There, we held that the district court did not

abuse its discretion in disallowing an insurer to substan-

tially amend its answer, mid-trial, from a position of

admitting coverage under an insurance policy to one ex-

cluding coverage under a previously “overlooked” provi-

sion. “The trial judge recognized, however, that this final

amendment would clearly prejudice the opposing party

and simply came too late.” Jd. at 1110-11. A similar find-

ing obtains in the instant case. As Judge Scott incisively

wrote:

In the case at bar, the plaintiff, Baker Perkins,

brought suit, alleging a contract with the defendant

parent corporation and sought recovery of funds due

under the contract. Cotton Bros., Inc. admitted the

allegation and pleaded its counter-claim which was

compulsory under Rule 13(a) of the Federal Rules

of Civil Procedure. The parties labored under these

facts for three and a half years before Baker Per-

kins moved to amend its complaint to correct “a

mistake” made by its Michigan counsel when naming

the defendant, contracting party.

l6a

We are of the opinion that Baker Perkins was

well aware of who it was suing and why it was

doing so.

Cotton Bros.’ good faith reliance on the veracity of

Baker Perkins’ pleadings was well-founded; there was

ample evidence that Cotton Bros. was indeed the proper

party in this case.* We perceive no abuse of discretion

in this instance.

The Limitation of Liability Provision

Baker Perkins next maintains that the trial court mis-

construed a limitation of liability provision in the oven

and proofer contract. The provision declares:

WARRANTY

Seller warrants the apparatus to be as _ specified

herein; and will correct any defects in the apparatus

which develop under normal and proper use and

maintenance within twelve months after erection

(defective parts to be replaced F.O.B. factory), pro-

vided Buyer shall have given prompt notice to Seller

of any such defects. The foregoing Warranties are

EXPRESSLY IN LIEU OF ALL WARRANTIES

® McKnight v. Blanchard, 667 F.2d 477 (5th Cir.1982), cited by

Baker Perkins, is inapposite. In that inmate’s civil rights action

an order was entered substituting the current sheriff for his prede-

cessor, “but retaining as party the predecessor sheriff originally

sued.” The inmate complained only of a clerical change in the

caption of the case, “apparently fearing that the ‘et al.’ does not

include the ‘Lubbock County Jail.’” We deemed his contention

meritless, holding “The administrative captioning of the suit ob-

viously has no effect on what cause of action and what parties

are (or are not) joined in the substantive allegations of the plead-

ings.” Jd. at 482. In the instant case, Baker Perkins is not being

held to its original pleadings merely on the basis of the caption’

given the case. Instead, its three-plus years litigation with the

facts it alleged, and which Cotton Bros. admitted and relied upon

are the operative concerns of the court.

17a

WHATSOVER, EXPRESSED, IMPLIED AND

STATUTORY, INCLUDING, WITHOUT LIMITA-

‘TION, THE IMPLIED WARRANTIES OF MER-

CHANTABILITY AND FITNESS. Seller will in

no event be liable to Buyer or others for any direct,

indirect, special or consequential damages or loss of

production or loss of profits resulting from any cause

whatsoever, including but not limited to defective

workmanship or materials or any delay, act, error

or omission of Seller. Seller shall be notified of, and

reserve the right to be present at, any test which

Buyer may make in relation to operation. All equip-

ment manufactured by others, but included as part

of this contract, will be subject to standard war-

ranty as issued by this manufacturer.

The district court held that this disclaimer was effective

only with respect to redhibitory vices, and not for the

purpose urged by Baker Perkins, 7.e., exclusion of claims

for lost profits flowing from delay in performance of the

contract. We agree. Baker Perkins reurges and under-

scores its contention that the presence of the three

words “or any delay” in the warranty section of the

contract essentially forecloses discussion on this point.

We disagree. The Louisiana Court of Appeal has con-

cisely stated the fundamental rules of contract construc-

tion prevalent in Louisiana:

The interpretation of a contract begins with the

document itself... . La.C.C. Art. 2046 states that

when the words of a contract are clear and explicit

and lead to no absurd consequences, no further in-

terpretation may be made in search of the intent of

the parties. If a court does attempt to discern the

intent of the parties, the contract must be interpreted

in light of other provisions so that each is given the

meaning suggested by the contract as a whole.

Grant v. Ouachita Nat’l Bank, 536 So.2d 647, 651 (La.

App.1988) (citing La.C.C. arts. 2045-57). The district

18a

court correctly identifled the warranty paragraph as one

pertaining only to defects in the items being sold.

Clearly and unambigously the paragraph begins with the

words, “Seller warrants the apparatus to be as specified

herein. . . .” Delivery, which the district court held

was the portion of the contract applicable to Baker

Perkins’ delay, has a separate paragraph in the con-

tract.’° Significantly, the delivery paragraph provides a

limited variety of situations for which Baker Perkins’

delay in delivery would be excused, none of which per-

tain to the instant case. Logically, then, Baker Perkins

may be held liable for those delays in delivery not caused

by the enumerated excused conditions. Under Baker

Perkins’ strained interpretation of the offer it tendered

to Cotton Bros., no liability whatsoever would accrue

from even indefinite delay in delivery, notwithstanding

lack of contract-specified justification. Such a reading

fails to give meaning to the delivery provision of the

contract, as well as to the premium which Baker Perkins

charged Cotton Bros. for accelerated installation. Read-

ing the entire contract in a light giving meaning to the

whole, we perceive no error in the district court’s con-

clusion."

10 DELIVERY

Seller shall be excused for any delay in delivery, or any part

delivery, hereunder, if caused by fire, explosion, flood, epidemic,

war, interruption or delay in transportation, labor troubles or any

cause beyond its reasonable control. In case of delay caused by

Buyer’s failure to furnish necessary information as to details to

be determined by Buyer, Seller may extend date for shipment for

at Seller’s factories. In case shipment shall be delayed by Buyer’s

a reasonable time, based on period of Buyer’s delay and conditions

failure to furnish shipping instructions on request, or otherwise

by Buyer, Seller may as [sic] its option invoice material ready for

shipment, and payment therefore shall be made in accordance with

the terms hereof, substituting the invoice for the Bill of Lading.

11 Baker Perkins also appeals the directed verdict on the issue of

contract start-up date. We perceive no error in the court’s memo:

randum opinions of August 18, 1987, and January 23, 1990, in

19a

Evidence of Damages

Baker Perkins asserts that Cotton Bros.’ claims should

have been dismissed for lack of legally-sufficient evidence

causally linking Baker Perkins’ breach of contract with

the damages Cotton Bros. sustained. Baker Perkins’ ar-

gument is a threefold contention that: (a) the consoli-

dated books of the Cotton Bros. family of corporations

were used rather than only Cotton Bros.; (b) the con-

tract damages were not separated from the fire damages;

and (¢) Cotton Bros. relied on faultily-prepared regres-

sion analysis studies for its profits projections.

We find each of the arguments unavailing. Our stand-

ard of review for consideration of attacks on jury dam-

age awards is well-settled. We “consider[] all the evi-

dence and avoid{] second-guessing conflicts in the evi-

dence or credibility determinations. This court will not

disturb a jury verdict based on substantial evidence and

reasonable inferences.” Snyder v. Whittaker Corp., 839

F.2d 1085, 1090 (5th Cir. 1988) (citations omitted).

With respect to the consolidated Cotton Bros. accounts,

this evidence was appropriate given the district court’s

reformation of the Baker Perkins contract. The district

court noted Baker Perkins’ longtime association with the

Cotton Bros. operation and its understanding of how Cot-

ton Bros. operated. Moreover, substantial evidence was

introduced explaining how Cotton Bros. mitigated its

damages: by shifting Alexandria production throughout

its corporate family of bakeries. In that light, the district

court did not err in permiting evidence of Cotton Bros.’

damages to be presented on the basis of the consolidated

financial records of the corporation.

which it held that the start-up date contemplated for the contract,

based on the actions of Baker Perkins, was September 21, 1981.

The district court further correctly held that Baker Perkins prof-

fered no evidence probative on why it could not have performed the

contract within that time frame and thus declined to present the

issue to the jury.

20a

Baker Perkins’ argument that the evidence did not link

its breach of contract with the damages alleged was spe-

cifically rejected by the district court. Within the thou-

sands of pages of transcripts generated at trial are

numerous indications of the methodologies used to project

loss and the dates upon which the liability of Baker

Perkins was calculated. “Obviously,” argues Baker Perk-

ins, “the fire caused far greater damage than any delay

which may have been caused by Baker Perkins.” That

fact, however, is neither obvious nor proven on the record.

What is clear from consideration of the evidence is that

after the jury was presented both sides of the argument,

it was instructed specifically on the requirements under

state law that a causal link be proven between the breach

and the damages alleged,’ and arrived at a reasonable

calculation of both the damages and the degree to which

Cotton Bros.’ own fault contributed to the delay in the

12 The district court instructed:

The primary aim or principal of the law of damages for

breach of contract is to place the plaintiff in the same position

in which he would have been if the contract had been fulfilled.

Or to place the plaintiff in the same position which he would

have occupied had the breach of contract not occurred. In de-

termining whether Cotton Brothers had sustained any damages

attributable to Baker Perkins breach of contract, you must

keep in mind that under Louisiana law first damages in breach

of contract must be proven with reasonable certainty and sec-

ondiy a claim for the lost profits cannot be supported by a

mere statement of loss nor by speculation or conjecture unless

direct evidence is unavailable. But in cases where direct evi-

dence is not available to establish the exact extent of loss

caused by a breach of contract report [sic] the customary or

foreseeable profits as a measure of damages is proper. In

other words, it is Cotton Brothers!’] burden to prove by a pre-

ponderance of the evidence that the damages Cotton Brothers

claims from Baker Perkins including loss of profits were in

fact sustained and if so, that such damages were caused by

Baker Perkins. Under Louisiana law a party to a contract

remains responsible for the damages caused by its breach of

that contract so long as the other contracting party has acted

reasonably and within its legal rights.

2la

start-up date. Our review of the evidence discloses no

grounds upon which to disturb the findings of the jury.

Finally, Baker Perkins argues that the trial court erred

in allowing Cotton Bros. to employ the “least squares”

method of regression analysis to calculate the projected

earnings component of its lost earnings, basing its projec-

tions solely on past earnings data. Baker Perkins was

afforded ample opportunity to cross-examine witnesses who

undertook the projections in question, and to present

evidence contrary to the testimony of opposing witnesses.

Cf. Wilkins v. University of Houston, 654 F.2d 388, 403

(5th Cir.1981) (“Ideally, when a multiple regression anal-

ysis is used, it will be the subject of expert testimony and

knowledgeable cross examination from both sides. In this

manner, the validity of the model and the significance of

its results will be fully developed at trial, allowing the trial

judge to make an informed decision as to the probative

value of the analysis.”), vacated, 459 U.S. 809, 103 S.Ct.

34, 74 L.Ed.2d 47 (1982), on remand, 695 F.2d 134 (5th

Cir.1983). While the least squares method is subject to

misuse, we do not find that its use in this instance gave a

legally insufficient basis for the jury to make its findings.

The district court did not err in permiting the evidence.

Baker Perkins’ Claim for the Unpaid Contract Price

Baker Perkins argues that the trial court erred by

directing a verdict against its claim for the $209,000 con-

tract balance which Cotton Bros. stipulates remains un-

paid. We agree. The district court found that Baker

Perkins could not charge Cotton Bros. for that portion of

the contract price attributable toward accelerated per-

formance as Baker Perkins failed to perform its obliga-

tions timely.’* Lousiana law provides that “fi]ln case of

‘8 We note further that only $165,575 of the $209,000 was allo-

cable toward the acceleration premium; the remainder constituted

accounts payable from contracts not directly involved in this

litigation.

22a

reciprocal obligations, the obligor of one may not be put

in default unless the obligor of the other has performed

.. . his own obligation.” La.C.C. art. 1993. Cotton Bros.

may only collect damages for Baker Perkins’ failure to

perform its obligations under the accelerated schedule if

it pays the acceleration premium. This is especially true

in a case in which Cotton Bros. has successfully argued

in the IRI litigation that it is due compensation from its

insurer for having paid the acceleration premium. The

trial court erred; Baker Perkins is due this sum.

Prejudgment Interest

Baker Perkins contends that the trial court erred by

awarding prejudgment interest from the date of judicial

demand rather than the date of entry of judgment. The

crux of this contention is that the amount Baker Perkins

owed Cotton Bros. was not ascertainable until judgment

was granted. Baker Perkins relies on Alexander v. Bur-

roughs Corp., 359 So.2d 607 (La.1978), as support for its

argument. That case lends little succor to Baker Perkins’

position. Alexander was a redhibition case in which the

plaintiff (a receiver for a computer purchaser), sought

and received damages for the redhibitory defect and attor-

neys’ fees. The court discussed the long-standing issue

of whether legal interest ran from the date of formal

demand for rescission or from the date of judgment, and

held that the plaintiffs’ claim was ascertainable on the

former. The court further held that legal interest on

attorneys’ fees, which were not awarded until entry of

judgment, were to be dated from that day as that was the

date at which they became ascertainable. 359 So.2d at

613-14.

Baker Perkins takes the attorneys’ fees portion of

Alexander and stretches it to encompass the facts at bar.

Its contention is that the precise amount of damages were

not determined until the jury rendered its verdict.

