Psarianos v. Standard Marine, Ltd., Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 92-4486
JANE ALICE PSARIANOS, ET AL.,
Plaintiffs-Appellants,
versus
STANDARD MARINE, LTD., INC., ET AL.,
Defendants,
EAGLE TRANSPORT, LTD.,
Defendant-Third Party
Plaintiff-Appellant,
versus
UNITED KINGDOM MUTUAL STEAMSHIP ASSURANCE
ASSOCIATION (Bermuda), Limited, A/K/A
UNITED KINGDOM P&I CLUB,
Third Party Defendant-
Appellee.
Appeal from the United States District Court
for the Eastern District of Texas
(January 14, 1994)
Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge, and
PICKERING*, District Judge.
HIGGINBOTHAM, Circuit Judge:
*
District Judge of the Southern District of Mississippi,
sitting by designation.
We hold that the victims of an accident on the high seas lack
the requisite special relationship to proceed directly against the
insurer of the parties at fault for causing the accident.
I.
The M/V Thomas K sank in international waters on February 1,
1984. Plaintiffs, the surviving crew members and the survivors of
the deceased crew members, brought personal injury and wrongful
death actions in the United States District Court for the Eastern
District of Texas against the vessel's owner, Eagle Transport
Limited, Inc., its manager and operator, Standard Marine Ltd., the
alleged alter ego of Eagle and Standard Marine, Peter Kikis, and
the American Bureau of Shipping. After trial, a jury returned a
verdict in favor of the plaintiffs in excess of $22,000,000.
United Kingdom Mutual Steamship Assurance Association, the vessel's
protection and indemnity insurer, declined to cover any liability.
Eagle Transport, Standard Marine and Kikis instituted third party
proceedings against the Assurance Association claiming breach of an
insurance contract and seeking indemnification for the amount that
they were required to pay to the plaintiffs. The district court
then granted the Association's motion to compel arbitration as
required by the insurance contract and in the interim stayed
proceedings on the coverage issue.
While the arbitration was pending, the plaintiffs expressed
their intention to initiate an action against the Association in
Texas state court. The Association responded by requesting the
district court to declare that plaintiffs had no claim against the
2
Association. The plaintiffs filed a counter-claim seeking a
declaratory judgment that the insurance contract provided by the
Association covered the liabilities of Eagle and that the
plaintiffs were entitled to proceed directly against the
Association.
The arbitration panel found that Eagle had not complied with
the insurance contract under the indemnity policy. The panel also
found that the Association's obligation would arise only when Eagle
paid, which Eagle has yet to do. As a result, Eagle could not
recover from the Association. The district court confirmed the
arbitral award and dismissed plaintiffs' claim against the
Association.
Plaintiffs challenge the district court's exercise of
jurisdiction over their claim, the district court's declaratory
judgment against them, and the underlying arbitral award. We find
that the district court did not abuse its discretion in exercising
jurisdiction over plaintiffs' claim, that the district court's
declaratory judgment was sound, and that plaintiffs lack standing
to attack the arbitral award.
II.
We first identify the proper appellants. The Association has
moved to dismiss Eagle's appeal. Eagle has not filed a brief on
appeal, or adopted plaintiffs' arguments. We have no reason to
believe that Eagle wishes to pursue this matter or, if it does,
that it would pursue it in the way the plaintiffs have chosen. We
dismiss Eagle's appeal. See Rule 31(c) FRAP.
3
III.
Plaintiffs first argue that the district court should not have
entertained the Association's motion for a declaratory judgment.
When the Association moved for declaratory judgment, the plaintiffs
had already indicated their intention to proceed directly against
the Association in state court.1 Plaintiffs argue that the
district court should not have allowed the Association to deny the
plaintiffs the choice of forum in which to litigate their claims.
We must determine whether the district court abused its
discretion in hearing the declaratory judgment action. Sandefer
Oil & Gas, Inc. v. Duhon, 871 F.2d 526, 528 (5th Cir. 1989) (citing
Mission Insurance Co. v. Puritan Fashions Corp., 706 F.2d 599, 601
& n.1 (5th Cir. 1983)) ("our review of the district court's
exercise of discretion to hear a declaratory judgment action is
limited to whether the court abused its discretion"). In
particular, the abuse of discretion standard applies to the
district court's decision whether to stay or dismiss a declaratory
judgment suit in deference to a state court action. Magnolia
Marine Transport Co. v. Laplace Towing Corp., 964 F.2d 1571, 1581
(5th Cir. 1992).
A district court may refuse declaratory relief for one of
several reasons: the matter may be before a state court capable of
resolving all the issues between the parties; the declaratory
1
The plaintiffs notified the Association before filing suit
in an effort to satisfy the requirements of the Texas Deceptive
Trade Practices--Consumer Protection Act. See Business and
Commercial Code of Texas, § 17.41 et seq (1993).
4
complaint may have anticipated another suit and may allow forum
shopping; the complaint may allow the plaintiff to gain precedence
in time or forum; or it may inconvenience the parties or the
witnesses. Id. (quoting Rowan Cos. v. Griffin, 876 F.2d 26, 29
(5th Cir. 1989)).
Plaintiffs originally filed suit in federal court. The
Association later filed its motion for summary judgment. The
plaintiffs filed a counter-claim in federal court and did not sue
in state court. Plaintiffs chose the district court, and we do not
find that the district court abused its discretion in forcing
plaintiffs to pursue all aspects of the case in a single forum.2
III.
