Petition for Writ of Certiorari — Joslyn Manufacturing Co. v. Liberty Mutual Insurance
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Supreme Court, U.S.
FILED
94 978 DEC 1 i1%
No.
ET ant ds
Supreme Court of the United States
eo
October Term, 1994
JOSLYN MANUFACTURING COMPANY,
Petitioner,
VS.
LIBERTY MUTUAL INSURANCE COMPANY,
Respondent.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Fifth Circuit
PETITION FOR A WRIT OF CERTIORARI
JAY A. CANEL
Counsel of Record
STEPHEN D. DAVIS
CANEL, DAVIS & KING
Attorneys for Petitioner
10 South LaSalle Street
Suite 3400
Chicago, Illinois 60603
(312) 372-4142
Argel (800) 3 APPEAL + (800) 5 APPEAL + (800) BRIEF 21
Orvices, inc.
QUESTION PRESENTED FOR REVIEW
Did the Fifth Circuit violate the Erie doctrine by failing to
apply Louisiana law? Did the court abuse its discretion by
refusing to certify the question before it knowingly applied a rule
which Louisiana courts do not?
In 1988, the Fifth Circuit predicted the Louisiana Supreme
Court would hold that, when a liability insurance policy requires
the insured to give immediate notice of a claim as a “condition
precedent” to coverage, the insurer can avoid coverage even
though it suffered no prejudice from the delay in notice. MGIC,
infra.
The Fifth Circuit admitted in this case that the Louisiana
Supreme Court had rejected MGIC’s “condition precedent”
approach in Jackson, infra, acase the MGIC court failed to cite or
discuss. Louisiana’s high court held that whether the insurer
suffered prejudice was an important factor in all delayed notice
cases. Louisiana intermediate appellate decisions following
Jackson have held that an insurer must demonstrate prejudice to
avoid coverage on late notice grounds.
But the Fifth Circuit held it was bound by MGIC, and denied
petitioner’s motion to certify. The application of the Fifth
Circuit’s “condition precedent” rule resulted in the forfeiture of
petitioner’s liability insurance for a $13 million environmental
clean-up on account of a delay in notice which the insurance
company admits caused it no harm.
The Louisiana Department of Insurance filed an amicus brief
in support of petitioner’s suggestion for rehearing en banc. It
stated that the Fifth Circuit had failed “to follow the law and well-
established jurisprudence of Louisiana...” and that the
“Department of Insurance is concerned that foreign insurers will
ii
seek to use the federal courts as a convenient forum to defeat
claims on hypertechnical grounds which would not be cognizable
in state courts. . .” The suggestion for rehearing was denied.
The simplest method of assuring that Erie is complied with,
and that Louisiana law is correctly applied, is to certify the
- question to the Louisiana Supreme Court.
Petitioner respectfully requests the Court to grant certiorari
and vacate and remand for reconsideration of the motion to certify.
Lehman Brothers v. Schein, 416 U.S. 386 (1974).
ili
LIST OF ALL PARTIES TO THE PROCEEDINGS
Joslyn Manufacturing Company
Liberty Mutual Insurance Company
RULE 29.1 LISTING
Petitioner Joslyn Manufacturing Company is a wholly owned
subsidiary of Joslyn Corporation, a publicly held and traded
corporation with outstanding securities in the hands of the public.
Affiliates include other subsidiaries of petitioner’s parent
corporation, being Joslyn Clark Controls, Inc., Joslyn Canada
Inc., Joslyn Hi-Voltage Corporation, Joslyn Electronic Systems
Corporation, Joslyn Power Products Corporation, Joslyn
Research and Development Corporation, ADK Pressure
Equipment Corporation, Sunbank Family of Companies, Inc.,
Sunbank Electronics, Inc., Air-Dry Corporation of America,
Joslyn Foreign Sales Corporation, Joslyn Jennings Corporation,
Jennings Land Co., Joslyn Foundation and Joslyn Sierra Corp.
iv
TABLE OF CONTENTS
Page
Question Presented for Review .........cccccccccees i
List of All Parties to the Proceedings ................. iii
EEE Gxt hessddbeieundsebasess ses es xs iii
Sees Ce iv
I Siro 4 8.5 0 h00nn Kone bandos hea keews vi
SPE 4505 00 04:0nd bo cadoeeehansanaeeeane 1
Se OE IO o ckiciicveveviveseceneseeas 2
Constitutional Provision Involved ................06. 2
et BT TT TTT TTT Tee Tree 2
Ki. FE fh ks 8 dos dos ev cdkseewanns 2
D.. FO owes nei we aacnseebeccaces 4
Reasons for Gramtimig te Writ... occ ccsccccecccsese 5
I. The Fifth Circuit violated Erie by failing to apply
Louisiana law in this diversity case. ........... 6
A. The Fifth Circuit’s Prediction Of Louisiana
LAs 0 8s eG bea eens ae 6
Vv
Contents
Page
B. Butthe MGIC Court Failed To Cite Or Discuss
A Louisiana Supreme Court Decision
Rejecting The “Condition Precedent” Rule. . 7
C. The Fifth Circuit Admits That MGIC Is In
Conflict With Jackson....... .....cccceee i)
D. The Fifth Circuit Was Bound By Jackson, Not
Pe Tansee Ss thoes chads bn nden®i 10
1. Jackson Cannot Be Distinguished By
The Fifth Circuit’s “Sophisticated
ag rer Terr eeee 10
2. Jackson Cannot Be Distinguished
Because It Involved A Direct Action
cue aes 12
3. Jackson Cannot Be Distinguished By
POT Cr eee 12
Il. The Fifth Circuit violated Erie by denying
Petitioner’s motion tocertify. ................ 13
en ee baw wa 16
vi
Contents
Page
TABLE OF CITATIONS
Cases Cited:
Barnes v. Lumbermen’s Mut. Cas. Co., 308 So.2d 326 (La.
GE Fde 600 vac nseworrs voenessoueeaeiees 9
Branzaru v. Millers Mut. Ins. Co., 252 So.2d 769 (La. App.
PEE cavieviekseeeeess wavess taebveneeas 9
Champion v. Panel ERA Mfring. Co., 410 So.2d 1230 (La.
rr Pe eee 9
Davis v. Allstate Ins. Co., 272 So.2d 458 (La. App. 1973) . 9
Day & Zimmermann, Inc. v. Challoner, 423 U.S.3 (1975) ... 10
Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d
pee | | ee fou ee 15
Erie R. Co. v. Tompkins, 304 U.S. 64(1938) ............ passim
Fakouri v. INA, 378 So.2d 1083 (La. App. 1979) ....... 9
Guaranty Trust Co. of New York v. York, 326 U.S. 99
CIDE « thw cba snceva esse ieweeaeneee een 5
Gully & Assoc., Inc. v. Wausau Ins. Cos., 536 So.2d 816
Cin. Aa TE) cc ccctedecrvessdxaucasneseeunes 9
Heimbaugh v. Federal Ins. Co., 281 So.2d 839 (La. App.
BDTS) a necnucccccccvncedussvebuxtey selene 9
vii
Contents
Page
Jackson v. State Farm Mut. Auto. Ins. Co., 23 So.2d 765
(La. App. 1945), reversed, 29 So.2d 177 (La. 1946) ... passim
Jones v. Bituminous Cas. Corp., 821 S.W.2d 798 (Ky.
GEE Ee aun detnes dad cha o-bendeee ee eens 9
Joslyn Manufacturing Company vy. Liberty Mutual
Insurance Company, 30 F.3d 630 (Sth Cir. 1994) ..... l
Joslyn Manufacturing Company yv. Liberty Mutual
Insurance Company, 836 F.Supp. 1273 (W.D. La. 1993) . |
Kinchen v. Dixie Auto Ins. Co., 343 So.2d 263 (La. App.
a eee ee re 9
Lehman Brothers v. Schein, 416 U.S. 386(1974) ....... ii, 13,14
MGIC Indem. Corp. v. Central Bank of Monroe, La., 838
i Se ch scenenekscsvseeseveces passim
Miller v. Marcantel,221 So.2d 557 (La. App. 1969) ..... 11,12
Moskau v. Ins. Co. of North America,366 So.2d 1004 (La.
RI URS SOE ee re 9,13
Mullaney v. Wilbur, 421 U.S. 684 (1975) .............. 13
Rovira v. LaGoDa, Inc., 551 So.2d 790 (La. App. 1989) .. 9
Ruhlin v. New York Life Ins. Co., 304 U.S. 202(1938).... 5
vili
Contents
Page
Sandefer Oil & Gas, Inc. v. AIG Oil Rig of Texas Inc., 846
Fie GG BOOED oe 00s cs ebeea seen cases caus 15
Trosclair v. CNA Ins. Co., 637 So.2d 1168 (La. App. 1994) .. 9
Statutes Cited:
FS Fa BR 6 | ere ry Te 13
pote fae) | eee eer rer errr rere ee 2
ye re ere rr rn re rE Pos ane re 2
United States Constitution Cited:
Pe a cine ib wkecd sae k cedivian cheeses 2
APPENDIX
Appendix A — Opinion of the United States Court of
Appeals Fifth Circuit Dated September 2, 1994 ...... la
Appendix B — Memorandum Ruling of the United States
District Court for the Western District of Louisiana,
Shreveport Division Dated July 8, 1993 ............ 12a
Appendix C — Order of the United States Court of Appeals
for the Fifth Circuit Filed September 30, 1994 ....... 29a
1
No.
