National Union Fire Ins. Co. of Pittsburgh, Pa. v. Cagle

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
___________________________
No. 94-40648
___________________________
NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PA.,
Plaintiff-Consolidated-Counter-Claimant-Appellant/Cross-Appellee,
VERSUS
CHARLES F. CAGLE, ET AL.,
Defendants-Consolidated Counter-Defendants-Appellees/Cross-
Appellants.
* * * * * * * * * *
CHARLES F. CAGLE, ET AL.,
Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants,
versus
NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA,
Defendant-Counter-Claimant-Appellant-Cross-Appellee.
___________________________________________________
Appeals from the United States District Court
for the Western District of Louisiana
____________________________________________________
November 7, 1995
Before JOLLY, DAVIS, and EMILIO M. GARZA, Circuit Judges.
DAVIS, Circuit Judge:
In this diversity case, the appellant, National Union, appeals
a district court declaratory judgment that appellant's insurance
policy afforded coverage for a loss which was reduced to judgment
in a Louisiana court by appellee, Cagle, et al. In a cross-appeal,
the appellee challenges the district court's judgment exonerating
National Union from any obligation for penalties. We affirm the
district court's judgment in all respects.
I. Facts
Appellant National Union Fire Insurance Company of Pittsburgh
("National Union") issued directors and officers liability and
corporation reimbursement insurance policies (the "D&O policies")
to First National Bank of Shreveport ("FNB"). Mr. Jess Loyd, Jr.,
was a senior vice-president and supervisor of the agricultural
lending department of FNB for 37 years until his suicide in 1987.
Mr. Loyd was an insured under the D&O policy. The appellees (the
"Cattlemen") are six families in the cattle ranching business and
were customers of FNB since 1970. Mr. Loyd handled all of the
Cattlemen's loans and other financial transactions with the bank.
The Cattlemen were persuaded by Mr. Loyd to change their mode of
operation from a traditional cow-calf, low-risk operation into a
speculative, high-risk operation. Over the years, the Cattlemen
sustained high losses and became more and more dependant on Mr.
Loyd to provide loans to cover their losses. The Cattlemen alleged
Mr. Loyd took advantage of his position at the bank and their
vulnerability by requiring them to buy cattle and supplies at
inflated prices from third parties who gave kickbacks to Loyd.
In 1987 and 1988, the Cattlemen filed a series of lawsuits
(the "lender liability suits") in Louisiana state courts against
FNB, alleging claims of duress, negligent misrepresentation,
domination and control, breach of fiduciary duty, and fraud. The
Succession of Loyd (the "Succession") was named as a co-defendant
2
in two of these suits. Concurrently, in Spring, 1988, the
Cattlemen filed a second series of suits against the Succession in
Caddo Parish (the "Caddo Parish suits"), alleging personal
liability of Mr. Loyd due to fraud and self-profiteering.1 In the
Caddo Parish suits, the Succession filed third-party claims against
FNB. Mr. John Cox represented FNB in both the lender liability and
Caddo Parish suits. He notified all insurers, including National
Union, of the claims against FNB and the Succession and forwarded
the insurers copies of the pleadings.
The National Union policy had three clauses that caused
National Union to pay little attention to this litigation. First,
under the policy National Union had no duty to defend either FNB or
the Succession. As a result National Union's counsel was not
defending either insured. Second, the policy afforded no coverage
for losses arising from acts of fraud or willful misconduct, as was
alleged in the pleadings. Finally, the policy had a no-action
clause which, at that time, protected the insurer from a direct
action under the Louisiana Direct Action Statute before a judgment
was rendered against the insured.2
1
Under Louisiana law unless the Succession waived venue, the
Cattlemen had to sue the Succession in Caddo Parish where the
Succession had been judicially opened. See La. Code C. Pr. art. 81.
2
Subsequently, the Louisiana Supreme Court ruled that the
Direct Action Statute, La. R.S. 22:655, overrides such policy
provisions. Quinlan v. Liberty Bank & Trust Co., 575 So. 2d 336
(La. 1991). In fact, National Union could have been sued under
this ruling in July, 1991, when the Caddo Parish suits were
amended, consolidated and moved to Natchitoches Parish. The Direct
Action Statute, however, gives the Cattlemen the choice of suing
only the insured or both the insured and his insurer.
