Raylin Richard v. Anadarko Petroleum Corporation

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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-30216 FILED
March 2, 2017
RAYLIN RICHARD,
Lyle W. Cayce
Clerk
Plaintiff
v.
ANADARKO PETROLEUM CORPORATION,
Defendant - Third Party Plaintiff
OFFSHORE ENERGY SERVICES, INCORPORATED,
Third Party Defendant - Appellee
v.
LIBERTY MUTUAL INSURANCE COMPANY,
Third Party Defendant - Appellant
Appeal from the United States District Court
for the Western District of Louisiana
Before ELROD, SOUTHWICK, and GRAVES, Circuit Judges.
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JAMES E. GRAVES JR., Circuit Judge:
This appeal presents, at its core, an insurance coverage dispute. Offshore
Energy Services (“OES”), the appellee, indemnified three other companies for
tort claims filed against them by an OES employee. OES considered itself
contractually obligated to indemnify the other companies under an agreement
with an oil and gas project’s principal operator. 1
Liberty Mutual, OES’s insurer, denied OES’s claim for reimbursement
of the funds OES spent defending against, and ultimately settling, the tort suit.
Liberty Mutual now appeals two aspects of the proceedings below.
First, Liberty Mutual contends the district court erred by permitting
OES and Anadarko Petroleum Corporation (“Anadarko”), the drilling project’s
principal, to equitably reform their master services contract (the “MSC”).
Second, Liberty Mutual asserts the district court interpreted the
OES-Liberty Mutual insurance policy erroneously when it concluded the policy
obligated Liberty Mutual to reimburse OES for all of the attorney’s fees OES
incurred in connection with the tort suit, rather than a pro-rata portion of those
fees.
We AFFIRM the district court’s ruling permitting reformation of the
MSC. We MODIFY the district court’s judgment awarding attorney’s fees;
Liberty Mutual owes $168,695.96, which represents its pro-rata share of OES’s
attorney’s fees.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
I. Origins of the insurance coverage dispute
This appeal is rooted in Raylin Richard’s personal injury lawsuit against
Anadarko, Dolphin Drilling Ltd. (“Dolphin Drilling”), and Smith International
We follow the parties and district court in referring to this as a “knock for knock”
1
indemnity arrangement.
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Inc. (“Smith International”). Richard worked as a casing supervisor for OES.
Anadarko and OES had a longstanding master services contract (the “MSC”),
under which OES provided casing and other services on Anadarko projects.
One such project brought Richard onto a drill ship called the Belford Dolphin,
where, in June 2009, he suffered an injury. Richard filed tort claims against
Anadarko and other companies working on Anadarko’s project, including
Dolphin Drilling and Smith International.
OES, as Richard’s employer, ultimately shouldered the financial burden
of defending against Richard’s claims and secured a full release by paying a
$2.5 million settlement. OES assumed this burden pursuant to a two-part
chain of contractual indemnifications. First, Anadarko’s contractors, Dolphin
Drilling and Smith International, turned to Anadarko for indemnification.
Second, Anadarko, in turn, sought indemnity from OES for its own exposure,
as well as Dolphin Drilling and Smith International’s.
The MSC, which established the general terms under which OES and
Anadarko would conduct business within a number of different projects,
contains provisions imposing reciprocal indemnity obligations for claims
relating to employees’ work-related accidents. The parties vigorously dispute
the scope of these indemnity obligations.
The dispute concerns paragraphs 14(a)–(b), which obligate OES and
Anadarko to indemnify each other’s “indemnitees,” and paragraphs 2(c)–(d),
which define the relevant “indemnitees” as “[Anadarko or OES, respectively,]
its Affiliates, its joint owners and venturers, if any, and its and their directors,
agents, representatives, employees and insurers and its subcontractors and
their employees.”
Liberty Mutual, OES’s insurer, denied coverage for OES’s expenditures
related to Dolphin Drilling and Smith International.