In The
Supreme Court of the United States
~~
October Term, 1994
JOSLYN MANUFACTURING COMPANY,
Petitioner,
vs.
LIBERTY MUTUALINSURANCE COMPANY,
Respondent.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Fifth Circuit
PETITION FORA WRIT OF CERTIORARI
OPINIONS BELOW
Joslyn Manufacturing Company v. Liberty Mutual
Insurance Company, 30 F.3d 630 (Sth Cir. 1994), reproduced
herein as Appendix A; and Joslyn Manufacturing Company v.
Liberty Mutual Insurance Company, 836 F. Supp. 1273 (W.D. La.
1993), reproduced herein as Appendix B.
2
STATEMENT OF JURISDICTION
The opinion of the United States Court of Appeals for the
Fifth Circuit was entered on September 2, 1994. Asuggestion for
rehearing en banc filed by petitioner was denied on September
30, 1994, and the order is reproduced herein as Appendix C. This
Court has jurisdiction to issue the requested writ of certiorari
under 28 U.S.C. § 1254(1).
Subject matter jurisdiction in the district court was pursuant
to 28 U.S.C. § 1332. Petitioner Joslyn is a Delaware corporation
with its principal place of business in Chicago, Illinois.
Respondent Liberty is a Massachusetts corporation having its
principal place of business in Boston, Massachusetts. The
amount in controversy exceeds $50,000 exclusive of interest and
costs.
CONSTITUTIONAL PROVISION INVOLVED
The Tenth Amendment provides:
The powers not delegated to the United
States by the Constitution, nor prohibited by
it to the States, are reserved to the States
respectively, or to the people.
U.S. Const. amend. X. See Erie R. Co. v. Tompkins, 304 U.S. 64
(1938).
STATEMENT OF THE CASE
A. Factual Background
This is an action for declaratory judgment and damages.
Petitioner purchased comprehensive general liability insurance
coverage from Liberty Mutual Insurance Company (“Liberty”)
3
for its wood treatment plant in Bossier City, Louisiana from the
plant’s purchase in 1950 until its sale in 1969. Liberty refused to
defend or indemnify petitioner against Louisiana Department of
Environmental Quality (“DEQ”) orders directing petitioner and
others to investigate and remediate environmental damage at the
site. Petitioner seeks reimbursement of past defense costs,
indemnity of its past clean-up costs and a declaration that Liberty
must pay its future defense and clean-up costs.
On August 2, 1986, the DEQ issued a compliance order
“finding that Joslyn [petitioner] and twelve other parties were
subject to liability for clean-up and remedial costs. . .” App. A,
2a-3a. However, the order merely asked the parties “to submit a
letter to the DEQ stating whether [they] would voluntarily
investigate and remediate the contamination at the property.” /d.,
3a. The order was “stayed because of requests for hearing.” /d.
Petitioner sent the stayed August 2, 1986 order to Liberty on
May 19, 1987. On June 23, 1987, petitioner wrote Liberty that it
expected the DEQ to enter another order; that it intended to
comply because it would be less expensive than having a
government agency clean up the site and sue for damages; but that
petitioner would not comply if Liberty so advised. Liberty
acknowledged receipt of the letter, but did nothing.
On December 17, 1987, the DEQ issued an amended order.
It was identical to the August 2, 1986 order, except that it deleted
the language requesting a letter and instead ordered the work to
begin. It was served on petitioner on December 22, 1987.
Petitioner sent it to Liberty nine days later. Liberty did not defend
petitioner.
On March 30, 1989, Liberty wrote petitioner that it was
denying coverage. It did so solely on grounds other than notice.
4
Petitioner alone has investigated and remediated the site. It
has spent over $13 million to date. Its investigation of the
environmental damage began over a year after Liberty first
received notice. The clean-up itself, which has accounted for
over $12 million, began in February 1992, three years after
Liberty denied coverage.
B. Proceedings Below
Petitioner and Liberty conducted a jury trial on the two
issues which the parties agreed had prevented settlement:
Whether the claim was excluded from coverage because (1)
petitioner “expected or intended” to cause the contamination
damage or (2) because the damage was limited to the property
petitioner had owned (and was therefore excluded from coverage
under its liability policies). The jury found in petitioner’s favor,
i.e., that it did not expect or intend to cause the damage and that its
clean-up protected Louisiana’s groundwater. App. B, 13a.
The parties submitted the remaining issues to the district
court. The court held that, while the policies obligated Liberty to
defend “suits,” not “claims,” they did require petitioner to give
immediate notice of claims as a “condition precedent” to
coverage. It found that the stayed August 2, 1986 order was a
claim and that, under MGIC, petitioner’s failure to give
immediate notice of that order forfeited its insurance coverage
even though the delay in notice caused no prejudice to Liberty.
App. B, 20a.
On appeal, petitioner argued that the district court should be
reversed because the Louisiana Supreme Court had rejected
MGIC’s “condition precedent” rule in Jackson and because
Louisiana courts require the insurer to demonstrate prejudice to
avoid coverage on late notice grounds. Alternatively, it argued
that the Fifth Circuit was obligated to certify the question before
it knowingly applied a rule which Louisiana courts do not.
5
The Fifth Circuit acknowledged that its MGIC decision was
inconsistent with Jackson. App. A, 7a. But it affirmed, finding it
was “bound by our precedent in MGIC.” Id., 10a. The court
denied petitioner’s motion to certify. Id., 11a.
Petitioner filed a suggestion for rehearing en banc. The
Louisiana Department of Insurance, the Louisiana Chemical
Association, the Louisiana Shipbuilding and Repair Association,
Avondale Industries, Inc. and Citizens For A Cleaner
Environment filed motions for leave to appear as amici in support
of petitioner’s request for reversal or certification. The Fifth
Circuit denied rehearing. App. C, 29a.
REASONS FOR GRANTING THE WRIT
In Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), the Court
held that federal courts are to apply the law of the state, except in
matters governed by the Constitution or by acts of Congress. /d.,
78. To do otherwise was deemed an invasion of “rights which in
our opinion are reserved by the Constitution to the several states.”
Id., 80. The ultimate goal is to achieve the same result regardless
of whether the case is brought in state or in federal court pursuant
to diversity jurisdiction. Guaranty Trust Co. of New York v. York,
326 U.S. 99, 109 (1945).
The outcome of this case was improperly determined by the
fact that it was decided in federal court. First, the Fifth Circuit
applied its own rule even though it has been rejected by the
Louisiana Supreme Court and is not applied by Louisiana state
courts. Second, the court refused to certify the question so that the
Louisiana Supreme Court could review the matter before the
rejected rule was applied in this case. The Court should grant
certiorari. Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 206
(1938) (“The rules indicate that the Court will be persuaded to
grant certiorari where a Circuit Court of Appeals ‘has decided an
6
important question of local law in a way probably in conflict with
applicable local decisions.’ ”).
I.
THE FIFTH CIRCUIT VIOLATED ERIE BY FAILING
TOAPPLY LOUISIANA LAW IN THIS DIVERSITY CASE.
A. The Fifth Circuit’s Prediction Of Louisiana Law In
MGIC.
The district court held that the “harsh result” in this case was
required by MGIC Indem. Corp. v. Central Bank of Monroe, La.,
838 F.2d 1382 (Sth Cir. 1988). The Fifth Circuit erred in its
interpretation of Louisiana law in MGIC, and it is that error which
it protected from review by denying petitioner’s motion to
certify.
In MGIC, United was a Central Bank customer. A Central
Bank officer mistakenly approved a potentially unlimited letter
of credit in favor of Philadelphia Gear to cover United’s
purchases. Central Bank discovered the problem after United had
incurred a $4.5 million debt. United defaulted. Philadelphia Gear
sued Central Bank when it failed to honor drafts on the letter of
credit. Philadelphia Gear won, and Central Bank appealed.
Central Bank had director and officer’s liability insurance
with MGIC. It first gave notice to MGIC while its appeal of
Philadelphia Gear’s judgment was pending. MGIC filed a
declaratory judgment action claiming Central Bank’s failure to
give timely notice relieved it of its coverage obligations. The jury
found the insurer had been prejudiced by Central Bank’s failure
to give timely notice. Central Bank appealed.
The Fifth Circuit found no governing decision of the
7
Louisiana Supreme Court. The MGIC court admitted that the
most recent Louisiana intermediate appellate cases held that an
insurer must demonstrate prejudice to avoid coverage on late
notice grounds. 838 F.2d at 1387. It admitted that it could affirm
by finding the insurer had been prejudiced as a matter of law. Id.,
fn. 2. Instead, the MGIC court affirmed by holding that the insurer
need not show prejudice to avoid coverage when the policy states
that notice is a “condition precedent” to coverage:
We hold that the language Stating that
compliance with this provision is a condition
precedent to recovery under the policy means
exactly what it says, and that if Central failed
to comply with this provision by not giving
MGIC timely notice of the claim made, then
the claim will not be covered under the policy,
regardless of whether MGIC can demonstrate
prejudice.
