Riley Stoker Corp. v. Fidelity & Guaranty Insurance Underwriters, Inc.

United States Court of Appeals,
Fifth Circuit.
Nos. 92-3960, 93-3359, 93-3360 and 93-3397.
RILEY STOKER CORPORATION, Plaintiff-Appellant Cross-Appellee,
v.
FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INC., et al., Defendants-
Appellees Cross-Appellants.
RILEY STOKER CORP., Plaintiff,
v.
FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INC., et al., Defendants.
FIDELITY & GUARANTY INSURANCE UNDERWRITERS, INC. and United States Fidelity
and Guaranty Company, Defendants-Third Party Plaintiffs-Appellants,
v.
BEAIRD INDUSTRIES, INC., and Ashland Oil, Inc., Third Party Defendants-Appellees.
July 22, 1994.
Appeals from the United States District Court for the Middle District of Louisiana.
Before WOOD,1 SMITH and DUHÉ, Circuit Judges.
DUHÉ, Circuit Judge.
This is an insurance coverage dispute in which a contractor seeks to hold its insurer liable
under primary and excess comprehensive general liability policies for damage caused by the
contractor's defective work. For the most part we agree with the district court's decision. We,
however, find error in some aspects of it so we affirm in part, reverse in part, and remand.
BACKGROUND
In 1975, Riley Stoker Corporation ("Riley Stoker") and Cajun Electric Power Cooperative,
Inc. ("Cajun") entered into a contract ("G2-2 Contract") in which Riley Stoker agreed to construct
two coal-fired steam generators for Units 1 and 2 of the Big Cajun No. 2 power plant near New
Roads, Louisiana. Each generator would include a boiler and furnace and four coal pulverizers ("ball
1
Circuit Judge of the Seventh Circuit, sitting by designation.
tube mills"). Riley Stoker then contracted with its affiliate, Beaird Industries, Inc. ("Riley Beaird"),
to design and build the ball tube mills.
After Cajun began initial operation of Units 1 and 2, t he Riley Stoker steam generators,
particularly the ball tube mills, began to exhibit serious defects. A fire and several explosions
occurred in 1980 and 1981. Tire cracking, thrusting problems, and gear reducing problems appeared
during the same time period. Because of this, and construction delays, Cajun did not take the project
out of the construction phase and declare commercial operation until June 30, 1981, even though the
G2-2 Contract called for commercial operation on Units 1 and 2 by July 1979 and July 1980,
respectively. After the declaration of commercial operation, the mechanical breakdowns continued
to occur, and eventually, all of the ball tube mills required repair and replacement.
In December 1983, Cajun sued Riley Stoker for damages caused by delay in completing the
project, for loss of use of its electric generators, and repair and replacement of Riley Stoker's steam
generators. The suit was ultimately resolved through arbitration. In February 1989, the arbitrators
awarded Cajun $2,850,390 for financial damages caused by Riley Stoker's failure to complete its
work in time to support commercial operation within the contractually required time (paragraph 12
of the arbitration award) and $28,618,184 for other damages caused by defective equipment furnished
by or on behalf of Riley Stoker (paragraph 13 of the arbitration award).
Pursuant to the G2-2 Contract, Cajun obtained comprehensive general liability coverage from
Fidelity and Guaranty Insurance Underwriters, Inc. and United States Fidelity and Guaranty Company
(collectively "USF & G") on behalf of and for the benefit of Riley Stoker and its subcontractors. The
coverage included one primary policy and two consecutive excess policies. Riley Stoker was the
named insured under the primary policy, and Cajun and Riley Stoker were named insureds under the
two excess policies.
In February 1984, Riley Stoker notified USF & G of Cajun's suit and requested defense and
indemnity. USF & G denied coverage, stating that Cajun did not allege damages for covered claims.
Riley then filed this action. The district court granted summary judgment for USF & G. This Court
reversed and remanded, holding that USF & G had a duty to defend Riley Stoker because Cajun
alleged damages for potentially covered claims. 886 F.2d 1313.