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II. Rulings related to coverage
A. Dismissal of Anadarko and Dolphin Drilling’s third-party
claims
After Liberty Mutual denied coverage, Anadarko and Dolphin Drilling
both filed third-party complaints impleading OES and Liberty Mutual. The
district court dismissed Anadarko and Dolphin Drilling’s third-party claims
against Liberty Mutual with prejudice. This did not, however, resolve the
related issue of whether Liberty Mutual owed OES coverage for the amounts
OES spent indemnifying Anadarko, Dolphin Drilling, and Smith International.
B. Summary judgment on OES’s cross-claim
OES cross-claimed against Liberty Mutual seeking coverage for its
indemnification of Dolphin Drilling, Smith International, and Anadarko. The
district court granted summary judgment in Liberty Mutual’s favor,
concluding that Dolphin Drilling and Smith International were Anadarko’s
“contractors,” which the MSC’s indemnity provisions did not cover, rather than
“subcontractors,” which the MSC’s indemnity provisions would cover.
The court found that it “[could] not answer the . . . question” of whether
to reform the MSC “at [that] time,” but contemplated that OES and Anadarko
might renew their request for reformation of the MSC in subsequent motions.
C. Reconsideration of summary judgment
On March 24, 2015, the district court granted Anadarko, Dolphin
Drilling, Smith International, and OES’s motions for reconsideration of the
initial summary judgment ruling. 2 While the district court declined to revisit
its prior construction of the MSC, the court permitted Anadarko and OES to
reform the MSC to reflect a mutually-intended “knock for knock indemnity
scheme that would require, under the circumstances of Mr. Richard’s injury,
OES to indemnify Anadarko, Smith, and Dolphin.”
2 Anadarko filed one motion, while Dolphin, Smith, and OES jointly filed the second.
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D. Denial of Liberty Mutual’s subsequent challenge to the
MSC’s reformation
After OES filed an amended cross-claim reflecting the reformed
indemnity provision, Liberty Mutual filed a new motion for summary
judgment. Liberty Mutual essentially argued that reformation should not have
been granted. The district court denied the motion on October 28, 2015.
E. Interpretation of the OES-Liberty Mutual insurance policy
The parties’ focus then turned to the language of the OES-Liberty
Mutual insurance policy. In a one-day bench trial, the parties contested Liberty
Mutual’s obligation to reimburse OES for the settlement funds and attorney’s
fees OES spent in connection with the Richard suit.
With respect to the settlement funds, the court found Liberty Mutual
owed OES $900,000, representing the policy’s $1 million limit less a $100,000
deductible. With respect to attorney’s fees, the court awarded the full
$468,599.90 OES spent defending itself, Dolphin Drilling, and Smith
International.
F. Denial of Liberty Mutual’s post-trial motions
The district court denied Liberty Mutual’s motion for a new trial or to
alter or amend the judgment on February 25, 2016. Liberty Mutual timely
noticed this appeal on March 8, 2016.
JURISDICTION
The district court had jurisdiction over this case pursuant to 28 U.S.C.
§ 1333(1). This court has jurisdiction to review the district court’s final
judgment pursuant to 28 U.S.C. § 1291.
STANDARD OF REVIEW
With respect to the ruling permitting reformation of the MSC, because
“the district court considered the merits of the [reconsideration] motion,” this
court “review[s] the reformation issue under the familiar summary-judgment
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standard of de novo.” See Am. Elec. Power Co. Inc. v. Affiliated FM Ins. Co.,
556 F.3d 282, 287 (5th Cir. 2009). We review for clear error the district court’s
finding regarding whether the contracting parties made a mutual mistake such
that the contract fails to reflect their shared intent. See Ill. Cent. Gulf R.R. Co.
v. R.R. Land, 988 F.2d 1397, 1402 (5th Cir. 1993) (“We freely review
conclusions of law; but, because the reformation issue turns on a determination
of the parties’ intent, we review for clear error.”) (applying Louisiana law); see
also Motors Ins. Co. v. Bud’s Boat Rental, Inc., 917 F.2d 199, 204 (5th Cir. 1990)
(holding, in the context of maritime contract reformation, that
“[d]etermination of intent is a question of fact for the district court, which this
court can reverse only if clearly erroneous”); Teche Realty & Inv. Co. v. Morrow,
673 So.2d 1145, 1148 (La. Ct. App. 1996) (“A determination of mutual error is
essentially a question of fact, and a trial court’s finding with reference to the
presence or absence of mutual error should not be disturbed unless it is clearly
wrong.”).