Id., 1385-86.
Unlike the insurer in MGIC, Liberty could not demonstrate
that it was prejudiced by the delayed notice in this case. It argued
that this fact was immaterial under MGIC. The district court
agreed, and the Fifth Circuit affirmed.
B. But The MGIC Court Failed To Cite Or Discuss A
Louisiana Supreme Court Decision Rejecting The
“Condition Precedent” Rule.
In Jackson v. State Farm Mut. Auto. Ins. Co., 23 So. 24 765
(La. App. 1945), a Louisiana appellate court applied the
“condition precedent” rule and held that the insured forfeited
coverage on account of a delay in notice which caused no harm to
his liability insurer:
8
Since the giving of notice is required as a
condition precedent to recovery, and since the
giving of a notice by the insured some eighty-
two days after the accident is not one “as soon
as practicable” under the circumstances of
this case, the judgment appealed from should
be affirmed. ;
Id., 770.
The Louisiana Supreme Court rejected the “condition
precedent” rule. It held that courts should balance the equities
and consider whether the insurer was prejudiced by the delay in
notice in every case:
Each case involving delayed notices must
stand upon its own facts and circumstances.
The Court may consider in balancing the
equities, not only the time intervening
between the accident and the date of notice to
the insured, and whether or not the claim is a
direct one by the injured persons, under Act
55 of 1930, but also when the parties first
discovered that substantial injury had been
done or that a claim would be made; the time
when the injured party discovered that
insurance existed and knew the identity of the
insurer; what prejudice to the insurance
company’s defense has been caused by the
delay; the good faith of the insured and
injured party; and the existence of any special
circumstances, especially those indicating
fraud or collusion.
Jackson, 29 So. 2d 177, 179 (La. 1946). Applying this test, the
Louisiana Supreme Court reversed. The court concluded that the
9
insured had reasonable grounds to delay notice, there was no
substantial prejudice to the insurer and no evidence of fraud,
collusion or bad faith. /d.
Louisiana appellate cases following Jackson have held that
an insurer must demonstrate prejudice to avoid coverage on late
notice grounds.' The Louisiana appellate cases from which the
Fifth Circuit derived its “condition precedent” rule in MGIC —
Menard (1966), Payton (1966) and Hallman (1963), 838 F.2d at
1386 — did not cite Jackson and did not reach the Louisiana
Supreme Court. The cases cited in footnote 1 were all decided
after Menard, Payton and Hallman, and include cases decided by
the Louisiana circuits that decided those three cases.
C. The Fifth Circuit Admits That MGIC Is In Conflict With
Jackson.
The Fifth Circuit admitted in this case that the Louisiana
Supreme Court rejected MGIC’s holding that a non-prejudicial
delay in notice breaches a “condition precedent” to coverage:
Notably, this court’s decision in MGIC
neglected to discuss a Louisiana Supreme
Court opinion disposing of a substantially
1. See, e.g., Davis v. Allstate Ins. Co., 272 So.2d 458, 462 (La. App.
1973); Heimbaugh v. Federal Ins. Co., 281 So.2d 839, 845-846 (La. App.
1973); Kinchen v. Dixie Auto Ins. Co., 343 So.2d 263, 265 (La. App. 1977);
Moskau v. Ins. Co. of North America, 366 So.2d 1004, 1006 (La. App. 1978);
Fakouri v. INA, 378 So.2d 1083, 1086 (La. App. 1979); Champion v. Panel
ERA Mfring. Co., 410 So.2d 1230, 1236 (La. App. 1982); Gully & Assoc. v.
Wausau Ins. Cos., 536 So.2d 816, 818 (La. App. 1988); Rovira v. LaGoDa, Inc.,
551 So.2d 790, 794 (La. App. 1989); Barnes v. Lumbermen’s Mut. Cas. Co.,
308 So.2d 326, 328 (La. App. 1975); Branzaru v. Millers Mut. Ins. Co., 252
So.2d 769 (La. App. 1971); Trosclair v. CNA, 637 So. 2d 1168 (La. App. 1994).
While Louisiana’s prejudice requirement once placed it in the minority, it is
now the majority rule. Jones v. Bituminous Cas. Corp., 821 S.W.2d 798, 801
(Ky. 1991).
10
similar issue. The Louisiana Supreme Court
has rejected the view that a nonprejudicial
delay in notice breaches a “condition
precedent” on similar facts to those presented
here. In Jackson v. State Farm Mut. Auto. Ins.
Co., 211 La. 19, 29 So.2d 177 (1946),. . .
App. A, 7a (emphasis supplied).
D. The Fifth Circuit Was Bound By Jackson, Not MGIC.
The Fifth Circuit should have admitted its error in MGIC,
applied Louisiana’s prejudice requirement and found in
petitioner’s favor. Instead, it distinguished Jackson on grounds
not recognized in Louisiana law. This violated Erie.
In Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3 (1975),
the Fifth Circuit refused to apply Texas choice-of-law rules. This
Court vacated and remanded:
A federal court in a diversity case is not free to
engraft onto those state rules exceptions or
modifications which may commend
themselves to the federal court, but which
have not commended themselves to the State
in which the federal court sits. The Court of
Appeals in this case should identify and
follow the Texas conflicts rule.
423 U.S. at 4-5.
1. Jackson Cannot Be Distinguished By The
Fifth Circuit's “Sophisticated Business”
Concept.
The Fifth Circuit attempted to distinguish Jackson by citing
11
its contention in MGIC that the “equitable rationale
[underpinning the prejudice requirement] does not apply so
strongly where both parties are sophisticated businesses. . .”
App. A, 8a. But no Louisiana state court has applied this
exception. The Fifth Circuit admitted as much in MGIC. 838 F.2d
at 1387.
The Louisiana Supreme Court held in Jackson that the
equities should be balanced in every case, not just those involving
individual (as opposed to business) insureds. 29 So.2d at 179. In
Louisiana, the critical factor is whether the delay in notice
prejudiced the insurance company’s ability to protect itself, not
the status of the insured. Judge Tate, later a Justice of the
Louisiana Supreme Court, explained in Miller v. Marcantel, 221
S0.2d 557, 559 (La. App. 1969):
The function of the notice requirements is
simply to prevent the insurer from being
prejudiced, not to provide a technical escape-
hatch by which to deny coverage in the
absence of prejudice nor to evade the
fundamental protective purpose of the
insurance contract to assure the insured and
the general public that liability claims will be
paid up to the policy limits for which
premiums were collected. Therefore, unless
the insurer is actually prejudiced by the
insured’s failure to give notice immediately,
the insurer cannot defeat its liability under the
policy because of the non-prejudicial failure
of its insured to give immediate notice of an
accident or claim as stipulated by a policy
provision. :
12
2. Jackson Cannot Be Distinguished
Because It Involved A Direct Action Plaintiff.
The Fifth Circuit also justified its failure to apply Jackson’s
prejudice requirement on the ground that the claimant in Jackson
was an injured party who sued the defendant’s insurer under
Louisiana’s direct action statute, and the claimant in this case is
the insured itself. App. A, 8a. But Jackson held that the equities
should be balanced in every case and that “whether or not the
claim is a direct one. . .” was only one factor to be considered. 29
So.2d at 179. Louisiana courts require prejudice in all cases. As
stated in Miller, supra:
The West decision [of the Louisiana Supreme
Court] primarily involved the liability of an
insurer directly to the injured person under
the direct-action statute. However, this same
test of prejudice or fraud is applied to
determine whether delayed notice may
exculpate an insurer from liability to its own
insured also.
221 So.2d at 560. In fact, the insured was a claimant in Miller and
every Louisiana appellate case cited in footnote 1, supra.
3. Jackson Cannot Be Distinguished By
Counting Days.
Finally, the Fifth Circuit attempted to distinguish this case
from Jackson by comparing the length of delay in the two cases.
App. A, 8a. But Louisiana courts decide late notice cases by
determining whether the insurer was prejudiced, not by
arbitrarily counting days. “Though notice of an accident comes a
substantial amount of time after it occurred, as long as the rights
of the insurer are not prejudiced by the delay, coverage still
13
exists.” Moskau, supra, 366 So.2d at 1006-7 (insurer lost notice
defense because 2 1/2 year delay in notice caused no prejudice).
II.
THE FIFTH CIRCUIT VIOLATED ERIE BY
DENYING PETITIONER’S MOTION TO CERTIFY.
The Louisiana Supreme Court is the “ultimate expositor” of
Louisiana law in our federal system. Mullaney v. Wilbur, 421 U.S.
684, 691 (1975). Rule XII of the Rules of the Supreme Court of
Louisiana allowed the Fifth Circuit to certify the question if it
concluded there were “no clear controlling precedents in the
decisions of the supreme court of this state.”
The Fifth Circuit decided the Louisiana Supreme Court’s
Jackson decision was not controlling precedent. App. A, 8a.
Instead of certifying the question, the court held it was bound by
its MGIC decision. This violated Erie.