23a

A more recent case, Mini Togs Products, Inc. v. Wal-

lace, 513 So.2d 867 (La.App.1987), carefully explains

Alexander and its codicil precedents in the context of a

contractual—rather than redhibitory—dispute and ar-

rives at a lucidly-explained conclusion that contract dam-

ages, even though unliquidated and not precisely ascer-

tainable until judgment, are “due from the moment of

active violation of the contract or from the time defendant

was put in default which was no later than the commence-

ment of the suit. Defendant’s debt or obligation to pay

money damages bears legal interest from the time the

damages were due.” 513 So.2d at 874. The court based

its conclusion on an analysis of the Alexander court’s use

of ‘ascertainable.”’

In using the term “ascertainable” the court did not

mean that the precise amount of the claim need be

liquidated or established without dispute in order for

legal interest to commence in a coniract claim. In the

Alexander case the amount of recovery was in dispute

throughout with the amount awarded by the district

court being changed by the court of appeal and then

again by the supreme court. What was meant was

that a debt or claim for the payment of money or

damages under a contract is ascertainable and be-

comes due on the date an active violation occurred

or the obligor was put in default, which can be earlier

but never later than judicial demand, and legal

interest runs from that date.

Mimi Togs, 513 So.2d. In light of this recent appellate

explanation of Alexander by former Chief Circuit Judge

Pike Hall,’* Baker Perkins’ argument to the contrary is

not persuasive. Cf. Meeks v. Huntington Sch., Inc., 489

So.2d 435 (La.App.1986) (fiinding fault with Alexander,

and holding that in salary case, the dispute is whether

interest dates from due date or date of judicial demand,

1 Now an Associate Justice of the Louisiana Supreme Court.

24a

and settling on the former). Interest accrues from the

date of judicial demand; the district court did not err.

Conclusion

The trial court erred by awarding Cotton Bros. a double

recovery as against IRI, and Cotton Bros.’ judgment for

claims arising from its business interruption insurance is

MODIFIED to $912,288.08. The district court’s award

of statutory insurer penalties is likewise MODIFIED to

reflect only a penalty on the amounts awarded, $484,877.36

for the business interruption, and $324,735 in expediting

expenses.

The district court erred as a matter of law by directing

a verdict against Baker Perkins in its $209,000 claim

against Cotton Bros. That judgment is REVERSED,

and judgment is RENDERED in favor of Baker Perkins

on that claim.

Subject to the modifications contained herein, the judg-

ments appealed are AFFIRMED.”

15 For clarity, we restate that all of the judgments now before

the court are rendered as follows:

1. Cotton Bros. v. IRI. Modified and rendered in the amount

of $912,238.03. Affirmed in the amount of $324,735. Subtract-

ing the equitable credit of $427,460.67, the net judgment is

$809,613.40 plus prejudgment interest and 12% penalties dat-

ing from January 12, 1983.

2. Cotton Bros. v. Baker Perkins. Affirmed in the amount of

$1,342,624. Prejudgment interest to date from February 7,

1984.

3. Baker Perkins v. Cotton Bros. Reversed and rendered in

the amount of $209,000. Prejudgment interest to date from

February 21, 1984.

25a

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF LOUISIANA

ALEXANDRIA DIVISION

Civil Action No. 83-0150

COTTON BROTHERS BAKING COMPANY, INC.

versus

INDUSTRIAL RISK INSURERS

Civil Action No. 83-0578

COTTON BROTHERS BAKING COMPANY, INC.

versus

BAKER PERKINS, INC.

Civil Action No. 83-3237

BAKER PERKINS, INC.

versus

COTTON BROTHERS, INC.

26a

For Cotton Brothers Baking Company, Inc.:

DERMOT C. MCGLINCHEY and HENRI WOLBRETTE, III

MCGLINCHEY, STAFFORD, MINTZ & CELLINI

653 Magazine Street

New Orleans, LA 70130

FREDERICK B. ALEXIUS

PROVOSTY, SADLER AND DELAUNAY

Hibernia National Bank Building, Eighth Floor

Alexandria, LA 71301

For Industrial Risk Insurers:

P. ALBERT BINEVENU, JR., and JOHN W. WATERS, JR.

BIENVENU, FOSTER, RYAN & O’BANNON

1400 American Bank Building

New Orleans, LA 70103

HOWARD? B. GIST, JR.

GIST, METHVIN, HUGHES & MUNSTERMAN

Post Office Box 1871

Alexandria, LA 71301

For Baker Perkins, Inc.:

ESMOND PHELPS, II

PHELPS, DUNBAR, MARKS, CLAVERIE & SIMS

Thirtieth Floor, Texaco Center

400 Poydras Street

New Orleans, LA 70130

NAUMAN S&S. SCOTT

United States District Judge

OPINION

[Filed Jul. 31, 1989]

We have jurisdiction under 28 U.S.C. 1332. There is

diversity of citizenship between the plaintiffs and the

27a

defendant and the matter in controversy exceeds, exclusive

of interest and costs, the sum of $10,000.00.

Plaintiffs reside in and the instant claim arose in the

Western District of Louisiana. Venue therefore lies in

this district under 28 U.S.C. 1391 (a).

Plaintiffs Cotton Brothers Baking Company, Inc.

(Alexandria bakery) and Cotton Bros. Inc. (parent com-

pany) have brought suit against Industrial Risk Insurers

(IRI) claiming damages under an interruption of busi-

ness policy (IRI policy) issued by IRI on October 1, 1980

in favor of three (including Alexandria bakery) of five

corporate bakery subsidiaries owned and operated by

Cotton Bros., Inc. Cotton Bros., Inc. was not included

in the IRI policy as a named insured.

The interruption of business occurred as the result of

a fire in the Alexandria bakery plant, Alexandria, Loui-

siana on February 13, 1981.

Under the provisions of the IRI policy the only named

insured eligible to bring suit for an interruption result-

ing from a fire on the property of the Alexandria plant

was Cotton Brothers Baking Company, Inc. Suit was

filed on January 12, 1983 against IRI for loss or reduction

of gross earnings as provided in Sections IA and IIA of

the IRI policy (earnings damages) allegedly suffered by

the Alexandria bakery during the period of interruption

following the fire of February 13, 1981. The principal

issue between the parties during the entire period of trial

from the middle of September 1986 until the Friday be-

fore Christmas of that year was the methodology to be

used in the determination of earnings damages as pro-

vided in the policy under Sections IA and IIA. Plaintiff

eontends that the books and the records of the parent

corporation are the only books and records from which

such damages can be compiled. IRI has not paid any

earnings damages as provided under Sections IA and

IIA based on the records of its named insured Cotton

28a

Brothers Baking Company, Inc. (Alexandria bakery).

IRI simply refuses to recognize any damages except those

compiled on an item by item basis in which each item

claimed must be shown to be a direct result of the fire.

IRI made a general objection to any evidence based on the

books and records of the parent company because the parent

company was not a named insured under the IRI policy.

This case was tried by the plaintiff, Alexandria bakery,

and the defendant, IRI, until our ruling on the fourth

day of May 1988. On November 4, 1987, plaintiff Alex-

andria bakery, filed a pust-trial motion to permit the

filing of a second supplemental and amending complaint.

The said complaint prayed that the parent company,

Cotton Bros., Inc., be made a party to this suit and that

the interruption of business policy issued by IRI on Oc-

tober 1, 1980 be reformed so as to include Cotton Bros.,

as a named insured effective October 1, 1980. In our rul-

ings of May 4, 1988 and July 27, 1988 we allowed the

_ supplemento! and amending complaint to be filed, made

Cotton Bros., Inc. a party plaintiff effective from the

commencement of suit, but refrained from considering

and deciding the reformation of policy issue until a hear-

ing could be had at which the parties would have an

opportunity to introduce additional evidence. That hear-

ing was held on Febrary 27, 1989 and subsequently au-

thorities were submitted by both parties. We now con-

sider, (1) the issue of whether the policy issued by IRI

on October 1, 1980 should be reformed so as to include

Cotton Bros., Inc. as a “named insured” effective October

1, 1980 and (2) all other issues remaining for decision

in this proceeding.

To the extent any of the following Findings of Fact

constitute Conclusions of Law, they are adopted as Con-

clusions of Law; to the extent any of the following Con-

clusions of Law constitute Findings of Fact, they are

adopted as such.

29a

FINDINGS OF FACT

1. Cotton Brothers Baking Company, Inc. and Cotton

Bros., Inc. are Louisiana corporations with their principal!

place of business in Alexandria, Louisiana. Defendant

Industrial Risk Insurers is an unincorporated association

with its principal place of business located outside the

State of Louisiana. No member thereof is a citizen of

Louisiana. The fire of February 13, 1981 occurred in

Alexandria, Louisiana in the Western District of Loui-

siana and plaintiffs’ claims in this proceeding exceed the

sum of $10,000.00.

29 In 1952 and for some time thereafter the Cotton

interests (Cotton) consisted of one bakery located in

Alexandria, Louisiana.

8. Therafter and prior to 1976 Cotton acquired three

additional bakeries located at Shreveport and Baton

2ouge, Louisiana and Natchez, Mississippi. After these

acquisitions the four bakeries continued to operate inde-

pendently and in competition with each other in all fields,

including management, production, and sales to the public.

4. At some time prior to 1970 Cotton became interested

in protecting these separately and independently operated

bakery businesses from financial loss of income induced

by fire or other similar or named peril.

5. With this objective in view Cotton, through its

agent Alexander & Bolton (A & B), discussed with IRI

the relative merits of coverage: i. by extra expense

insurance or 2. by interruption of business insurance.

Extra expense insurance is a form of insurance coverage

to reimburse the insured for specific items of extra ex-

pense over and above the normal expense which the in-

sured incurred as-a result of damage to the insured’s

property by an insured peril such as fire. Damages under

such a policy have no connection whatsoever to the gross

earnings of the insured.

30a

An interruption of business policy insures the owner

of a business against reduction or loss of gross earnings

during the period of interruption. Damages consist of

the reimbursement of gross earnings lost in the insured’s

business less the recurring expenses which do not con-

tinue during the period of interruption. Needless to say

the principal item of damages in such a policy is the

loss. or reduction of gross earnings as shown on the books

of the insured’s business. Also included in damages

under an interruption of business policy are items of

extra expense necessarily incurred for the purpose of

reducing loss under the policy and such expenses, in ex-

cess of nermal, as would necessarily be incurred in re-

placing any finished stock used by the insured to reduce

loss under the policy.

6. On or about 1970 Cotton and IRI chose business

interruption type coverage. Both Cotton and IRI intended

at that time and at all times thereafter through October

1, 1980 to give the Cotton bakery operation full and com-

plete interruption of business coverage. To accomplish

this in 1970 IRI issued a separate policy to cover each of

four bakeries. In this way they achieved the intent of

both parties because each of the four bakery corporations

carried on its own separate and individual operation and

business. Actually they were in competition with each

other. Each of these bakery corporations was operating

independently and separately with no interdependence

between them, manufacturing its own production for sale

on the open market, packaging its own finished products,

and selling to its own customers. Therefore the books of

each corporation could serve as a basis for the deter-

mination of gross earnings and any increase or reduction

of gross earnings over a period of time. In this way the

common intent of both parties was achieved and complete

business interruption coverage of the entire Cotton bak-

ery operation continued until the reorganization of 1976.

7. In 1976 the Cotton bakery operation was completely

reorganized. The parent company, Cotton Bros., Inc.,

3la

was created and thereafter operated the Cotton bakery

operation through seven wholly-owned subsidiaries, as

one single bakery business. The seven wholly-owned sub-

sidiaries consisted of the four bakery corporations pre-

viously owned by Cotton and three newly created non-

bakery subsidiary corporations: an insurance subsidiary,

a transportation subsidiary and a procurement subsid-

iary. The insurance subsidiary handled all the health and

welfare, self-insurance and other insurance responsibili-

ties of the parent corporation and all subsidiaries. It did

not do business with the general public. The sole respon-

sibility of the transportation subsidiary was to furnish

and satisfy the transportation needs of the parent cor-

poration and its subsidiaries. Like the insurance sub-

sidiary it did no business with the general public. The

sole responsibility of the procurement subsidiary was to

furnish raw materials, supplies and equipment required

by the parent company and its subsidiaries. Like the

other two non-bakery subsidiaries, the procurement sub-

sidiary did no business with the general public.

After reorganization none of the bakery subsidiaries

produced the entire variety of bakery products it sold

to the public, as each of them had done previous to the

reorganization. An entirely new system of yroduction

was introduced. The parent corporation dictated or al-

located to each bakery subsidiary the type and amount

of bakery items each could produce, the amount that

each could retain for its own customers, to whom each

could ship the remainder and the amount and price at

which these shipments could be made. Thus the entire

production of each was dedicated to the single bakery

business of the parent corporation, Cotton Bros., Ine.

All of this was accomplished under the direction of

Gene Cotton. When the parent corporation and the three

non-bakery subsidiaries were created in 1976, these three

non-bakery subsidiaries as well as the four formerly in-

dependert bakeries became wholly owned subsidiaries of

|

32a

the parent corporation. Gene Cotton, president and chief

executive officer of the parent corporation, was also pres-

ident and chief executive officer of all seven subsidiaries.