This court reviews “de novo the interpretation of a[n] [insurance]
contract, including any questions about whether the contract is ambiguous.”
Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503, 511–12 (5th Cir. 2014).
Conflicts-of-law questions also receive de novo review. Hartford
Underwriters Ins. Co. v. Found. Health Servs. Inc., 524 F.3d 588, 592 (5th Cir.
2008) (“This Court reviews questions of law, including conflicts of law
questions, de novo . . . .”).
ANALYSIS
I. Reformation of the OES-Anadarko Master Services Contract
The first issue presented in this appeal concerns whether the district
court erred by permitting OES and Anadarko to reform the MSC. We hold that
the district court correctly permitted reformation. Federal maritime law
permitted the introduction of parol evidence to demonstrate a mutual mistake
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warranting reformation, Liberty Mutual’s third-party interest in the MSC’s
indemnity provisions did not block reformation, and the record contains
sufficient evidence to support reformation.
A. Application of federal maritime law
The district court correctly concluded that the MSC “is a maritime
contract subject to federal maritime law.” 3
“[C]ourt[s] in maritime cases must apply general federal maritime choice
of law rules.” Great Lakes Reinsurance (UK) PLC v. Durham Auctions, Inc.,
585 F.3d 236, 241 (5th Cir. 2009) (quoting Albany Ins. Co. v. Anh Thi Kieu, 927
F.2d 882, 890 (5th Cir. 1991)). “Under federal maritime choice of law rules,
contractual choice of law provisions are generally recognized as valid and
enforceable.” Id. at 242. The MSC includes a choice-of-law provision selecting
general maritime law, or, if maritime law does not apply, Texas law.
While the parties agree that we should begin with federal maritime
principles, they dispute whether federal maritime principles alone suffice to
resolve the reformation issue. Liberty Mutual contends that in this case,
maritime law principles conclusively foreclose reformation. OES argues the
district court correctly consulted state law regarding “the specific issue of
reformation of a contract when a third party (here, Liberty Mutual) may be
adversely affected.” We hold that the district court correctly referenced state
3 The MSC’s “Purpose and Scope” paragraph describes, among other planned work,
“casing.” In the tort claim underlying this insurance coverage dispute, Raylin Richard, an
OES casing supervisor, was struck and injured by a falling joint of casing. “‘Casing’ is an
activity performed during the drilling for oil . . . involv[ing] the ‘welding together and
hammering of pipe into the subsurface of the earth to create a permanent construction.’”
Demette v. Falcon Drilling Co., 280 F.3d 492, 494–95 (5th Cir. 2002) (quoting Campbell v.
Sonat Offshore Drilling, Inc., 979 F.2d 1115, 1118 n.2 (5th Cir. 1992)), overruled on other
grounds by Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009).
“This court has held that indemnity provisions in contracts to provide offshore casing services
are maritime.” Id. at 500.
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law to determine whether Liberty Mutual’s interest in the indemnities
provided by the MSC foreclosed reformation.
B. Maritime parol evidence rule
The district court’s reformation ruling did not disturb its prior conclusion
that the express language of the MSC provided no indemnity coverage for
Dolphin Drilling and Smith International. Liberty Mutual contends this
should have ended the court’s inquiry. We disagree.
The district court properly considered evidence that OES and Anadarko
committed a mutual mistake by failing to write such coverage into the MSC.