In Lehman Brothers v. Schein, 416 U.S. 386 (1974), the
Second Circuit had held that Florida law was consistent with the
Second Circuit’s interpretation of Diamond, a decision of New
York’s highest court. The court denied a motion to certify the
question to the Florida Supreme Court.
2. “When it appears to the Supreme Court of the United States, or to any
circuit court of appeal of the United States, that there are involved in any
proceedings before it questions or propositions of law of this state which are
determinative of said cause independently of any other questions involved in
said case and that there are no clear controlling precedents in the decisions of
the supzeme court of this state, such federal court before rendering a decision
may certify such questions or propositions of law of this state to the Supreme
Court of Louisiana for rendition of a judgment or opinion concerning such
questions or propositions of Louisiana law. This court may, in its discretion,
decline to answer the questions certified to it.” La. Sup. Ct. R. XTi, § 1.
4
A unanimous Court vacated the judgment and remanded so
that the Second Circuit could reconsider its denial of the motion
to certify:
Such a construction of Diamond, the Court of
Appeals said, would have “the prophylactic
effect of providing a disincentive to insider
trading.” Jd., at 823. And so it would. Yet
under the regime of Erie R. Co. v. Tompkins,
304 U.S. 64 (1938), a State can make just the
opposite her law, providing there is no
overriding federal rule which pre-empts state
law by reason of federal curbs on trading in
the stream of commerce.
Id., 389.
The Court stated:
We do not suggest that where there is doubt as
to local law and where the certification
procedure is available, resort to it is
obligatory. It does, of course, in the long run
save time, energy, and resources and helps
build a cooperative judicial federalism. Its
use in a given case rests in the sound
discretion of the federal court.
Id., 416 U.S. at 390-91.
In Lehman Brothers, the Court found that certification was ;
appropriate because Florida law was unsettled and federal judges
in New York were “ ‘outsiders’ lacking common exposure to |
local law which comes from sitting in the jurisdiction.” 416 U.S.
at 391.
15
The need for certification is even clearer here. If MGIC is
not clearly inconsistent with Jackson and its progeny as
petitioner claims, there is at least substantial reason to doubt that
it is a correct statement of Louisiana law. The Louisiana Supreme
Court rejected MGIC’s condition precedent approach in Jackson;
a long line of Louisiana cases have held that an insurer must
demonstrate prejudice to avoid coverage on late notice grounds;
and no Louisiana court has found that an insurer is excused from
this requirement when the insured is a business.
Further, the Fifth Circuit’s failure to apply Louisiana’s
longstanding prejudice requirement may be related to the fact
that no judge from Louisiana sat on the panels that decided MGIC
or this case. Three months after MGIC was decided, a Senior Fifth
Circuit judge from Louisiana noted:
Under Louisiana law, the insurer cannot
escape liability because of the insured’s
failure to give notice of loss as soon as
practicable; to avoid coverage the insurer
must demonstrate prejudice caused by the
insured’s delay.
Sandefer Oil & Gas, Inc. v. AIG Oil Rig of Texas Inc., 846 F.2d
319, 321 (Sth Cir. 1988) (Wisdom, J.). See also, Elevating Boats,
Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198 (Sth Cir. 1985).
The Fifth Circuit abused its discretion by applying MGIC
and denying the motion to certify. The court usurped the
Louisiana Supreme Court’s authority to change Louisiana law. Its
decision invites forum-shopping, the very result Erie was
intended to prevent. The danger is particularly acute here
because most insurance companies are not Louisiana citizens and
will be able to invoke diversity jurisdiction to take advantage of
the Fifth Circuit rule.
16
The easiest and simplest method of assuring that Louisiana
law is correctly applied, and that Erie is complied with, is to
certify the question to the Louisiana Supreme Court.
CONCLUSION
Petitioner respectfully requests the Court to grant this
petition, issue a writ of certiorari to the United States Court of
Appeals for the Fifth Circuit and vacate and remand for
reconsideration of petitioner’s motion to certify.
Respectfully submitted,
JAY A. CANEL
Counsel of Record
STEPHEN D. DAVIS
CANEL, DAVIS & KING
Attorneys for Petitioner
Joslyn Manufacturing Company
10 South LaSalle Street
Suite 3400
Chicago, IL 60603
(312) 372-4142
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FIFTH CIRCUIT, DATED
SEPTEMBER 2, 1994
JOSLYN MANUFACTURING COMPANY,
Plaintiff-Appellant,
V.
LIBERTY MUTUALINSURANCE COMPANY,
Defendant-Appellee.
No. 93-5563.
United States Court of Appeals,
Fifth Circuit.
Sept. 2, 1994.
* * *
T. Haller Jackson, III, Tucker, Jeter, Jackson & Hickman,
Shreveport, LA, Stephen D. Davis, Jay A. Canel, Canel, Davis &
King, Chicago, IL, for appellant.
Jack O. Brittain, Sr., Brittain & Sylvester, Natchitoches, LA,
Martha J. Koster, Lee H. Glickenhaus, Boston, MA, for appellee.
Appeal from the United States District Court for the Western
District of Louisiana.
Before REYNALDO G. GARZA, SMITH and PARKER,
Circuit Judges.
2a
Appendix A
REYNALDOG. GARZA, Circuit Judge:
Joslyn Manufacturing Company (“Joslyn”) filed this action
for declaratory judgment seeking to enforce an insurance policy
with Liberty Mutual Insurance Company (“Liberty”). The policy
would obligate Liberty to defend and indemnify Joslyn against
Louisiana Department of Environmental Quality (“DEQ”)
Compliance Orders directing Joslyn to investigate and remediate
environmental damage at Joslyn’s former wood treatment plant
in Bossier City, Louisiana. Joslyn seeks reimbursement for its
past defense costs, indemnity of its past clean-up costs, and a
declaration that Liberty must pay Joslyn’s future defense and
clean-up costs. For the following reasons, we affirm the district
court.
FACTS
Joslyn purchased the Lincoln Creosoting Plant in Bossier
City on July 24, 1950, where it treated wood with creosote. It
operated the facility until 1969 when it sold the plant to Koppers,
Inc. on December 1, 1969. Joslyn has been a Liberty Mutual
insured since 1945. From 1962 through 1969 the creosote plant
was an insured location under Joslyn’s policies with Liberty.
Neither party can locate any of the pre-1962 liability policies
between Joslyn and Liberty.
In 1985, the DEQ began studying the old Lincoln Creosoting
Plant site. On October 14, 1985, a report was issued to the DEQ
that found the soil at the site, as well as an extremely high
probability of the groundwater, to be contaminated. On
December 6, 1985, the DEQ sent Joslyn an information request
concerning the site, and Joslyn responded on February 7, 1986.
On August 2, 1986, the DEQ issued a compliance order finding
3a
Appendix A
that Joslyn and twelve other parties were subject to liability for
clean-up and remedial costs, and ordered the parties to submit an
approved clean-up plan for the site. This order was stayed
because of requests for a hearing. The August 2, 1986 DEQ
Compliance Order was amended on December 17, 1987.
Joslyn first advised Liberty of the DEQ’s actions on May 19,
1987, and on June 23, 1987. Liberty denied coverage by letter of
March 30, 1989. This suit seeking declaratory judgment ensued.
On July 8, 1993, United States District Judge Tom Stagg
issued a Memorandum Ruling, 836 F.Supp. 1273. In it the court
found that Liberty had no duty to indemnify Joslyn because
Joslyn failed to comply with the “immediate notice” condition
precedent by waiting nine months before giving notice of an
August 2, 1986 DEQ Compliance Order asking Joslyn to submit a
letter to the DEQ stating whether it would voluntarily investigate
and remediate the contamination at the property. The court
further held that Liberty had no duty to defend Joslyn because the
Compliance Order directing Joslyn to investigate and clean up
the property was not a “suit.” Finally, the court struck the
affidavit of Philip Gehrke, Joslyn’s Risk Manager from 1947 to
1983, regarding the missing insurance policies for 1950 to 1962.
Joslyn has timely appealed.
DISCUSSION
This case is subject to a de novo review by this court.
Fritiofson v. Alexander, 772 F.2d 1225, 1239 (Sth Cir. 1985). The
pertinent portions of the insurance contract provided:
As respects the insurance afforded by the
other terms of this policy the company shall:
4a
Appendix A
(a) defend any suit against the
insured alleging such injury,
sickness, disease or destruction
and seeking damages on account
thereof, even if such suit is
groundless, false or fraudulent.
The “Conditions” section of the Liberty policies stated:
NOTICE OF CLAIM OR SUIT If claim is
made or suit is brought against the insured,
the insured shall immediately forward to the
company every demand, notice summons or
other process received by him or his
representative.
ACTION AGAINST COMPANY No action
shall lie against the company unless, as a
condition precedent thereto, the insured shall
have fully complied with all the terms of this
policy, nor until the amount of the insured’s
obligation to pay shall have been finally
determined either by judgment against the
insured after actual trial or by written
agreement of the insured, the claimant and the
company.’