As such he had the power and control to carry out, on a

day to day basis, in detail the aims and purposes of the

reorganization and to see that the aims, policies and ef-

forts of all subsidiaries, including the bakery subsid-

laries, were dedicated to the promotion ayd success of

the single bakery business operated by the parent com-

pany. Thus the bakery subsidiaries lost all semblance

of their former independence. They no longer controlled

their health and welfare and other insurance, their trans-

portation or their procurement needs. Since Gene Cotton

was president and chief executive officer of each supply-

ing subsidiary as well as each consuming subsidiary, he

set the terms and conditions of all contracts and agree-

ments between the subsidiaries; including price, at which

all these inter-subsidiary services were provided. Thus

none of the agreements or contracts between the seven

subsidiaries were arm-length transactions negotiated and

concluded by officers motivated by the separate and in-

dependent interest each of the subsidiaries involved, but

rather by the interest of the parent corperation—the

single operation. In every instance these contracts

amounted to Gene Cotton, wearing one hat, doing busi-

ness with Gene Cotton wearing another hat, for the

open and declared benefit of Gene Cotton wearing the

hat of the parent company.

8. A very clear illustration of the monumental effect

which the reorganization had on the previously inde-

pendent bakery corporations is furnished by the experi-

ence of the Natchez bakery subsidiary. After reorganiza-

tion that plant produced nothing but sweet goods such as

pies, cakes, pastries and breakfast bakery products.

Ninety percent of that output was shipped to the three

other bakery subsidiaries under contracts dictated and

controlled by the parent company. These shipments were

delivered to the other three bakery subsidiaries by trans-

33a

port units furnished by the transportation subsidiary

under contracts dictated by the parent company. In order

for Natchez to compete in its sales area it was necessary

for Natchez to acquire from the three other bakery sub-

sidiaries all the rolls, buns, brown and serve, and various

types of loaves, ete. which it sold to the public. If the

comptroller was right in estimating that sweet goods

provided twenty percent of the total bakery goods neces-

sary to compete on the market then the sweet goods re-

tained by Natchez comprised twenty percent of the bakery

products sold by Natchez in its sales to the public. Thus

Natchez had to acquire eighty percent of the products

sold by it in its sales area from the other three bakery

subsidiaries. With its health, welfare and other insurance

items, its transportation needs, its procurement needs

furnished under controlled contracts; ninety percent of

its production sold to the three other bakery subsidiaries

under controlled contracts, and eighty percent of the

products sold by it being acquired by controlled contracts,

there is absolutely no way that the Natchez operations

could be considered an independent bakery business or

that its books could reflect a genuine and actual loss or

gain of gross earnings, as if it were a separate business.

We find that the recrganization converted the Cotton

bakery operation into one single bakery business owned

and operated on a day to day basis by the parent com-

pany: that the books and records of the parent com-

pany were the only books and records which could serve

as a basis for determining gross earnings of the Cotton

bakery business and that the books and records of none

of the bakery subsidiaries could serve this purpose."

9. Nevertheless in 1976 IRI, on its own initiative and

without any request or direction from Cotton, abandoned

its practice of issuing four separate interruption of bus-

iness poliices to cover each of the Cotton bakeries. Why

1In its post hearing suggested findindgs and conclusions and

supporting briefs, IRI does not address these issues.

34a

did IRI issue a single combined policy? IRI states that

it did so because the four bakery subsidiaries had become

“interdependent”. A glance at any Webster’s dictionary

will disclose that this term means “to depend upon one

another”, “mutual dependence” and “mutually depend-

ent”. How did IRI know that they had become “inter-

dependent” and what were the changes in operation which

made them “interdependent”? IRI knew that the parent

company, Cotton Bros., Inc., had been created; that Cot-

ton Bros., Inc. was now the sole owner of seven sub-

sidiaries including the bakery subsidiaries; that Gene

Cotton, president and chief executive officer of the parent

company, was also president and chief executive of each

of the seven subsidiaries; that, through its exclusive own-

ership and exclusive direction, the parent company had

assumed and exercised absolute control over the day to

day operation of each of the bakery subsidiaries; that

the parent company had utilized its absolute control to

reallocate the production of each of the bakery subsid-

iaries; that as a result of this reallocation each of the

bakery subsidiaries had ceased to produce the entirety of

the bakery products which it sold to the public. In fact,

none of them produced even one-half of the production

which each of them sold to the public. These are the

changes in operation by which the bakery subsidiaries

became “interdependent”.

IRI had to have knowledge of these changes to conclude

that the bakery subsidiaries were in fact “interdepend-

ent”. Certainly IRI was aware of the most important

element of “interdependency”—the reallocation of pro-

duction. IRI was the fire insurer, and as fire insurer,

made frequent inspections of each bakery’s machinery,

equipment and safety devices, especially at this time of

unusual change. Those IRI inspectors were certainly

aware of the exchange and relocation of machinery and

equipment made necessary by the reallocation of produc-

tion between the bakery subsidiaries and also the results

in terms of the amount and type of production each

35a

bakery subdivision was required to produce. Both Cotton

and IRI intended to give full interruption of business

coverage to the Cotton bakery operation. But having all

the factual information necessary to make the determi-

nation, they simply failed to realize that the reorganiza-

tion had merged the four formerly independent bakery

businesses into one single bakery business owned, man-

aged and operated by Cotton Bros., Inc.’

10. The evidence establishes beyond possible doubt that

the single policy issued by IRI in 1976, omitting Cotton

Bros., Inc. as a named insured, was intended to cover

the flow of gross earnings from the combined production

of the four bakery subsidiaries owned, managed, oper-

ated and controlled as a single business by Cotton Bros.,

Ine. It was the mutual mistake of IRI and Cotton that

Cotton Bros., Inc. was not identified as the sole named

insured. Having made the mistake when the policy was

issued, IRI certainly should have realized the mistake

and corrected it in April of 1977 when A & B, in corre-

spondence with Mr. Penn of IRI, questioned the validity

of the coverage and disclosed that production of the

Natchez plant was restricted to sweet items and that

ninety percent of that production was shipped to the other

three bakery subsidiaries. Mr. Penn brought an end to

the correspondence by assuring A & B that the Cotton

business was fully covered by the “blanket policy” con-

cept. Mr. Penn never explains how the “blanket policy”

concept is to be applied to earnings damages under Sec-

tions IA and IIA of the policy. Certainly IRI paid no

such damages in this case.

IRI’s failure to include Cotton Bros., Inc. as a named

insured on the policies of 1976 and 1980 effectively de-

prived Cotton of its right to make a claim under Sections

1A and 11A of the policy (earning damages), the specific

risk that IRI was paid to cover.

1In its post hearing suggested findings and conclusions and

supporting briefs, IRI does not address these issues.

86a

11. Although the failure to name Cotton Bros., Inc.,

in the policy was the mutual mistake of Cotton and IRI,

that mistake was initiated by IRI which issued the single

policy on its own form without a request or direction from

Cotton. When IRI issued its policy of October 1, 1980,

the Cotton bakery business still was operating in the man-

ner in which it had been reorganized in 1976 except that

Cotton Bros., Inc. had acquired an additional bakery

(Monroe, Louisiana). There were now five bakery sub-

sidiaries instead of four. IRI continued to require its

worksheets from the separate baker subsidiaries, but all

these worwsheets, at least all of those in evidence, were

signed by the comptroller or the vice-president of finance

of the parent company. Changes in operation for the pur-

poses of efficiency or economy were made repeatedly,

ignoring completely that each of the subsidiaries was

separately incorporated. For instance, customer routes

were regularly transferred from one bakery subsidiary to

another. Officers in the subsidiaries were promoted to the

parent company.

On October 1, 1980, IRI simply renewed the policy of

1976. There is no doubt that both Cotton and IRI in-

tended on October 1, 1980 that the IRI policy give full and

complete coverage to the Cotton bakery business. It fail-

ure to do so was the mutual mistake of Cotton and IRI.

12. On Friday, February 13, 1981, a fire erupted in

the Alexandria bakery on U.S. Highway 71 South in Alex-

andria. The Alexandria bakery was the largest. of the

bakery subsidiaries. It contained three production lines.

Its principal line was a combination line which produced

brown and serve and loaf bread. One small line produced

burger buns and the other small line produced hard

bread and hard buns. The combination line was almost

completely destroyed. Brown and serve comprised 75% to

80° of the Alexandria bakery’s production. None of the

other subsidiaries produced brown and serve. Alexandria

was Cotton’s sole source of that production.

.. ...

37a

13. The effect of the fire on the Alexandria bakery and

on the Cotton bakery business was serious. The parent

company was unable to produce loaf bread and brown and

serve products in its Alexandria plant over the months of

the interruption. For a less lengthy time is could not pro-

duce from the small lines. These products had to be pur-

chased from competitors at prices higher than Cotton’s

costs of manufacture. At times the inferior quality of the

purchased items caused dissatisfaction among Cotton cus-

tomers and even provoked cancellation of-purchase con-

tracts. Other forms of disruption were the questionable

success of making up production from other plants; the

utilization of normally productive workers (as far as the

production of bakery products was concerned) in non-

productive work such as the very substantial clean-up

operation, unforeseen repairs and the gigantic job of in-

stalling replacement equipment under supervision of

Baker Perkins representatives. Accounting personnel had

to take substantial leave from normal responsibilities to aid

specially hired accountants in the company’s attempts to

determine its losses. Immediately after the fire, Gene Cot-

ton and a number of other Cotton officials were totally

involved in clean-up efforts; in negotiations with IRI and

with Baker Perkins trying to determine what repairs or

replacement would have to be made to restore the facili-

ties that were destroyed by fire; securing contract pro-

posals, accelerating those proposals, determining the final

contract and the financing of the contract. There was

continuous contact with the same parties in their efforts

to accelerate the performance of the replacement contract

to the evident advantage of both the parent company and

IRI. Also involved were the increased costs and involve-

ment of transportation vehicles and personnel. Indeed

the effect of the fire on the parent company’s bakery busi-

ness was more than serious, it was devastating.

14. On the very day of the fire Gene Cotton contacted

Baker Perkins to send a representative to Alexandria to

38a

examine the extent of the fire damage for the purpose of

making proposals for the repair or replacement of the

damaged facilities as expeditiously as possible. Two or

three days thereafter Cotton, with the knowledge and con-

sent of IRI, flew to Saginaw, Michigan to receive and dis-

cuss Baker Perkins’ proposals and to conclude a contract

as soon as possible. Gene Cotton chose Baker Perkins for

this endeavor because Cotton had been doing business with

Baker Perkins since 1953. Most of Cotton’s equipment,

including the oven and the proofer and some of the other

equipment involved in the fire, had been manufactured by

Baker Perkins. Baker Perkins was therefore the manu-

facturer most familiar with the plant and with the capa-

bilities, the location and the pattern of operation of Cot-

ton’s machinery and equipment.

Baker Perkins first presented two proposals, one a

repair proposal and the other a replacement proposal.

Under the former proposal Baker Perkins was to com-

plete repairs of the oven and proofer by January 1982 at

a cost of $1,030,085.00. However, this was not a firm

contract. Since Baker Perkins had not been able to make

an accurate determination of the damage to the oven, and

might not be able to do so until the repaired equipment

was in operation, it reserved the right to take additional

time and make additional repairs and charges if such

repairs became necessary. Secondly, Baker Perkins pro-

posed to replace the proofer and the oven by June 1, 1982

for the price of $1,189,245.00. With the knowledge and

consent of IRI, Gene Cotton rejected these proposals be-

cause of the long length of time required for installation.

At the vigorous urging of Gene Cotton, Baker Perkins

submitted a third proposal. For an increased price of

$1,354,820.00 Baker Perkins would accelerate replace-

ment so as to assure “start-up” of normal production by

September 21, 1981. Cotton, as IRI was aware, was de-

pending on money to be received from IRI in the adjust-

ment of Cotton’s claims under the fire policy. The sig-

39a

nificant reduction in the length of the business interrup-

tion period was mutually beneficial to IRI and Cotton.

Cotton, with the approval of IRI, accepted the third

proposal.

15. The Alexandria fire illustrates the extreme inter-

dependence of the various Cotton subsidiaries and the

absolute futility of omitting Cotton Bros., Inc. as the

named insured. The bakery business, at the level at which

Cotton was competing, is a very demanding business. The

entire production for today is on customer shelves to-

morrow. The pressure to produce required Cotton to oper-

ate its bakeries 20 hours a day, 6 days a week. There is

no surplus inventory at either end of the delivery route to

ease the impact of mistake or delay. In order to compete,

the bakery products had to be fresh. The crisis here was

far different from the crisis which would have occurred if

the Alexandria bakery was still operating as a separate

and independent business on October 1, 1980. An inde-

pendent operation in Alexandria would have affected only

production and customers of the Alexandria bakery. The

evidence here precludes such a finding. In this instance,

the parent corporation was relying on its Alexandria sub-

sidiary to furnish certain bakery items, principally brown

and serve, to all of its other bakery subsidiaries. The

inability of the Alexandria bakery to produce brown and

serve was not felt by the Alexandria bakery alone. Every

bakery subsidiary in the Cotton operation lost its allocated

portion of that production. The Alexandria customers

were no more severely affected that those of Shreveport,

Baton Rouge, Monroe or Natchez. Certainly the custom-

ers of the other bakery subsidiaries were not arms length

customers of Alexandria. The reorganization had indeed

converted five independent bakery businesses into one

business owned, controlled and operated on a day to day

basis by the parent corporation.

16. Gene Cotton was the expediter in this crisis. He

had the problem of maintaining an unusually high cash

40a

flow to continue operating the highly complex and com-

petitive business described above. Suddenly he had in

addition, the responsibility and tremendous expense of

immediate replacement of a major portion of the parent

company’s production, by purchase from competitors, by

establishing new lines in other bakery subsidiaries, by re-

allocation or otherwise; an unexpected clean-up operation;

the fate of employees idled by the fire; the restructuring

of transporation and procurement to meet the crisis and,

most importantly, the execution and performance of a

replacement or repair contract.? Although it was impor-

tant to IRI that the interruption be terminated as soon

as possible, it was infinitely more important to Gene

Cotton and his business to achieve this result. He had an

additional problem. He did not have the money to do it.