On remand, in 1992, the district court found that the damages awarded by the arbitrators in
paragraph 12 were covered, but those in paragraph 13 were not. Accordingly, the court awarded
$2.85 million for indemnity. With regard to "defense costs" incurred by Riley Stoker in defending
the Cajun action, the court awarded $9.5 million of the $17.3 million Riley Stoker claimed. The court
also awarded prejudgment interest but denied Riley Stoker's request for penalties and attorney's fees.
Both Riley Stoker and USF & G appeal.
Riley Stoker appeals the following: (1) the ruling that the policies do not cover the paragraph
13 award; (2) the reduction of its claimed "defense costs"; and (3) the denial of statutory penalties
and fees. USF & G cross appeals the following: (1) the preclusio n of its notice defense; (2) the
ruling that the policies provide coverage for the paragraph 12 award; (3) the failure to apportion
"defense costs" between covered and uncovered claims; (4) the award of prejudgment interest on
the defense cost portion of the judgment; (5) the dismissal of its third-party complaint; and (6) the
denial of its motion for leave to amend its third-party complaint.2
DISCUSSION
I. The Preclusion of USF & G's Untimely Notice Defense
USF & G contends that Riley Stoker failed to give it timely notice of the events at Cajun as
required by the policy and that this po licy breach relieved USF & G of its indemnity and defense
obligations. USF & G further contends that the district court erred in finding that it waived this
defense by failing to assert it until years after it had denied coverage on other grounds. The district
court's decision correctly states the Louisiana law of waiver of lack of notice. In Wheeler v. London
Guar. & Accident Co., 180 La. 366, 156 So. 420 (1934), the Louisiana Supreme Court stated:
If the insurer receives notice and proofs of the insured's claim after the expiration of the time
stipulated in the policy for the giving of such notice and then plants its defense solely upon
a ground not relating to the time for giving notice, the insured has reason to believe that the
insurer intends to waive its right to defend on the ground that timely notice of the accident
was not given. And in case the insured brings an action under the policy and incurs expenses
2
USF & G also moved to dismiss Riley Stoker's appeal as untimely. The amendment to Rule 4
of the Federal Rules of Appellate Procedure, effective December 1, 1993, makes the motion
timely. See Burt v. Ware, 14 F.3d 256 (5th Cir.1994).
incident to the suit, the insurer cannot be heard to say in its answer for the time that timely
notice was not given.
156 So. at 422. Thus, the district court properly found that USF & G had waived its delayed notice
defense.
II. Liability for the Arbitration Award
A. Occurrences
The insurance policies provide that the insurer will pay on behalf of the insured all sums that
the insured becomes legally obligated to pay as damages because of "property damage" caused by an
"occurrence." The primary policy defines occurrence as an "accident, including continuous or
repeated exposure to conditions, which results in ... property damage neither expected nor intended
from the standpoint of the Insured." The first excess policy defines occurrence as "an accident,
including continuous or repeated exposure to conditions which results in ... property damage." And
the second excess policy defines occurrence as "an accident or unexpected event, including
continuous or repeated exposure to substantially the same general conditions, which results in ...
property damage." USF & G argues that Riley Stoker did not prove the happening of occurrences,
and therefore, the district court erred in ruling that damages awarded in paragraph 12 by the
arbitrators were covered.
After a thorough review of the record, we have no difficulty in finding that Riley Stoker met
its burden of proving that the damages suffered by Cajun were caused by occurrences as defined in
the policies. The record supports the finding that the ball tube mills, and their components, suddenly
and unexpectedly broke down, causing physical damage to the steam generating facility, on numerous
occasions. USF & G points out, however, that Louisiana courts have applied a judicial gloss on the
definition of occurrence. "In cases involving insurance policies with identical or substantially similar
definitions of occurrence, Louisiana Courts have found no occurrence where the liability of a
contractor is based solely on [its] improper co nstruction or defective workmanship." Rivnor
Properties v. Herbert O'Donnell, Inc., 633 So. 2d 735, 751 (La.Ct.App. 5th Cir.1994). USF & G
argues that because Cajun's claims were all grounded in Riley Stoker's construction delay and faulty
design, manufacture, and installation of the ball tube mills, Cajun's damages were not caused by
occurrences.