Mutual mistakes by contracting parties can warrant contract reformation. See
Wilcox v. Wild Well Control, Inc., 794 F.3d 531, 541 (5th Cir. 2015)
(“Reformation is an equitable remedy used to correct errors or mistakes in
contracts.”) (quoting Am. Elec., 556 F.3d at 287). “To reform an instrument,
‘there must be clear proof of the antecedent agreement as well as the error in
committing it to writing.’” Fruge v. Amerisure Mut. Ins. Co., 663 F.3d 743, 748
(5th Cir. 2011) (applying Louisiana law) (quoting First State Bank & Trust Co.
of E. Baton Rouge Parish v. Seven Gables Inc., 501 So.2d 280, 285 (La. Ct. App.
1986)).
The question of whether a court may consider parol evidence relating to
a contract turns largely on whether the evidence is offered to (1) interpret the
contract’s terms or (2) demonstrate the contracting parties’ mutual mistake in
failing to accurately record an antecedent agreement in writing. Parol evidence
may not be considered in the course of interpreting unambiguous contractual
language, see Har-Win, Inc. v. Consolidated Grain & Barge Co., 794 F.2d 985,
988 (5th Cir. 1986), but a court may evaluate parol evidence to determine
whether a mutual mistake occurred, see Travelers Indem. Co. v. Calvert Fire
Ins. Co., 798 F.2d 826, 835 (5th Cir. 1986), aff’d in part and rev’d in part on
other grounds on reh’g, 836 F.2d 850 (5th Cir. 1988). Courts must guard against
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parties’ “attempts to make an end-run around the parol-evidence rule,” which
forecloses the use of parol evidence to interpret unambiguous terms, “by
framing [their] argument[s] as a request for reformation.” Am. Elec., 556 F.3d
at 288.
Har-Win demonstrates the maritime parol evidence rule’s bar against
parol evidence offered to interpret unambiguous contractual terms. In that
case, we concluded that the contracts at issue were complete and
unambiguously called for an unconditional sale. Har-Win, 794 F.2d at 987. We
therefore held that the lower court properly excluded parol evidence offered to
show that the buyer’s obligations were conditional. Id. Har-Win, however,
made no mention of mutual mistake.
In maritime cases, “[e]quity will reform an instrument to reflect the true
intent of the parties where there has been a mutual mistake . . . [and] [p]arol
evidence is admissible to prove the mutual mistake.” Travelers Indem. Co., 798
F.2d at 835. Accordingly, the district court did not violate the maritime parol
evidence rule when, after interpreting the unreformed MSC, it considered
parol evidence for the purpose of determining whether the contracting parties
committed a mutual drafting error warranting reformation. We perceive no
clear error in the district court’s conclusion that a mutual error occurred.
C. Reformation affecting interested third parties
The district court recognized that reformation might be proper if OES
and Anadarko proved a mutual mistake, but also noted that federal maritime
law lacked a clear rule of decision on “the specific issue of reformation of a
contract when a third party (here, Liberty Mutual) may be adversely affected.”
To fill the gap, the district court conducted a choice-of-law analysis comparing
Louisiana and Texas state law.
The district court’s reference to state law was proper—this Court has
stated that “state law may occasionally be utilized to fill the gaps in an
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incomplete and less than perfect maritime system,” see J. Ray McDermott &
Co. v. Vessel Morning Star, 457 F.2d 815, 818 (5th Cir. 1972) (en banc); see also
Motors Ins. Co., 917 F.2d at 203 (applying federal admiralty law to a maritime
contract’s interpretation, but analyzing its reformation under Louisiana state
law due to the absence of “a well-established federal maritime rule of
decision”). Finding no conflict between Texas and Louisiana state law on the
issue of reformation, the district court used the law of its forum (i.e., Louisiana
law).
1. Choice of law
This court reviews a district court’s choice-of-law determinations de
novo. See Sims v. Kia Motors of Am., Inc., 839 F.3d 393, 398 (5th Cir. 2016).
“[C]ourt[s] in maritime cases must apply general federal maritime choice of
law rules.” Great Lakes Reinsurance, 585 at 241 (quoting Kieu, 927 F.2d at
890). “Under federal maritime choice of law rules, contractual choice of law
provisions are generally recognized as valid and enforceable.” Id. at 242.