3
The Cattlemen settled the lender liability suits against FNB
in September, 1988, but reserved their rights against the
Succession and FNB's insurers. As a condition to the settlement,
the Cattlemen agreed to get the Succession to drop the third-party
claims against FNB in the Caddo Parish suits. In a letter dated
December 9, 1988, Mr. Cox informed National Union that FNB had
settled its uninsured liability with the Cattlemen, that FNB was no
longer a party in the state court suits, and that the Cattlemen
planned to pursue all insurers.
In an earlier letter to National Union dated August 24, 1988,
Mr. Cox had reported that the Cattlemen and the Succession had
reached a settlement accommodation which included an obligation of
the Succession to deliver to the Cattlemen all the records of Jess
Loyd, Jr. Actually, the Succession did not enter into a written
agreement with the Cattlemen until December, 1988, and January,
1989. In the settlement instrument (termed a "nonrecourse" or
"forbearance" agreement), the Succession agreed to waive any
objection to the Cattlemen combining all suits in Natchitoches
Parish, to provide relevant information to the Cattlemen without
need for formal discovery, and to dismiss the third-party claims
against FNB. The Cattlemen, in exchange, agreed to seek no further
recovery from the Succession but rather to limit their recovery to
available insurance. In addition, the parties agreed to limit the
expenditures of the Succession and the Loyd family in defending the
Cattlemen's claims at court. When this agreement was made,
National Union had not contacted the Succession, and the Succession
did not inform National Union of the agreement.
4
In July, 1991, the Cattlemen obtained the necessary orders to
transfer all of their state court actions against the Succession to
Natchitoches Parish. At that time, the Cattlemen amended their
petitions to delete claims predicated on fraud, duress, and other
intentional acts. Following the amendments, their petitions stated
only claims flowing from negligence and domination and control,
which were not excluded by the terms of National Union's D&O
policy. On August 29, 1991, Mr. Bobby Gilliam, counsel for the
Succession, notified National Union of the transfer of venue and
sent copies of the amended petitions. National Union received this
letter on October 2, 1991. At this time, National Union did not
contact Gilliam, but did forward his letter to their counsel,
D'Amato & Lynch. Not hearing from National Union, Mr. Gilliam sent
a second letter on November 10, 1991. National Union still did not
respond.
On December 16, 1991, a bench trial was held on the merits of
the Cattlemen's negligence claims against the Succession. National
Union was not informed of the trial date. On the morning of the
trial, one of Mr. Gilliam's associates appeared for the Succession
and filed an answer, but declined to give opening or closing
statements or to examine witnesses. The Cattlemen called twelve
fact and three expert witnesses to establish Loyd's negligence and
the Cattlemen's damages. At the conclusion of the trial, the court
awarded the Cattlemen $14,308,397.00, plus interest, costs, and
attorney's fees, and apportioned fault between FNB and Loyd as 10%
and 90%, respectively. On December 20, 1991, the Cattlemen's
5
counsel forwarded a copy of the judgment to National Union and
demanded payment.
National Union contacted Mr. Gilliam for the first time in
February, 1992, requesting information about the trial. National
Union intervened in March, 1992, to devolutively appeal the
judgment. The judgment was affirmed by a Louisiana intermediate
appellate court and writs were denied by the Louisiana Supreme
Court. Cagle v. Loyd, 617 So. 2d 592 (La. App. 3d Cir.), writ
denied, 620 So. 2d 877 (La. 1993). National Union subsequently
filed an action in state court seeking to nullify the judgment
based on evidence of fraud or ill practices in obtaining the
judgment. That suit is pending in state district court after a
summary judgment for the Cattlemen was reversed by a Louisiana
appellate court. National Union Fire Ins. Co. v. Cagle, 649 So. 2d
642 (La. App. 3d Cir. 1994), writ denied, 651 So. 2d 266 (La.
1995).
In February, 1992, National Union filed a declaratory judgment
action in United States District Court seeking a determination that
the state court judgment was not within the coverage of National
Union's D&O insurance policy. In March, 1992, the Cattlemen filed
a supplemental petition against National Union in state court
seeking to collect the judgment and to assert a bad-faith claim for
penalties under La.R.S. 22:1220.3 National Union removed this suit
3
La. R.S. 22: 1220 provides in relevant part:
(A) An insurer . . . owes to his insured a duty of good faith
and fair dealing. The insurer has an affirmative duty to
adjust claims fairly and promptly and to make a reasonable
effort to settle claims with the insured or the claimant, or
both. Any insured who breaches these duties shall be liable
6
to federal court and the district court consolidated this action
with the declaratory judgment action. National Union then amended
the declaratory judgment complaint to assert a state law nullity
claim. The district court stayed the nullity claim pending
resolution of the parallel state court nullity action.