IRI knew this. Baker Perkins had required that the

proofer and oven replacement contract be executed on or

before February 22, 1981. Gene Cotton had negotiated

the contract and could have accepted it immediately, had

the funds been available. Funds did become available

from IRI on March 6, 1981, and Cotton instantly tele-

phoned his acceptance to Baker Perkins, which did not

protest the delay. The major portion of the testimony by

deposition of R. F. Kelley, President of Baker Perkins,

was his amazement, mounting irritation and annoyance

at Gene Cotton’s continued, unending and persistent de-

mands for more speed, for quicker deliveries.

Gene Cotton was able to retain some of the employees

made idle by the destruction in the Alexandria plant. He

continued their employment and used them initially in

“clean-up” operations and later in the installation of

equipment under supervision of Baker Perkins. At other

times they were free to perform whatever duties the

2 For a picture of the situation immediately following the fire

see reports of meetings held by representatives of Cotton Bros.,

Inc., IRI and others. Exhibits P-67, 68A, 101, 122 and 122A. (par.

16)

4la

Alexandria bakery could find for them, such as the clean-

up and/or maintenance of equipment idled or less severly

damaged by the fire. IRI has alleged that Gene Cotton

contributed to the delay by directing these employees to

take a Christmas vacation and to perform duties other

than their duties under the supervision of Baker Perkins.

The record reflects, as noted by Mr. Kulzer below, that

there were many periods, sometimes extended periods,

when Baker Perkins failed to make scheduled deliveries

of equipment fcr installation. Cotton’s employees could

not install equipment when the equipment had not yet

been delivered. Certainly Cotton could not allow them to

remain idle during the periods of non-delivery. IRI has

failed to produce any protest by Baker Perkins or any

evidence indicating what particular Baker Perkins in-

stallation was delayed or for what period of time, or that

Gene Cotton had anything to gain by delaying Baker

Perkins. We find that due diligence and dispatch was

exercised by plaintiffs to rebuild, repair or replace the

property and equipment destroyed and/or damaged by

the fire as required by the IRI policy.

In a state of desperation at Baker Perkins’ lack of

performance, Gene Cotton hired a responsible and trusted

employee of Baker Perkins, James Reid (Reid) in Febru-

ary, 1982. Reid was the very person whom Baker Perkins

had sent to Alexandria on the day after the fire to esti-

mate and ascertain the damage done by the fire. All

Baker Perkins’ proposals for repair or replacement were

based on his findings. IRI’s Mr. Kulzer noted in his

August, 1982 report the efforts by Gene Cotton to reduce

the delays caused by Baker Perkins:

“As previously reported, Baker-Perkins incurred de-

lays in shipping and installing the equipment. The

insured constantly attempted to push B-P’s schedules

and has documented his steps carefully. His smartest

action was to hire Janus [sic] Reid away from B-P

shortly prior to shipment of the equipment. Mr. Reid

42a

supervised and expedited the instllations and obvi-

ously prevented further delays in start up with his

deep knowledge of the equipment and personal rela-

tionship with the B-P installations.” (emphasis

ours)

IRI’s contention that Gene Cotton was more interested

in modernization of the equipment, than he was in the

installing of it, is not tenable, especially when IRI men-

tions no instances in which such alleged activity affected

or delayed any specific Baker Perkins installation. In

any operation when the damaged or destroyed equipment

is replaced by new equipment, to install is to modernize.

The atmosphere of the meetings between plaintiffs and

IRI establishes that Gene Cotton was the individual who

made, far and away, the most vigorous and dedicated

effort to expedite the end of the interruption period. The

financial crisis brought on by the fire, the lack of cash

flow, could be remedied only by the resumption of normal]

production by the Cotton bakery operation. Gene Cotton

stated this position repeatedly, and his actions were con-

sistent with it.

17. Although specification of a period of interruption

can never be exact, we find that Cotton exercised the re-

quired due diligence and dispatch to rebuild, repair or

replace, at the earliest date possible, the property and

equipment destroyed in the fire of February 13, 1981 and

that production equal to February 13, 1981 production

was achieved on May 8, 1982. See paragraph 28, infra.

We agree with IRI that the delidder did not replace

any equipment damaged or destroyed by the fire. Before

the fire the delidding operation was accomplished manu-

ally by two employees. This activity occurred at the end

of the interruption period when most of the other equip-

ment had already been installed so that it did not inter-

fere seriously with installation of other equipment. How-

ever it did have the effect of extending that period. We

43a

find that 3% of the interruption period was caused by

the installation of this equipment and that Cotton Bros.

Ine. was responsible for that delay.

However, we find that Cotton’s responsibility for delay

is offset by the delay occasioned by IRI’s refusal to pay

the $1,354,820.00 March 6, 1981 proof of loss to Cotton

under IRI’s fire policy for the destruction of Cotton’s

oven and proofer. See par. 24, infra. 1RI was in contact

with Baker Perkins throughout the period around March

6. 1981 when Cotton verbally accepted the accelerated

contract to replace that equipment. Within days after

that acceptance Baker Perkins President Kelly issued an

interoffice memorandum halting performance of Baker

Perkins’ accelerated replacement contract until further

notice. We find no explanation for this inappropriate

action except Baker Perkins’ knowledge of IRI’s refusal

to pay the March 6, 1981 proof of loss. Baker Perkins’

February 22 deadline had already been exceeded by 12

days. IRI’s unlawful actions forcing Cotton to convert

$324,735.00 of the agreed fire loss to expediting expense

under the interruption of business policy consumed at

least seven or eight additional days. If that delay caused

Cotton to lose favorable placement in Baker Perkins’ list

of orders, the delay could be even more substantial.

We find therefore that both Cotton and IRI performed

acts which may have delayed “start-up” to May 8, 1982.

Although the extent of delay caused by each cannot be

ascertained, we find that they were approximately equal

so that neither party shall be penalized.*

3 We disagree with the jury in Civil Action 83-3237-A, Baker

Perkins, Inc. versus Cotton Bros., Inc. There the jury determined

that Baker Perkins, Inc. was responsible for 65% and Cotton

Bros., Inc. for 35% of that portion of the business interruption

period beginning September 21, 1981 and terminating May 8, 1982.

We have found, on the other hand, that Cotton Bros., Inc. was

responsible for 3% of the delay during that period, and that IRI

was equally responsible so that neither of them shall be penalized.

44a

18. IRI’s contention that the adoption of Baker Per-

kins’ repair proposal would have assured “start-up” in

45 weeks is irrelevant since IRI was as fully responsible

as Cotton for rejecting the repair proposal and accepting

the accelerated replacement contract.

It is also completely discredited by the evidence. The

repair proposal, on its face, was not a firm proposal. It

explicitly limited repairs to those defects apparent at the

time of initial examination and, very significantly, did

not cover defects which might be disclosed after the equip-

ment went into operation. Baker Perkins reserved the

right to require additional time and additional money to

accomplish any repairs not apparent at the time of the

original examination. In fact subsequent inspections dis-

closed that the proofer was a total loss and that the oven

could not be repaired to meet safety standards. Neither

could be repaired; both had to be replaced.

In addition, unlike the two replacement contracts which

provided for “start-up” by June 1, 1982 and September

21, 1981, respectively, the repair proposal provided only

that the physical repair of the proofer and the oven would

be completed in 45 weeks. This language is on the face

of the proposal. Mr. Reid who drafted the proposal for

Baker Perkins emphasized repeatedly in his testimony

that additional tests, including tests with dough in the

pans, had to be completed successfully before “start-up”

could be achieved. The time necessary to accomplish this

is always uncertain. It could be three weeks; it could be

three months. IRI’s contention must be rejected.

19. Immediately after the fire, each of the parties

formed a team of certified public accountants to adjust

the plaintiffs’ claims under the interruption of business

policy. The plaintiffs’ team was composed of members of

Ernst & Whinney, CPAs, including Arthur J. Parham,

and was headed by Percy Raybourn, Vice President of

45a

Finance of Cotton Bros., Inc.* This team also included

representatives from W. E. Long & Company, specialists

in bakery operations. The team designated by IRI was

composed of members of the firm, Matson, Driscoll &

Damico, CPAs, led by Michael Driscoll, a senior partner

in the firm.

None of the members of the Cotton team had any edu-

cation, training or experience in the adjusting of insur-

ance claims and particularly claims under interruption

of busines policies. The IRI team, on the other hand,

did have such experience; all of them were intimately

famitiar with and had been involved in the adjusting of

interruption of business claims. Driscoll was not simply

a CPA, he was offered by IRI and recognized by this

Court as an expert in interruption of business insurance

who had been involved in the adjustment or litigation

of over one thousand interruption of business claims. In

most of these instances, he had represented insurance

companies and had been retained many times by IRI.

20. The IRI policy was intended to provide full cov-

erage for the Cotton bakery business. The oniy named

insureds were three of the subsidiary bakeries in the

Cotton Brothers operation, located in Alexandria, Shreve-

port, and Natchez: Cotton Brothers Baking Company,

Inc., Cotton Baking Company, Inc., and Cotton’s Holsum

Bakers, Inc., respectively. The policy did not mention

Cotton Bros., Inc. as a named insured, although Cotton

Bros., Inc. had been operating the Cotton bakery opera-

4 For reasons undisclosed by the record, a rift occurred between

Cotton and Alexander & Bolton on or about the time of the Febru-

ary 18, 1981 fire. No member of that firm was included in the

Cotton team or took part in the determination of Cotton’s claim

methodology or the drafting of interruption proofs of loss. There

is no evidence that Cotton sought or received their advice on those

subjects. The only evidence of any activity on their part was their

attendance at some of the meetings mentioned in Note 2, supra,

and Gene Cotton challenged their presence at those meetings.

46a

tion as a single bakery business on a day to day basis

since the reorganization of 1976. However, the policy de-

scribed five locations (Alexandria, Shreveport, Natchez,

Baton Rouge, and Monroe) as covered premises and fur-

ther provided that the loss of any of these locations should

be adjusted with and payable to the subsidiary bakery

corporation located at the site of the loss. Separate cov-

erage amounts were assigned to each location and aggre-

gated on October 1, 1980 to $39,816,000.00.

21. We have found previously that both Cotton and

IRI intended in 1976 and all times thereafter through

October 1, 1980, to give the Cotton bakery operation full

and complete interruption of business coverage. However,

the fire on February 13, 1981, compelled IRI to re-

examine its policy and its position as insurer under that

policy. It had possessed, since the reorganization of 1976,

all the information necessary to determine that the sub-

sidiary bakeries, though still incorporated, had become so

interdependent with the other subsidiaries and so com-

pletely controlled by the parent corporation that they

were merely production plants for the bakery business

owned, controlled and being operated on a day to day

basis by the parent company.

Raybourn has testified that the indebtedness of the

subsidiaries {except the procurement subsidiary) was

paid out of the general fund of the parent corporation.

If IRI did not know this prior to February 13, 1981, it

certainly knew it shortly thereafter, when IRI had ac-

cess to the books of these subsidiaries while auditing the

claims submitted by Cotton. IRI knew specifically that

all of the replacement equipment ordered in the name of

the Alexandria plant; invoiced, shipped to, installed in,

and belonging to the Alexandria plant; was paid for out

of the general fund of Cotton Bros., Inc.

IRI, at some time during the auditing period and prior

to September, 1981, knew that the IRI policy, as written,

did not provide interruption of business coverage to the

EE

47a

Cotton bakery business as was intended by all parties to

the policy. They knew that, after the 1976 reorganiza-

tion, the bakery subsidiaries had lost their separate iden-

tities and had become so interdependent with the other

subsidiaries and so dominated and controlled by Cotton

Bros., Inc. that they were no longer viable and proper

interruption of business insureds. Although IRI stoutly

proclaims the validity of its policy, there is not one in-

stance in which it has shown or even suggested that a

claim for earnings damages can be supported by the books

of the Alexandria bakery. Not one of its experts, includ-

ing Driscoll, has made such a declaration. The fact that

the books and records of the named insured. Cotton

Brothers Baking Company, Inc. (the Alexandria bakery

subsidiary), cannot serve as a basis for a claim for earn-

ings damages under the IRI policy, is the basic element

of IRI’s strategy of defense to avoid the payment of earn-

ings damages under Sections IA and IIA of the policy.

It knew that Cotton Bros., Inc. was the only party own-

ing and operating the Cotton bakery business so that

Cotton Bros., Inc. alone had an interruption of business

risk. Had IRI continued the good faith that it had ex-

hibited during the 10 years that it had been collecting

premiums from Cotton, it, on its own initiative, could

and should have issued an endorsement making Cotton

Bros., Inc. a named insured, thus providing Cotton the

interruption of business coverage for which Cotton had

paid. Instead, IRI chose to ignore the evidence before

it; to profit by its inadvertent omission of Cotton Bros.,

Inc. as a named insured; to ignore its duty to correct

that mistake so that the Cotton bakery business would re-

ceive the interruption of business coverage intended.