USF & G has interpreted the cases too broadly. What the Louisiana courts have actually done
is define occurrence by reference to the exclusions typically found in a comprehensive general liability
policy.3 If there is a conflict between Louisiana's judicial gloss on the definition of occurrences and
USF & G's policy language, the conflict must be resolved in favor of the insured. See Vitenas v.
Centanni, 381 So. 2d 531, 535 (La.Ct.App. 4th Cir.1980). In other words, if the damages are not
excluded under a specific policy exclusion, there is a conflict between Louisiana's definition and the
policy definition, and therefore, the damages are covered.
B. Property damage
As stated above, the policies provide coverage for property damage caused occurrences. The
policies define property damage as:
(1) physical injury to or destruction of tangible property which occurs during the policy
period, including the loss of use thereof at any time resulting therefrom, or
(2) loss of use of tangible property which has not been physically injured or destroyed
provided such loss of use is caused by an occurrence during the policy period.
The district court found that paragraph 12 awarded Cajun property damages for loss of use of
tangible property, which had not been physically injured, and that paragraph 13 awarded Cajun
property damages for physical injury to tangible property.
1. Paragraph 13 of the Arbitration Award
Riley Stoker contends that the district court erred in finding that paragraph 13 did not award
any property damages for loss of use. We must give deference to the district court's decision because
interpreting the arbitration award requires an examination of extrinsic facts, as well as the award
itself. This is necessary because arbitrators, unlike courts, do not necessarily give reasons for their
awards. Accordingly, our review is limited to examination for clear error. Cf. Haber Oil Co. v.
Swinehart (In re Haber Oil Co.), 12 F.3d 426, 443 (5th Cir.1994) ("[W]hen a contract is ambiguous
and its construction turns on the consideration of extrinsic evidence, we review the interpretation of
the court below for clear error only.").
3
Namely, the product, work, and the failure to perform exclusions, discussed infra.
Upon a thorough review of the evidence before the district court, we cannot say that its
decision was clearly erroneous. The amount awarded in paragraph 13 approximates Cajun's claim
for past repairs and future replacement costs of the ball tube mills. Moreover, the l anguage in
paragraph 13 indicates that the award was for equipment repair and replacement. It contains several
references to equipment defects and does not contain any references to loss of use.
Alternatively, Riley Stoker contends that even if the paragraph 13 award was solely for
physical injury to tangible property, the district court erred in finding that the property damages were
excluded. The policies generally exclude property damage:
(1) to the Named Insured's products arising out of such products or any part of such
products; and
(2) to work performed by or on behalf of the Named Insured arising out of the work or any
portion thereof, or out of materials, parts or equipment furnished in connection therewith.4
The broad form property damage ("BFPD") endorsement to the primary policy replaces the work
exclusion with the following:
with respect to the completed operations hazard, [this policy does not apply] to property
damage to work performed by or on behalf of the Named Insured arising out of the work or
any portion thereof, or out of materials, parts or equipment furnished in connection therewith.
The BFPD endorsement to the first excess policy eliminates the work exclusion entirely. And the
BFPD endorsement to the second excess policy replaces the work exclusion with the following:
with respect to the completed operations hazard, [this policy does not apply] to property
damage to work performed by the Named Insured arising out of the work or any portion
thereof, or out of materials, parts or equipment furnished in connection therewith.
The district court found that the property damage award in paragraph 13 was for damage to Riley
Stoker's product and work, and therefore, the damages were excluded under the product exclusion.
Because the damages were excluded under the product exclusion, the district court saw no need to
determine whether the damages were excluded under the work exclusions for completed operations
found in the BFPD endorsements to the primary and second excess policies. Accordingly, our review
is limited to whether the court properly applied the product exclusions.