Appellant Joslyn argues that the trial court erred in ruling
that they forfeited their insurance coverage because they failed to
1. This language is from a 1962 policy issued to Joslyn. Liberty Mutual has
stated that the language used in the 1962 policy is similar to the language in the
1963-1969 policies, unless specifically noted. See Liberty Mutual’s post-trial brief
at p. 6, fn. 2. Joslyn has not contested this statement.
ns
Sa
Appendix A
immediately notify Liberty of the August 2, 1986 DEQ
Compliance Order, as was required by the insurance contract.
Joslyn asserts that the August 2, 1986 DEQ order was not aclaim
or suit which triggers their duty to provide immediate notice to
Liberty.” Appellant states that the DEQ Compliance Order asked
it only to submit a letter stating whether it would voluntarily
address the contamination. Joslyn and the other respondents
declined and exercised their right to request a hearing. On May
19, 1987, Joslyn gave notice of the potential “future claim” when
it was unclear what the DEQ would do. They then gave notice
again on June 23, 1987, when it expected the DEQ to enter an
amended Compliance Order directing the work to begin. When
the DEQ served Joslyn with the amended order on December 17,
1987, Joslyn promptly sent it to Liberty on December 31, 1987.
Therefore, Joslyn contends that it was only this amended letter
that triggered their duty to notify Liberty, of which Joslyn gave
timely notice, and that the district court erred in finding that the
notice was late. We disagree.
The August 2, 1986 Compliance Order stated that Joslyn was
subject to liability for clean-up and remedial costs, and ordered it
to submit an approved clean-up plan for the site. The August 2,
1986 Compliance order is substantially equivalent to the
Amended Compliance Order dated December 17, 1987, of which
Joslyn agrees is aclaim. This court concludes that this order was,
at least, a claim which triggers Joslyn’s contractual obligation to
2. The district court notes the incongruent position advanced in the early
stages of the trial, where Joslyn admitted that the August 2, 1986 order was aclaim
when attempting to engage Liberty’s duty to defend (as well as reimburse any
expenses already incurred). See Memorandum Ruling p. 7 fn. 2. Joslyn has
apparently restructured its argument to allege that the August 2, 1986 DEQ Order
was not a claim or suit which would trigger the duty to defend, and asserts that no
claim or suit occurred until the Amended Compliance Order of December 17, 1987,
of which Liberty was immediately notified.
6a
Appendix A
provide Liberty with immediate notice thereof as an express
condition precedent to coverage. Joslyn waited nine months
before providing Liberty with the requisite notice, thereby
committing a material breach of a condition precedent to
coverage under the policy. We next address the consequences of
this late notice on the rights and liabilities of the parties to the
contract.
Joslyn suggests that, even if they were late in providing
Liberty with notice, Louisiana law interprets this clause to
require “reasonable” notice to allow the insurer to adequately
prepare a defense. Joslyn claims that they were reasonable in
their conduct. Furthermore, Joslyn asserts that Liberty suffered
no prejudice from any delay, and therefore should not be relieved
from extending coverage to Joslyn. Appellant claims that Liberty
had a full opportunity to participate in Joslyn’s defense and to
protect itself, but chose to do nothing and let Joslyn bear the costs
of the defense.?
In holding that prejudice was not a factor to consider in
policies where notice was a condition precedent to coverage, the
district court relied on three relatively recent Fifth Circuit
opinions: Peavey Co. v. Zurich Insurance Co., 971 F.2d 1168 (Sth
Cir.1992); Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570 (5th
Cir.1990); and MGIC Indemn. Corp. v. Central Bank of Monroe,
La., 838 F.2d 1382 (Sth Cir. 1988). “The rule in Louisiana is that
where the requirement of timely notice is not an express
condition precedent, the insurer must demonstrate that it was
sufficiently prejudiced by the insured’s late notice” Peavey, 971
3. Moreover, Joslyn points out, Liberty never claimed prejudice in its
reasons for claim denial, and should be barred under waiver principles from raising
this defense on appeal. Liberty Mutual did not waive this defense, as it properly
raised it in its answer.
7a
Appendix A
F.2d at 1173. But where prompt notice of a covered occurrence is
a “condition precedent” to recovery under an insurance policy,
and the insured fails to give such notice, the claim is no longer
covered by the policy, regardless of whether the insurer can
demonstrate prejudice. MGIC, 838 F.2d at 1385-87. In the
present case, timely notice was an express condition precedent to
coverage. In MGIC, we held that the words “condition precedent”
mean exactly what they say, and failure to comply with the
provision precludes coverage. /d. at 1385.
Notably, this court’s decision in MGIC neglected to discuss a
Louisiana Supreme Court opinion disposing of a substantially
similar issue. The Louisiana Supreme Court has rejected the view
that a non-prejudicial delay in notice breaches a “condition
precedent” on similar facts to those presented here. In Jackson v.
State Farm Mut. Auto. Ins. Co., 211 La. 19, 29 So.2d 177 (1946),
the court reversed an intermediate appellate court decision which
relieved an insurer of its obligations under a “condition
precedent” analysis even though the insurer received notice soon
enough to defend the claim. The Louisiana Supreme Court held
that all the facts and circumstances must be considered in
“balancing the equities” in late notice cases, including “what
prejudice to the insurance company’s defense has been caused by
the delay... .” Id., 29 So.2d at 179.
In requiring the parties to live by the express terms of the
contract they freely entered, the MGIC court distinguished those
cases which have required a showing of prejudice to balance the
equities where the policy holders were consumers unlikely to be
conversant with all the fine print of their policies. MGIC, 838
F.2d at 1387. This court then reasoned that “strict adherence to the
terms of the notice provision would result too harshly against
unsophisticated consumers and so have required the insurance
8a
Appendix A
companies, in order to bar recovery under the policies, to
demonstrate that prejudice had resulted from the lack of notice.”
Id. The equitable rationale does not apply so strongly where both
parties are sophisticated businesses, which are expected to be
conversant with the terms of their contracts. Jd.
Our factual scenario requires us to distinguish Jackson and
follow the precedent laid down in MGIC. Unlike the instant case,
the insured in Jackson had reasonable grounds-to believe that no
claim would be made until the demand was made upon him.
Jackson, 29 So.2d at 177, 179. Additionally, the insured was only
eighty-two days tardy in providing the necessary notice, id. at
177, as opposed to Joslyn’s nine month delay. And finally, the
court in Jackson was painstakingly trying to protect the average
citizen who purchases a public liability policy without becoming
familiar with its detailed provisions, but simply puts it away
against the day when aclaim may be made against him. /d. at 178.
Moreover, the claim in Jackson was brought by an injured third
party against the insurance company. This court adopted the same
prejudice inquiry for claims brought pursuant to the Louisiana
Direct Action Statute. See Auster, 891 F.2d at 578 (holding non-
prejudicial delay in notice could not bar recovery by third party
claimant under statute). Such is not the case before us. Joslyn is
not a third party claimant, but a sophisticated business entity.
Consequently, these equitable exceptions do not weigh in their
favor.
In MGIC this court held that the insurer is not compelled to
prove prejudice where timely notice is a condition precedent to
coverage for a sophisticated business entity:
Much of the debate between [the parties] at
both the trial and appellate level concerns
9a
Appendix A
whether this language negates MGIC’s
obligation to demonstrate prejudice resulting
from lack of notice. We hold that the language
stating that compliance with this ho is
a condition precedent to recovery under the
policy means exactly what it says, and that if
Central failed to comply with this provision
by not giving MGIC timely notice of the
claim made, then the claim will not be
covered under the policy, regardless of
whether MGIC can demonstrate prejudice.
MGIC, 838 F.2d at 1386. It is well established under Louisiana
law that:
The courts may not make a contract for the
parties. Their functions and duties consist
simply in interpreting and enforcing the
agreement as actually made. It is self-evident
that a failure to restrict the rights of an injured
person to the terms and conditions of the
insurance contract would expose the insurer
to liability far and beyond the scope of the
contract.
... To allow recovery in the absence of
compliance of these provisions of the
contract would be unreasonable and
inequitable, and would establish a dangerous
precedent, inviting obvious instances of
abuse.
Id. (citing Hallman v. Marquette Cas. Co., 149 So.2d 131, 135-36
10a
Appendix A
(La.Ct.App.1963)). Under these facts, a nine month delay
constitutes a material breach of the condition precedent of
immediate notice. MGIC instructs us that prejudice need not
enter the calculation.
Appellant asks us to limit MGIC to the facts of that case,
where the notice came after trial had already concluded causing
obvious prejudice to the insurance company. However, this court
enunciated its broad holding in MGIC even after recognizing the
opportunity to limit the decision to the narrow facts before it. “. . .
Hallman is strong support for the proposition that MGIC was
prejudiced as a matter of law when Central failed to notify it of
the suit until after final judgment. We need not decide the case
before us on that basis, however, since we hold that the express
contractual provision requiring notice as a condition precedent
should be given its full effect.” MGIC, 838 F.2d at 1386 n. 2. We
are bound by our precedent in MGIC.