This is the beginning of IRI’s strategy to defeat inter-

ruption of business coverage by depriving the Cottons of

access to the books and records of Cotton Bros., Inc. This

effort began shortly after the fire of February 13, 1981,

as above set forth and has continued to this day. From

the very commencement of this proceeding, IRI has made

48a

a continuing objection to the admission of evidence based

on the books and records of the parent company to estab-

lish earnings damages as provided in the policy. Its sole

basis for that objection is that Cotton Bros., Ine. is not

a named insured in the policy. IRI’s strategy is further

reflected in the pleadings and throughout the trial of this

suit including its strenuous opposition to the reformation

of the policy. We find that IRI should have made Cotton

Bros., Inc. a named insured on its own initiative at some

time prior to September 1981, in order to give full in-

terruption of business insurance coverage to the Cotton

bakery business which had been operated by Cotton Bros.,

Ine. on a day to day basis since the reorganization of

1976. Indeed, upon a simple letter request it did make

Cotton Bros., Inc. a named insured with no additional

payment of premium by an endorsement dated July 28,

1982.5 We find that its failure to make such an endorse-

ment during the auditing period prior to September 1981

was a breach of its prior intent and its duty to give full

interruption of business coverage to the bakery business

owned and operated by Cotton Bros., Inc., IRI’s failure

to do so was part of a scheme to deny such coverage to

Cotton and its failure to act was arbitrary, capricious

and in absolute bad faith.

5 At the request of A & B, IRI, without protest, made- Cotton

Bros., Inc. a named insured by an endorsement dated July 28, 1982.

Since there was no difference in Cotton’s method of operation be-

tween October 1, 1980 and July 28, 1982, we consider this an ad-

mission by IRI that Cotton Bros., Inc. could have been included in

the policy as a named insured on October 1, 1980. In order to

carry out the intention of the parties and afford the Cotton bakery

business the coverage it had been paying for since 1970, Cotton

Bros., Inc. should have been so named.

The last paragraph of Post-fire Endorsement No. 8, dated Sep-

tember 26, 1981, was included at IRI’s initiative and requested by

no one. These endorsements establish that endorsements were

regularly made by IRI in a most informal manner and on its own

initiative.

49a

22. IRI hired Matson, Driscoll & Damico on February

18, 1981, only five days after the occurrence of the fire.

They were retained by IRI because, according to their

testimony, they were not in the usual business of audit-

ing but specialized in adjusting interruption of business

claims. Driscoll was qualified and offered by IRI and ac-

cepted by the Court as an expert on the adjustment of in-

terruption of business claims.

Cotton’s team of auditors knew nothing about interrup-

tion of business insurance, but they did know that no

items listed in any proof of loss submitted by them to

IRI would be paid without the approval of IRI based on

the recommendation of IRI’s auditing team. Conse-

quently, Percy Raybourn, by telephone, by personal con-

tact and in meetings, sought advice, help and recommen-

dations from Michael Driscoll and other members of IRI’s

team for developing a proper methodology to calculate

Cotton’s interruption of business losses. The result—

6 Testimony of Arthur J. Parham, Jr., Tr. vol. 22 pp. 4978-4981.

Q What was your understanding, Mr. Parham, about what

your task was regarding assisting Mr. Raybourn to prepare

some sort of methodology for computing this claim?

A Mr. Raybourn indicated we were going to have to try to

identify each and every type of expense, lost revenue, that

sort of thing and on a line item by line item approach in order

to submit claims to the insurance company that they would

accept.

Q Okay, Mr. Parham, I want to show you a document cap-

tioned methodology for computing the cost of business inter-

ruption which has previously been admitted in evidence as

plaintiff’s exhibit 66 and ask you if you recognize that?

Yes, sir, I do. I wrote this.

You wrote it?

This memorandum.

What was its purpose, sir? ~

> OP >

The purpose was as I mentioned a moment ago to begin

the document and approach if you would methodology to as-

semble the information necessary to submit claims to the in-

surance company and as you see if you read through this, it

~ 50a

STONEWALL. Conversation, pleasantries, but—STONE-

WALL.

was very detailed in the sense that there were a number of

specific line items mentioned and we thought it necessary at

that point based on the suggestions of the insurance company

and its representative to go through and try to quantify each

and every one of the items to submit a claim.

Q Did you ever meet with any representative of the insurance

company to determine whether their line item approach was

what the insurance company wanted?

A Together with several other people from my firm, Ernst and

Whinney and several management people at Cotton Brothers.

I say several, I think it was just Mr. Raybourn. We met with

Mr. Mike Driscoll of the Madison Driscoll firm of Alexandria

I think sometime in late March of 1981 and we viewed this

methodology.

Q With Mr. Driscoll, was it your impression or your under-

standing of what Mr. Driscoll’s feelings were?

A Well, before any work was done of a significant nature

before investing a lot of time, we wanted to make sure that

the approach that Mr. Raybourn had originally thought neces-

sary was going to be acceptable to the insurance company.

We didn’t want to spend a lot of time doing something that

would have to be redone so we reviewed the contents of this

document with Mr. Driscoll at that point.

Q And what is anything did he indicate regarding this

document?

A He indicated that a line item approach would be necessary

in order to submit a claim.

He made some suggestions about some of the things in this

document as well.

Q You remember any of the specifics of that?

A Not really.

Q If, Mr. Parham, at the time you prepared this, did you

expect that the methodology cutlined in this document would

be able to account for all of the actual losses sustained by

Cotton Brothers as a result of this business interruption?

A Well, I guess early on I had hoped that such a formulation

such methodology would but it became obvious fairly soon

there was just no way that an approach like this coud gather

5la

Receiving no advice or direction from the IRI team,

the Cotton team was forced to proceed, relying solely on

its auditing expertise and the IRI policy. The Cotton

auditors were intimately familiar with the Cotton bakery

operation and they knew that the business was a single

bakery business owned and operated by Cotton Bros.,

Inc. They also became aware that the books and records

of the Alexandria subsidiary could not serve as a basis

for interruption of business claims as described in the

October 1, 1980 policy. Faced with a policy offering

only the books and records of the Alexandria bakery sub-

sidiary as a basis for a reduction of gross earnings loss,

how could they possibly draft a methodology or a proof

of loss as described in Schedule IA and IIA of the policy?

However, had Cotton Bros., Inc. been included as a named

insured, it is probable that the Cotton team could have

drafted an appropriate methodology under which inter-

ruption of business claims by Cotton Bros., Inc. could be

determined. The policy, as written and without including

Cotton Bros., Inc. as a named Insured, rendered this prob-

ability an impossibility. Receiving no advice or instruc-

tion from IRI or the IRI team, the Cotton team began its

labors to draft a methodology containing no items relat-

ing to reduction of gross earnings. In fact, earnings. the

very risk being insured, is not even mentioned—only “line

items” directly connected with the fire. Finally, on May

8, 1981, (here we quote the IRI brief)

“The Cotton team delivered to Driscoll the final draft

of a document which they had developed entitled:

all the costs and all the lost revenue that the company was

experiencing.

Q First you thought it could and later you decided it could

not?

A Yes, sir, due to my lack of prior business interruption

experience at that point I though maybe we could capture all

the information we needed but it was impossible once we got

into it in more detail. (emphasis ours)

52a

“Methodology for Computing the Cost of Business

Interruption”. The approach had been developed by

Raybourn and the Cotton team and Driscoll felt that

the approach was proper. He did not make or sug-

gest changes in the metodology. [sic] His roll [sic]

was to audit Cotton’s claims submissions which

would follow, in order to review and then discuss

with the Cotton team any accounting problems, prior

to expected meetings between Cotton and IRI. He

was not asked by IRI to and did not calculate the

loss.” (emphasis-ours and citations to transcript

omitted )

Could there be a more precise, a more deliberate stra-

tegy of concealment, of bad faith?

Although IRI chose experts eminently qualified in the

field of interruption of business insurance, it deliberately

instructed them to make no use of that expertise. IRI

deliberately instructed its experts to remain silent and to

make no corrections and give no advice on the methodology

employed in the drafting of an interruption of business

claim—just audit no matter how inappropriate the meth-

odology may be. The STONEWALL strategy was in-

structed by IRI and examination of the methodology and

the proofs of loss submitted by the Cotton team disclosed

no items which fit Driscoll’s definition of an interruption

of business claim. See paragraph 23, infra. Yet, when

Cotton’s methodology was presented to Driscoll on May 8,

1981, “Driscoll felt that the approach was proper.” Dris-

coll, mindful of IRI’s instructions, said nothing; made no

correction or suggestion. We find that IRI’s instruction,

in conjunction with its failure to make Cotton Bros., Inc.

a named insured, was intended to induce error by Cotton.

The instruction was made for the illicit purpose of inhibit-

ing and defeating Cotton’s right to file any claim for

earnings damages under Sections IA and IIA of the

policy. The stonewall position of IRI was arbitrary, ca-

pricious, in bad faith and without probable cause.

a es a

53a

23. IRI has contended and continues to contend

through this entire proceeding that the only damages

available to plaintiffs under the policy are “line by line”

or “line items” directly connected with the fire. This con-

tention simply crystalizes in a different form IRI’s deter-

mination to deny Cotton’s right to earnings damages. It

defies the clear and concise language of Sections IA and

IIA. See paragraph 29, infra. It defies the definition

supplied by IRI’s own expert Driscoll, who testified:

“Well, basically when you are looking at a business

interruption loss you are confined or you are more

interested in the profit and loss section of a financial

statement that would be your sales, your various

costs of sales elements .... And what you eventually

try to do is you try to project just like a company

would try to project what they are going to do next

year. You try to project what the company would

have done for the period of interruption had there

been no loss then you compare it to what they actu-

ally did do and the different number is the amount

of loss.”

Yet, through the device of IRI’s strategy, Cotton has been

induced to make claims limited to so-called line items and

has been deprived of the right to make a claim under the

principal risk insured by the policy. IRI knew and knows

that its Form E policy is entitled BUSINESS INTER-

RUPTION GROSS EARNINGS FORM. The form pro-

vides for two types of damages: 1) reduction of gross

earnings during the period of interruption as described

in Section IA and Section IIA of the policy and by the

quote of Michael Driscoll referred to above, and 2)

expenses related to reducing loss as described in Section

III. If the damages recoverable under Sections IA and

IIA are in law a determination of reduction of gross

earnings during the period of interruption, then IRI has

paid no reduction of gross earnings damages. Not one

item paid under the proofs of loss can satisfy Driscoll’s

54a

definition of that type of damage. When asked about

Raybourn’s line by line methodology for the determination

of interruption of business losses, Driscoll stated:

“T don’t know what the—where the term line by line

came from. The method is not referred to the

methodology and first preparation of the claim

which was in three segments by Cotton Brothers is

now regarding or referred to as line by line and that

is basically in his method. I assume it must have

been his terminology, certainly was not mine.”

The fact that certain witnesses such as Gene Cotton and

Raybourn might have testified that items in the proofs of

loss were Section IA and IIA damages must be attributed

to their lack of knowledge and experience and to the mis-

guidance or lack of guidance induced by the strategy

adopted in bad faith by IRI as described in paragraphs

21 and 22 above. A policy restricting damages to line

item claims is an extra expense policy. We have found

previously that Cotton, on the advice of IRI, rejected

extra expense coverage in favor of interruption of busi-

ness coverage. See paragraphs 5 and 6, supra. IRI, in

absolute defiance of Sections IA and IIA, has restricted

damages to those afforded by an extra expense policy.

This is yet another example of IRI’s arbitrary, capri-

cious and bad faith attempt to deny, without probable

cause, Cotton’s right to earnings damages as provided in

Sections IA and ITA.

24. The February 13, 1981 fire brought extreme finan-

cial strain on Cotton’s bakery operation. Lack of suffi-

cient cash flow and of sufficient funds to pay Baker

Perkins for the replacement equipment, made replace-

ment contingent upon IRI’s payments under the fire pol-

icy. This is why it was necessary for Cotton to secure

IRI’s agreement to Cotton’s choice of the accelerated con-

tract for the replacement of the oven and proofer for the

sum of $1,354,820.00. IRI agreed to that choice and

55a

IRI’s adjuster, Jarratt, drafted and presented to Cotton

a proof of loss in the amount of $1,354,820.00 as payment

under the fire policy for the loss of the oven and the

proofer. Gene Cotton signed and accepted this proof of

loss on March 6th and returned it to IRI for payment.

Based on IRI’s commitment, and thinking that full pay-

ment was assured, Gene Cotton, on that very afternoon,

called Baker Perkins by telephone and accepted the

$1,354,820.00 replacement contract. Cotton was com-

mitted. IRI then refused payment. Now Cotton was

compromised. Cotton had exercised extrordinary diligence

in its efforts to rebuild and restore in the shortest time as

possible to the evident benefit of both IRI and itself. It

had been successful in securing the contractor most capa-

ble of doing a competent job in the shortest time possible.

It had settled its claim against IRI for the loss of the

proofer and the oven for a sum proposed by IRI’s own

agent. IRI now refused to pay. Incredible!

Cotton vigorously protested that the proof of loss pre-

sented by Jarratt on behalf of IRI became an enforceable

contract settling the claim when accepted on March 6,

1981 by Gene Cotton. But IRI, possessor of the money,

was prosecutor, judge and jury. Cotton had no means of

enforcing its enforceable contract. It could not sue. Time

was of the essence. As IRI well knew the destruction of

the oven and proofer was a loss insured under the fire

policy, not the interruption of business policy, and Jar-

ratt’s proposal, as it should, agreed to pay Cotton the

exact cost (agreed to by IRI) of replacing that equipment.

From his previous conversations and negotiations with

IRI, Cotton was well aware of the conditions under which

IRI would agree to restore the payment originally pro-

posed by Jarratt. Cotton was forced to accept payment

of $1,030,085.00, $234,735.00 less than originally offered

by Jarratt (IRI), for the loss under the fire policy. This

is the cost suggested by Baker Perkins under its repair

proposal, which was lowest of the three proposals sub-

56a

mitted by Baker Perkin and, as we have previously found,

was not a firm proposal or a viable alternative.

