Columbia Cas. Co. v. Georgia & Florida Railnet

• Decision Date: 25 August 2008
• Docket Number: No. 06-10887.,06-10887.
• Citation: 542 F.3d 106
• Parties: COLUMBIA CASUALTY COMPANY, Plaintiff-Appellee, v. GEORGIA & FLORIDA RAILNET, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

542 F.3d 106

COLUMBIA CASUALTY COMPANY, Plaintiff-Appellee, v. GEORGIA & FLORIDA RAILNET, INC., Defendant-Appellant.

No. 06-10887.

United States Court of Appeals, Fifth Circuit.

August 25, 2008.

Claudia K. Frey (argued), Kevin Michael Murphy, Colliau Elenius Murphy, Carluccio Kenner & Morrow, Dallas, TX, for Plaintiff-Appellee.

Danny M. Needham, Christopher Wayne Weber, Mullin, Hoard & Brown, Amarillo, TX, Ricardo Miguel Varrera (argued), Denver, CO, for Defendant-Appellant.

Appeal from the United States District Court for the Northern District of Texas.

Before KING, HIGGINBOTHAM and SOUTHWICK, Circuit Judges.

SOUTHWICK, Circuit Judge:

After a bench trial in a declaratory judgment action, the district court found that a railroad had no coverage under an insurance policy for a former employee's claims of injury. We affirm that decision.

BACKGROUND

The railroad that is the defendant in this suit is Georgia & Florida RailNet, Inc. ("GFR"). It purchased a policy from the plaintiff, Columbia Casualty Company. Columbia brought this declaratory judgment action to determine its obligation to GFR for claims brought by a former GFR employee in Georgia state court, though those claims had not yet been resolved. The Georgia plaintiff, Ray Shiver, had been a locomotive engineer. The claim relevant here is that defective and poorly maintained locomotives that Shiver operated caused high levels of diesel exhaust fumes and hazardous dusts to accumulate in the locomotive cab. Shiver alleged exposure to high-enough levels of exhaust fumes as to cause severe and irreversible respiratory damage, including chronic obstructive pulmonary disease and reactive airways dysfunction. Shiver's complaint sought damages under the Federal Employers Liability Act (FELA) for "failing to provide ... a reasonably safe place to work, safe machinery, and for its negligence in inspection, maintenance, and warning procedures," and under the Locomotive Boiler Inspection Act (LBIA), for "failing to provide [a] locomotive in a safe condition without unreasonable risk of personal injury, and for exposing [him] to hazardous levels of dust and exhaust...." See 45 U.S.C. §§ 51-60 (FELA); 49 U.S.C. § 20701 (LBIA).

We will later describe the status of the state court suit.

The Columbia insurance policy

GFR has a liability policy with Columbia. It is a claims-made policy with a $50,000 self-insured retention, which is also known as a "retained limit." That provision requires GFR to pay the first $50,000 on any claim. In the section of the policy describing what is covered, Columbia states that it will "pay those sums in excess of the `retained limit' that the insured becomes legally obligated to pay as `damages' and to pay for related `claim expenses' or any combination thereof because of `bodily injury,' ... to which this insurance applies."

The policy defines "bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. Bodily injury also means mental injury, mental anguish or shock sustained by that person or a relative of that person as a result of such injury." The policy defines "claims expenses" to include GFR's legal and other fees incurred to defend against claims:

all expenses incurred by [Columbia] or by the insured in the investigation, negotiation, arbitration, or defense of any "claims" for "damages", whether paid by us or by the insured including:

a. Legal fees, investigative fees, and costs incurred by us or the insured in defense of a "claim", all costs taxed against the insured in any "claim" defended by us or the insured .... [and]

c. All reasonable expenses, other than loss earnings, incurred by the insured at our request, excluding salaries or other forms of compensation paid to partners, directors or officers or other employed persons of the insured.

This explains what Columbia will pay. The same section of the policy also specifies exclusions from coverage. Important for us is whether FELA claims are excepted from the otherwise applicable exclusion. In two of the three exclusions we quote below, there is an explicit exception for FELA claims. In the third — the relevant one for injuries arising from pollutants such as diesel fumes — there is no express FELA exception. The policy provides no coverage for

f. Any obligation of the insured under:

(1) A workers compensation, occupational disease, retirement, disability benefits or unemployment compensation law, any state employers liability law, unless specifically endorsed as applicable onto this policy, or any similar law except the "Federal Employers Liability Act"....

g. "Bodily injury" to:

(1) An "employee" of the insured arising out of and in the course of:

(a) Employment by the insured; or

(b) Performing duties related to the conduct of the insured's business....