Appellant alleges error committed in the lower court by
holding that the DEQ Compliance Order was not a “suit” which
Liberty was obligated to defend under its policies. Further,
appellant claims that by excluding portions of the affidavit of
Joslyn’s former Risk Manager and in concluding that Joslyn
failed to meet its burden in proving the terms and conditions of
the missing liability policies covering Joslyn from 1952 to 1962,
the district court committed reversible error. However, we need
not reach these subsequent issues since Joslyn did not fully
comply with the express terms of the conditions precedent in the
contract.
lla
Appendix A
CONCLUSION
In this case we find that a claim was made, at the latest, when
Joslyn received the August 2, 1986 DEQ Compliance Order.
Timely notice was then due Liberty. Thus, when Joslyn waited
nine months to notify Liberty, it violated the condition precedent
of timely notice, and therefore its untimely claim is not within the
policy’s coverage. We will not disregard the express language of
the insurance contract, and ignore the condition precedent notice
requirement to effectively rewrite the contract to expand
coverage for Joslyn. The appellant’s motion to certify this
question to the Louisiana Supreme Court is DENIED, and the
judgment of the district court is
AFFIRMED.
12a
APPENDIX B — MEMORANDUM RULING OF THE
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF LOUISIANA, SHREVEPORT
DIVISION DATED JULY 8, 1993
JOSLYN MANUFACTURING COMPANY
Vv.
LIBERTY MUTUALINSURANCE COMPANY.
Civ. A. No. 90-2456.
United States District Court,
W.D. Louisiana,
Shreveport Division.
July 8, 1993
* * *
T. Haller Jackson, III, Tucker Jeter Jackson & Hickman,
Shreveport, LA, Jay A. Canel, Stephen D. Davis, Canel Davis &
King, Chicago, IL, for plaintiff.
Jack O. Brittain, Sr., Brittain & Sylvester, Natchitoches, LA,
Martha J. Koster, Lee Glickenhaus, Mintz Levin Cohn Ferris
Glovsky & Popeo, Boston, MA, for defendant.
MEMORANDUM RULING
STAGG, District Judge.
This is an action for a declaratory judgment and damages
arising from a denial of insurance coverage. Joslyn
Manufacturing Company (“Joslyn”), a Massachusetts
corporation, filed this action against its insurer, Liberty Mutual
13a
Appendix B
Insurance Company (“Liberty Mutual”), an Illinois corporation.
Joslyn seeks, first, the determination whether Liberty Mutual
must defend and indemnify Joslyn against the orders of the
Louisiana Department of Environmental Quality (“DEQ”)
compelling remediation of contamination at the old Lincoln
Creosoting site in Bossier City, Louisiana; second, Joslyn wants a
determination whether Liberty Mutual must pay any costs
incurred by Joslyn in connection with the toxic tort personal
injury and property damage claims made by neighbors to the site
in a suit entitled Johnson v. Lincoln Creosote et al., which is
pending in state court. This court has jurisdiction pursuant to 28
U.S.C. § 1332.
This case was tried to a jury from March 15 to March 18,
1993. The insurance policies at issue contain exclusions for
damages which were “expected or intended” by the insured and
for damage to the insured’s own property. The jury found that
Joslyn neither expected nor intended that contamination of the
environment would result from its operations at the Bossier City
site and that Joslyn incurred costs on account of damage to
groundwater. Essentially, what remains to be decided is whether
Joslyn is entitled to any insurance coverage from Liberty Mutual
and, if so, the amount of coverage available.
A. THE FACTS
Lincoln Creosoting Company treated wood with creosote at
the Bossier City, Louisiana, plant between 1935 and 1950. It also
leased property from the Louisiana and Arkansas Railroad, in
connection with its operation of the plant.
Joslyn purchased the Lincoln Creosoting Plant in Bossier
City on July 24, 1950. It operated the plant until 1969. Lincoln
assigned the railroad leases to Joslyn in connection with the plant
14a
Appendix B
sale. Joslyn entered into leases for additional property from the
railroad on January 15, 1955 and on October 12, 1967. Both sets
of leases contained an indemnity clause. When Lincoln operated
the plant, waste water from the creosote treatment operation
flowed into a slough on the east end of the property. When Joslyn
began operating the plant in 1950, Joslyn by-passed the slough
and installed a 30,000-gallon settlement tank to recover creosote
for re-use. Within six months, Joslyn also installed a second
10,000-gallon tank in series after the 30,000-gallon tank for the
recovery of creosote. In the mid- to late-50s, Joslyn installed an
unlined pond in series after the settling tanks to enable it to use
pentachlorophenol (“penta”) to treat poles. Penta was also
recovered from the ponds for re-use. This recovery system was
instituted for economic reasons, but it did not recover all creosote
and penta from the waste water. In the 1960’s, Joslyn began using
a small amount of chromium arsenic copper (“CAC”) to treat
wood, which was used with a closed-system treatment method.
Treatment chemicals were released into the environment in each
year of Joslyn’s operation. Joslyn sold the plant to Koppers, Inc.
on December 1, 1969.
Joslyn has been a Liberty Mutual insured since 1945. From
1962 through 1969, the creosote plant was an insured location
under Joslyn’s policies with Liberty Mutual. Neither party can
locate any of the pre-1962 liability policies between Joslyn and
Liberty Mutual.
Between 1962 and 1966, Joslyn’s general liability policies
with Liberty Mutual contained a special Louisiana endorsement
which provided coverage for property damage and personal
injury caused by an occurrence. An occurrence was defined as
“either an accident or a continuous or repeated exposure to
conditions which result during the policy period in injury to
15a
Appendix B
persons or real or tangible property which is accidentally caused.
All damages arising out of such exposure to substantially the
same general conditions shall be considered as arising out of one
occurrence.” In the 1967-69 policies, an occurrence was defined
as “an accident, including injurious exposure to conditions which
results during the policy period, in bodily injury or property
damage neither expected nor intended from the standpoint in the
insured.” None of the policies between 1962 and 1969 contained
a pollution exclusion. All of the policies provided insurance
coverage for Joslyn’s contractual liability to indemnify a lessor
for certain specific liability imposed by law on the lessor.
After the sale to Koppers in December 1969, the Bossier City
plant was not listed on Joslyn’s policy with Liberty Mutual as a
location for which coverage was provided.
In 1985 the DEQ began studying the old Lincoln Creosoting
Plant site. On October 14, 1985, a report was issued to the DEQ
that found the soil contaminated at the site and an extremely high
probability of groundwater contamination. On December 6,
1985, the DEQ sent Joslyn an information request conc erning the
site, and Joslyn responded on February 7, 1986. On August 2,
1986, the DEQ issued a compliance order finding that Joslyn and
twelve other parties were subject to liability for clean-up and
remedial costs, and ordered the parties to submit an approved
clean-up plan for the site. This order was stayed because of
requests for a hearing. On December 17, 1987, the DEQ ordered
Joslyn and the other potentially responsible parties to investigate
and clean up the site. Joslyn’s investigation confirmed soil and
groundwater contamination at the site.
Joslyn advised Liberty Mutual of the DEQ action on May 19,
1987, and on June 23, 1987. Liberty denied coverage by letter of
March 30, 1989.
16a
Appendix B
In March 1987, site neighbors filed a suit against Joslyn and
others in the 26th Judicial District Court for Bossier Parish,
Louisiana, entitled Johnson v. Lincoln Creosote Company, Inc.
The complaint alleges that plaintiffs suffered personal injuries
and property damage as the result of exposure to chemicals which
emanated from the site. Joslyn tendered this suit to Liberty
Mutual on or about April 10, 1987. Liberty Mutual tendered a
defense to Joslyn for the Johnson suit as of February 26, 1992.
B THEINSURANCE POLICIES
1 PRE-1962 POLICIES
The parties agree that Joslyn has been insured by Liberty
Mutual since 1945, but that the pre-1962 policies are lost. The
parties stipulated that the 1955 and 1956 comprehensive general
liability policies with Liberty Mutual provided $1 million in
coverage for personal injury, and $1 million for property damage.
The 1957-66 policies also provided comprehensive general
liability coverage. The 1957-58 policies provided $1 million for
personal injury and $1 million for property damage. The 1959
policy had a $3 million single aggregate limit, bodily injury and
property damage combined. The 1960-69 policies had a $10
million single aggregate limit for bodily injury and property
damage combined.
This is the only evidence concerning the pre-1962 policies
which is properly before the court.’ Joslyn has introduced no
1. Inrelation to the pre- 1962 policies, Joslyn has attempted to submit, post-
trial, the affidavit of Philip Gehrke, its risk manager from 1947 through 1983.
Liberty Mutual has filed a Motion to Strike the Affidavit. Liberty Mutual claims it
has been deprived of any opportunity to cross-examine Mr. Gehrke on the
statements made in his Affidavit. Liberty Mutual’ s Motion to Strike the Affidavit of
(Cont'd)
4 Sn sawn ty A *
ey Pea eee SEE ee me pee I ee
17a
Appendix B
evidence of the terms and provisions of the pre-1962 policies.
However, even if Joslyn had established the terms and provisions
of the pre-1962 policies, coverage would be denied for the
reasons stated in the following section.