Where “general maritime law is not applicable,” the MSC selects Texas
law. Although the MSC’s choice of law provision would typically lead to the
application of Texas reformation principles, we perceive no error in the district
court’s decision to rely primarily upon Louisiana law given the apparent
absence of conflict between the two jurisdictions. See Am. Elec., 556 F.3d at
285 (applying Louisiana law to a dispute involving contractual interpretation
and a reformation request after perceiving no conflict between Texas and
Louisiana law); see also Pioneer Expl., 767 F.3d at 512 (applying Louisiana law
to a dispute involving contractual interpretation due to the absence of conflict
with Texas law). We likewise look to Louisiana law.
2. Louisiana reformation principles
The district court correctly noted that, under Louisiana law, “[t]he fact
that a third party may be affected by reformation of the contract does not,
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itself, bar reformation.” In Samuels v. State Farm Mut. Auto. Ins. Co., for
example, the Supreme Court of Louisiana affirmed reformation of an
individual’s contract with an excess insurer, Evanston Insurance Company,
due to the contracting parties’ mutual mistake despite the fact that the
reformation would negatively affect State Farm, the primary insurer. See 939
So.2d 1235, 1239, 1241 (La. 2006).
The Samuels court observed that “[the] third party insurance company
[i.e., State Farm] . . . did not even rely on [the contracting parties’] error in
issuing its own policy.” Id. at 1241. Similarly, the district court in this case
found that “Liberty Mutual unequivocally did not study, review, or rely on the
language of the OES-Anadarko Contract prior to issuing [its insurance] Policy
to OES.”
Liberty Mutual does not directly dispute the district court’s finding that
it did not review or rely on the unreformed MSC. Rather, Liberty Mutual
argues that because it “assumed obligations based on the original contract
language,” it should receive protection from the “prejudic[ial]” effects of
reformation even though it did not specifically rely on the unreformed MSC.
Appellant’s Reply Br. at 14. We disagree.
a. American Electric and Wilcox
Liberty Mutual’s argument against reformation invokes two of this
court’s recent opinions, Am. Elec. Power Co. Inc. v. Affiliated FM Ins. Co., 556
F.3d 282 (5th Cir. 2009) and Wilcox v. Wild Well Control, Inc., 794 F.3d 531(5th Cir. 2015). Both are distinguishable.
In American Electric, we held that a district court did not err when it
declined to reform an insurance policy (the “Chubb Policy”) between Central &
Southwest Corporation (“CSW”) and Chubb Insurance Group (“Chubb”). Am.
Elec., 556 F.3d at 284–85. The district court’s ruling benefitted Affiliated FM
Insurance Company (“Affliliated”), whose policy insuring CSW’s purchaser,
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American Electric Power Company (“AEP”), obligated Affiliated to pay for
whatever past losses at CSW the Chubb Policy would have covered. Id.AEP sought coverage for past losses at “two of CSW’s subsidiary limited
liability companies (‘LLCs’).” Id. at 284. Affiliated declined coverage, asserting
that the Chubb Policy only expressly covered CSW and its subsidiary
corporations (i.e., not the unincorporated subsidiary LLCs). Id. at 285. Both
CSW and Chubb filed affidavits stating that they intended for the Chubb
Policy’s references to subsidiary “corporations” to encompass CSW’s subsidiary
LLCs. Id.We distinguished Samuels, where a third party’s interest did not block
contractual reformation, from the reformation AEP sought on two grounds.
First, we observed that “Samuels involved a third party who did not assume or
rely on the original contract in any manner.” Id. at 288 (citing Samuels, 939
So.2d at 1240–41). In American Electric, by contrast, “Affiliated assumed the
coverage obligations set forth under the unambiguous terms of the Chubb
Policy,” and we perceived “no indication that Affiliated knew or should have
known of an informal understanding between Chubb and CSW regarding the
meaning of ‘corporation.’” Id. Reforming the Chubb Policy under such
circumstances, we reasoned, “would be contrary to basic norms of fairness and
notice.” Id. (citing Lewis v. Saucer, 653 So.2d 1254, 1259 (La. Ct. App. 1995)).
