Reliance v. Louisiana Land

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 96-30303
RELIANCE INSURANCE COMPANY,
Plaintiff Third Party Defendant - Appellee - Appellant,
versus
THE LOUISIANA LAND AND EXPLORATION COMPANY,
Defendant Third Party Plaintiff - Cross Claimant -
Appellant - Appellee,
CBS ENGINEERING, INC.,
Defendant - Cross Defendant - Appellee,
GULF ISLAND FABRICATION,
Third Party Defendant - Third Party Plaintiff -
Appellant - Appellee,
LLOYD’S LONDON,
Third Party Defendant - Appellee,
THE UNITED NATIONAL INSURANCE COMPANY,
Third Party Defendant - Appellee.
LOUISIANA LAND AND EXPLORATION COMPANY,
Plaintiff - Appellant,
versus
GULF ISLAND FABRICATION, INC.,
Defendant - Appellee,
LLOYD’S UNDERWRITERS AT LONDON,
Defendant - Appellee.
Appeals from the United States District Court
For the Eastern District of Louisiana
April 4, 1997
Before HIGGINBOTHAM, SMITH, and BARKSDALE, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
In the wake of an accident during the load-out of part of an
offshore oil platform, the parties in this case find themselves
litigating the question of who should bear the burden of the loss.
We conclude that the district court resolved the cases properly,
which means that none of the efforts to re-allocate expenses can
survive summary judgment.
I.
Louisiana Land & Exploration Co. entered into two contracts in
connection with its efforts to drill for oil off of the gulf coast.
In February of 1991, LL&E contracted with Gulf Island Fabrication
for the construction, load-out, and tie-down of an offshore
facility. Gulf Island was to construct the “jacket” — the legs of
the offshore platform — at its yard in Houma, Louisiana. LL&E
would hold title to the jacket at all times. The contract
specified that the risk of loss fell upon Gulf Island “until the
Marine Surveyor has certified the acceptability of the Stowage of
the Cargo upon the barge(s) supplied by the Installation
Contractor.” The contract required both that Gulf Island defend
and indemnify LL&E against any claims arising out of damage caused
by Gulf Island or any of its agents and also that Gulf Island
maintain various insurance policies while performing work for LL&E.
Gulf Island obtained a general liability insurance policy from
Lloyd’s. Gulf Island also maintained an insurance policy for
builders’ risk with Reliance Insurance Company, the original
plaintiff in this case.
2
LL&E’s second contract was with CBS Engineering, which agreed
to provide “structural design, facilities design and project
management” services in connection with Gulf Island’s fabrication
of the jacket. Essentially, LL&E hired CBS to oversee Gulf
Island’s progress on the project and to provide professional
engineering services. The contract with CBS contained a
comparative fault provision for damage to the property of either
party. It also required CBS to defend and indemnify LL&E in case
CBS’s negligence caused any damage to or claims against LL&E. When
the parties executed the contract, they crossed out and initialed
a provision that would have required CBS to indemnify LL&E for
CBS’s negligence in performing professional services. In
compliance with the contract, CBS obtained general liability
insurance from United National Insurance Company (“UNIC”) and named
LL&E as an additional insured. The UNIC policy, however, did not
insure against professional negligence.
The parties planned to load the jacket onto a barge with a
width of 100 feet in order to transport it for installation in the
gulf. But the widest barge available was only 72 feet wide. Gulf
Island proposed a plan to modify the barge to accommodate the
jacket. Gulf Island’s strategy was to build load-out beams across
the barge so that the legs of the jacket would have someplace to
rest. This would have been relatively safe, but it was also very
expensive, and LL&E and CBS rejected the plan. CBS developed an
alternative plan, which LL&E and Gulf Island agreed to implement.
This plan involved reinforcing interior components of the jacket so
3
that they could bear the weight of the jacket without help from the
jacket’s legs. During load-out, however, the jacket collapsed and
rolled off of the barge. Both the jacket and the barge were
damaged.
In an August 26, 1991, letter from its vice president of
operations, Gulf Island acknowledged its responsibility under the
risk-of-loss provision to repair the jacket. Gulf Island performed
these repairs and eventually loaded out the jacket successfully.
Reliance fulfilled its obligations under the builders’ risk policy
and reimbursed Gulf Island in the amount of $275,425.22.
