Duhon v. Mobil Oil Corp. , 12 F.3d 55 ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 92-5183.
Glenn David DUHON, Plaintiff,
v.
MOBIL OIL CORP., Defendant,
MOBIL PRODUCING TEXAS AND NEW MEXICO, INC., Third-Party Plaintiff-Appellee,
v.
BAYOULAND INSURANCE, INC., Third-Party Defendant-Appellant,
v.
WIRELINE AND SNUBBING CONSULTANTS, INC., Third-Party Defendant/Third-Party
Plaintiff-Appellant,
v.
F & G MARKETS OF LOUISIANA, et al., Third-Party Defendants-Appellees.
Jan. 19, 1994.
Appeal from the United States District Court for the Western District of Louisiana.
Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge, and PICKERING,* District Judge.
POLITZ, Chief Judge:
Wireline and Snubbing Consultants, Inc. and its insurance agent, Bayouland Insurance, Inc.
seek modification of a judgment which casts full responsibility on Bayouland for its failure to procure
certain insurance coverage. Appellants first urge that because of a failure to inform, F & G Markets
of Louisiana, Inc. and Resource Insurance Services, Inc. should share in Bayouland's liability. They
alternatively assert that the policy underwritten by Lloyds should be reformed to provide the
necessary coverage. Finding no error, we affirm.
Background
An accident involving a Wireline employee provides the basis for this multi-party action.
*
District Judge of the Southern District of Mississippi, sitting by designation.
Glenn David Duhon was injured in September of 1986 while working on an oil rig owned by Mobil
Producing Texas & New Mexico, Inc. By contractual agreement Wireline had agreed to hold Mobil
harmless for injuries to its employees. In anticipation of possible liability Wireline had contacted its
agent, Bayouland, in the early part of 1986.
During its conversation with Bayouland, Wireline expressed interest not only in general
comprehensive liability coverage, but also in specific protection to cover the claims of injured
employees. Bayouland included this information in an application forwarded to F & G, which in turn
passed it along to Resource. Resource then contacted a London insurance broker to obtain a
premium quote from underwriters at Lloyds; Resource did not send along Wireline's application.
The broker, based on the information communicated, transmitted a quote to Resource that contained
a "third party oil exclusion" closely resembling one found in an existing excess liability policy. The
provision excluded indemnity obligations of the sort contractually assumed by Wireline in its
agreement with Mobil. To fill the gap, however, Lloyds offered Wireline an "actions over/indemnity
buy-back" fo r an additional premium. Had Wireline purchased the buy-back, Duhon's claim for
personal injury would have been covered.
The buy-back was not purchased and the reason therefore lies at the core of this case. The
premium quote, including the third party exclusion and the optional actions over/indemnity buy-back,
was relayed by Resource to F & G. F & G agent, Cherly Lundy, dispatched the quote to Wayne
Delcambre at Bayouland. Lundy, a bit uncertain about the meanings of the exclusion and the
buy-back, contacted Resource for further explanation. After being advised about the provisions she
dismissed the matter from her mind; Delcambre had asked no questions and presumably understood
these provisions.1
In April, 1986, Bayouland instructed F & G to bind the insurance policy for Wireline. F &
G transferred this request to Resource, which then relayed it to Lloyds. As a precautionary measure,
Lloyds double-checked Wireline's decision to reject the buy-back provision. Although Delcambre
1
Delcambre testified that he attributed a different meaning to the exclusion than that intended
by Lloyds.
does not recall whether F & G again contacted him concerning this matter, Lundy remembers
speaking to Delcambre and confirming Wireline's decision not to purchase the optional protection.
The insurance was thus bound and, as noted, an employee was injured. In the ensuing
litigation Mobil defended Duhon's suit and filed a third party complaint for indemnity against
Bayouland. Wireline's insurer denied coverage based on the third party oil exclusion, causing
Wireline to institute third party actions against Bayouland, F & G, Resource, and Lloyds. Bayouland
then asserted claims against F & G and Resource.
The district court, on summary judgment, dismissed Duhon's claims and ordered Wireline to
reimburse Mobil for its defense costs. Wireline, in turn, received an indemnity judgment against
Bayouland for negligently failing to procure the requested insurance. F & G, Resource, and Lloyds
were absolved of liability. Wireline and Bayouland appeal.
Analysis
We review grants of summary judgment de novo, applying the same standards as that applied
by district courts.2 Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate
where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law."
Wireline and Bayouland first attack the judgments in favor of F & G and Resource. They
urge this court to hold that F & G and Resource breached a duty to explain the terms of the insurance
policy to Wireline and Bayouland. We conclude that no such duty existed.
Under Louisiana law, "[a]n insurance agent who undertakes to procure insurance for another
owes an obligation to his client to use reasonable diligence in attempting to place the insurance
requested and to notify the client promptly if he has failed to obtain the requested insurance."3 To
recover losses arising from an agent's failure to obtain insurance coverage, the insured must prove
three things:
2
Perry v. Mercedes Benz of North America, Inc., 957 F.2d 1257 (5th Cir.1992).
3
Karam v. St. Paul Fire & Marine Ins. Co., 281 So. 2d 728, 730 (La.1973).
(1) an undertaking or agreement by the insurance agent to procure insurance;
(2) failure of the agent to use reasonable diligence in attempting to place the insurance and failure to
notify the client promptly if he has failed to obtain the insurance; and
(3) actions by the agent warranting the client's assumption that the client was properly insured.4
F & G and Resource breached no duty. After Wireline's request for insurance filtered down
through Bayouland and F & G, Resource obtained coverage information from the insurer at Lloyds
and transmitted the terms of the policy back up the communication chain. Bayouland was informed
that coverage was available but that a third party oil exclusion applied; it also knew that the actions
over/indemnity buy-back was available to fill the uninsured gap. Bayouland may not now, after it
negligently failed to ascertain the meanings of these terms,5 shift its liability to F & G and Resource.
Louisiana law does not impose an obligation on an insurance broker dealing with another professional
agent or broker to assure that the other fully understands all aspects of the policy at issue. Rather,
the insurance professional is charged with knowledge of the types of policies available, their terms,
and their coverage parameters. "Where the broker does not understand the policy, reasonable
diligence requires the broker to discover what the insurance company intended to include and exclude
under the policy's language."6
In this case, Resource informed F & G, which apprised Bayouland, of the exact terms of the
Lloyds policy. Bayouland's negligent failure to further investigate those terms precluded Wireline
from procuring the coverage it sought. We decline to impose on insurance brokers a duty to explain,
even though unrequested, every term of an insurance policy to other experienced insurance brokers.
Wireline and Bayouland's alternate entreaty to this court to reform the Lloyds policy must
likewise fail. To establish the appropriateness of reformation, appellants had to prove by clear and
convincing evidence that the policy, as written, contains a mutual mistake and did not comport with
4
Offshore Prod. Contractors, Inc. v. Republic Underwriters Ins. Co., 910 F.2d 224, 229-30
(5th Cir.1990); Karam, 281 So. 2d at 730-31.
5
The district court held Bayouland solely responsible for Wireline's losses because Bayouland
failed to inform itself and its client about the policy exclusion and optional buy-back.
6
Offshore, 910 F.2d at 231.
the parties original intent.7 In this case the exact opposite occurred.
The judgment of the district court is AFFIRMED.
7
Motors Ins. Co. v. Bud's Boat Rental, Inc., 917 F.2d 199 (5th Cir.1990).