Thermo Terratech v. GDC Enviro-Solutions, Inc. , 265 F.3d 329 ( 2001 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-30723
THERMO TERRATECH formerly known as THERMO PROCESS SYSTEMS, INC.;
TPS TECHNOLOGIES, INC.,
Plaintiffs-Appellants,
v.
GDC ENVIRO-SOLUTIONS, INC., et al.,
Defendants,
and
KATHLEEN ELNAGGAR, Individually, as successor of Hameed Elnaggar
and as Trustee of the Tarek Elnaggar Testamentary Trust, the
Sarif J. Elnaggar Testamentary Trust, and the Jeanne M. Elnaggar
Testamentary Trust as Successors of Hameed Elnaggar,
Defendant-Third Party Plaintiff-Appellee.
v.
SCOTTSDALE INSURANCE COMPANY,
Third Party Defendant-Appellee.
Appeal from the United States District Court
for the Middle District of Louisiana
September 24, 2001
Before DAVIS and JONES, Circuit Judges, and BARBOUR,* District
Judge.
BARBOUR, District Judge:
*
District Judge of the Southern District of Mississippi,
sitting by designation.
Plaintiff-Appellants filed suit in the United States District
Court for the Middle District of Louisiana to recover attorneys’
fees and costs incurred in defending a civil action brought by
Boston Old Colony Insurance Company (“Boston Old Colony”), the
subrogee of GDC Enviro-Solutions, Inc. (“GDC”). United States
Magistrate Judge Stephen C. Riedlinger found that Appellants,
pursuant to the indemnification clause and the “Personal
Guarantees” clause contained in the sales agreement entered between
GDC and TPS Technologies, Inc. (“TPST”), were entitled to recover
from the Elnaggar defendants reasonable attorneys’ fees and
expenses incurred in defending the claims of Boston Old Colony.
Appellants also sought to recover these attorneys’ fees and costs
from Appellee Scottsdale Insurance Company (“Scottsdale”), the
general liability insurer of GDC. Scottsdale did not dispute that
the attorneys’ fees and costs sought by Appellants were covered
under the terms of a comprehensive general liability insurance
policy (“CGL policy”) issued to GDC by Scottsdale. The magistrate
judge, however, found that two exclusions contained in the CGL
policy barred recovery by Appellants against Scottsdale. In this
diversity case involving interpretation of the comprehensive
general liability policy under Louisiana law, Plaintiffs-Appellants
Thermo Terratech (“Terratech”) and TPST appeal from the grant of
judgment to Defendant-Appellee Scottsdale. We reverse.
I. Factual Background and Procedural History
2
GDC entered a contract with Rubicon, Inc. (“Rubicon”) to
incinerate hazardous materials at the Rubicon plant located in
Geismar, Louisiana. To facilitate this contract, GDC and its sole
shareholders Hameed A. Elnaggar and Kathleen Elnaggar entered a
sales and service agreement with Terratech and TPST whereby TPST
agreed to design, develop, manufacture, and deliver a portable
hazardous waste incinerator for the Rubicon plant. The sales
agreement also required TPST to provide two “lead operators,” the
primary duty of whom was to train the employees of GDC to operate
the incinerator. Ron Waligora (“Waligora”), a mechanical engineer,
was one of the lead operators assigned to the Rubicon plant
pursuant to the sales agreement.
The liquid waste incinerator provided by TPST for the Rubicon
plant was equipped with three redundant systems, the purpose of
which was to provide an emergency flow of water to cool the system
in the event that temperatures in the incinerator exceeded normal,
a power failure occurred, or the main induce draft fan was not
functioning. In January of 1991, a problem developed with one of
the variable speed control drivers (“driver”), an electrical
component of the incinerator. GDC contacted I.D.M. Controls
(“I.D.M.”) of Baton Rouge, Louisiana, to repair the driver. At the
request of GDC, I.D.M. Controls dispatched one of its field
technicians, Dan Lee (“Lee”) who disconnected power to the control
panel in which the driver was housed, removed the driver, and
3
transported it to Baton Rouge for repair. Upon completion of the
repairs, the driver was returned to the Rubicon plant and
reinstalled by Lee.