IRI had a vital interest in the accelerated contract.

That contract advanced the termination of the period of

interruption from June 1, 1982 to September 21, 1981.

IRI suggests that, at the gratuitous request of Cotton’s

attorney, Alexius, it had gratiously advanced $324,735.00

as expediting expense to be repaid to IRI if Baker Per-

kins failed to perform the accelerated contract timely.

IRI calls it Cotton’s gamble. We find that IRI advanced

nothing. Viewed with its contemporanous refusal to pay

the full amount of the March 6, 1981 proof of loss, we

call it a strong-arm attempt by IRI to shift to Cotton the

entire risk of Baker Perkins possible failure to perform.

The first paragraph of the proposal letter of Alexius

referred to by IRI is as follows: *

“Pursuant to our several conversations, Cotton

Bros. Baking Company, Inc., is willing to propose a

solution to the adjustment problems which have

arisen since IRI rejected the proofs of loss prepared

by GAB and submitted by Mr. Cotton on March 6,

1981. You are advised, however, that our proposition

is made in a spirit of compromise only, and is not to

be considered a derrogation [sic] from our prior

position that an enforceable contract of settlement

matured when Mr. Cotton accepted your March 6,

1981, proposal.” (emphasis ours)

We find that IRI’s actions as set forth above were

deliberate, arbitrary, capricious, in absolute bad faith

and without probable-cause.

25. In a slightly similar situation the Cotton team had

claimed on its September, 1981 proof of loss the sum of

$182,655.00, as cost of the cascade, a piece of equipment

used to in-load the proofer. IRI paid that item. Later

* Exhibit P-137, IRI’s Exhibit No. 1.17.2.

57a

IRI, characterizing this piece of equipment as “expediting

expense’, reduced their later payment to Cotton by this

amount. Although the purchase of this equipment ex-

pedited nothing, we find that Cotton had agreed to pay for

that item and to its characterization as “expediting ex-

pense” as a vehicle to repay IRI. IRI was entitled to

reimburse itself for the $182,655.00 that it had paid by

this arrangement with Cotton.

26. In Civil Action No. 83-3237, entitled Baker Per-

kins, Ine. v. Cotton Bros., Inc., the latter cross-claimed

for damages including loss of gross earnings damages

and received a jury award of $1,342,624.00. The entire

jury award consisted of loss of gross earnings suffered

by Cotton Bros. Inc. from the projected date of comple-

tion of Baker Perkins’ accelerated contract, September

21, 1981, to May 8, 1982.

CONCLUSIONS OF LAW

27. As we have shown previously, it has been the in-

tention of Cotton and IRI since 1970 to give the Cotton

bakery operation full insurance protection and coverage

against the risk of loss or reduction of gross earnings as

defined in the policy during any period of interruption

of business as defined in the policy. This is what the

parties intended and this is what the policy was designed

to accomplish.

The Cotton bakery operation in 1970 consisted of four

separate corporations, each of which owned and operated

their separate bakery businesses just as they had done

prior to the acquisition by the Cottons. There was no

interdependency among them. They operated in competi-

tion with each other. Thus, although they were owned by

Cotton, they were separate and independent bakery busi-

nesses and it followed from this that the books and rec-

ords of each would reflect accurately the increase or de-

crease in gross earnings for specific periods of time.

58a

Cotton’s bakery operation was effectively insured by

making the individual bakery corporations named _ in-

sureds and this coverage continued to be effective as long

as the bakery business of each of these companies con-

tinued to be operated independently, separately and in

competition with each other.

~ However after the reorganization of 1976, there was

but one Cotton bakery business and that one business was

owned, controlled and operated on a day to day basis by

Cotton Brothers, Inc. Thus Cotton Brothers, Inc. was the

sole indispensable named insured in any policy designed

to give interruption of business coverage to the Cotton

bakery business.

Under Louisiana law, an insurance policy may be re-

formed after proof that it does not express the actual

contract intended by the parties due to mutual error or

mistake. Kolmaister v. Connecticut General Life Insur-

ance Co., 370 S.2d 630 (La. App. 4th Cir. 1979), writ

denied, 373 So.2d 531 (La. 1979). See Phillips Oil Co. »v.

OKC Corp., 812 F.2d 265 (5th Cir. 1987). Where, as

here, the mutual mistake concerns identity of the named

insured and destroys coverage on the risk actually as-

sumed by the insurer, the insurer is estopped to deny its

liability even in the absence of reformation and estopped

from opposing reformation of its policy to cover such

risks incurred by the party at interest. Bonadona v.

Guccione, 362 So.2d 740 (La. 1978); Fontenot v. Amer-

ican Fidelity Fire Ins. Co., 386 So.2d 165 (La. App. 3d

Cir. 1980).

It is our conclusion that, through the mutual mistake

of Cotton and IRI, Cotton Bros., Inc. was not ineluded as

a named insured in the policy issued in 1976; that the

renewal of that policy on October 1, 1980 perpetuated

the error; that neither Cotton nor IRI intended in 1976

or 1980 to reduce the full interruption of business cover-

age afforded previously by the fovr separate interruption

- 59a

of business policies and that the policy issued October 1,

1980 should be reformed so as to include Cotton Bros.,

Inc. as a named insured effective October 1, 1980.

28. We have found that Cotton exercised due diligence

and dispatch to rebuild, repair or replace, at the earliest

date possible, as required by the policy, the property and

equipment destroyed in the fire of February 13, 1981 and

that production equal to the February 13, 1981 production

was achieved on May 8, 1982. We conclude therefore that

the period of interruption extended from February 13,

1981 to May 8, 1982, inclusive.

29. IRI drafted its October 1, 1980 renewal policy on

an IRI Form E entitled “BUSINESS INTERRUPTION

GROSS EARNINGS FORM FOR MANUFACTURING

OR MERCANTILE OPERATIONS” (emphasis ours). The

policy provides for two types of damages: 1) reduction of

gross earnings as provided in Section IA and IIA, and

2) expenses related to reducing loss as provided in Section

IITA. We shall not discuss the latter type because there

is no dispute regarding IRI’s payment of Section III

claims. Reduction of gross earnings are described in the

policy as follows:

SECTION I

A. Recovery in the event of loss hereunder shall be

the ACTUAL LOSS SUSTAINED by the In-

sured resulting directly from such interruption

of business, but not exceeding the reduction in

gross earnings less charges and expenses which

do not necessarily continue during the interrup-

tion of business, for only 2uch length of time as

would be required with the exercise of due dili-

gence and dispatch to rebuild, repair or replace

such described property as has been damaged or

destroyed, commencing with the date of such

damage or destruction and not limited by the

date of expiration of this Policy. Due considera-

60a

tion shall be given to the continuation of normal

charges and expenses, including payroll expense,

to the extent necessary to resume operations of

the Insured with the same quality of service

which existed immediately preceding the loss.

SECTION II

A. GROSS EARNINGS—For the purpose of this

insurance “gross earnings’ are defined as the

sum of:

1. total neét sales value of production (manufac-

turing operations),

2. total net sales of merchandise (mercantile

operations), and

3. other earnings derived from operations of the

business, less the cost of:

4. raw stock from which such production is

derived,

5. supplies consisting of materials consumed di-

rectly in the conversion of such raw stock into

finished stock or in supplying the service(s) sold

by the Insured,

6. merchandise sold, including packaging mate-

rials therefor, and

7. service(s) from outsiders (not employees of

the Insured) for resale which do not continue

under contract.

No other costs shall be deducted in determining

gross earnings. Jn determining gross earnings

due consideration shall be given to the experi-

ence of the business before the date of damage or

destruction and the probable experience there-

after had no loss occurred, (emphasis ours)

6la

The purpose of the damages provided in Sections I and

II above are described by Driscoll, as we have previously

quoted: “you try to project what the company would have

done for the period of interruption had there been no

loss then you compare it to what they actually did do and

the different number is the amount of loss.” The policy

language above “sets forth the formula for calculating the

amount actually lost by an insured when business is inter-

rupted, and allows the business to remain in the same

financial condition as before the loss.’ United Land In-

vestors, Inc. v. Northern Insurance Co. of America, 476

So.2d 432 (La. App. 2d Cir. 1985). See also Cora Pub,

Inc. v. Continental Casualty Co., 619 F.2d 48 (5th Cir.

1980).

The formula for calculating the insured’s loss is in

terms of reduction of gross earnings, as quoted verbatim

above from the policy, and is “unambiguous and consti-

tute[s] the law between the contracting parties.” United

Land Investors, supra at 436 (citing Rogers v. American

Ins. Co., 338 F.2d 240 (8th Cir. 1964); Associated Pho-

tographers v. Aetna Casualty and Surety Co., 677 F.2d

1251 (8th Cir. 1982); Kastern Associated Coal Corp. v.

Aetna Casualty and Surety Co., 642 F.2d 1068 (3d Cir.

1980) ).

A ‘projection’ of earnings is an accepted method of

calculating business interruption loss. See Associated

Photographers, supra. Indeed, the policy language -ap-

proves, if not requires, the use of ‘projected’ earnings:

In determining gross earnings due consideration

shall be given to the experience of the business before

the date of damage or destruction and the probable

experience thereafter had no loss occurred. (empha-

sis ours)

Accordingly, we hold that the projections presented by

plaintiff of its business interruption losses conform to the

terms of the policy.

62a

Cotton has submitted for our consideration three pro-

jections as a basis for its claim of reduction of gross

earnings damages.

Lost earnings need only be proved to a reasonable cer-

tainty. See Borden, Inc. v. Howard Trucking Co., 454

So.2d 1081 (La. 1983). The law does not require mathe-

matical precision or absolute exactness in determining the

amount of lost earnings: “the trier of fact must be af-

forded much discretion in the determination of such dam-

ages where the evidence clearly shows that damage is

proven but not capable of proof to a mathematical or legal

certainty.” Rosenblath v. Louisiana Bank & Trust Co.

432 So.2d 285, 290 (La. App. 2d Cir. 1983). See Palmer

v. Connecticut Railway & Lighting Co., 311 U.S. 544,

561, 61 S.Ct. 379, 85 L.Ed. 336, 343 (1941) (“Certainty

as to the amount goes no further than to require the basis

for a reasoned conclusion.”’) Accordingly, where it is not

possible to state or prove a perfect measure of lost earn-

ings, “courts have reasonable discretion to assess damages

based upon all the facts and circumstances of the case.”

Tide Craft, Inc. v. Red Ball Oxygen Co., 514 So.2d 664

(La. App. 2d Cir. 1987), writ denied, 516 So.2d 135-36

(La. 1987). See Roshong v. Travelers Ins. Co., 281 So.2d

785, 789 (La. App. 3d Cir. 1973).

Among the three projections presented by Cotton at

the trial, labelled the- “yellow”, “blue”, and “gray” pro-

jections, we consider the blue projection of $4,498,000.00

on lost income for the period February 14, 1981 through

May 8, 1982, as the best calculation of damages.

Our reasons for choosing the blue projection are

straightforward.

The “blue” projection was prepared by Parham of

Ernst & Whinney using the “least squares method” to

forecast earning through the interruption period. Par-

ham used the audited financial statements of the parent

Cotton Bros., Inc. for the years 1976 through 1980, less

63a :

non-recurring expenses, and with “historical data points”,

calculated a “regression analysis projection”. The pro-

jected earnings were then subtracted from the actual

earnings. The blue projection corresponds exactly to the

method set forth in the policy and attested to by Driscoll

(par, 23, supra).

The “gray” projection, also prepared by Parham,

freezes Cotton’s 1980 earnings and simply projects the

1980 earnings without assuming any increase (or de-

crease). On the other hand, the blue projection is based

precisely on the years (1976-1980) before the fire when

Cotton operated as a single bakery operation following its

reorganization.

The “yellow” projection, although prepared before the

fire, was prepared by Cotton management, not by an in-

dependent CPA or auditor. Further, this ‘internal’ pro-

jection is based only on the years 1978-1980 and _ uses,

instead of actual income, a formula of “converting pounds

produced to sales’. Also, because Cotton prepared the

yellow projection to support an application for a large

bank loan, it is, more probably than not, too optimistic.

IRI objects to the use of Cotton’s projections, citing

Wilkins v. University of Houston, 654 F.2d 388 (5th Cir.

1981), on petition for rehearing, 662 F.2d 1156 (5th

Cir. 1981). Wilkins warns that statistical evidence “must

be employed with great care’ even if such evidence is

the “best, if not the only, means” of proof available.

Wilkins, supra at 403. In particular, IRI complains that

Cotton’s projections fail to account for Cotton’s loss of

a major contract with Winn-Dixie, for a labor strike and

for the effects of a recession. Cf. Wilkins, supra at 402.

However, these events occurred after the period of busi-

ness interruption ended, May 8, 1982.

We conclude therefore that Cotton is entitled to

$4.498.000.00 as damages under Sections IA and IIA of

64a

the policy, with interest as set forth in paragraph 33,

infra.