Riley Stoker argues that because it provided construction services and not a product, the
4
We will refer to (1) and (2) above as the product and work exclusions, respectively.
product exclusion is not applicable. Contrary to its assertions, there is substantial evidence to support
the finding that the Riley Stoker steam generators, which included the ball tube mills, were Riley
Stoker's product and the construction of the steam generators, including the ball tube mills, was Riley
Stoker's work. See Allen v. Lawton & Moore Builders, Inc., 535 So. 2d 779, 781 (La.Ct.App. 2d
Cir.1988) (stating that the product exclusion excluded coverage for property damage to the named
insured's products, the house and lot, and the work exclusion excluded damage to the insured's work,
the construction of the house and lot).
Next, citing Southwest La. Grain, Inc. v. Howard A. Duncan, Inc., 438 So. 2d 215
(La.Ct.App. 3rd Cir.), writ denied, 441 So. 2d 1224 (La.), and writ denied, 442 So. 2d 447 (La.1983),
Riley Stoker argues that the product and work exclusions cannot both be relevant to the paragraph
13 award. In Southwest, the court refused to find both the product and the work exclusions relevant
where the product exclusion would have excluded coverage, but the work exclusion would not have
excluded coverage. The court reaso ned t hat this would create an ambiguity in the policy. That
ambiguity does not exist here. In this case, the district court found that the damages in paragraph 13
were to both the product and work of Riley Stoker. Therefore, both the product and work exclusions
would operate to exclude coverage.
Riley Stoker then contends that the district court erred in finding that the ball tube mills were
its work since they were built by Riley Beaird for Riley Stoker, and that such work is not excluded
under the work exclusion in the BFPD endorsement in the second excess policy. Our review of the
record indicates that the trial court properly found that the ball tube mills were the work of both Riley
Beaird and Riley Stoker. The events at Cajun were caused primarily by the design and installation
of the ball tube mills. The record contains substantial evidence that their design was supervised and
driven by Riley Stoker and the installation was performed by Riley Stoker. Therefore, the district
court's determination was not clearly erroneous.
2. Paragraph 12 of the Arbitration Award
USF & G contends that the district court erred in finding coverage of the property damages
awarded in paragraph 12. USF & G argues that the paragraph 12 award was for miscellaneous
construction delays, such as scheduling and coordination delays unrelated to property damage. Our
review of the record reveals that the construction delay damages claimed by Cajun resulted from
repeated mechanical failures, as well as miscellaneous construction delays. The arbitrator's award in
paragraph 12 is covered to the extent that it awarded damages for delays caused by the mechanical
failures. Because we are unable to determine whether the arbitrator's award is covered in whole or
in part, we cannot say that the district court's finding of coverage was clearly erroneous. See
Anderson v. Bessemer City, 470 U.S. 564, 574, 105 S. Ct. 1504, 1511-12, 84 L. Ed. 2d 518 (1985)
("Where there are two permissible views of the evidence, the fact-finder's choice between them
cannot be clearly erroneous.")
Alternatively, USF & G argues that because the court excluded the property damage for
physical injury under the product exclusion, the loss of use caused by the physical injury must also
be excluded. In support of this proposition, USF & G relies primarily on Borden, Inc. v. Howard
Trucking Co., 454 So. 2d 1081 (La.1983) and Rivnor, 633 So. 2d at 735. Both of these cases are
distinguishable.
Relying upon the belief that the policy in question defined property damage to mean (1)
physical injury to or destruction of tangible property that occurs during the policy period, including
the loss of use resulting therefrom, or (2) loss of use o f tangible property which has not been
physically injured or destroyed, the Borden court stated that where the injury to property is not
covered by a policy, the resulting loss of use of the injured property is not covered.5 Likewise, the
court in Rivnor found that a work exclusion, similar to the work exclusions in USF & G's policies,
excluded physical injury to the insured's work and the resulting loss of use of the insured's injured
work.
Unlike Borden, the loss of use in this case relates to property (the electric generators) that has
not been physically injured. And unlike Rivnor, it relates to loss of use of property (the electric
generators) other than the insured's work or product (the steam generating equipment). The steam
5
On rehearing, the Borden court found coverage for the loss of use award based on the court's
realization that the definition of property damage, on which the court relied in the original
opinion, was not a part of the policy in the record. 454 So. 2d at 1087, 1090.
generators supplied by Riley Stoker suffered from mechanical breakdowns causing physical damage
to the steam generators. These breakdowns, because they interrupted st eam flow to the turbines,
caused loss of use of the power plant's electric generators. Loss of use was the only damage suffered
by the electric generators. Thus, the loss of use of Cajun's electric generators was loss of use of
property not physically injured.
