Liberty Mut. Ins. Co. v. Mid-Continent Ins. Co.

• Decision Date: 06 June 2003
• Docket Number: No. 3:01-CV-1550-K.,3:01-CV-1550-K.
• Citation: 266 F.Supp.2d 533
• Parties: LIBERTY MUTUAL INSURANCE COMPANY Plaintiff, v. MID-CONTINENT INSURANCE COMPANY Defendant.
• Court: U.S. District Court — Northern District of Texas

266 F.Supp.2d 533

LIBERTY MUTUAL INSURANCE COMPANY Plaintiff, v. MID-CONTINENT INSURANCE COMPANY Defendant.

No. 3:01-CV-1550-K.

United States District Court, N.D. Texas, Dallas Division.

June 6, 2003.

COPYRIGHT MATERIAL OMITTED

Richard A. Capshaw, R. Matthew Garner, Capshaw, Goss & Bowers, Dallas, TX, William M. Ravkind, Ravkind & Associates, Dallas, TX, for Plaintiff.

Brian Lynn Blakely, Carrie E. Davis, Brian L. Blakely & Associates, San Antonio, TX, for Defendant.

Cynthia Soils, Law Office of Cynthia Soils, Dallas, TX, Pro se.

MEMORANDUM OF DECISION AND OPINION

KINKEADE, District Judge.

This case involves a dispute between two insurance companies over the extent ea should contribute to a settlement on behalf of an entity that both parties insured. This matter came before the Court for a two-day bench trial beginning February 3, 2003. The Court, having received and considered the evidence presented and having heard the testimony of witnesses and the argument of counsel, hereby renders the following Findings of Fact and Conclusions of Law. As permitted by Fed.R.Civ.P. 52(a), the Court sets out its findings and conclusions in this memorandum opinion and order.

I. Background

At issue here is the proportionate responsibility of Liberty Mutual Insurance Company and Mid-Continent Insurance Company for a $1.5 million settlement brokered by Liberty Mutual on behalf of Kinsel Industries Inc. ("Kinsel"). The claims against Kinsel stemmed from an automobile accident in a highway construction zone where Kinsel was working for the State of Texas as the general contractor. As part of the construction plan, the highway's eastbound lanes were closed, and eastbound traffic was diverted onto one of the two westbound lanes. The collision occurred on November 9, 1996, when Tony Cooper, who was westbound, crossed the center divider into the eastbound lane and collided head-on with the a car driven by James Boutin. Mr. Boutin, his wife Patricia, and their children, Curtis and Crystal, suffered the following physical injuries:

• Mr. Boutin, who was 39-years-old, suffered a broken right leg, broken right ankle, broken left leg, broken ribs, and a collapsed left lung;

• Mrs. Boutin, who was 34-years-old, suffered a broken ankle, broken right leg, and injuries to both knees;

• Curtis, who was 16-years-old, suffered a broken back, a severely broken ankle, and partially severed foot; and • Crystal, who was 14-years-old, suffered a lacerated spleen and a partially severed ear lobe.

Joint Pretrial Order, Stipulated Facts, pp. 4-10. In total, the family sustained $313,799 in medical expenses and $24,584 in lost wages. Exhibit 27.

On July 14, 1997, the Boutins sued Cooper, then later added Kinsel, the State of Texas, and Crabtree Barricade Systems, Inc. ("Crabtree"). Crabtree was the subcontractor in charge of providing the safety signs and dividers between the lanes of traffic. The Boutins alleged that their injuries were caused, in part, by the failure to provide adequate warning signs and instructions for drivers passing through the construction zone. Joint Pretrial Order, Stipulated Facts, pp. 4-10.

Liberty Mutual insured Kinsel under three policies: a commercial general liability ("CGL") policy with a $1 million limit, a business auto policy with a $1 million limit, and an "umbrella policy" that provided Kinsel with $10 million in coverage once all other applicable insurance was exhausted. Mid-Continent also provided coverage to Kinsel as an additional insured under a $1 million CGL policy issued to Crabtree. Joint Pretrial Order, Stipulated Facts, pp. 4-10. On April 10, 1998, Mid-Continent sent a letter to Liberty Mutual confirming their agreement to split the defense and indemnification of Kinsel equally. Exhibit 43. Therefore, the parties do not dispute that each owed a duty to pay some portion of Kinsel's defense and indemnification.