30. IRI made the following payments under the policy:

3-23-81 $ 162,367.50

9-15-81 $1,425,289.35

1-29-82 $ 912,250.32

12-22-82 $1,053,276.00

4-4-83 $ 32,578.80

$3,585,761.97

The issue of what part of these payments if any

should be considered earnings damages under Sections

IA and IIA has not been addressed by the parties. Ob-

viously, since only reduction of earnings damages are in

contest, only reduction of earnings damages paid by IRI

should be credited against IRI’s reduction of earnings

liability. We cannot determine from the record what

proofs of loss were paid or rejected by IRI or the grounds

upon which such actions were taken. Nor can we deter-

mine which categories of claimed losses properly belong

under Section III and which have been allocated to Sec-

tions IA and IIA.* This compels the conclusion that IRI

is entitled to no credit whatsoever for payment of earn-

ings damages. This conclusion, though eminently rational,

offends equity. It is certainly possibly that IRI paid cer-

tain cost items which do not fit the definitions of Sections

8 We find that the record, though vast, is not sufficient in detail

for us to determine the basis on which items of the proofs of loss

were paid or rejected by IRI. We have determined however that

there are no items related to reduction of gross earnings as de-

scribed in Sections IA and IIA so that none of the cost items

recognized and paid by IRI fit the description in the policy on the

definition of its expert, Driscoll. Therefore, as a matter of right,

IRI is not entitled to credit for the payment of any IA and IIA

damages whatever. However, in its trial memorandum filed Sep-

tember 30, 1986 (page 3) IRI declares that $427,460.67 of the funds

paid by it to Cotton represent payment for claims for reduction of

gross earnings less non-continuing charges and expenses.

65a

IA and IIA or Section III but which in some way involved

or affected earnings. IRI itself has stated, without ex-

planation, that it paid $427,460.67 in earnings damages

and $3,158,302.10 [sic] in “extra expenses’. As we have

declared previously, we cannot verify the accuracy of this

allocation. We do know that IRI paid $3,585,761.97 in

total damages, and that they state that $3,158,302.10 of

that amount was Section III damages. The remaining

$427,460.67 in cost items cannot be classified legally as

earnings damages as defined by the policy. Nevertheless

the $427,460.67 was accepted by Cotton and we hold in

equity that IRI should receive credit. However, because

this credited amount was part of IRI’s scheme to restrict

Cotton’s recovery to line item damages and to deny Cotton

any Section [A and ITA damages, IRI’s credit shall not

be applied until Cotton’s total damages plus penalties,

interest and attorney’s fees have been adjudged.

We recognize that the $182,655.00 (cost of cascade)

was rightfully withheld by IRI. That item was withheld

with the assent of Cotton as repayment for the cost of the

cascade.

31. We have held that IRI is not entitled to the

$324,735.00 so-called “expediting expense” because that

money belonged to Cotton under the fire policy proof of

loss drafted and presented by IRI’s Jarratt to Cotton and

accepted by Gene Cotton on March 6, 1981. See par. 24,

supra. That acceptance made IRI absolutely and uncon-

ditionally liable for $1,354,820.00 as payment under the

fire policy for the loss of the oven and proofer. Under

La.R.S. 22:658, IRI was absolutely and unconditionally

obliged to pay the full amount of that accepted proof of

loss on or before sixty days from March 6, 1981.

We hold IRI’s refusal to pay the full amount of the

March 6,-1981 proof of loss drafted and presented by

IRI and accepted by Cotton was arbitrary, capricious, in

bad faith and without just cause and that Cotton should

66a

have judgment against IRI in the amount of $324,735.00

with penalties and attorney’s fees under La.R.S. 22.658

and interest.°

32. In Civil Action No. 83-3237, entitled Baker Perkins,

Inc. versus Cotton Bros., Inc., the latter cross-claimed for

damages, including loss of gross earnings damages, and

received a jury award of $1,342,624.00 for loss of gross

earnings. Louisiana law is well-settled that an insurer is

entitled to be subrogated to the rights of its insured after

payment of the latter’s claim. La. C.C. art. 1829; Aetna

Insurance Co. v. Naguin, 488 So.2d 950 (La. 1986) ; Joe

E. Freund, Inc. v. Insurance Company of North America,

261 F.Supp. 131 (W.D. La. 1966).

IRI is not entitled to subrogation so long as the IRI

policy does not Cotton Bros., Inc. as a named insured.

Since we have reformed the policy to make Cotton Bros.,

Inc. a named insured, and since the entire jury award

consisted of earnings damages suffered by Cotton Bros.,

Inc., IRI is entitled to subrogation and is entitled to

credit against the principal award, penalties, attorney’s

fees and prejudgment interest in favor of Cotton Bros.,

Inc. in this proceeding.’°

* We have jurisdiction here. Cotton has specifically contested

IRI’s reduction of the $1,354,820.00 due Cotton for the fire loss of

the oven and proofer on the ground that the mutually executed

proof of loss was an enforceable contract settling that claim (see

La. R.S. 22:658), reserving all of its rights. We simply have acted

on the rights so reserved.

10 Plaintiff has cited Fort Motor Credit Co. v. State Farm Mutual

Automobile Insurance Co., 309 So.2d 914 (La. App. 3d Cir. 1975)

and Powers v. Calvert Fire Insurance Co., 216 S.C. 309, 57 S.E.2d

638 (1950) as authority for the contention that subrogation in

this proceeding is an equitable doctrine and should not be available

to IRI because IR! joined with Baker Perkins, Inc. in contesting

the claim of Cotton Bros., Inc. to loss of earnings damages. We

hold that those authorities are not pertinent here. IRI has a per-

fect right to contest plaintiff’s claims to such damages as part of

its own defense in this proceeding and the equitable doctrine en-

67a

However, IRI is not entitled to subrogation until it has

paid to Cotton Bros., Inc. the entire amount of the judg-

ment rendered in this Opinion. Upon such payment by

IRI, the jury verdict and judgment for Cotton Bros.,

Inc. in Civil Action No. 83-3237 shall become the property

of IRI. Cotton Bros., Ine. shall make a written legal

assignment to IRI upon IRI’s request. IRI shall assume

the costs (and risks) of collecting the judgment rendered

in Civil Action No. 83-3237.

33. Louisiana law governs the award of prejudgment

interest, and 28 U.S.C. § 1961 governs the award of post-

judgment interest in this case. Nissho-wai Co. v. Occi-

dental Crude Sales, Inc., 848 F.2d 613 (5th Cir. 1988).

Under Lauisiana law, legal interest is due “at least

from date of judicial demand on a claim for damages aris-

ing out of breach of contract, regardless of whether the

precise amount of the claim is unliquidated, disputed or

not ascertainable with certainty at the time suit is filed.”

Mini Togs Products, Inc. v. Wallace, 513 So.2d 867 (La.

App. 2d Cir. 1987), writs denied, 515 So.2d 447 (La.

1987). See also, Smith v. State Farm Fire and Casualty

Co., 695 F.2d 202 (5th Cir. 1983) (interest on penalty

and fee awards under LSA-R.S. 22:658 also commences

from date of judicial demand).

Accordingly, plaintiffs shall receive legal interest from

the date suit was filed in accordance with La. C.C. art.

2924, and from date of judgment in accordance with 28

U.S.C. $1961 on the entire amount of the judgment

rendered in this Opinion.

nunciated in plaintiff’s authorities cannot be interpreted to deprive

IRI of that right.

It is possible, despite the American rule, that IRI’s subrogation

should be reduced by reasonable attorney’s fees expended by Cotton

in its suit against Baker Perkins. Because of the attorney’s fees

awarded under LSA-R.S. 22:658, we refuse to do so. See para. 34,

infra.

68a

34. LSA-R.S. 22:658 provides that insurers who arbi-

trarily, capriciously, or without probable cause fail to pay

any claim within sixty days of proof of loss" are liable

for the amount of the loss as well as a penalty of 12%

of “the total amount of the loss” and all reasonable attor-

ney’s fees “for the prosecution and collection of such

loss.” If the insurer has made a “partial payment’, the

penalty is 12% of the difference between the amount

tendered and the amount actually owed. LSA-R.S. 22:658.

See Fuqua v. Aetna Casualty & Surety Co., 542 So.2d

1129 (La.App. 3d Cir. 1989).

Whether an insurer’s failure or refusal to pay its

arbitrary, capricious or without probable cause within

the meaning of the statute is a question of fact to be

determined in light of the facts and circumstances of the

particular case. Smith v. State Farm Fire and Casualty

Co., 695 F.2d 202, 205 (5th Cir. 1983) (citations omitted).

In particular, it is a determination that “depends pri-

marily on the facts known to the insurer at the time of its

actions.” Scott v. Insurance Co. of America, 485 So.2d

50, 52 (La. 1986). “The words arbitrary and capricious

.. . do not necessarily imply an opprobrious connotation.”

Steadman v. Pearl Assurance Co., 167 So.2d 527, 531

(La. App. 4th Cir. 1964). Rather, arbitrary conduct

merely “implies an abuse of one’s authority or power.”

Id. Further, the fact that an insurer mis-reads or mis-

interprets the clear and unambiguous provisions of its

own policy does not relieve the insurer of liability under

LSA-R.S. 22:658. Fidelity & Casualty Co. of N. Y. v.

Superior Casing Crews, Inc., 642 F.2d 147, 150 (5th Cir.

1981). The insurer, not the insured, takes the risk of

misinterpreting its own policy provisions. Marks v.

Trinity Universal Insurance Co., 531 So.2d 516 (La.

11 A ‘satisfactory proof of loss’ for purposes of LSA-R.S. 22:658

is that which provides the insurer with sufficient facts to apprise

the insurer of the insured’s claim or to acquire knowledge of the

insured’s loss. See Hart v. Allstate Insurance Co., 437 So.2d 823

(La. 1983).

69a

App. 2d Cir. 1988). Insurers are “charged with knowl-

edge of their policy’s contents.” Carney v. American

Fire & Indemnity Co., 871 So.2d 815 (La. 1979). Ae-

cordingly, an insurer may be deemed arbitrary and capri-

cious for failing to properly assess and pay damages which

fully compensate the insured, where the policy requires

that the insured be fully compensated. Higginbotham v.

New Hampshire Indemnity Co., 498 So.2d 1149 (La.

App. 3d Cir. 1986).

The facts of this case are distinctive. The stonewall

position undertaken by IRI, which conduct we find as

arbitrary, capricious, in absolute bad faith and without

probable cause, precluded Cotton from submitting a proof

of loss that would have compensated Cotton as provided

for by IRI’s policy. To this very day, IRI resists any

claims calculated according to Sections IA and IIA of its

policy. This conduct is an absolute abuse of IRI’s ‘power’

and position as ultimate arbiter of what losses are prop-

erly payable under its policy provisions. IRI’s conduct

goes beyond mere breach of contract. It offends accept-

able notions of business ethics.

IRI’s refusal to assist Cotton in caiculating claims

properly payable to Cotton under the policy constitutes

precisely the conduct which Louisiana law proscribes. An

insurer must timely pay what is due the insured. IRI has

never even deigned to consider what is properly due

Cotton and certainly there can be no doubt that IRI knew

that Cotton was entitled to interruption of business

(earnings) damages.

Accordingly, IRI is liable for the statutory penalty of

12% on the $4,498,000.00 in earnings not paid under

IRI’s business interruption policy and $324,735.00 not

paid under IRI’s property damage (fire) policy and for

the attorney’s fees '* incurred by Cotton in prosecuting

2 The decision on the merits is a “final decision” for purposes of

appeal as a matter of law under 28 U.S.C. § 1291 even though the

70a

its claim against IRI, with interest on the whole as set

forth in paragraph 33.

CONCLUSION

35. IRI issued an interruption of business policy in

favor of the three (really all five) subsidiary bakeries as

named insureds and intended to cover the Cotton bakery

business. All parties admit that the fire of February 13,

1981 was an occurrence in the contemplation of the policy

and that it took place on the prroperty of a named

insured, the Alexandria subsidiary. Indeed IRI has paid

substantial Section IIIA damages under the policy. The

primary purpose of the policy was to protect Cotton’s

income, i.e. the possible reduction of gross earnings which

might be suffered by the Cotton bakery business during

the period required to restore production as it existed on

the date of the fire (interruption of business damages

under the provisions of Sections IA and iJA). As we

have seen, not one item of damage paid by IRI.fits the

definition of interruption of business (reduction of earn-

ings) damages as defined by its own expert or by its

policy. IRI has not paid one cent in earnings damages.

It follows that if the fire had occurred at the Shreveport,

amount of attorney’s fees for the litigation remains to be deter-

mined. Budinich v. Becton Dickinson and Co., 486 U.S. , 108 S.Ct.

1717, 100 L.Ed.2d 178 (1988).

The parties may stipulate by compromise the amount of attor-

ney’s fees. If they have not done so prior to September 10, 1989,

Cotton Brothers Baking Company, Inc. and Cotton Bros., Inc. shall

file on or before October 10, 1989 a motion to set attorney’s fees,

including fees for the filing and submission of this motion and

also projected or suggested fees for answering and trial of appeal

if any. Plaintiffs should file with their said motion all bills sub-

mitted and paid and all supporting documentary evidence along with

appropriate authorities and suggested findings of fact and conclu-

sions of law. Local Rule 20.16 of the Western District of Louisiana.

IRI may file opposition on or before November 10, 1989 accom-

panied by any supporting documentary evidence, authorities and

suggested findings of fact and conclusions of law.

T1la

Monroe, Natchez or Baton Rouge plant, under IRI’s inter-

pretation of the policy and under its Strategy, it would

have been liable for the same amount of interruption of

business damages—none, Following IRI’s interpretation

and strategy to its logical conclusion, IRI, under its

$39,000,000.00 interruption of business policy was obliged

to pay no interruption of business damages. The inter-

ruption of business risk was solely the risk of Cotton

Bros., Inc. IRI cannot be allowed to avoid all business

interruption (earnings) damages, simply because of its

own failure to include Cotton Bros., Inc. as a named

insured in the policy. We have determined that IRI’s

contentions are not persuasive.