2 COVERAGE: THE ISSUE OF LATE NOTICE
On August 2, 1986, the Department of Environmental
Quality (“DEQ”) issued a compliance order finding that Joslyn
was subject to liability for clean-up and remedial costs, and
ordered it to submit an approved clean-up plan for the site. Joslyn
advised Liberty Mutual of the DEQ’s actions on May 19, 1987
(Cont’d)
Philip Gehrke is GRANTED. Additionally, as evidence of the terms and provisions
of the pre- 1962 policies, Joslyn states in its post-trial Reply Brief that:
Joslyn has represented it had “caused by accident”
coverage for this plant from 1950 through 1956; a
special Louisiana endorsement providing “occurrence
coverage from 1957 through 1966; and “occurrence
coverage from 1967 through 1969. Liberty has never
challenged that representation. In fact, Liberty
acknowledged this coverage in the Illinois case and
represented that there was no practical difference in the
scope of coverage provided, i.e., all basically covered
property damage that was neight expected nor intended
by the insured.
(footnote omitted). Joslyn also cites exhibits from the “Illinois case” which were not
introduced into evidence in the present case. In the absence of a stipulation or any
evidence to support Joslyn’s statements, these assertions in. 2 post-trial brief are
insufficient to establish the terms and provisions of the pre-1962 policies. Liberty
Mutual has expressly challenged Joslyn’s lack of evidence on this issue.
18a
Appendix B
and June 23, 1987.” The August 2, 1986 DEQ compliance order
was amended on December 17, 1987. Liberty Mutual denied
coverage on March 30, 1989 based on a 1985 insurance policy.
The insurance policies at issue provide, in part:
NOTICE OF CLAIM OR SUIT. If claim is
made or suit is brought against the insured,
the insured shall immediately forward to the
company every demand, notice, summons or
other process received by him or his
representative.
2. The May 19, 1987 letter from Joslyn to Liberty Mutual states “[wJhile
there is nothing for [Liberty Mutual] to do at this time, we are putting you on notice
that this may result in a future claim under our prior General Liability Policy,” and
Joslyn enclosed the August 2, 1986 DEQ compliance order. The court notes that in
the June 23, 1987 letter to Liberty Mutual, Joslyn states “[n]Jotice of aclaim relative
to this site has previously been forwarded to Liberty Mutual. . . [and] [t]he purpose
of this letter is to inform you of subsequent events.” The letter concludes with the
following paragraph:
Joslyn reasserts its claim for insurance coverage for
the costs incurred in performing clean-up actions
dictated by the Department of Environmental Quality
as well as demanding that Liberty Mutual perform its
duty to defend Joslyn in these administrative
proceedings.
(emphasis added). In Joslyn’s brief dated May 25, 1993, Joslyn now asserts that the
August 2, 1986 DEQ order was not a claim or suit which would trigger Liberty
Mutual’s duty to defend. The issue of whether the August 2, 1986 DEQ order is a
“suit” which would trigger Liberty Mutual’s duty to defend will be addressed in a
subsequent section. The court does conclude, however, that this order is, at
minimum, a claim, which triggers Joslyn’s contractual obligation to provide
Liberty Mutual with immediate notice thereof as an express condition precedent to
coverage.
19a
Appendix B
And also that:
No action shall lie against the company
unless, as a condition precedent thereto, the
insured shall have fully complied with all the
terms of this policy, nor until the amount of
the insured’s obligation to pay shall have
been finally determined either by judgment
against the insured after actual trial, or by
written agreement of the insured, the claimant
and the company.
See page LMO1211 of the policy, found at Tab B of the appendix
to Liberty Mutual’s post-trial brief, titled “Requests for Rulings
of Law”.?
Joslyn delayed for over nine months before informing
Liberty Mutual of the August 2, 1986 DEQ compliance order.
Joslyn’s notice to Liberty Mutual was clearly not immediate, as
required by the insurance contracts.
“The rule in Louisiana is that where the requirement of
timely notice is not an express condition precedent, the insurer
must demonstrate that it was sufficiently prejudiced by the
insured’s late notice.” Peavey Co. v. Zurich Insurance Company,
971 F.2d 1168, 1173 (Sth Cir.1992) (emphasis added), citing
Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570 (Sth Cir.1990);
MGIC Indem. Corp. v. Central Bank of Monroe, La., 838 F.2d
3. This language is from a 1962 policy issued to Joslyn. Liberty Mutual has
stated that the language used in the 1962 policy is similar to the language in the
1963-1969 policies, unless specifically noted. See Liberty Mutual’ s post-trial brief
at p. 6, fn. 2. Joslyn has not contested this statement.
20a
Appendix B
1382, 1387 (Sth Cir.1988); Barnes v. Lumbermen’s Mutual
Casualty, Co., 308 So.2d 326, 328 (La.App. Ist Cir.1975). In the
present case, timely notice was an express condition precedent to
coverage.‘ In a suit by the insured, where the terms of the
insurance contract are breached by the giving of untimely notice,
the insurer is not required to show prejudice in order to avoid
liability to the insured. See Jackson v. Transportation Leasing
Company, 893 F.2d 794, 795 (Sth Cir.1990) citing Auster Oil Gas,
Inc., supra.
Joslyn contends that it gave adequate notice to Liberty
because Liberty has made no attempt to show that it was
prejudiced in any way by delayed notice. Joslyn’s only support
for this claim is that this court should not follow the Fifth
Circuit’s decisions in MGIC Indem. Corp., supra, and Jackson,
supra, since the Fifth Circuit “chose not to follow intermediate
state appellate court decisions requiring prejudice.” Although
this court recognizes the harsh consequences of its decision, it is
bound by the Fifth Circuit’s interpretation of the intermediate
state appellate court cases, which is, when notice is a condition
precedent to coverage, an insurer is not required to show
prejudice in order to avoid liability to the insured. Joslyn, without
excuse, failed to give Liberty Mutual timely notice as required by
the insurance policies as an express condition precedent to
coverage. Liberty Mutual did not waive this defense, as it
properly raised it in its answer.’ In sum, Liberty Mutual owes no
4. The aforementioned clauses contained in the Liberty Mutual policies are
substantially similar to the clauses at issue in Auster Oil & Gas, Inc., supra, which
were held to require timely notice as an express condition precedent to coverage.
5. Additionally, Liberty Mutual’s denial of coverage on March 30, 1989 was
based upon a 1985 policy which contained a “pollution exclusion,” not found in the
policies involved in the present suit.
2la
Appendix B
insurance coverage to Joslyn for the claims asserted by the DEQ
because Joslyn failed comply with the express terms of the
policies.
3 LIBERTY MUTUAL’S DUTY TO DEFEND
A THEDEQORDERS
Joslyn alleges that Liberty Mutual has the “duty to defend
and indemnify [Joslyn] against the orders of the [DEQ]
compelling remediation of contamination at the [site]... .” See
Pretrial Order at page 1.
The insurance contracts at issue only require Liberty Mutual
to defend suits against its insured. Although the policies provide
coverage for claims against the insured, the duty to defend only
arises when a suit has been filed. This distinction becomes clear
after reviewing the insuring agreement contained within the
policies. This provision provides that Liberty Mutual has the
right and duty to defend a suit against Joslyn, and that it may
investigate and settle any claim or suit agaist Joslyn.°
Thus, the initial issue which must be addressed is whether
6. The 1962 policy provides that Liberty Mutual: shall
defend any suit against the insured alleging such
injury, disease or destruction and seeking damages on
account thereof, even if such suit is groundless, false or
fraudulent; but the company may make such
investigation, negotiation and settlement of any claim
or suit as it dems expedient. . . . |
(emphasis added).
22a
Appendix B
the August 2, 1986 and/or the amended December 17, 1987 DEQ
orders constitute “suits” under the terms of the policies which
would thereby invoke Liberty Mutual’s duty to defend.’ The word
“suit” is not defined in Liberty Mutual’s policies. “Under
Louisiana law, an insurance policy is a contract and the words
used in a contract ‘are to be understood in the common and usual
signification, without attending so much to grammatical rules as
the general popular use.’ ” F.D.I.C. v. Mijalis, 800 F.Supp. 397,
400 (W.D.La.1992) citing Harmon v. Lumbermens Mutual
Casualty Company, 247 La. 263, 170 So.2d 646, 651 (1965).
Words are not pebbles in alien juxtaposition;
they have only acommunal existence; and not
only does the meaning of each interpenetrate
the other, but all in their aggregate take their
purport from the setting in which they are
used.... NLRB v. Federbush Co., 121 F.2d
954, 957 (CA2 1941) (L. Hand, J.)
King v. St. Vincent’s Hosp., __U.S.__, __, 112 S.Ct 570, 574, 116
L.Ed.2d 578 (1991) (footnote omitted). No Louisiana cases
defining the word “suit” have been cited by the parties. The
court’s own research has found no Louisiana cases interpreting
the word “suit” in the context of an insurance contract and the
“duty to defend.” Louisiana cases defining the word “suit” in
other contexts have been unearthed. For example, in Sims v. Sims,
247 So.2d 602 (La.App. 3d Cir.1971), the Court examined the
meaning of the word “suit” in the context of the Louisiana Code
7. By Minute Entry dated May 25, 1993, this court requested that Joslyn
identify which DEQ orders it was claiming that Liberty Mutual was required to
defend. Joslyn identified the August 2, 1986 and December 17, 1987 DEQ orders
and argues that the August 2, 1986 order is neither a claim nora suit.