This exclusion does not apply to the liability of insured under the "Federal Employers Liability Act."

h. (1) "Bodily injury" ... arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" ....

(Emphasis added).

Finally, although Columbia does not have a duty to defend as that is generally understood, the policy does have a section entitled "Duty to Defend" in which Columbia has a right to be involved in limited ways in litigation:

At no time shall [Columbia] be called upon to assume charge of the investigation, settlement or defense of any "claims" made against the insured but we shall have the right and shall be given the opportunity to associate with the insured in the control, defense or trial of any "claims" which, in our opinion, involves or appears reasonabl[y] likely to involve this insurance. If we avail ourselves of such right and opportunity, the insured shall cooperate with us in the control, defense or trial of such "claims", so as to effect a final determination thereof. Failure on the part of any insured to so cooperate shall relieve us of liability for such "claims" and "claim expenses" arising under this policy.

Proceedings in District Court

After receiving notice of the state suit, Columbia exercised its right to "associate" with GFR by requesting and receiving from GFR's defense counsel numerous reports transcripts of depositions, experts' reports, legal analyses, and expense accountings.

In July 2003, GFR advised Columbia that GFR was close to exhausting its $50,000 self-insured retention limit based on legal expenses incurred defending the underlying action; additional expenses would then be paid by Columbia. In August 2003, Columbia responded that it was possible that two retained limits totaling $100,000 applied because Shiver alleged two different injuries. GFR disagreed, but in December 2004, Columbia advised GFR that it was formally taking the position that two separate self-insured retention limits applied.

About two weeks after Columbia notified GFR of its formal position, GFR's counsel sent Columbia a letter that attempted to allocate existing expenses between Shiver's inhalation claim and a separate claim, unrelated here, dealing with a head injury. Columbia had requested that information. In February 2005, Columbia responded in a letter reserving its rights and denying coverage for any of Shiver's inhalation injuries. According to Columbia, it was not responsible for any "bodily injury" arising out of exposure to diesel exhaust fumes or hazardous dust because of the exclusion applying to injuries to employees arising out of the "actual, alleged or threatened discharged, dispersal, seepage, migration, release or escape of `pollutants.'" The parties again exchanged letters outlining their disagreement on the pollution claim coverage issue. Accordingly, GFR delayed court-ordered mediation in order to reassess its ability to settle the underlying suit.

On April 27, 2005, with the underlying suit still pending in the Georgia trial court, Columbia filed this action in federal district court for a declaratory judgment. Columbia sought a declaration that (1) it had no duty to defend GFR in the underlying suit; (2) it had no duty to indemnify for liabilities arising under the LBIA because, except for suits brought under FELA, the policy excluded liability for bodily injuries to GFR's employees arising out of the course of their employment; (3) it had no duty to indemnify GFR for Shiver's inhalation claim under FELA because of the pollution exclusion; and (4) GFR was responsible for the $50,000 "retained limit" for every covered incident. In GFR's answer, it counterclaimed that Columbia's denial of coverage for Shiver's inhalation claim constituted a breach of contract and of a duty of good faith and fair dealing. GFR also alleged that Columbia's waiting for about two years and eight months to deny coverage, while "associating" itself with GFR in the defense of the state suit the entire time, violated the Texas Insurance Code.

On June 26, 2006, with the underlying suit still pending, the district court held a one-day bench trial. The court adopted a list of uncontested issues of fact and heard testimony from the parties describing their correspondence on the underlying suit. After the close of trial, the court made oral findings on each of the contested issues of fact set forth in the parties' joint pretrial statement, which the parties had agreed were the only fact issues necessary to resolve the case. Among other findings, the district court determined that (1) Shiver's inhalation injuries were excluded from coverage under the pollution exclusion; (2) Columbia never assumed GFR's defense; (3) GFR failed to prove that Columbia did not send GFR a timely letter reserving its rights; (4) GFR was not harmed or otherwise prejudiced by the delay in Columbia's denial of coverage, even assuming that Columbia did not reserve its rights; (5) Columbia did not intentionally lead GFR to believe that the inhalation-injury claim was covered;...