The district court properly found that the only exclusion relevant to loss of use of property
not physically injured was the failure to perform exclusion found in all three policies. That exclusion
provides that the policies do not apply
to loss of use of tangible property, which has not been physically injured or destroyed
resulting from
(1) a delay in or lack of performance by or on behalf of the Named Insured of any contract
or agreement, or
(2) the failure of the Named Insured's products or work performed by or on behalf of the
Named Insured to meet the level of performance, quality, fitness or curability
warranted or represented by the Named Insured;
but this exclusion does not apply to loss of use of other tangible property resulting from the
sudden and accidental physical injury to or destruction of the Named Insured's product or
work performed by or on behalf of the Named Insured after such products or work have been
put to use by any person or organization other than an Insured.
The district court, relying on the "put to use" exception to the exclusion, found that the failure to
perform exclusion did not exclude coverage.
USF & G contends that the put to use exception does not apply because the record is devoid
of proof that the loss of use resulted from "sudden and accidental physical injury" to the named
insured's product or work. It further argues that Riley Stoker's product or work had not been put to
use. Contrary to USF & G's assertions, we find that there was sufficient evidence supporting the
district court's findings that the loss of use resulted from sudden and accidental physical injury to
Riley Stoker's work and product after Riley Stoker's work and product had been put to use. The
record shows that breakdowns occurred during initial operation and continued after commercial
operation.
Finally, USF & G argues that because Cajun and Riley Stoker were both insured under the
two excess policies the "person other than an insured" requirement of the put to use exception was
not satisfied. USF & G raises this argument for the first time on appeal. "It is an unwavering rule
in this Circuit that issues raised for the first time on appeal are reviewed only for plain error."
McCann v. Texas City Refining, Inc., 984 F.2d 667, 673 (5th Cir.1993). "In other words, this Court
will reverse only if the judgment complained of results in a "manifest miscarriage of justice.' " Id.
(quoting Coughlin v. Capitol Cement Co., 571 F.2d 290, 297 (5th Cir.1978)). USF & G had not
even at tempted to argue that such injustice will occur here. Therefore, we cannot consider its
argument.
III. Liability for Defense Cost
In a prior proceeding, this Court found that USF & G had a duty to defend Riley Stoker
because Cajun's complaint alleged claims potentially covered by USF & G's policies. Under Louisiana
law, when an insurer has a duty to defend any claim asserted, the insurer must defend the entire action
brought against its insured. Alert Centre, Inc. v. Alarm Protection Serv., Inc., 967 F.2d 161, 163
(5th Cir.1992). Thus, an insurer who wrongfully refuses to defend is liable for reasonable attorney's
fees and expenses incurred by the insured in defending both the covered and uncovered claims
brought against it. See Clemmons v. Zurich Gen. Accident & Liability Ins. Co., 230 So. 2d 887, 896
(La.Ct.App. 1st Cir.1969) ("[T]he measure of damages to be assessed against an insurer who fails
to defend under its policy thereby breaching its contractual obligation includes reasonable attorney's
fees.").
Citing EEOC v. Southern Publishing Co., 894 F.2d 785, 791 (5th Cir.1990) (arising under
Mississippi law), USF & G contends that the insured should pay the costs for defending uncovered
claims only when there is no reasonable means of prorating the cost of defense between the covered
and the uncovered items. USF & G argues that if this Court finds that no portion of the arbitration
award is covered, then a reasonable apportionment between covered and uncovered items can be
made—zero costs attributable to covered claims. We reject this argument for two reasons. First,
under USF & G's argument a reasonable apportionment cannot be made because a portion of the
award is covered. Second, it is contrary to Louisiana law. See Yount v. Maisano, 627 So. 2d 148,
153 (La.1993) (holding that the insured, who had a duty to defend, was obligated to pay defense
costs even though it was ultimately determined in the coverage suit that none of the cl aims were
covered).