Second, plaintiffs claim that the district court erred by
dismissing their claims against the Association. They argue that
the laws of both Britain and Texas provide them a cause of action
against the Association. They are mistaken on both counts.
Plaintiffs cite Morewitz v. West of England Ship Owners Mut.
Protection & Indem. Ass'n, 896 F.2d 495 (11th Cir. 1990) as support
for their claim that under English law they have a cause of action
against the Association. Plaintiffs argue that the court in
Morewitz interpreted an English bankruptcy act, The Third Parties
(Rights Against Insurers) Act of 1930, as creating for a party in
a position to benefit from insurance a cause of action directly
2
Plaintiffs argue that the Burford abstention doctrine
required the district court to decline to resolve this case. See
Burford v. Sun Oil Co., 319 U.S. 315 (1943). We need not
consider this argument as plaintiffs raise it for the first time
in their reply brief.
5
against an insurance company once the insured has become bankrupt.
The court did not have reason to recognize such a cause of action.
Neither did it decide, as plaintiffs claim, that the direct action
statute would defeat a defense based on the requirement that the
insured pay its obligation before the insurer would become liable.3
Rather the court of appeals held that the district court did not
lack subject matter jurisdiction over the marine insurance claim
simply because plaintiff based the claim on a direct action
bankruptcy statute. Id. at 500.
The House of Lords in Firma C-Trade S.A. v. Newcastle P. & I.
Ass'n, Lloyd's Rep. (Vol. 2) 191 (H.L. 1990), decided when a party
in a position to recover from an insured may file suit directly
against an insurer. When the terms of the insurance require the
insured to pay its obligation before it may collect against the
insurer, the House of Lords held, the insured must pay before any
other party can sue on the contract. Id. at 197. Plaintiffs
acknowledge that Eagle has yet to satisfy the judgment against it.
Indeed, they pursue this suit against the Association precisely
because Eagle has failed to pay. Because under English law, such
payment is a "condition precedent" to a direct suit against the
insurer, plaintiffs cannot proceed under English law.4
3
Indeed, the Eleventh Circuit did not so much as conclude
that the British direct action statute applied in the case before
it rather than American state law. Id. at 499 n.5 ("the forum
state's law may be the applicable law for purposes of applying
any direct action statute") (citations omitted).
4
For the Bankruptcy Act to have effect, the plaintiffs
also have to establish that the insured was bankrupt or had been
"wound up." Id. at 195. Plaintiffs claim Eagle is insolvent.
6
Plaintiffs' recourse to the laws of Texas is similarly
unavailing. Plaintiffs correctly note that Texas allows an
employee to sue directly a carrier of workers' compensation
insurance. Aranda v. Insurance Co. of North America, 748 S.W.2d
210, 212 (Tex. 1988). This right is merely a special instance of
the general rule that in Texas every insurer owes a duty "to deal
fairly and in good faith with its insured in the processing and
payment of claims." Id. As Texas courts treat the workers'
compensation scheme of the state as a "three-party agreement"
between the insurer, the employer, and the employee, this approach
is unexceptional. Id. It casts little light on whether parties
that stand to benefit from an insurance policy may proceed directly
against the provider of the policy or whether only the insured or
a third party beneficiary has that right.
We have already considered the contours of Texas law on this
matter. In Warfield v. Fidelity and Deposit Co., 904 F.2d 322 (5th
Cir. 1990), we addressed the circumstances in which a party that
may benefit from insurance, but is not the insured or a third party
beneficiary, may sue directly an insurance carrier. We held that
Texas law requires "a direct and close relationship" between the
party and the insurer. Id. at 326-27. Thus, for example, where an
insurance company stated to a hospital that a prospective patient
was covered by insurance, the hospital could then proceed directly
The Association suggests plaintiffs have offered no evidence to
support this allegation. As plaintiffs have failed to meet the
requirements to establish a claim under the Act, we need not and
do not decide this issue.
7
against the insurance company in response to a denial of benefits
to the patient. Id. at 327 (citing Hermann Hops. v. National
Standard Ins., 776 S.W.2d 249 (Tex. Ct. App. 1989)). Plaintiffs do
not claim any such special relationship with the Association.
Thus, as this court noted in Warfield, a "line limiting liability
must be drawn somewhere and the appellants fall outside of this
line." Id.
IV.
Finally, plaintiffs challenge the district court's order
enforcing the arbitral award in favor of the Association. They
have no standing to do so. The relevant provisions of the Federal
Arbitration Act, 9 U.S.C. §§ 201-08 (1993), do not confer such
standing on parties not participating in arbitration. See 9 U.S.C.
§208 (1993) (incorporating, inter alia, 9 U.S.C. §10); 9 U.S.C. §10
(1993) (allowing "order vacating" an arbitration award "upon
application of any party to the arbitration") (emphasis added);
McNair v. United States Postal Service, 768 F.2d 730 (5th Cir.
1985) (citing Acuff v. United Papermakers and Paperworkers, 404
F.2d 169, 171 n.2 (5th Cir. 1968)) (interpreting 9 U.S.C. §10 to
afford standing to challenge arbitration only to parties that
participated in arbitration). Moreover, as we explained, the law
does not provide plaintiffs an independent basis for suing the
Association. Warfield, 904 F.2d at 326-27. Eagle, the other
participant in arbitration, is not a party to this appeal. Under
these circumstances, plaintiffs lack standing to challenge the
underlying arbitral award.
8
AFFIRMED.
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