Prior to trial, the district court granted summary judgment in
favor of the Cattlemen on a number of National Union's policy
coverage defenses.4 The principal issues that remained to be tried
for any damages sustained as a result of the breach.
(B) Any one of the following acts, if knowingly committed or
performed by an insurer, constitutes a breach of the
insurer's duties imposed in Subsection A.
. . . .
(5) Failing to pay the amount of any claim due any person
insured by the contract within sixty days after receipt
of satisfactory proof of loss from the
claimant when such failure is arbitrary,
capricious, or without probable cause.
(C) In addition to any general or special damages to which a
claimant is entitled to for breach of the imposed duty, the
claimant may be awarded penalties assessed against the insurer
in an amount not to exceed two times the damages sustained or
five thousand dollars, whichever is greater.
4
The district court found in favor of the Cattlemen and
concluded that coverage would not be precluded under the following
policy provisions:
1) Provision (7b) which excludes coverage if proper notice of
the claim is not given could not be solely used to destroy coverage
since National Union was informed of the claims, though evidence of
notice might be relevant on the collusion issue.
2) Provision 4(n) which excludes coverage when the insured is
entitled to indemnification from the company does not apply, since
under the applicable corporation articles of FNB, the Succession
was only entitled to indemnification from FNB to the extent that
the insurance policy did not cover.
3) Provision 4(a) which excludes coverage when the claim
resulted from a finding of personal profit, gain or advantage does
not apply since the underlying state court proceeding did not make
such a finding.
4) Provision 4(d) which excludes coverage when the claim is
brought about by fraudulent, dishonest or criminal acts of the
insured also requires an adjudication of fraud in the underlying
7
were whether coverage was defeated by the conduct between the
Cattlemen and the Succession that culminated in the state court
judgment obtained by the Cattlemen and whether National Union
breached a duty of good faith and fair dealing triggering penalties
under the Louisiana statute. The district court bifurcated the
coverage and bad faith issues for presentation to the jury. The
jury first found the Cattlemen and Succession did not collude to
obtain the state court judgment. The jury then found National
Union had breached its duty of good faith and fair dealing and
could be assessed penalties pursuant to La. R.S. 22:1220. National
Union applied for judgment as a matter of law or, alternatively, a
new trial. The district court upheld the jury's verdict on
coverage but disagreed with the jury's determination of bad faith
and sua sponte granted judgment as a matter of law in favor of
National Union on the penalty issue. The court entered judgment
accordingly and this appeal followed.
II. Discussion
National Union makes a number of arguments on appeal, two of
which merit discussion:5 (1) it was entitled to a new trial based
judgment and thus does not apply.
5) Exclusion # 15 which excludes performance of professional
services for others does not apply since Loyd's actions were
outside the course of his bank duties and no evidence of
compensation for managing the Cattlemen's operations was presented.
5
In addition to the issues discussed, National Union asserts
the following errors of the district court: 1) refusal to
bifurcate the issues of coverage and bad faith at an earlier point
in the trial; 2) admission of evidence of National Union's alleged
negligence in handling the claim; 3) refusal to allow National
Union to examine the Cattlemen's counsel; 4) refusal to find
8
on errors in the instructions given to the jury; and (2) it was
entitled to judgment as a matter of law either because the conduct
of the Succession in failing to disclose the nonrecourse agreement
or the date of trial was a breach of the insurance contract or
because the evidence was insufficient to support the jury verdict
of no collusion in obtaining the state court judgment. We also
discuss below the Cattlemen's cross-appeal challenging the district
court's denial of penalties and attorneys' fees.
A. Errors in Jury Instructions
National Union argues first that the district court
erroneously declined to give its tendered jury instructions on the
duty of the insured to the insurer and on the Louisiana definition
of fraud. It also contends that the court's instructions on the
legal status of the nonrecourse agreement and the state court
judgment were erroneous.