Then Reliance, as Gulf Island’s subrogee, sued LL&E and CBS to
recover the costs of the jacket repairs, which Reliance claims were
due to the fault of LL&E and CBS. LL&E filed a cross-claim against
CBS and third-party claims against UNIC, Gulf Island, and Lloyd’s.1
Gulf Island eventually filed its own third-party claim against
Reliance.
On September 30, 1993, the district court dismissed Reliance’s
claim against CBS on a summary judgment motion. On October 4, it
dismissed Reliance’s claim against LL&E. Both dismissals were
predicated on the insufficiency of evidence presented by Reliance’s
expert, Dennis Sherman. Mr. Sherman offered muddled deposition
testimony, and the court had denied Reliance’s request to
supplement his report in order to clarify the testimony. Two days
later, the court dismissed LL&E’s claim against CBS. The court
1
LL&E also filed a separate suit against Gulf Island and
Lloyd’s. The district court consolidated that suit with the
litigation initiated by Reliance.
4
further held that the indemnity provision in the contract between
LL&E and Gulf Island would not be triggered unless Gulf Island was
at fault in causing damage to the jacket.
After Reliance’s claims were dismissed, Gulf Island filed its
third-party demand against Reliance in order to recover the costs
of defending against LL&E and to claim a right to reimbursement for
any damages Gulf Island might suffer in LL&E’s third-party claim
against Gulf Island. In November of 1995, LL&E settled its claim
against Gulf Island for LL&E’s defense costs and attorneys’ fees
throughout this litigation. The district court dismissed Gulf
Island’s third-party complaint on February 14, 1996.
Three parties have appealed. Reliance appeals the summary
judgments granted in favor of LL&E and CBS. LL&E appeals the
summary judgments granted in favor of CBS, UNIC, Gulf Island, and
Lloyd’s. And Gulf Island appeals the summary judgment granted in
favor of Reliance. We take up each of these disputes in turn.
II.
A.
Reliance filed its expert report on time, and Mr. Sherman gave
his deposition during the 30 days between the deadline for
Reliance’s expert report and the deadline for LL&E’s and CBS’s
expert reports. Mr. Sherman’s report did not address CBS’s load-
out plan. Instead, it analyzed the quality of the original design
of the jacket. At the deposition, Mr. Sherman seemed to deny that
his analysis contributed to an understanding of what caused the
jacket to fail during the load-out. When asked whether he was
5
“asked to form an opinion as to the cause of this casualty,” he
said: “No. Not really. I was not looking into how or why it was
caused.” He admitted that he “never went to the point of failure
analysis to determine if [the jacket] is under designed enough to
be failing, or to expect it to fail.” Instead, he limited himself
to asking whether the jacket was designed so that it could handle
the load-out plan as designed by CBS and as executed by Gulf
Island. As LL&E and CBS prepared for trial, they operated on the
theory that Mr. Sherman had no opinion as to whether deficiencies
in CBS’s work contributed to the load-out accident.2
2
The attorney representing CBS and UNIC tried to pin Mr.
Sherman down on this point.
Mr. Sherman: [T]he report states where members are under
designed. It doesn’t state whether the structure
would fail at being under designed to that point.
In other words, a member may not be designed per
codes, but still may not fail. It’s hard to say
whether it would fail or not. . . .
Mr. Redwine: I gather from that answer that you have not formed
an opinion as to whether your perceived under
design had anything to do with this casualty.
. . .
A: . . . I can’t state that the under design was the
definite reason for the casualty.
Q: Can you state whether the under design was any part
of the casualty?
A: No, I can’t state that with certitude, no.
Q: I may seem to be repeating myself, and asking the
same question a different way. I want to be sure I
understand exactly what is going on here. I want
to be sure that you have a chance to answer
completely. . . . As I understand it from your
answers, and correct me immediately if at anytime I
am wrong, you were asked only to determine whether
the design of this structure was proper for the
load-out procedure that was proposed by Gulf Island
Fabrication, or that was proposed by —
A: Yes, I was asked if the proposed load plan as of
the CBS drawings and the load-out plan actually
used by Gulf Island, which were not identical,
whether they were — whether they were — the
6
Based on the report and the deposition, LL&E and CBS decided
that it did not need to counter Mr. Sherman’s testimony with an
engineering expert of its own. Ten days after the defendants’
deadline for submitting expert reports had passed, Reliance sought
the court’s permission to supplement Mr. Sherman’s report. Mr.