Second, we concluded that Chubb and CSW’s “broader-than-usual”
intended meaning for the word “corporation” did not constitute “the type of
‘error’ that reformation is intended to remedy.” Id. We contrasted the
“broader-than-usual” intended definition with the “clerical mistake” at issue in
Samuels, which involved “the inclusion of an unintended and inaccurate
[insurance] policy number.” Id. (citing Samuels, 939 So.2d at 1241). We
discerned “a significant difference between an obvious clerical error and [an]
alleged ‘hidden meaning’ in a contract assumed by an unwitting third party.”
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Id. “Equity may counsel relief for the former,” we reasoned, “but it does not for
the latter.” Id.In Wilcox, we affirmed a district court’s refusal to reform a contract that
defined the term “Owner” as meaning one specific company, Superior Energy
Services, L.L.C. (“Superior”). See Wilcox, 794 F.3d at 541–42. Relying on
American Electric, we rejected an invitation to reform the contractual
definition to encompass “all companies affiliated with Superior.” Id. We
emphasized American Electric’s admonition against permitting parties “to use
parol evidence to show ‘the original parties had a broader-than-usual meaning
in mind when they [purposefully] included the word.’” Id. at 542 (quoting Am.
Elec., 556 F.3d at 288).
b. Analysis
In both American Electric and Wilcox, we affirmed district court rulings
denying reformation where parties sought to expand express contractual terms
beyond the terms’ usual meaning. See Am. Elec., 556 F.3d at 288; Wilcox, 794
F.3d at 542. In American Electric, the relevant term, “corporation,” was also a
legal term of art carrying a generally accepted meaning narrower than the
contracting parties’ purported private understanding. See Am. Elec., 556 F.3d
at 286–87. In Wilcox, the contract defined the relevant term, “Owner,” as a
single business entity, “Superior Energy Services, L.L.C,” without any
indication that the definition might encompass other entities such as
Superior’s subsidiaries. Wilcox, 794 F.3d 531 F.3d at 541–42. Under such
circumstances, expanding the contracts’ express terms would run “contrary to
basic norms of fairness and notice” upon which third parties rely. See Am. Elec.,
556 F.3d at 288.
In this case, by contrast, we are persuaded that the reformation causes
Liberty Mutual no unfair surprise. Like the district court, we consider the
unreformed MSC’s indemnity provisions strongly suggestive of OES and
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Anadarko’s mutual intention to provide for the “knock for knock” indemnity
arrangement common in their industry. That intention is further evidenced by
the parties’ conduct after signing the MSC. 4 Specifically, less than a year after
signing the MSC, OES made indemnifications under similar circumstances
and successfully submitted a claim to its prior insurer, Zurich Insurance
Company. Richard v. Anadarko Petroleum Corp., No. 6:11-CV-0083, 2015 WL
1357013, at *9, *11 (W.D. La. Mar. 24, 2015). On the strength of such evidence,
the district court permitted reformation to ensure the MSC’s indemnity
provisions would fully reflect OES and Anadarko’s intended “knock for knock”
indemnity arrangement.
Liberty Mutual does not stand on equal footing with the third parties
whose interests blocked reformation in American Electric and Wilcox. Those
third parties faced springing “hidden meaning[s],” such as the notions that
contracting parties meant for the unambiguous word “corporation” to also
encompass unincorporated entities, see Am. Elec., 556 F.3d at 288, or meant
for a specific reference to a single business entity to also encompass all of that
entity’s affiliates, see Wilcox, 794 F.3d at 541–42. In this case, Liberty Mutual
cannot fairly complain of such surprise.