Riley Stoker contends that the district court erred in determining the extent of USF & G's
liability for attorney's fees and expenses. Finding that some defense costs were not reasonably
incurred, the district court reduced the fees and expenses of Riley Stoker's principal law firm by 407
and 337, respectively; disallowed the fees and expenses of an additional law firm with special
expertise in arbitration and construction law; and reduced the fees paid to consultants by 407. The
district court's reasonableness determinations regarding costs and fees are reviewed for abuse of
discretion. See Associated Builders & Contractors, Inc. v. Orleans Parish Sch. Bd., 919 F.2d 374,
379 (5th Cir.1990). Our review of the record reveals that, while the reductions were large, the court
had ample evidence to conclude that all costs were not reasonably incurred in defense of Cajun's
claims, and thus, the court did not abuse its discretion. We do not here recount the evidence but it
is completely adequate to support the court's broad discretion.
Next, Riley Stoker contends that the court erred in limiting its claim for internal cost to the
$25 per diem provided in the policy. It argues that because USF & G renounced its obligations under
the policy, USF & G should not receive the benefit of this policy provision. USF & G did not,
however, renounce its policy obligations. Indeed, USF & G's defenses were grounded in its policy
provisions. Thus, the court properly reduced Riley Stoker's claim for internal cost.
Finally, Riley Stoker argues that the district court erred in disallowing expert fees paid to
Chamberlain Mfg. ("Gard"). The district court deleted this expenditure reasoning that because the
fees related to a portion of the arbitration award that was not covered under the policy, USF & G did
not have to reimburse Riley Stoker for Gard's services. We agree with Riley Stoker that the court
erred in deleting these expenses. As we stated above, USF & G is liable for defense costs reasonably
incurred by Riley Stoker in defending both covered and uncovered claims. See Yount, 627 So. 2d at
153. The court made no finding that those costs were or were not reasonable.
IV. Penalties for Failure to Defend and Indemnify
Riley Stoker contends that the district court erred in denying penalties and attorney's fees
under La.R.S. 22:658 and 1220. An insurer may be liable for such penalties if its refusal to defend
or indemnify was "arbitrary, capricious, or without probable cause." La.R.S. 22:658(B)(1) and
1220(B)(5). Because this is a factual finding, we will not disturb the district court's determination
unless it is clearly erroneous. Chevalier v. Reliance Ins. Co., 953 F.2d 877, 883 (5th Cir.1992). We
find no such error.
In addition to its claim under La.R.S. 22:658 and 1220, Riley Stoker also seeks attorney's
fees, incurred in bringing this suit against USF & G, on case law theories. It argues that case law
provides that where an insurer breaches its duty to defend, the insured is entitled to attorney's fees.
In support of its argument, it cites Little v. Kalo Labs., Inc., 424 So. 2d 1065 (La.Ct.App. 2d
Cir.1982), writ denied, 430 So. 2d 79 (La.1983), and Enserch Corp. v. Shand Morahan & Co., 952
F.2d 1485, 1495 (5th Cir.1992) (a case arising under Texas law). Contrary to Riley Stoker's
assertions, Little and Enserch do not supply other theories that would support an award in this case.
In Little, the court found that the insureds were entitled to attorney's fees because the insurer
"arbitrarily" denied coverage. As we stated in the previous paragraph, the district court did not err
in finding that USF & G did not arbitrarily deny coverage. In Enserch, this Court held that the
insurers would pay the insured's defense cost on remand because, unlike here, the findings relating
to the ultimate coverage issues would have been made in the underlying proceeding if the insurers had
defended.
V. Prejudgment Interest on Defense Costs
USF & G contends t hat the district court erred in awarding prejudgment interest on the
defense cost award. We agree. The weight of Louisiana authority instructs that fee awards are not
subject to prejudgment interest because reasonable fees are not ascertainable prior to judgment. See
Alexander v. Burroughs Corp., 359 So. 2d 607, 614 (La.1978) (holding that attorney's fee awards are
not subject to prejudgment interest); Rovira v. LaGoDa, Inc., 551 So. 2d 790, 796 (La.Ct.App. 5th
Cir.1989) (applying the rule against prejudgment interest awards to defense cost claims against
insurers), writ denied, 556 So. 2d 36 (La.1990); see also Little, 424 So. 2d at 1069; Brummerloh v.