Sherman’s supplemental report would “specifically address his
opinion regarding the cause of the failure of the load out method
provided by defendants in plain English, as opposed to being
contained in mathematical calculations as it was in the original
report.” Reliance assured the court that Mr. Sherman would be
available for further depositions and that supplementing the report
would not delay trial.
LL&E and CBS vigorously opposed Reliance’s motion to
supplement the report. They pointed out that the discovery cut-off
date was only three weeks away and that the supplement might cause
structure itself was adequately designed for either
of those conditions.
Q: And that was the limit of what you were asked to
do.
A: Right.
Q: You were not asked, I gather, to form any opinion
as to the propriety of either the CBS load-out plan
or the load-out procedure that Gulf Island
Fabrication actually used.
A: No. I was only asked in regard to the design. Not
to the actual loading out.
. . .
Q: I think you previously told me all you were asked
to do and all you have done is to analyze the
structural integrity of that platform to see if it
was designed properly for the proposed load-out on
to a seventy-two foot barge.
A: Yes.
Q: Is that the limit of what you did?
A: Yes. . . .
7
them to need an engineering expert of their own. With pre-trial
conference only two months away, delays were likely. LL&E and CBS
also argued that the court should not allow a modification of the
discovery schedule because Reliance failed to request
supplementation at the earliest possible date.
Whatever the import of Mr. Sherman’s testimony, the district
court did not abuse its discretion when it denied Reliance’s
request to supplement its expert report. Fed. R. Civ. P. 16(b)
allows a scheduling modification only for good cause. We consider
four factors in determining whether the district court abused its
discretion in holding that Reliance did not show good cause: “(1)
the explanation for the failure to [submit a complete report on
time]; (2) the importance of the testimony; (3) potential prejudice
in allowing the testimony; and (4) the availability of a
continuance to cure such prejudice.” Geiserman v. MacDonald, 893
F.2d 787, 791 (5th Cir. 1990). As in Geiserman, the first and
third of these factors weigh against deviation from the schedule.
Reliance asked for an opportunity to avoid the deadline for its
expert report merely because the deposition of its expert witness
did not go well. It has offered no justification for its delay in
attempting to cure Mr. Sherman’s deposition and report.
Furthermore, the court concluded that “[t]o allow plaintiff to add
more material now and create essentially a new report would
prejudice the defendants, who would then have to get an expert to
address these last-minute conclusions, and thus disrupt the trial
date in this case.”
8
District judges have the power to control their dockets by
refusing to give ineffective litigants a second chance to develop
their case. See Turnage v. General Electric Co., 953 F.2d 206,
208-09 (5th Cir. 1992). Here two of the four Geiserman factors
counsel against allowing a deviation from the trial court’s
scheduling order. We are not persuaded that the court abused its
discretion under Rule 16(b).
B.
Reliance’s claim against CBS is grounded in professional
negligence. Reliance concedes that Mr. Sherman did not speak to
the question of whether CBS’s proposed modification breached the
standard of care among professional engineers. It contends,
however, that expert testimony concerning a professional’s duty of
care and breach of that duty is not necessary “[w]hen the matter in
question is one that can typically be understood without assistance
from an expert.” M.J. Womack, Inc. v. State House of
Representatives, 509 So. 2d 62, 66 (La. Ct. App.), writs denied,
513 So. 2d 1208; 513 So. 2d 1211 (La. 1987). In essence, Reliance
advocates a version of res ipsa loquitur in the malpractice
context: CBS modified the jacket and the jacket failed at a load
point modified by CBS. This is enough circumstantial evidence,
according to Reliance, for a jury to find that CBS was negligent.
Even if we assume — contrary to the deposition testimony —
that Mr. Sherman’s expert report supports the claim that CBS’s
modifications caused the jacket to fail, Reliance has submitted no
evidence from which a jury could conclude that CBS acted
9
negligently. Mr. Sherman stated that Gulf Island did not follow
CBS’s plan exactly when it attempted to load the jacket onto the
barge. These facts are equally consistent with the speculation
that Gulf Island acted negligently when it conducted the load-out
or that the jacket’s materials were substandard. Mr. Sherman’s
report included 90 pages of technical calculations. An unassisted
court cannot be expected to evaluate the reasonableness of a
professional judgment that involves so much sophistication.