To succeed in its challenge, National Union must satisfy a
two-part test. First, National Union must demonstrate that the
charge as a whole creates "substantial and ineradicable doubt
whether the jury has been properly guided in its deliberations."
Bender v. Brumley, 1 F.3d 271, 276 (5th Cir. 1993) (citations
omitted). "In the review of jury instructions, a challenged
instruction should not be considered in isolation but rather as
National Union an indispensable party to the state court action; 5)
refusal to credit the settlement of the Cattlemen and FNB to the
state court judgment; 6) refusal to find no coverage based on the
"professional services" exclusion of the D&O policy; and 7) refusal
to limit coverage liability to the 1986-1987 D&O policy. We have
considered these issues and, for reasons given by the district
court, find no merit in them.
9
part of an integrated whole. If, viewed in that light, the jury
instructions are comprehensive, balanced, fundamentally accurate,
and not likely to confuse or mislead the jury, the charge will be
deemed adequate." Scheib v. Williams-McWilliams Co., 628 F.2d
509, 511 (5th Cir. 1980). Second, even if the jury instructions
were erroneous, we will not reverse if, based upon the entire
record, the "challenged instruction could not have affected the
outcome of the case." Bender, 1 F.3d at 276-77, quoting Bass v.
United States Dept. of Agriculture, 737 F.2d 1408, 1414 (5th Cir.
1984). In considering whether the district court erred in refusing
to give National Union's proffered instruction, the threshold
question is whether the proffered instruction is a correct
statement of the law. Treadway v. Societe Anonyme Louis-Dreyfus,
894 F.2d 161, 167 (5th Cir. 1990).
National Union's principal argument on this issue is that the
district court erred in refusing to instruct the jury that the
Succession owed a duty of "utmost candor and good faith" to
National Union. National Union relies on two Louisiana circuit
court cases to support this argument. In Miller v. Lumbermens
Mutual Casualty Company, 488 So. 2d 273 (La. App. 2d Cir. 1986),
writ denied, 493 So. 2d 637 (La. 1986), an insured sued his auto
insurer for repair costs after an accident. The insurer offered to
pay the actual cost of repair. The insured based his demand on two
higher estimates. The insured argued that the higher value was
owed under the policy because the actual repair was inadequate and
incomplete. The trial court assessed the cost of repair at an
intermediate value and ordered the insurer to pay not only the
10
repair costs, but also penalties and attorney's fees. The trial
court based this award of penalties and attorney's fees on a belief
that the insurer had breached its fiduciary duty by not
investigating further the costs of adequate repair. The appellate
court reversed. The court disagreed that a fiduciary duty was owed
to the insured and stated: "[T]he contract of insurance created no
fiduciary relationship between these parties nor did the facts of
this case indicate such a relationship. There was a bilateral
contractual relationship between them, but no fiduciary
relationship." Id. at 278. The court then expanded on the
relationship between an insurer and its insured and found there was
"an obligation in this contract insurance on the part of both
[parties] . . . to deal with each other 'uberrimae fidei', that is
an absolute perfect candor and good faith, but there was no trust
or fiduciary relationship by either party." Id. at 278, quoting 42
AM JUR. 2d Insurance Section 159 (1982) at page 242.
In Ray Gibbins Certified Welders v. Griggs, 543 So. 2d 68 (La.
App. 1st Cir. 1989), the insured paid insurance premiums to an
insurance broker who agreed to remit the funds to a general
insurance agent. The general agent had formulated an insurance
plan for the insured and was to ultimately pay the insurance
carriers. The insurance broker fraudulently kept the insured's
money and the coverage was never obtained. The insured sued the
broker, the general agent, and the insurance carriers. The insured
argued that the general agent had breached its fiduciary duty to
the insured. The appellate court disagreed and held that the
11
contract of insurance created no fiduciary relationship between
these parties, quoting the above language from Miller.
The primary holding in both of these cases is that no
fiduciary relationship is established by an insurance contract.
Significantly, no other Louisiana court has adopted the language
relied on by National Union that an insured owes his insurer an
enhanced duty of utmost candor and good faith.
To the contrary, the Louisiana Supreme Court recently made it
clear that insurance policies are generally governed by the same
rules as other types of contracts. Louisiana Ins. Guar. Assn.