On February 21, 1991, GDC discovered a problem with another of
the drivers in the control panel. I.D.M. was again contacted to
repair the driver, but GDC decided to use its own employees to
remove and transport the driver to Baton Rouge. GDC operator
George Daher contacted Waligora, stated that he was going out-of-
town, and requested that Waligora remove the driver the following
morning. It is undisputed that other non-engineer GDC operators
had received training with regard to the procedure to be utilized
when disconnecting the power supply to the control panel. It is
further undisputed that several non-engineer GDC employees had the
training necessary to remove the damaged driver.
On February 22, 1991, Waligora initially consulted the
incinerator log book which indicated that cooling water was being
supplied by the recirculating pumps. Waligora then assessed the
control panel and, upon finding that the recirculating pump light
was not illuminated,1 assumed that the recirculating pumps had been
turned off and that one of the alternate water supply systems was
cooling the incinerator. Although Waligora knew that two of the
redundancies, the Hale fire pump and John Deere emergency diesel,
were either not functioning or not enabled respectively, he was
1
Waligora did not test the lights on the control panel to
determine whether the bulbs functioned.
4
unaware that the third, the solenoid valve to the emergency supply,
had been closed by the GDC operators because it had developed a
leak. Therefore, the only devices providing cooling water to the
incinerator were the recirculating pumps which would cease to
function at the time power to the control panel was disconnected to
facilitate removal of the damaged driver.
Christopher Covert (“Covert”), an associate engineer employed
by GDC to supervise construction of the primary furnace for the
Rubicon plant, was present at the process control panel of the
incinerator. Prior to the time Waligora disconnected power to the
control panel, he informed Covert that the disruption would cause
certain readings on the panel to remain constant while others would
read zero. Waligora then disrupted power to the control panel
thereby disconnecting the recirculating pumps. Although several
alarms signaled on the control panel, they were silenced by Covert
as it was his belief, based on Waligora’s statement, that abnormal
readings were to be expected and could be ignored. A fire in the
incinerator ensued shortly after power to the control panel was
disconnected.
GDC and TPST entered an Agreement of Settlement, Release,
Transaction and Compromise to resolve all claims then existing
between the parties including claims that arose because of the
fire. GDC indicated that its primary purpose in entering the
settlement was to obtain insurance proceeds to effectuate
replacement of the damaged incinerator and to resume operations.
5
Thereafter, Boston Old Colony, the fire insurer and subrogee of
GDC, filed suit against TPST and its parent corporation Terratech,
in part to recover the insurance proceeds paid to GDC. The case
was heard by United States Chief District Judge John V. Parker who,
after a trial and consideration of the post-trial briefs submitted
by the parties, found that: “The sole cause of the fire was the
negligence of Waligora in removing the [driver] for the main induce
fan without making sure that it was safe to do so, i.e. without
making sure that the cooling water supply would not be
interrupted.”2 Judge Parker additionally found that under the
terms of the sales agreement entered by TPST and GDC, the latter
agreed to indemnify and hold TPST harmless from claims of the
nature asserted in the complaint thereby precluding the ability of
Boston Old Colony, as subrogee of GDC, to recover on those claims.3
Judgment was entered in favor of TPST and Terratech and the case
was dismissed on January 5, 1995. The decision of the district
court was affirmed on appeal.4
On January 8, 1997, Terratech and TPST (“Appellants”) filed
suit against GDC and Kathleen Elnaggar in her individual and
representative capacities (“Elnaggar”) to recover the attorneys’
fees and costs incurred in defending the Boston Old Colony
2
Boston Old Colony Ins. Co. v. Thermo Process, et al., No.
91-905-A, slip op. at 6-7 (M.D. La. Jan. 5, 1995).
3
Id. at 19.
4
See Boston Old Colony Ins. Co. v. Thermo Process et al., 95
F.3d 54 (5th Cir. 1996).
6
litigation.5 During the period relevant to the underlying dispute,
GDC and Elnaggar had in effect a comprehensive general liability
insurance policy (“CGL policy”), the insurer of which was Appellee
Scottsdale. On June 26, 1997, GDC and Elnaggar filed a third party
complaint against Scottsdale after Scottsdale refused their tender
of defense. On December 31, 1997, Appellants filed an amended
complaint whereby Scottsdale was named as a principle defendant in
the case.6 The parties consented to have the case heard by United
States Magistrate Judge Stephen C. Riedlinger.