Because Reliance has admitted that it must rely on a “common sense
standard of care,” Womack, 509 So. 2d at 66, it cannot prevail on
its engineering malpractice claim against CBS.
C.
Reliance’s claim against LL&E is grounded both in tort and in
contract. The district court correctly held that neither theory
has validity.
According to Reliance, LL&E is vicariously liable for the
negligence of CBS under Louisiana law either because the work was
intrinsically dangerous or because it exercised operational control
over CBS, its independent contractor. To support this position,
Reliance cites Massey v. Century Ready Mix Corp., 552 So. 2d 565,
573-76 (La. Ct. App. 1989), writ denied, 556 So. 2d 41 (La. 1990).
Under Massey, a principal is vicariously liable for the negligence
of an independent contractor if the work is inherently dangerous
and the principal authorizes the contractor to undertake the work
without precautions that would render the work safer. Cf. Grammar
v. Patterson Serv., Inc., 860 F.2d 639, 641 (5th Cir. 1988), cert.
10
denied, 491 U.S. 906, 109 S. Ct. 3190, 105 L. Ed. 2d 698 (1989)
(asserting that there are two separate exceptions under Louisiana
law to the general rule that principals are not vicariously liable
for the negligence of independent contractors).
Because we affirm the grant of summary judgment in favor of
CBS, we need not address Reliance’s arguments. Without negligence
on the part of CBS, Reliance’s tort theory against LL&E collapses.
Reliance’s contract theory against LL&E fares no better. The
contract between LL&E and Gulf Island called for a 100-foot-wide
barge. Reliance argues that LL&E breached this provision when it
failed to supply one. Gulf Island did not object to the smaller
barge. The district court held that Gulf Island’s consent meant
that there was no breach, and it further held that Reliance failed
to raise a question as to whether the smaller barge caused the
damage to the jacket. On appeal, Reliance does not mention
anything like the pre-existing duty rule. Instead, it asserts
simply that consensual modification requires more than indefinite,
ambiguous statements. According to Reliance’s own statement of
facts, however, Gulf Island’s consent was not indefinite or
ambiguous. In arguing that it “should not be penalized for such
detrimental reliance,” Reliance hints at the argument it really has
in mind: Gulf Island’s uninformed consent shouldn’t count.
As Gulf Island’s subrogee, Reliance cannot assert a contract
claim that Gulf Island could not assert. Guillot v. Hix, 838
S.W.2d 230, 232 (Tex. 1992) (“Because a subrogation action is
derivative, the defendant . . . may ordinarily assert any defense
11
he would have had in a suit by the subrogor.”).3 The summary
judgment evidence indicates that Gulf Island intended to modify the
contract when it consented to the use of the 72-foot-wide barge.
Under Texas law, its conduct effected a modification. See Hondo
Oil & Gas Co. v. Texas Crude Operator, Inc., 970 F.2d 1433, 1437-38
(5th Cir. 1992).4 Reliance has no contract claim against LL&E
because Gulf Island would have no contract claim against LL&E. The
district court did not err in granting summary judgment.
III.
LL&E and Gulf Island have settled their dispute over their
respective duties to pay for the cost of LL&E’s defense. Because
we affirm summary judgment in favor of LL&E and against Reliance,
the remaining issues among LL&E, Gulf Island, and Lloyd’s are moot.
The same is true of LL&E’s suit against CBS and UNIC. At oral
argument, counsel for LL&E stated that it was appealing the summary
judgment granted in favor of CBS and UNIC only in case Reliance’s
suit against LL&E should be revived. In light of our holding
above, we have no occasion to review the district court’s summary
judgment.
3
Gulf Island’s contract with LL&E included a choice-of-law
clause that stated that Texas law would govern the contract. The
rule would be the same under Louisiana law. See Stevens v.
Mitchell, 102 So. 2d 237, 242 (La. 1958) (“[A]ll defenses that can
be urged against the insured are likewise available against [the
insurer].”).