(LIGA) v. Interstate Fire & Casualty Co., 630 So. 2d 759, 763-64
(La. 1994). "An insurance policy is a contract between the parties
and should be construed by using the general rules of
interpretation of contracts set forth in the Civil Code." Id. at
763. In LIGA, the Louisiana Supreme Court emphasized that the
insurance contract controls the obligations of the parties.
"Absent a conflict with statutory provisions or public policy,
insurers, like other individuals, are entitled to limit their
liability and to impose and to enforce reasonable conditions upon
the policy obligations they contractually assume." LIGA, 630 So. 2d
at 763 (omitting citations). When "the policy wording at issue is
clear and unambiguously expresses the parties' intent, the
insurance contract must be enforced as written." Id. at 764.
Because the insurance contract is governed by the general
rules of contracts, the underlying duty of the parties to each
other in performance of the contract is controlled by the Louisiana
Civil Code. The Louisiana Civil Code states "[c]ontracts must be
12
performed in good faith." La. Civ. Code art. 1983. The Civil
Code, however, does not define "good faith," but does define "bad
faith" as "an intentional and malicious failure to perform." La.
Civ. Code Ann. art. 1997 cmt. c. Louisiana courts have looked to
this definition of "bad faith" for guidance in determining conduct
that breaches the duty of good faith. See, e.g., Great Southwest
Fire Ins. Co. v. CNA Ins. Cos., 557 So. 2d 966, 969 (La.1990);
Heirs of Gremillion v. Rapides Parish Police Jury, 493 So. 2d 584,
587 (La. 1986); American Bank & Trust of Coushatta v. FDIC, 49 F.3d
1064, 1066 (5th Cir. 1995). "[A] breach of contract occurs if
contractual discretion is exercised in bad faith, a term connoting
fraud, deception or sinisterly-motivated nonfulfillment of an
obligation." Adams v. First National Bank of Commerce, 644 So. 2d
219 (La. App. 4th Cir. 1994). In contrast to the general duty of
good faith, we recognize that Louisiana courts have implied a
higher duty on the insurer in performance of its policy obligation
of the duty to defend the insured against covered claims, including
a consideration of the interests of the insured in every
settlement. Pareti v. Sentry Indemnity Co., 536 So. 2d 417, 423
(La. 1988).
Thus, we agree with the district court that the obligations of
the Succession to National Union are governed by the policy terms.
We also agree with the district court that the Succession's duty of
good faith in the performance of its obligations under the contract
is not enhanced because this is an insurance contract. The
requested jury instruction was properly denied.
13
This brings us to National Union's next argument that the
collusion instruction as given to the jury was improper.6 National
Union requested that the Louisiana definition of fraud be included
in this instruction.7 It argued that the court's collusion
instruction required a finding of "deceitful" or "evil" intent,
while Louisiana law on fraud required less. We do not agree with
National Union's interpretation of the district court's jury
instruction. The district court's instruction defined collusion in
three ways. The instruction does not require the jury to find
deceit to conclude that fraud was committed. Moreover, National
Union's requested jury instruction on fraud presents an incomplete
6
The district court gave the following instruction on
collusion:
Collusion has been defined in several ways:
1. A deceitful agreement between two or more persons, for
one party to bring an action against the other for some evil
purpose, such as to defraud a third party of its rights;
2. A secret arrangement between two or more persons, whose
interests are apparently conflicting, to make use of the forms
and proceedings of law in order to defraud a third party or to
obtain that which justice would not give them, by deceiving a
court or its officers; or
3. A secret combination, conspiracy or concert of action
between two or more persons for fraudulent or deceitful
purposes.
National Union has the burden of proving by a
preponderance of the evidence that the procurement of the
state court judgment against the Succession was obtained
through collusion between the Succession and the Cattlemen.
What constitutes collusion will differ with each fact
situation.
7
National Union requested the following definition of fraud,
taken from the Louisiana Civil Code:
Fraud is a misrepresentation or a suppression of the
truth made with intention either to obtain an unjust advantage
for one party or to cause a loss or inconvenience to the
other. Fraud may also result from silence or inaction.
La. Civ. Code art. 1953.
14
statement of Louisiana law.8 We agree with the district court
that an additional instruction on the meaning of fraud was not
necessary to aid the jury and, in fact, would have led to
heightened confusion in an already complicated case. The collusion
instruction, when viewed as a whole, was not inadequate or
confusing.9
National Union complains next about the district court's
instruction to the jury that the nonrecourse agreement between the
Succession and the Cattlemen was not "on its face" improper.10
Relatedly, in the same jury instruction, National Union complains
of the statement that the state court trial was "on its face" an
actual trial. We find no error in these statements of the law.