On May 1, 1998, Appellants moved for summary judgment on the
issue of liability against Elnaggar an Scottsdale. In response,
Scottsdale argued that the claims asserted by the Appellants were
excluded from coverage under the “Contractual Liability Coverage”
exclusion (“Contractual Liability exclusion”)7 and/or the
5
Sometime after the lawsuit was filed, GDC filed a petition
for bankruptcy relief. On April 8, 1998, all proceedings with
regard to GDC were stayed pending order of the bankruptcy court.
6
Scottsdale was named a defendant pursuant to the Louisiana
direct action statute which provides, in relevant part:
The injured [party] ... at their option, shall have a
right of direct action against the insurer within the
terms and limits of the policy; and, such action may be
brought against the insurer alone, or against both the
insured and insurer jointly and in solido, in the parish
in which the accident or injury occurred or in the parish
in which an action could be brought against either the
insured or the insurer under the general rules of venue
prescribed by Code of Civil Procedure Art. 42 only.
LA. REV. STAT. ANN. § 22:655(B)(1) (West 1995).
7
The CGL policy provides, in relevant part:
I. Contractual Liability Coverage
....
7
“Engineers, Architects or Surveyors Professional Liability
exclusion (“Professional Liability exclusion”).8 The magistrate
judge granted summary judgment in favor of Appellants against
Elnaggar, and found that TPST could recover reasonable attorneys’
fees and costs from Elnaggar pursuant to the indemnification clause
and the personal guarantee clause contained in the sales agreement.
With regard to Scottsdale, the magistrate judge found that the
Contractual Liability exclusion did not bar recovery but denied
summary judgment on the issue of whether the Professional Liability
exclusion was applicable.
The case was heard by the magistrate judge on November 12,
1998. At the close of Appellants’ case, Scottsdale moved for a
judgment on partial findings pursuant to Rule 52(c) of the Federal
Rules of Civil Procedure. The magistrate judge, at that time and
(B) The insurance afforded with respect to liability assumed
under an incidental contract is subject to the following
additional exclusions:
....
(3) if the indemnitee of the insured is an architect, engineer
or surveyor, to the liability of the indemnitee, his agents or
employees, arising out of
....
(b) the giving of or the failure to give directions or
instructions by the indemnitee, his agents or employees,
provided such giving or failure to give is the primary cause
of the bodily injury or property damage.
8
The CGL policy provides, in relevant part:
It is agreed that the insurance does not apply to bodily injury
or property damage arising out of the rendering of or the failure
to render any professional services by or for the named insured,
including
....
(2) supervisory, inspection or engineering services.
8
contrary to his prior ruling on the motion for summary judgment,
found that coverage under the CGL policy was excluded under both
the Contractual Liability exclusion and the Professional Liability
exclusion. Judgment was entered in favor of Scottsdale on the
claims asserted by Appellants in their amended complaint and on the
third party claims asserted by Elnaggar.9 This timely appeal
followed.
II. Analysis
The interpretation by a district court of an insurance
contract and the exclusions contained therein is a question of law
and, therefore, subject to de novo review. See Jarvis Christian
Coll. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 197 F.3d
742, 746 (5th Cir. 2000). As the subject CGL policy was delivered
in the State of Louisiana, we interpret the provisions of the
subject policy in accordance with the law of that state. See Adams
v. Unione Mediterranea Di Sicurta, et al., 220 F.3d 659, 677 (5th
Cir. 2000). Under Louisiana law, interpretation of an insurance
policy is subject to the general rules of contract interpretation
which requires judicial determination of the common intent of the
parties to the contract. See Louisiana Ins. Guar. Ass’n v.
Interstate Fire & Cas. Co., 630 So. 2d 759, 763 (La. 1994). The
9
Judgment was entered in favor of Appellants and against
Elnaggar in the amount of $245,215.69 which represents the
reasonable attorneys’ fees and costs incurred by Appellants in
defending the lawsuit brought by Boston Old Colony and in bringing
the lawsuit against Elnaggar to recover those fees and costs.
Appellants did not appeal the judgment against Elnaggar.
9
intent of the parties, “as reflected by the words in the policy[,]
determine the extent of coverage.” Id. We construe the words of
an insurance policy by applying their “general, ordinary, plain,
and proper meaning ... unless [they] have acquired a technical
meaning.” Id. See also South Cent. Bell Tel. Co. v. Ka-Jon Food
Stores of La, Inc., 644 So. 2d 357, 360 (La. 1994).
