Homestead Ins Co v. Tonti Devel Corp

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 11, 2008
No. 07-31113 Charles R. Fulbruge III
Summary Calendar Clerk
HOMESTEAD INSURANCE COMPANY
Plaintiff-Appellant
v.
GUARANTEE MUTUAL INSURANCE COMPANY
Defendant-Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:03-CV-3116
Before JOLLY, DENNIS, and PRADO, Circuit Judges.
PER CURIAM:*
Julie Green (“Green”) drove a golf cart into James Payne (“Payne”) while
both were at work for Tonti Development Corporation (“Tonti”). Payne sued
Tonti and Green for his injuries. We must decide which of Tonti’s two insurance
companies is responsible for paying for Tonti’s defense. The district court
granted summary judgment in favor of Defendant-Appellee Guarantee Mutual
Insurance Company (“Guarantee”). We reverse.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-31113
I. FACTUAL AND PROCEDURAL BACKGROUND
Tonti purchased insurance policies from both Plaintiff-Appellant
Homestead Insurance Company (“Homestead”) and Guarantee in April 1994 as
part of an insurance package. The Homestead policy was intended to serve as
an employer’s liability policy, while the Guarantee policy provided workers’
compensation coverage. Both policies provided coverage for bodily injuries to
Tonti’s employees, although both policies contained an exclusion for injuries
stemming from intentional acts.
On August 2, 1995, Payne filed a lawsuit in Louisiana state court against
Tonti and Green alleging that Green “intentionally drove a golf cart into the
plaintiff” in a parking lot at one of Tonti’s properties. Payne’s suit sought
damages for mental and physical pain and suffering, past wage loss and future
loss of earning capacity, and medical expenses. Guarantee initially undertook
Tonti’s defense, paying for the lawyer that filed an answer to Payne’s petition.
Importantly, Guarantee did not reserve any of its rights when undertaking the
defense.
On April 9, 1997, Payne filed a second amended petition. He added
Guarantee as a defendant and alleged that Guarantee was “liable in tort for
failure to provide timely medical treatment . . . that has resulted in a worsening
of [Payne’s] medical condition.” On April 30, 1997, Guarantee, through its
workers’ compensation administrator, notified Tonti that the complaint alleged
acts that Guarantee’s policy did not cover and that Guarantee would no longer
represent Tonti in the proceeding. Tonti then contacted Homestead. Homestead
agreed to provide a defense for the lawsuit but specifically reserved its rights,
stating that the complaint alleged an intentional tort that, if proven, would fall
outside of Tonti’s policy coverage. Homestead then began paying for Tonti’s
lawyer.
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After two jury trials and two appeals, the Louisiana Court of Appeals
absolved Tonti of any liability for Green’s actions. Payne v. Tonti Realty Corp.,
888 So. 2d 1090, 1097 (La. Ct. App. 2004). Homestead alleges that it spent
$171,481.00 funding Tonti’s defense from May 1997 through the conclusion of
the case, albeit under a reservation of rights. In November 2003, Homestead
filed suit in federal court against Tonti and Guarantee, seeking a declaratory
judgment that Homestead did not have a duty to pay for the defense of Payne’s
state court suit. The district court denied Homestead’s initial motion for
summary judgment, finding that there were disputed issues of material fact
regarding whether Homestead owed a continuing duty to defend. Homestead
and Tonti entered into a Stipulation of Judgment whereby Homestead agreed to
dismiss its case against Tonti in exchange for an assignment of any rights Tonti
has against Guarantee. Both Homestead and Guarantee then filed cross-
motions for summary judgment. The court denied Homestead’s motion and
granted Guarantee’s motion, finding that Guarantee had no obligation to defend
Payne’s tort suit against Tonti. Homestead appeals.
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over the district court’s order granting summary
judgment to Guarantee pursuant to 28 U.S.C. § 1291.
This court reviews de novo a district court’s summary judgment order.
Richardson v. Monitronics Int’l, Inc., 434 F.3d 327, 332 (5th Cir. 2005). We will
affirm the district court’s decision to grant summary judgment if “there is no
genuine issue as to any material fact and . . . the movant is entitled to judgment
as a matter of law.” FED. R. CIV. P. 56(c); see also Richardson, 434 F.3d at 332.
Because this case is in federal court based on diversity jurisdiction, we must
follow Louisiana’s substantive law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64,
78 (1938); Ashland Chem. Inc. v. Barco Inc., 123 F.3d 261, 265 (5th Cir. 1997).