23a
Appendix B
of Civil Procedure. The Court noted that the Louisiana Code of
Civil Procedure did not contain a definition of the word “suit,”
and stated:
The 1870 Code of Practice art. 96, defined a
“suit” as a “demand, made before a competent
judge.” In this sense, a “suit” is the same as a
“civil action” under LSA-C.C.P. art. 421. We
conclude that the redactors of the Code of
Civil Procedure intended the word “suits” in
art. 531 to be synonymous with the words
“civil action” in art. 421. Under this
construction, it is clear that a suit is pending
after it has been commenced by the filing of a
pleading in a court of competent jurisdiction.
Id. at 604; see also Stringfellow v. Nowlin Bros., 157 La. 683, 102
So. 869 (La.S.Ct.1925).
Cases from other jurisdictions are relevant because “[t]he
law of insurance is the same in Louisiana as in other states.” See
Calcasieu-Marine Nat. Bank v. American Employers’ Ins. Co.,
533 F.2d 290, 295 (Sth Cir.), cert. denied 429 U.S. 922, 97 S.Ct.
319, 50 L.Ed.2d 289 (1976). In Simon v. Maryland Cas. Co., 353
F.2d 608 (Sth Cir. 1965), the question before the Court in Texas
was:
whether the defense coverage provisions and
no action clause of a general liability policy
are to be read so literally that an assured, who
in an adversary proceeding has been
adjudicated guilty of negligence by a
constitutional court, is denied any coverage
24a
Appendix B
because the suit was by, not against him and
no affirmative money judgment was rendered
against him.
Id. at 610. In discussing the phrase “suit against the insured,” the
Court noted:
A suit is against an assured when, in a judicial
proceeding to which he is a party (or deemed
by the law to be a party), a definable claim or
contention is asserted that the assured has a
legal liability for damage or injury to person
or property.
Id. at 612 (emphasis added). In Ray Industries, Inc. v. Liberty
Mut. Ins. Co., 974 F.2d 754 (6th Cir.1992), the Court extensively
examined the issue of whether an EPA letter constituted a “suit”
that would trigger a duty to defend. The Court noted that the
general dictionary definition and the traditional meaning of the
word “suit” refer only to those proceedings that take place in a
court of law. The Court further noted that the insurance policies at
issue specifically distinguished between a suit and a claim in
several places. The Court concluded the Liberty Mutual’s duty to
defend was not triggered by the PRP letter from the EPA. For
further discussions and varying analyses, concerning whether a
PRP letter constitutes a suit for purposes of the duty to defend, see
also, Aetna Cas. and Sur. Co. v. General Dynamics Corp., 968
F.2d 707, 713 (8th Cir. 1992) (Under Missouri law, EPA demand
letters requiring clean up of various sites do not constitute suits
for damages which trigger duty to defend.); Aetna Cas. & Sur.
Co., Inc. v. Pintlar Corp., 948 F.2d 1507 (9th Cir.1991) (Under
Idaho law, EPA’s administrative claims trigger the insurer’s duty
to defend.); Ryan v. Royal Ins. Co. of America, 916 F.2d 731 (1st
25a
Appendix B
Cir.1990) (Under New York law, agencies’ letters were not
sufficiently coercive to constitute a suit, however, the word suit
does not necessarily require a lawsuit to be filed before the duty to
defend arises.); Avondale Industries, Inc. v. Travelers Indem. Co.,
887 F.2d 1200 (2d Cir. 1989), cert. denied, 496 U.S. 906, 110 S.
Ct. 2588, 110 L.Ed.2d 269 (1990) (Interpreting New York
contract law, the Court concluded that a letter from the Louisiana
Department of Environmental Quality constituted a suit, as it was
a formal demand for immediate action to clean up a hazardous
waste site.) and Maryland Cas. Co. v. ARMCO, Inc., 822 F.2d
1348 (4th Cir.1987) (Under Maryland law, EPA claim seeking
compliance with regulatory directives, including reimbursement
of response costs does not constitute a claim for “damages” and
does not invoke the duty to defend.).
The DEQ orders at issue are entitled “In the Matter of:
Lincoln Creosoting Facilities, Bossier City, Louisiana
Proceedings Under the Louisiana Environmental Quality Act,
La.Rev.Stat. 30:1051 et seg. Compliance Order.” The orders state
that they are issued by the Secretary of the Department of
Environmental Quality of the State of Louisiana under the
authority granted in the LEQA and the orders notify respondents
(not “defendants”) that failure to reply to the orders would
subject respondents “to possible enforcement proceedings under
Section 1973 of the Act [LEQA] which could result in the
assessment of civil penalties in an amount not to exceed $50,000
for each day of continued non-compliance.” (emphasis added).
La.Rev.Stat. 30: 1073 has been re-designated as 30:2025 and sets
forth the permissible enforcement proceedings under the LEQA.
La.Rev.Stat. 30:2025 specifically grants the DEQ the authority to
file a civil action, i.e., the LEQA itself differentiates a
compliance order from a civil action and considers a compliance
order something less than a civil action.
26a
Appendix B
This court concludes that the August 2 and the amended
December 17 compliance orders issued by the DEQ do not rise to
the level of a suit which would invoke Liberty Mutual’s duty to
defend. The court bases this conclusion on several factors: (1) the
compliance order itself specifically provides that if respondent
refuses to comply with the order, the respondent could be subject
to possible enforcement procedures under § 1073 [now: § 2025]
of the LEQA, i.e., acivil action or civil penalties; (2) the general
and traditional definition of a suit refers to a formal proceeding in
a court of law; and most importantly, (3) the insurance policies
specifically differentiate between the words claim and suit for
purposes of the duty to defend. An insurance policy is a contract,
and this court finds that Liberty Mutual only contracted to defend
Joslyn against suits, not against compliance orders of this nature.
B THEJOHNSON TOXIC TORT SUIT
On February 26, 1992, Liberty Mutual agreed to defend
Joslyn in the Johnson suit. At trial, Joslyn’s in-house attorney,
Carl Grabinski, testified that Liberty Mutual had still not
reimbursed Joslyn’s defense costs in that case. After the jury trial
in this matter, the parties were ordered to submit a list of issues
which remained to be decided by the court. A briefing schedule
was then established. The issue of Liberty Mutual’s duty to
defend the Johnson suit was not identified as an issue which
remained to be decided.
By a minute entry dated April 26, 1993, the parties were
asked to inform the court whether the issue of payment of defense
costs in the Johnson suit remained to be decided. In a letter to this
court dated May 6, 1993, Liberty Mutual states that it agreed to
defend Joslyn in the Johnson suit and that Joslyn acknowledges
that Liberty Mutual has honored its obligation. Thus, the court
27a
Appendix B
considers this issue MOOT and attaches Liberty Mutual’s letter
as evidence thereof. See attached Appendix “A.”
IT IS ORDERED that defendant shall submit a judgment
consistent with the terms of this memorandum ruling within ten
(10) days of its filing.
THUS DONEAND SIGNED.
APPENDIX A
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Lee H. Glickenhaus
May 6, 1993
Honorable Judge Tom Stagg
Federal District Court
Western District of Louisiana
500 Fannin Street
Room 106
Shreveport, LA71101
Re: Joslyn Manufacturing v. Liberty Mutual Insurance
Company Number CV90-2456 -
28a
Appendix B
Dear Judge Stagg:
This letter is Liberty Mutual’s brief response to Joslyn’s
brief pursuant to the minute order of April 26, 1993 concerning
Joslyn’s claim for coverage with regard to the Johnson
Complaint. Liberty Mutual has agreed to defend to Joslyn from
the Johnson case. Joslyn acknowledges in its papers that Liberty
Mutual has honored this obligation. There is no suggestion that
Liberty Mutual will refuse to honor this obligation in the future.
Accordingly, this issue is moot and there is no need for the Court
to issue a ruling on this matter at all.
Respectfully submitted
/s/ Lee H. Glickenhaus
Lee H. Glickenhaus
cc: Steve Davis, Esq.
Jack O. Brittain, Esq.
T. Haller Jackson, III, Esq.
Martha Koster, Esq.
LHG/bw: 278228.1
29a
APPENDIX C — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE FIFTH CIRCUIT
FILED SEPTEMBER 30, 1994
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 93-5563
JOSLYN MANUFACTURING CO.,
Plaintiff-Appellant,
versus
LIBERTY MUTUALINSURANCE CO.,
Defendant-Appellee.
Appeal from the United States District Court for the
Western District of Louisiana
ON SUGGESTION FOR HEARING EN BANC
(September 30, 1994)
Before REYNALDOG. GARZA, SMITH and PARKER, Circuit
Judges.
No member of the pane! nor Judge in regular active service
on the Court having requested that the Court be polled on hearing
en banc, (FRAP and Local Rule 35) the Suggestion for Hearing
En Banc is DENIED.
30a
Appendix C
ENTERED FOR THE COURT:
s/ Reynaldo G. Garza
United States Circuit Judge
[stamped]
CLERK’S NOTE:
SEE FRAPAND LOCAL
RULES 41 FOR STAY OF THE
MANDATE.
ie
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