Exclusions to coverage contained in an insurance policy must
be clearly and expressly set forth. See Omiga v. Rodriguez, 799 F.
Supp. 626, 630 (M.D. La. 1992). When the language of an insurance
policy is clear, it must be enforced as written. See Reynolds v.
Select Props. Ltd., 634 So. 2d 1180, 1183 (La. 1994). If, however,
the terms of the policy are ambiguous, they must be construed
against the drafter of the policy. See Oaks v. Dupuy, 633 So. 2d
165, 168 (La. App. 2 Cir. 1995). Therefore, in the event the words
contained in an exclusionary clause are susceptible to greater than
one reasonable interpretation, we must adopt the interpretation
that provides coverage to the insured. See Tulley v. Blue Cross
Blue Shield of La., 760 So. 2d 1193, 1195 (La. App. 3 Cir. 2000).
Before determining whether the exclusions upon which
Scottsdale relies are applicable, we must first determine whether
the sales agreement entered by GDC and TPST is within the coverage
clause of the policy. See Adams, 220 F.3d at 678. The CGL policy
provides coverage for incidental contracts which are defined by the
policy as “any oral or written contract or agreement relating to
the conduct of the named insured’s business.” We find that the
10
sales agreement entered by GDC and TPST is an “incidental contract”
as that term is defined by the CGL policy.
Scottsdale first contends that the claims asserted by
Appellants are excluded from coverage under the Contract Liability
exclusion. Under this exclusion, coverage is excluded for:
[L]iability assumed under an incidental
contract ... if the indemnitee of the insured
is an ... engineer ... to the liability of the
indemnitee, his agents or employees, arising
out of ... the giving of or the failure to
given directions or instructions by the
indemnity, his agents or employees, provided
that such giving or failure to give is the
primary cause of the ... property damage.
We note that for this exclusion to apply the instruction given by
Waligora to Covert, which prompted the latter to silence the alarms
that signaled on the control panel after the power was
disconnected, must be the “primary cause” of the fire and resulting
property damage.
The term “primary” is defined to mean “first in importance;
chief; principle.” WEBSTER’S UNABRIDGED DICTIONARY 1429 (3d ed. 1983).
Judge Parker, in the Boston Old Colony litigation, after citing to
multiple negligent acts and/or omissions on the part of Waligora,
concluded that: “The sole cause of the fire was the negligence of
Waligora in removing the [driver] for the main induce fan without
making sure that it was safe to do so, i.e. without making sure
that the cooling water supply would not be interrupted.” We
acknowledge that Waligora’s instruction to Covert and/or his
failure to give instructions to other GDC employees to ensure that
11
the incinerator redundancies were operational are factors that
contributed to his negligent act of failing to ensure that the
incinerator was supplied with an alternate source of cooling water
during the period of time in which power was disconnected to the
control panel. We conclude, however, that the primary or principle
cause of the fire was Waligora’s negligent act of disconnecting
power to the control panel, thereby disrupting power to the main
induce fan which was the only device providing cooling water to the
incinerator at that time. Given the facts of this case, we
conclude that the instructions given, or failed to be given by
Waligora were not the primary cause of the fire, and that the
Contract Liability exclusion does not apply to bar coverage.
Accordingly, we reverse the decision of the magistrate judge that
the Contractual Liability exclusion barred recovery by the
Appellants under the CGL policy.
Scottsdale also contends that the claims asserted by
Appellants are excluded from coverage under the Professional
Liability exclusion. Under this provision, coverage is excluded
for “property damage arising out of the rendering or the failure to
render any professional services by or for the insured including
... engineering services.” “Professional services” are defined
under Louisiana law
“as ‘services performed by one in the ordinary course of the
practice of [one’s] profession, on behalf of another.’” Jensen v.
Snellings, 841 F.2d 600, 613 (5th Cir. 1988) (quoting Aker v.
12
Sabatier, 200 So. 2d 94, 94 (La. App. 1st Cir. 1967)). To
determine whether services are professional in nature, we look:
[T]o the character of the services performed,
such as whether special knowledge and
technical expertise are required, rather than
the title or character of the party performing
the services. Acts which could have been done
by an unskilled or untrained employee are not
subject to a professional services exclusion.
Professional services involve discretion
acquired by special training and the exercise
of special judgment.