Firemen's Ins. Co., 377 So. 2d 1301, 1312 (La.Ct.App. 3d Cir.1979). But see Merrick Constr. Co.
v. Hartford Fire Ins. Co., 449 So. 2d 85, 89 (La.Ct.App. 1st Cir.) (stating that the insured was
entitled to interest on his defense costs claim from the date of judicial demand because the amount
due was ascertainable as of the date of judicial demand), writ denied, 450 So. 2d 958 (La.1984).
Because the defense costs in this case were not ascertainable at the time of judicial demand,
prejudgment interest should not have been awarded.
VI. Third-Party Complaint
A. Dismissal of Third-Party Complaint
USF & G filed a third-party complaint against Riley Beaird and Ashland Oil, Inc. (Riley
Stoker's and Riley Beaird's corporate parent) seeking indemnity for the amounts due to Riley Stoker.
The district court dismissed the complaint, under Rule 12(b)(6), finding that USF & G's claims were
perempted under La. R.S. 9:2772, which precludes any suit based on the allegedly defective design
or construction of an immovable from being brought more than ten years after the completion of the
work preformed. USF & G contends that the trial court erred in finding that the peremption statute
governed its claims. "We review a Rule 12(b)(6) dismissal de novo. We must accept all well-pleaded
facts as true, and we view them in the light most favorable to the plaintiff. We may not look beyond
the pleadings." Cinel v. Connick, 15 F.3d 1338, 1341 (5th Cir.1994).
USF & G argues that the pleadings do not support the finding that the ball tube mills were
immovables. We disagree. Under Louisiana law, only tracts of land and their component parts are
immovables. La.Civ.Code art. 462. To be a component part of a tract of land, a piece of equipment
must be permanently attached to the land and belong to the owner of the ground. La.Civ.Code art.
463. There is no dispute that Units 1 and 2 satisfy this condition. The code further provides that the
integral parts of Units 1 and 2 are also its component parts. See La.Civ.Code art. 465 and 466. The
pleadings clearly demonstrate that the ball tube mills were an integral part of the steam generating
unit, which in turn was an integral part of Cajun's Units 1 and 2. Therefore, the district court properly
found that the ball tube mills were immovables.
Next, USF & G contends that the statute does not apply to Riley Beaird. It argues that the
statute only applies to contractors and that Riley Beaird is not a contractor because it did virtually
no on-site work. This argument is also unavailing. The Louisiana courts have suggested that the
statute applies to construction contracts, and not sales contracts. See DeWoody v. Citgo Petroleum
Corp., 604 So. 2d 92, 99 (La.Ct.App. 3rd Cir.), writ denied, 605 So. 2d 1369 (La.), and writ denied,
605 So. 2d 1372 (La.1992). The mere fact, however, that Riley Beaird did little work at the site does
not mean that its contract with Riley Stoker was a sales contract.
B. Denial of Leave to Amend
Finally, USF & G argues that the trial court abused its discretion in denying leave to amend
its third-party complaint to add additional claims against Riley Beaird and a claim against Ashland Oil
for tortious interference with an insurance contract. Rule 15(a) of the Federal Rules of Civil
Procedure provides that leave to amend a pleading "shall be freely given when justice so requires."
However, "[w]hether such an amendment should be granted is within the district judge's discretion."
Overseas Inns S.A. P.A. v. United States, 911 F.2d 1146, 1150 (5th Cir.1990). The denial of leave
to amend is not an abuse of discretion if there had been "undue delay, bad faith or dilatory motive on
the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the
amendment." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962).
Although the district court did not give specific reasons for its denial, we find that it did not abuse
its discretion.
CONCLUSION
For the foregoing reasons we reverse the district court's rulings regarding the denial of defense
costs for uncovered claims and the award of prejudgment interest on defense costs. We affirm all
other rulings on appeal.
AFFIRMED in part, REVERSED in part and REMANDED.