The district court found, and Liberty Mutual has not disputed, that
“Liberty Mutual unequivocally did not study, review, or rely on the language
of the [MSC] prior to issuing [its] Policy to OES.” Richard, 2015 WL 1357013,
at *11. In the course of procuring the insurance policy, OES also provided
Liberty Mutual with a “Loss History” reflecting OES’s prior indemnification
4 Louisiana law permits courts to consider evidence of the contracting parties’
post-contract conduct when evaluating the parties’ antecedent agreement. See Wilson v. Levy,
101 So.2d 214, 217 (La. 1958) (considering contracting parties’ post-sale conduct in the course
of determining the intended boundaries of a land sale); see also Agurs v. Holt, 95 So.2d 644,
648 (La. 1957) (same); Succession of Jones v. Jones, 486 So.2d 1124, 1129 (La. Ct. App. 1986)
(same).
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claims, including a claim involving a contractor under circumstances similar
to this case. Id. With the unreformed MSC and OES’s “Loss History” in hand,
Liberty Mutual had reason to perceive OES and Anadarko’s shared, ultimately
mistaken interpretation of the MSC indemnity provisions’ scope.
D. Sufficiency of the evidence for reformation
Moving beyond the question of whether reformation was permissible,
Liberty Mutual also contends that OES failed to present sufficient evidence to
warrant reformation. We disagree.
“The party seeking reformation bears the burden of establishing mutual
error in the contract’s creation.” Wilcox, 794 F.3d at 541 (citing Am. Elec., 556
F.3d at 287). “Ordinarily the party must only show mistake by a preponderance
of the evidence; but when a party seeks to reform a provision ‘to provide
coverage for a substantially different and greater risk than expressly covered,
the party must demonstrate a mutual error by clear-and-convincing evidence.’”
Id. (quoting Am. Elec., 556 F.3d at 287 n.4).
The district court found that OES and Anadarko met the higher
clear-and-convincing evidence burden. In light of the record, and in particular
the evidence discussed above, we agree.
E. Whether the district court had authority to reform the MSC
while exercising admiralty jurisdiction
Liberty Mutual suggests, in a footnote, that “a court exercising admiralty
jurisdiction” may not be able to “consider a reformation claim.” Appellant’s
Original Br. at 35 n.103. We disagree.
This court has repeatedly indicated federal courts exercising admiralty
jurisdiction may reform maritime contracts. E.g., Motors Ins. Co., 917 F.2d at
203 (“The Fifth Circuit has previously applied Louisiana law to reform a
maritime hull and indemnity policy.”).
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II. Interpretation of the OES-Liberty Mutual insurance policy
The second issue presented by this appeal concerns whether the district
court erred when it interpreted the OES-Liberty Mutual insurance policy to
require reimbursement of all the attorneys’ fees OES incurred in connection
with the Richard suit. We hold that the district court did err; the insurance
policy only obligates Liberty Mutual to pay a pro-rata share of the attorney’s
fees.
A. Relevant policy provisions and endorsements
The insurance policy sets forth general terms in sections titled “Common
Policy Conditions,” and “Commercial General Liability Coverage Form.” The
policy also includes a list of declarations and “endorsements” that make
specific modifications. Liberty Mutual contends that the district court erred in
its handling of two endorsements, Endorsement 3 and Endorsement 34.
Both endorsements reference a portion of the policy labeled
“Supplementary Payments – Coverages A and B.” The Supplementary
Payments section generally outlines Liberty Mutual’s obligations to pay costs
borne by the insured (i.e., OES) and the insured’s indemnitees.
Endorsement 3 purports to amend Supplementary Payments ¶1 to
reflect a “pro-rata” formula for determining Liberty Mutual’s payment
obligations. Endorsement 34 states that the text it provides “replace[s] . . .
Supplementary Payments – Coverages A and B.”
As the district court stated, “[t]he difference between the two
endorsements is that if Endorsement 3 is applied, the fees owed are
$168,695.96, and if Endorsement 34 is applied the fees are $468,599.90.”
Richard v. Anadarko Petroleum Corp., No. 6:11-CV-0083, 2015 WL 8785038,
at *2 (W.D. La. Dec. 15, 2015).