Abramson v. Florida Gas Transmission Co., 908 F. Supp. 1389, 1394
(E.D. La. 1995) (quoting Natural Gas Pipeline Co. of America v.
Odom Offshore Surveys, Inc., 697 F. Supp. 921, 928 (E.D. La. 1988),
aff’d, 889 F.2d 633 (5th Cir. 1989)). See also American Cas. Co.
v. Hartford Ins. Cas. Co., 479 So. 2d 577 (La. App. 1st Cir. 1985).
Therefore, for the Professional Liability exclusion to apply, the
fire and resulting property damage must have arisen from Waligora’s
rendering, or his failure to render, an engineering service.
We find that the actions taken by Waligora were not
professional services as that term is defined under Louisiana law.
It is undisputed that all of the GDC operators, none of whom were
professional engineers, had been trained by Waligora to assess the
incinerator logs and control panel prior to disconnecting power to
the system. We acknowledge that the actions taken by Waligora
could not have been performed by an individual not trained to
operate the incinerator. It is clear, however, that the actions
taken by Waligora could have been performed by individuals who had
neither engineering training, nor the ability to exercise special
13
judgement unique to the field of engineering. We conclude, from
the facts of the case, that the actions taken by Waligora were not
engineering services and, therefore, fall outside the scope of the
Professional Liability exclusion contained in the CGL policy. See
e.g. Abramson, 908 F. Supp. at 1394-94 (applying Louisiana law)
(finding that professional liability exclusion did not apply
because there was no evidence demonstrating that the removal and
replacement of pipeline covering required the special training of
an engineer or the exercise of his professional judgment).
Scottsdale contends that in the event the actions taken by
Waligora were not professional services, by application of the
prior decision of this Court in Natural Gas Pipeline Co. of America
v. Odom Offshore Surveys, Inc., 889 F.2d 633 (5th Cir. 1989),
coverage under the CGL policy is nevertheless excluded. In that
case, Odom Offshore Survey, Inc. (“Odom”) was hired by Natural Gas
Pipeline Company of America (“NGPL”) to survey a pipeline and plot
proposed anchor locations to be used to guide a dive vessel over
designated pipeline locations. Two Odom employees were to use data
generated by a Hydrotrac computer system to facilitate placement of
the anchors in such a manner as to not damage the pipeline. The
employees directed the positioning of four anchors, one of which
collided with the pipeline causing serious damage. The district
court found that the employees of Odom were negligent in the manner
in which the anchors were positioned but, as the employees were
performing surveying services at the time the anchors were
14
positioned, the property damage resulting from their negligence was
excluded from coverage under a professional liability exclusion
contained in the insurance policy.
We find Odom distinguishable on its facts. First, in Odom
there was a substantial amount of evidence to show that the
services being performed by the Odom employees were of the type
“generally recognized as surveying services.” Id. at 635. By the
facts before us, we have already concluded that the actions taken
by Waligora were not professional engineering services. Second, in
Odom we found that because the damage to the pipeline arose from
the performance of professional surveying services Odom had
contracted to perform for NGPL, the actions taken by the Odom
employees were within the category of “professional services.” We
acknowledge that under the sales agreement entered by GDC and TPST,
the latter was obligated to provide engineering services including
the design, development, manufacture and delivery of a system to
incinerate wastes. The sales agreement also required TPST to
furnish non-engineering services including the placement of two
lead operators, neither of which was required to be an engineer, at
the Rubicon plant in part to train GDC operators to operate the
incinerator. The facts show that the actions taken by Waligora
were not required to satisfy the engineering portion of the sales
agreement as, at the time the actions were taken, he was not in the
process of designing, developing, or otherwise acting within the
course of the practice of his engineering profession on behalf of
15
TPST. We conclude that Waligora’s acts of assessing the
incinerator system prior to disconnecting power to the control
panel and disconnecting the power were not professional engineering
services which would implicate application of the Professional
Liability exclusion. Accordingly, we reverse the decision of the
magistrate judge that the Professional Liability exclusion barred
recovery under the CGL policy.
III. Conclusion
We hold that neither the Contractual Liability exclusion nor
the Professional Liability exclusion contained in the CGL policy at
issue in this case apply to bar coverage on the claims asserted by
Appellants. We REVERSE the decision of the district court and
REMAND this case for entry of judgment against Scottsdale for
reasonable attorneys’ fees and expenses due under this policy.
16