4
Again, the same is true under Louisiana law. See, e.g.,
Bank of Louisiana v. Campbell, 329 So. 2d 235, 237 (La. Ct. App.)
(“[A]cquiescence in changes in the delivery schedule constitutes a
tacit acceptance of new terms.”), writ denied, 332 So. 2d 866 (La.
1976).
12
IV.
Gulf Island sued Reliance in order to recoup damages owed to
LL&E and the costs of defending the suit brought by LL&E. In
keeping with our holdings above, the only issue remaining is
whether Reliance must reimburse Gulf Island for the costs of its
settlement with LL&E and the costs of defending LL&E’s suit.
In part, Gulf Island argues that Reliance should not have
asserted claims against LL&E that Gulf Island itself could not have
asserted against LL&E. Because Gulf Island consented to the 72-
foot-wide barge and accepted responsibility for the accident, it
asserts that Reliance was not entitled to sue LL&E as Gulf Island’s
subrogee. See State v. USF&G, 577 So. 2d 1037 (La. Ct. App.), writ
denied, 581 So. 2d 684 (La. 1991); Travelers Ins. Co. v. Impastato,
607 So. 2d 722 (La. Ct. App. 1992) (both holding that a subrogee
may not maintain a suit when the subrogor has executed a contract
waiving its rights). But Gulf Island never waived its right to
seek reimbursement for the jacket damage in a tort suit by alleging
that LL&E acted negligently. In any event, this line of argument
supports the view that Reliance should not win its suit against
LL&E; it does not support the view that Reliance’s filing the suit
was a violation of its duties to Gulf Island for which Gulf Island
should be awarded damages.
Gulf Island also argues that Reliance failed to exercise good
faith because its suit caused financial harm to Gulf Island. But
the two cases it cites are not on point. Maryland Cas. Co. v.
Dixie Ins. Co., 622 So. 2d 698 (La. Ct. App.), writ denied, 629 So.
13
2d 1138 (La. 1993), involved nothing more than an insurer’s bad
faith in defending a policyholder. Its rhetoric about the insurer
as “the champion of its insured’s interests,” id. at 701, does not
establish the rule that a subrogated insurer is liable whenever it
causes harm to its insured. And Smith v. Manville Forest Products
Corp., 521 So. 2d 772 (La. Ct. App.), writ denied, 522 So. 2d 570
(La. 1988), dealt with a partially subrogated insurer that
recovered more from the defendant than it paid to its insured.
This case, by contrast, does not present an insurer securing a
windfall. Nor has Gulf Island presented us with Louisiana law that
shows that Reliance breached its generalized duty of good faith and
fair dealing under La. Rev. Stat. Ann. § 22:1220 (West 1995).5
Gulf Island has failed to describe any conduct on the part of
Reliance that was unfair to Gulf Island. Gulf Island granted
Reliance subrogation rights, and Reliance was entitled to sue LL&E
on theories of negligence and breach of contract. Reliance caused
LL&E’s suit against Gulf Island, but Gulf Island has not cited any
cases to support its claim that Reliance also breached some duty by
suing a defendant who in turn sued its insured. It is not our
place to inject into Louisiana law the rule that an insurer is
liable to an insured when the insurer asserts conventional
subrogation rights and inadvertently causes a third party to sue
5
Gulf Island directs our attention to Theriot v. Midland Risk
Ins. Co., 683 So. 2d 681, 687 (La. 1996), for the proposition that
§ 1220A creates a generalized duty of good faith not limited to the
five specific breaches listed in § 1220B. The Louisiana Supreme
Court, however, has recently withdrawn Theriot from publication.
We do not reach the question of the precise scope of an insurer’s
duties under § 1220A.
14
the insured. Thus, the district court did not err in granting
summary judgment for Reliance and against Gulf Island.
V.
The district court was correct to hold that none of the suits
in this litigation involves a genuine issue of material fact.
Summary judgment in favor of LL&E and CBS and against Reliance is
AFFIRMED. Summary judgment in favor of CBS and UNIC and against
LL&E is AFFIRMED. Summary judgment in favor of Gulf Island and
Lloyd’s and against LL&E is AFFIRMED. And summary judgment in
favor of Reliance and against Gulf Island is AFFIRMED.
15