We conclude therefore, that as a matter of law:

That the interruption of business insurance policy

number 31815935 issued October 1, 1980 by Industrial

Risk Insurers in favor of Cotton Brothers Baking Com-

pany, Inc., et al should be reformed so as to make ard

include Cotton Bros., Inc. as a named insured effective

October 1, 1980; that

There should be judgment in favor of Cotton Brothers

Baking Company, Ine. and Cotton Brothers, Ine. and

against Industrial Risk Insurers in the amount of

$324,735.00 plus penalties and attorney’s fees under

LSA-R.S. 22:658 with pre-judgment interest from Janu-

ary 12, 1983 in accordance with Louisiana Civil Code

article 2924 and post-judgment interest thereon in accord-

ance with 28 U.S.C. § 1961; that

There should be judgment herein in favor of Cotton

Brothers, Ine. and against Industrial Risk Insurers in

the amount of $4,498,000.00 plus penalties and reason-

able attorney’s fees under LSA-R.S. 22:658 with pre-

judgment interest thereon from January 12, 1983 in ac-

cordance with Louisiana Civil Code article 2924 and post-

judgment interest in accordance with 28 U.S.C. § 1961,

less a credit against this total amount allowed and decreed

eee aaa

72a

in equity in favor of Industrial Risk Insurers in the

amount of $427,460.67;

That, upon payment by Industrial Risk Insurers to

Cotton Bros., Inc. of the entire amount (less credit)

awarded in the preceding paragraph, Industrial Risk In-

surers shall be subrogated to all rights, title and interest

of Cotton Bros., Inc. in and to Civil Action No. 83-3237

of the United States District Court for the Western Dis-

trict of Louisiana entitled Baker Perkins, Inc. versus

Cotton Brothers, Inc. and in accordance with said sub-

rogation and upon request of Industrial Risk Insurers,

Cotton Bros., Inc. should execute in favor of Industrial

Risk Insurers a valid, legal and written assignment of

all its rights, title and interest in Civil Action No. 83-

3237 described above.

DONE AND SIGNED at Alexandria, Louisiana, this

31st day of July, 1989.

/s/ Nauman § Scott

United States District Judge

73a

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 90-4128

COTTON BROTHERS BAKING COMPANY, INC.,

Plaintiff-A ppellee,

versus

INDUSTRIAL RISK INSURERS,

Defendant-Third Party

Piaintiff-A ppellant,

versus

BAKER PERKINS Foop MACHINERY, INC..

Third-Party Defendant-

Appellant.

COTTON BROTHERS BAKING CoMPANY, INC.,

Plaintiff-A ppellee,

versus

BAKER PERKINS, INC.,

Defendant-A ppellant.

BAKER PERKINS, INC..

Plaintiff-A ppellant,

versus

COTTON BROTHERS BAKING CoMPANY, INC..

Defendant-A ppellee.

Appeals from the United States District Court

for the Western District of Louisiana

T4a

SUBSTITUTED OPINION ON REHEARING

(Opinion September 18, 1991, 5th Cir.,

1991, F.2d ——)

(January 6, 1992)

Before POLITZ, WILLIAMS, and JONES, Circuit

Judges.

PER CURIAM:

The opinion of this court dated September 13, 1991,

as revised on denial of rehearings dated October 10,

1991, is reported at 941 F.2d 380 (5th Cir. 1991).

On November 25, 1991 we sua sponte recalled our man-

date for further consideration of the applications for re-

hearing. We now revise and correct our original opin-

ion which, as revised and corrected herein, is reaffirmed

and reinstated. Other than as granted herein, the peti-

tions for rehearing are denied. The mandate shall issue

forthwith.

The portion of the opinion subtitled “The IRI Litiga-

tion,” reported at 941 F.2d 385 and enumerated as head-

note [2], is deleted and the following is substituted:

IRI raises three issues on appeal. First it asserts

that the trial court erred by not crediting $3,585,761.97

which it had paid under the business interruption

policy against the $4,498,000 damages judgment

rendered by the district court. IRI contended on ap-

peal that the trial court granted the award to Cotton

solely in satisfaction of Section IA of the policy.

The record does not support that contention. Section

IA notes the insured’s rights to receive loss of earn-

ings damages; Section IIA defines such damages and

establishes the method of ascertaining such. These

sections, in full, provide as follows:

75a

SECTION I

Recovery in the event of loss hereunder

shall be the ACTUAL LOSS SUSTAINED

by the Insured resulting directly from such

interruption of business, but not exceeding

the reduction in gross earnings less charges

and expenses which do not necessarily con-

tinue during the interruption of business.

for only such length of time as would be

required with the exercise of due diligence

and dispatch to rebuild, repair on replace

such described property as has been dam-

aged or destroyed, commencing with the

date of such damage or destruction and not

limited by the date of expiration of this

Policy. Due consideration shall be given

and expenses, including payroll expense, to

the extent necessary to resume operations

of the Insured with the same quality of

service which existed immediately preced-

ing the loss.

SECTION II

GROSS EARNINGS.—For the purposes of

this insurance “gross earnings” are defined

as the sum of:

1. total net sales value of production

(manufacturing operations) ,

2. total net sales of merchandise (mer-

cantile operations), and

3. other earnings derived from operations

of the business, less the cost of:

4. raw stock from which such production

is derived,

es lies consist f aterials con-

2. Supplles consisting of materials con

sumed directly in the conversion of such

76a

raw stock into finished stock or in supply-

ing the service(s) sold by the Insured,

6. merchandising sold, including packaging

materials therefor, and

7. service(s) purchased from _ outsiders

(not employees of the Insured) for resale

which do not continue under contract.

No other costs shall be deducted in deter-

mining gross earnings. In determining

gross earnings due consideration shall be

given to the experience of the business be-

fore the date of damage or destruction and

the probable experience thereafter had no

loss occurred. (Emphasis ours. )

Michael Driscoll was IRI’s lead expert on inter-

ruption of business insurance. He headed the IRI

committee empowered to approve or reject proofs

of loss for such insurance claims. When asked how

interruption of business claims should be deter-

mined he testified: “You try to project what the

company would have done for the period of inter-

ruption had there been no loss, then you compare

it to what they actually did do and the different

number is the amount of the loss.” When Cotton’s

auditors sought instructions from Driscoll on the

committee’s requirements for the payment of these

proofs of loss, Driscoll directed a “line item” pro-

cedure which is appropriate only for claims under

Section III of the policy. Section III only indirectly

relates to damages. Under the policy Cotton was

obligated to mitigate damages. Section III entitled

Cotton to repayment for each item of expense it in-

curred in its efforts to mitigate damages during the

15 months in which its business was interrupted.

Section III provides in pertinent part:

77a

SECTION III

A. EXPENSES RELATED TO REDUCING LOSS.

—This Policy also covers:

1. such expenses as are necessarily incurred for

the purpose of reducing loss under this Pol-

icy (except expense incurred to extinguish a

fire), and

2. such expenses, in excess of normal, as would

necessarily be incurred in replacing any fin-

ished stock used by the Insured to reduce

loss under this Policy... .

As instructed, the claims were presented to IRI’s

committee using the line item procedure and pay-

“23)

ments of $3,585,761.97 were made.

This issue is brought into proper perspective when

we focus on the purpose of this insurance—to pro-

tect Cotton from losses caused by business interrup-

tion, including loss of earnings and additional ex-

penses incurred in an effort to stay in business.

As a result, however, of tactics described by the dis-

trict court as “stonewalling,” which we discuss in

the subsection on statutory penalties reported at

941 F.2d 386-87 and enumerated as headnote [4],

Cotton did not make the computations detailed in

Section IIA. No proofs of loss of such damages were

ever invited or submitted and none were paid. The

record is devoid of acceptable evidence showing that

IRI made any payments whatever for business in-

terruption losses. In this settling, we must reject

IRI’s contention that it is entitled as a matter of

law to a credit against the damages award for the

payment of the $3,585,761.97, other than the credit

for the $427,460.67 allowed in equity by the dis-

trict court.

The last two paragraphs of that portion of the opin-

ion subtitled “Statutory Penalties,” reported at 941 F.2d

ee

78a

387 and enumerated as headnote [5], is deleted and the

following is substituted:

We reject the IRI contention that the district court

erred in assessing statutory penalties on the entire

$4,498,000 (less $427,460,67) which it awarded Cot-

ton Brothers on the business interruption policy, as

well as on the $324,735 awarded on the fire policy.

We perceive no error therein.

The first paragraph of that portion of the opinion

subtitled “Conclusion,” reported at 942 F.2d 932, is

deleted and we substitute the following:

IRI’s assignments of error are rejected.

Finally, we delete paragraph 1 of footnote 15, reported

at 941 F.2d 392, and substitute the following:

1. Cotton Bros. v. IRI. Affirmed in the amounts of

$324,735 and $4,498,000 (less a credit of $427,460.67)

plus statutory penalties under La. R.S. 22:658, and

prejudgment interest from January 12, 1983 to date

of judgment under Louisiana Civil Code article 2924

and post-judgment interest as provided by 28 U.S.C.

§ 1961. Upon issuance of our mandate the district

court may award appropriate attorney’s fees as dis-

cussed in this opinion.

79a

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 90-4128

COTTON BROTHERS BAKING COMPANY, ING.,

Plaintiff-A ppellee,

versus

INDUSTRIAL RISK INSURERS.

Defendant-Third Party Pla inti ff

Appellant,

versus

BAKER PERKINS Foop MACHINERY, INC..

Third Pa rty Defe ndant-A ppellant.

COTTON BROTHERS BAKING COMPANY, INC..

Plaintiff-A ppelle 6.

versus

BAKER PERKINS, INC..

Defendant-A ppe llant.

BAKER PERKINS. INC..

Pla inti ff-A pp llant,

versus

COTTON BROTHERS BA KING COMPANY, INC..

De fe ndant-A ppellee.

te

ORDER

[Filed Mar. 6, 1992]

80a

Appeals from the United States District Court

for the Western District of Louisiana

Before POLITZ, WILLIAMS and JONES, Circuit Judges.

BY THE COURT:

IT IS ORDERED that the motion of appellant Indus-

trial Risk Insurers’ to recall mandate in the referenced

eause is DENIED.

/s/ HAP

2/18/92

/s/ JGW

2-20-92

/s/ ENJ

3/3/92

Sla

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

No. 90-4128

COTTON BROTHERS BAKING COMPANY, INc.,

Plaintiff-A ppellee,

V.

INDUSTRIAL RISK INSURERS,

Defendant/Third-Party

Plaintiff-A ppellant,

¥e

BAKER PERKINS Foop MACHINERY, INC.,

Third-Party Defendant-

Appellant.

COTTON BROTHERS BAKING CoMPANY, INC.,

Plaintiff-A ppellee,

Ws

BAKER PERKINS, INC.,

Defendant-A ppellant.

BAKER PERKINS, INC.,

Plaintiff-A ppellant,

Ve

COTTON BROTHERS BAKING COMPANY, INC.,

Defendant-A ppellee.

Appeal from the United States District Court

for the Western District of Louisiana

Nauman S. Scott, Judge

82a

Oct. 10, 1991

ON PETITIONS FOR REHEARING

(Opinion September 13, 1991, 5th Cir.1991, 941 F.2d 380)

Before POLITZ, WILLIAMS, and JONES, Circuit

Judges.

PER CURIAM:

The opinion of this court reported at 941 F.2d 380 (5th

Cir.1991), as ecrrected and revised herein, is reaffirmed

and reinstated.

We delete the final paragraph on slip op. page 6144 and

substitute:

The court erred, however, in assessing statutory

penalties on the entire $4,498,000 which it awarded

Cotton Bros. on the business interruption policy, as

well as the $324,735 awarded on the fire policy. Hav-

ing modified that portion of the judgment to

$912,238.03, we affirm the assessment of penalties

only as applied to that amount plus the $324,735 fire

policy award. In addition, after issuance of the man-

date the trial court may award attorney fees, as it

deems appropriate, on this aspect of the judgment.

We delete the first numbered paragraph of footnote 15,

slip op. page 6151, and substitute:

1. Cotton Bros. v. IRI. Modified and rendered in the

amount of $912,238.03. Affirmed in the amount of

$324,735. The net judgment is thus $1,236,973.03

plus the statutory penalty of 12% ($148,436.76),

with prejudgment interest on those amounts dating

from January 12, 1983.

As revised, the original opinion is REINSTATED.

Other than the foregoing, the petitions for rehearing

filed herein are DENIED.

83a

IN THE UNITED STATES COURT OF APPEALS

lOR THE FIFTH CIRCUIT

No. 90-4128

CoTTON BROTHERS BAKING COMPANY,

Plaintiff-A ppellee,

versus

INDUSTRIAL RISK INSURERS,

Defendant-Third Party

Plaintiff-A ppellant,

versus

BAKER PERKINS FooD MACHINERY, INC.,

Third Party Defendant-

Appellant.

CoTTON BROTHERS BAKING COMPANY,

Plaintiff-A ppellee,

versus

BAKER PERKINS, INC.,

Defendant-A ppellant.

BAKER PERKINS, INC.,

Plaintiff-A ppellant,

versus

CoTroN BROTHERS BAKING COMPANY,

Defendant-A ppellee.

ORDER

[Filed No. 25. 1991]

84a

Appeals from the United States District Court

for the Western District of Louisiana

ORDER:

The Court hereby recalls its mandate sua sponte issued

in the above cause on November 4, 1991 pending further

consideration of this case before this Court.

/s/ Henry A. Politz

United States Circuit Judge