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B. Interpretive dispute
The district court concluded that the policy and its endorsements
reasonably permitted the following two alternative interpretations:
1. “The replacement Supplementary Payments provision in Endorsement
34 is modified by the pro-rata formula in Endorsement 3 such that the
pro-rate formula applies; or
2. Endorsement 3 amends paragraph 1 of the Supplementary Payments
provision but Endorsement 34 completely replaces that provision such
that the pro-rata formula does not apply.”
Richard, 2015 WL 8785038, at *2.
Invoking the principle that ambiguous insurance policy provisions
should generally be construed against the insurer, the district court adopted
the second interpretation and awarded all the legal fees OES incurred.
Richard, 2015 WL 8785038, at *3.
C. Discussion
We conclude that the district court’s second alternative interpretation is
not reasonable under Louisiana principles of contract interpretation. Only the
district court’s first alternative interpretation adequately gives effect to all of
the policy’s provisions.
“Under Louisiana law, insurance policies are contracts between the
parties and ‘should be construed by using the general rules of interpretation of
contracts set forth in the Louisiana Civil Code.’” Pioneer Expl., 767 F.3d at 512
(quoting Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003)).
“When interpreting a contract, the court must discern the parties’ common
intent.” Id. “The parties’ intent as reflected by the words in the policy
determine[s] the extent of coverage.” Id. (quoting La. Ins. Guar. Ass’n v.
Interstate Fire & Cas. Co., 630 So.2d 759, 763 (La. 1994)) (alteration in
original).
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“Where the terms of the contract are clear and explicit and do not lead
to absurd consequences, no further interpretation may be made in search of
the intent of the parties.” Id. (citing La. Civ. Code art. 2046). “‘[W]ords of a
contract must be given their generally prevailing meaning,’ but ‘[w]ords of art
and technical terms must be given their technical meaning when the contract
involves a technical matter.’” Id. (quoting La. Civ. Code art. 2047) (alterations
in original). “Each provision in [the] contract must be interpreted in light of
the other provisions so that each is given the meaning suggested by the
contract as a whole.” La. Civ. Code art. 2050.
“An insurance policy should not be interpreted in an unreasonable or a
strained manner so as to enlarge or restrict its provisions beyond what is
reasonably contemplated by its terms or so as to achieve an absurd conclusion.”
Pioneer Expl., 767 F.3d at 512 (quoting Reynolds v. Select Props., Ltd., 634
So.2d 1180, 1183 (La. 1994)). “If the policy wording at issue is clear and
unambiguously expresses the parties’ intent, the insurance contract must be
enforced as written.” Id. (quoting Cadwallader, 848 So.2d at 580).
“If the insurance contract terms are ambiguous, these ambiguities are
generally strictly construed against the insurer and in favor of coverage.” Id.(citing La. Ins. Guar. Ass’n, 630 So.2d at 764). “This rule of strict construction
‘applies only if the ambiguous policy provision is susceptible to two or more
reasonable interpretations; for the rule of strict construction to apply, the
insurance policy must be not only susceptible to two or more interpretations,
but each of the alternative interpretations must be reasonable.’” Id. (quoting
Cadwallader, 848 So.2d at 580).
The district court’s second policy interpretation, under which
Endorsement 34 entirely nullifies Endorsement 3, is unreasonable in light of
Louisiana’s interpretive command that policy provisions be read in light of one
another “so that each is given the meaning suggested by the contract as a
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whole.” See La. Civ. Code art. 2050. Because only one reasonable interpretation
exists, the district court erred by construing the policy against the insurer,
Liberty Mutual. Pioneer Expl., 767 F.3d at 512.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s ruling
permitting reformation of the MSC. 5 We MODIFY the district court’s judgment
awarding attorney’s fees; the policy entitles OES to attorney’s fees totaling
$168,695.96.
Because we affirm the district court’s ruling permitting reformation, we do not reach
5
OES’s alternative argument that the unreformed MSC provided the coverage OES and
Anadarko seek.
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