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III. DISCUSSION
On appeal, Homestead argues that even if Guarantee’s policy excludes
coverage for intentional torts, Guarantee waived any policy defenses it had by
defending Tonti in the Payne suit for twenty months before stating that the
claims fell outside of its policy coverage. The Louisiana Supreme Court has held
that an insurer waives its policy defenses when the insurer, “with knowledge of
facts indicating noncoverage under the insurance policy, assumes or continues
the insured’s defense without obtaining a nonwaiver agreement to reserve its
coverage defense. . . .” Steptore v. Masco Constr. Co., 643 So. 2d 1213, 1216 (La.
1994). “A waiver may apply to any provision of an insurance contract, even
though this may have the effect of bringing within coverage risks originally
excluded or not covered.” Id. For example, in North American Specialty
Insurance Co. v. Debis Financial Services, 513 F.3d 466, 470 (5th Cir. 2007), the
insurance company paid for a claim on a sunken barge and provided legal
representation for property damage disputes even though the insurer had notice
that the barge’s crewmembers had reported that the barge was unseaworthy,
which would have made the damage fall outside of the insurer’s policy coverage.
This court held that, under Louisiana law, the insurer had waived its right to
raise the unseaworthiness exclusion because the insurer had paid for the
wreckage and continued its representation without obtaining a nonwaiver
agreement or issuing a reservation-of-rights letter. Id.; see also Arceneaux v.
Amstar Corp., 969 So. 2d 755, 768-69 (La. Ct. App. 2007) (holding that the
insurer had waived its right to enforce its policy exclusions because it provided
the insured with an unconditional defense for four years).
The facts of this case require a straightforward application of Louisiana’s
waiver doctrine. Guarantee had notice of Payne’s allegation that Tonti’s
employee, Green, committed an intentional tort as early as August 2, 1995, when
Payne filed his first petition. Guarantee undertook the defense on behalf of its
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No. 07-31113
insured, Tonti, for over twenty months. It then withdrew its defense after Payne
filed his second amended petition. Nothing in the second amended petition,
however, altered the nature of the allegation; Payne still claimed that Green
committed an intentional tort and simply added another cause of action against
Guarantee. There was nothing new in the second amended petition that would
have given Guarantee any additional notice that its policy would not cover the
claim.
The district court did not address the waiver issue in its order even though
Homestead raised it in its motion for summary judgment. As such, even if the
district court correctly concluded that Guarantee’s policy did not cover Payne’s
allegations, the district court erred in failing to analyze the waiver doctrine. We
hold, consistent with Louisiana law, that Guarantee waived its ability to raise
a policy defense by defending Tonti for over twenty months without first
reserving its rights.
One loose end remains. The cases cited above all concern an insured
bringing an action against the insurer and the insurer waiving its policy
defenses vis à vis the insured. Here, Homestead, a different insurer, seeks to
raise the waiver doctrine, and Guarantee contends that Homestead lacks
standing to make this argument. While Guarantee is correct that the policy
behind the waiver doctrine is to protect insureds, not other insurers, its
argument in this situation is unavailing. Tonti, the insured, would be able to
raise the waiver doctrine against Guarantee. Homestead is standing in the place
of Tonti based on Tonti’s assignment of its rights to Homestead. See LA. CIV.
CODE ANN. art. 2642 (“All rights may be assigned . . . .”). The waiver doctrine in
Louisiana ensures that a conflict of interest does not later arise between an
insurer and an insured. See Arceneaux, 969 So. 2d at 768. Here, a conflict of
interest arose (and Tonti suffered prejudice) when Guarantee withdrew its
defense after providing coverage for twenty months. Had Homestead not taken
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No. 07-31113
over the defense, Tonti would have had to pay for the defense itself. Thus, Tonti
can raise the waiver doctrine against Guarantee, and Homestead now stands in
Tonti’s shoes with respect to this right. As Guarantee waived its right to invoke
its policy defense, Homestead may recover in the place of Tonti under the
assignment of rights.1
IV. CONCLUSION
The district court erred in failing to recognize that, even if Guarantee’s
policy did not cover the allegations in Payne’s suit, Guarantee waived its right
to raise this policy exclusion by defending Tonti for over twenty months.
Therefore, we REVERSE the judgment of the district court and REMAND for
further proceedings consistent with this opinion.
REVERSED AND REMANDED.
1
Guarantee also contends that any claim against it has prescribed under Louisiana
law. However, an action based upon an insurance contract is subject to a ten-year prescriptive
period. See LA. CIV. CODE ANN. art. 3499; We Sell Used Cars v. United Nat’l Ins. Co., 715
So. 2d 656, 657 (La. Ct. App. 1998). Homestead brought its suit within ten years of
Guarantee’s withdrawal of Tonti’s defense. Therefore, we reject Guarantee’s argument based
on prescription.
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