Each statement was qualified by the language "on its face," leaving
8
La. Civ. Code art. 1954 further elaborates on when fraud will
negate consent in a contractual obligation:
Fraud does not vitiate consent when the party against
whom the fraud was directed could have ascertained the truth
without difficulty, inconvenience, or special skill.
This exception does not apply when a relation of
confidence has reasonably induced a party to rely on the
other's assertions or representations.
La. Civ. Code art. 1954.
9
In fact, the jury instructions on collusion were taken from
an earlier memorandum submitted by National Union.
10
The complete jury instruction provided:
In deciding whether or not collusion existed between the
Succession of Loyd and the Cattlemen, you are instructed that
the agreement entered into between the Cattlemen and the
Succession is, on its face, not an improper act. You are
further instructed that the state court trial which took place
in Natchitoches Parish between the Succession and the
Cattlemen was, on its face, an actual trial which resulted in
a valid judgment against the Succession of Loyd. It is for
you to decide whether or not that judgment is collectable
against National Union.
15
the jury free to determine that, under all the circumstances, this
agreement and this judgment were collusive.
B. Breach of the Insurance Contract
National Union argues next that the Succession's conduct was
an absolute coverage defense. It contends that the Succession's
failure to disclose the existence of the nonrecourse agreement and
the date of the trial was either a breach of its duty of good faith
and candor or a breach of the cooperation clause of the insurance
contract.
National Union argues that the duty of good faith and utmost
candor imposes an affirmative obligation on the Succession to
communicate candidly without first being asked. As discussed
above, the insured owes the insurer the duty of complying with the
contract terms together with a general duty of performance in good
faith. The insured does not owe the insurer a fiduciary obligation
-- a higher duty that may indeed impose an affirmative duty to
disclose facts beyond that required by the contract. See, e.g.,
FDIC v. Duffy, 47 F.3d 146, 152 (5th Cir. 1995) (fiduciary duty
owed by a partner to the partnership to disclose true interests in
business deal); Pitre v. Pitre, 172 So. 2d 695 (La. 1965) (fiduciary
duty owed by husband to wife to disclose assets in partition
agreement). In an insurance contract, the insured's duty to
provide information ordinarily arises only under the express policy
obligations.
The cooperation clause, clause 7(e), states that "[t]he
insureds shall give the insurer such information and cooperation as
16
it may reasonably require and shall be in the insureds' power."
National Union asserts the Succession breached this clause
regardless of whether National Union requested the information.
Under Louisiana law, however, before proving a breach by the
insured of the cooperation clause, the insurer must show a diligent
effort to obtain the information. Pelas v. American Employer's
Ins. Co., 299 So. 2d 815 (La. App. 4th Cir.), writ denied, 302 So.
2d 310 (La. 1974); Lindsey v. Gulf Ins. Co., 7 So. 2d 757 (La. App.
2d Cir. 1942). In addition, even if a breach of the cooperation
clause could be shown by National Union, under the Louisiana Direct
Action Statute, this breach would not affect the Cattlemen's
rights, as a third-party claimant, to the proceeds of National
Union's policy, absent fraud or collusion. King v. King, 217 So.
2d 395, 400 (La. 1968); Futch v. Fidelity & Casualty Co., 166 So.
2d 274, 278-79 (La. 1964).
We agree with the district court that the failure of the
Succession to furnish information not requested by National Union
did not as a matter of law constitute a breach of the insurance
contract.
C. Sufficiency of Evidence
National Union argues next that the evidence is insufficient
to support the jury's finding of no collusion between the
Succession and the Cattlemen and that the district court erred in
refusing to grant judgment as a matter of law. We review all the
evidence bearing on this issue and draw all inferences in favor of
the verdict. Using this standard, if a reasonable juror could have
17
found no collusion, we must affirm. McNair v. City of Cedar Park,
993 F.2d 1217, 1219 (5th Cir. 1993).
National Union contends that the Succession and Cattlemen
colluded to prevent National Union from knowing about the
nonrecourse agreement or from participating in the state court
proceeding. In support of its claim, National Union cites the
following facts: (1) the Succession entered into a nonrecourse
agreement with the Cattlemen with the advance knowledge that there
would be a trial and the resultant judgment could only be collected
against National Union; (2) the Succession never informed National
Union about the agreement; (3) the Succession never informed
National Union of the trial date; (4) the Succession never intended
to defend the Cattlemen's suits; and (5) the Gilliam letter, giving
notice of the amended claims, was carefully drafted by the
Cattlemen to avoid alerting National Union that it should assume an
active role in the litigation.