At the outset of the Boutin's suit, Liberty Mutual retained Robert Scruggs of Pfeiffer, Vacek, Pfeiffer, Scruggs & Hoffman, L.L.P., to represent Kinsel. In October 1998, Scruggs provided Liberty Mutual with an assessment of the case in which he estimated that Kinsel's potential exposure in the case was minimal. He reasoned that Cooper would certainly be found negligent, and that the State bore the majority of the blame if the jury believed that inadequate warnings contributed to cause the accident because it was charged with designing the construction project. Kinsel, on the other hand, had no authority to install warning signs or dividers. Scruggs also thought that Crabtree had more potential exposure to liability than Kinsel, because Crabtree was charged with providing warning signs and barricades and was. in a better position to recommend additional safety precautions if they were needed. Accordingly, Scruggs initially thought that Kinsel could settle the Boutin's claims for $50,000 or less. Exhibit 16.

However, in November 1998, evidence surfaced suggesting that Kinsel had more exposure than previously suspected. Scruggs sent a letter to Liberty Mutual and Mid-Continent informing them that the Boutins filed the affidavits of two fact witnesses, Cyndi Harmon and Paula Bunton, stating that "Do Not Pass" signs were not in place on the day of the accident. Cyndi Harmon also produced a video showing that there were no "Do Not Pass" signs at the area where the accident occurred on November 12, three days after the accident, but that the signs were in place on November 15. Scruggs believed that the testimony of these witnesses could be "quite dangerous" and "require[d] a change in thinking with regard to liability." Exhibit 19, 68.

By December 1998, Scruggs determined that a very different liability picture had developed than what previously existed. Scruggs reminded the insurers that this was a case of "serious damages" and that while liabihty was not certain, a jury could award damages in the range of $3-5 million if it determined that the defendants were attempting to cover-up blame for the accident. Consequently, Scruggs concluded that the case had "substantial settlement value even when taking into account the liability uncertainties." Exhibit 68.

Matters continued to worsen for Kinsel according to Scruggs. In January 1999, Scruggs reported that Lee Mathews, who was the project manager for the State on the construction project, testified in a deposition that he told Kinsel's representative, Jeff McCall, to install "Do Not Pass" signs two days before the accident occurred, and expected Kinsel to have the signs installed by the time of the accident. Scruggs also reported that the evidence as developed showed that cars were passing other cars within the construction zone from the day the project opened on November 5. This prompted the State to request the "Do Not Pass" signs. Finally, Scruggs indicated that the Harmon video showed that the only "Do Not Pass" signs in the construction site at the time of the accident were West of the accident sight. Because Cooper was westbound, he would not have passed nor seen these signs before the accident. Exhibit 77, 78.

As trial approached in May 1999, Liberty Mutual, Mid-Continent, and Scruggs exchanged a flurry of letters in an attempt to negotiate a settlement. All three agreed that a verdict in the case would probably be in the rage of $2-3 million. On May 10, Mid-Continent's representative, Ray Corley, estimated in an internal e-mail that a jury would find Kinsel 15% responsible, and he requested authority to settle Mid-Continent's portion of Kinsel's liability for $175,000 (i.e. $2.5 million x 15% x 1/2). Exhibit 89. However, that same day, Mid-Continent informed Liberty Mutual that it would contribute only $50,000 on behalf of Kinsel to a $350,000 group settlement for all defendants. Exhibit 88. Approximately one week later, Mid-Continent agreed to increase its settlement offer on behalf of Kinsel, and contribute $187,500 toward a joint settlement offer; $125,000 on behalf of Crabtree and $67,500 on behalf of Kinsel. Exhibit 92.

On May 19, Scruggs again wrote a letter to Mid-Continent and Liberty Mutual informing the insurers that Mathews had recanted his testimony that the State requested Kinsel install "Do Not Pass" signs before the accident based on a review of the State's logs. However, further developments caused Scruggs to be more concerned that Kinsel was exposed to substantial liability in the case. First, Scruggs was not confident a jury would believe that Mathews was simply mistaken in his earlier testimony. He was also concerned that there was no evidence that Kinsel passed the order on to Crabtree if the jury believed Mathews had in fact ordered Kinsel to place the signs before the accident. Scruggs was worried Kinsel might bear the full responsibility for the accident, if the jury concluded that failing to install the "Do Not Pass" signs contributed to the cause of the accident.

Moreover, Scruggs reported the Boutins had clearly targeted Kinsel as the main defendant, because Kinsel had the most insurance coverage. On May 12, the Boutins filed an amended petition seeking punitive damages against Kinsel alone. In addition, the Boutins non-suited the State, which under Texas law at the time meant the jury would apportion responsibility to the Boutins among Kinsel, Crabtree, and Cooper. The State's responsibility to pay contribution to the other defendants would be assessed in a separate question. These developments were particularly disconcerting to Scruggs, because they reduced the number of defendants that could be found liable to the Boutins, increasing the likelihood a jury might find Kinsel more than 50% responsible. If Kinsel was found more than 50% responsible, it would be jointly and severally liable for the entire verdict.

Scruggs also expressed concern that the trial court appeared to heavily favor the Boutins. Scruggs informed the insurers the defendants were not able to obtain any favorable rulings, and...