On the other hand, the Cattlemen contend that the jury was
entitled to find that the Succession fulfilled its obligations to
National Union and was entitled to take action to protect its own
interests. The Cattlemen argue that no collusion or conspiracy
existed between the Cattlemen and the Succession and that National
Union's ignorance of the nonrecourse agreement and the trial date
was due to its own negligence. In support of this argument, the
following evidence was submitted to the jury: (1) The Succession
(or the bank) gave National Union notice of the suits instituted
against the Succession as required by the policy; (2) the policy
imposed no duty to defend on National Union and the Succession was
18
required to mount the best defense possible with the meager funds
available to it; and (3) although National Union knew that the
Succession and the Cattlemen were discussing settlement, National
Union never requested any information about the settlement from the
Succession; and (4) in November 1990, counsel for National Union
actively discussed the likelihood of a settlement between the
Cattlemen and the Succession in light of the amendments to the
Cattlemen's complaint deleting the claims not covered by the
policy.
Reviewing the evidence in a light favorable to the verdict, a
jury was entitled to find that the Succession did not collude with
the Cattlemen but acted appropriately to defend against the
Cattlemen's lawsuit. The nonrecourse agreement was not illegal and
was, in fact, approved by a state court in the Succession
proceeding. The Succession had no affirmative duty under the
insurance contract to inform National Union of the nonrecourse
agreement or the trial date in the absence of a general request by
National Union for such information. The evidence does not compel
a finding of fraudulent or deceitful conduct on the part of the
Succession or the Cattlemen as a matter of law. The district court
correctly denied National Union's post-judgment motion for judgment
as a matter of law and for new trial.
D. Assessment of Penalties under Louisiana Law
The Cattlemen challenge the district court's judgment as a
matter of law, reversing the jury's finding that National Union had
breached its duty of good faith and fair dealing. We review the
19
district court's ruling by viewing the evidence in the light most
favorable to the Cattlemen. We sustain the judgment only if we
find "that on all the evidence no reasonable juror could arrive at
a verdict contrary to the district court's conclusion." Allied
Bank-West, N.A. v. Stein, 996 F.2d 111, 114 (5th Cir. 1993).
Louisiana R.S. 22:1220(A) "grants third-party claimants a
right of action when an insurer violates its duty of good faith and
fair dealing." Midland Risk Ins. Co. v. State Farm Mutual Auto
Ins. Co., 643 So. 2d 242, 243 (La. App. 3d Cir. 1994), citing
Romero v. Gary, 619 So. 2d 1244 (La. App. 3d Cir. 1993). To
recover penalties under this statute, the claimant must prove that
the insurer received adequate notice of the loss and that the
insurer acted in bad faith in refusing to pay. Romero, 619 So. 2d
at 1247-48. "There must be a showing that the insurer's actions or
failure to act were unjustifiable. Whether an insurer's refusal to
pay a claim is arbitrary, capricious, or without probable cause,
warranting imposition of statutory penalties and attorney's fees,
depends on the facts known to the insurer at the time of its
action." Id. at 1247.
At the time it refused to pay the Cattlemen, National Union
knew the following: (1) the allegations against the Succession had
been changed from fraud and self-profiteering, which were not
covered under the D&O policy, to negligence, a covered act; (2)
the existence, if not the substance, of an agreement between the
Cattlemen and the Succession; (3) the refusal of the Succession's
lawyer to actively defend at the state court trial; and (4) the
Succession did not advise National Union of the state court trial
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date. National Union was not arbitrary in denying coverage. It
had plausible arguments of no coverage either under a policy
exclusion or a collusion theory. Even viewing the evidence in a
light most favorable to the Cattlemen, we find no reasonable juror
could find National Union acted arbitrarily, capriciously, or
without probable cause in refusing payment.
IV. Conclusion
For reasons stated above, the judgment of the district court
is in all respects AFFIRMED.
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