Highlands Ins. Co. v. American Marine Corp.

• Citation: 607 F.2d 1101
• Decision Date: 05 December 1979
• Docket Number: No. 77-1577,77-1577
• Parties: HIGHLANDS INSURANCE COMPANY, Plaintiff-Appellee, v. AMERICAN MARINE CORPORATION, Louisiana Materials Co., Inc., and Sea Drilling Corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1101

607 F.2d 1101

HIGHLANDS INSURANCE COMPANY, Plaintiff-Appellee, v. AMERICAN MARINE CORPORATION, Louisiana Materials Co., Inc., and Sea Drilling Corporation, Defendants-Appellants.

No. 77-1577.

United States Court of Appeals, Fifth Circuit.

Dec. 5, 1979.

Neal D. Hobson, Joseph W. Looney, New Orleans, La., for defendants-appellants.

A. R. Christovich, Sr., A. R. Christovich, Jr., New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before TUTTLE, GOLDBERG and RANDALL, Circuit Judges.

TUTTLE, Circuit Judge:

This is an appeal by American Marine Corporation and its two wholly-owned subsidiaries, Louisiana Materials Company, Inc. and Sea Drilling Corporation, from a judgment against them in favor of the original plaintiff, Highlands Insurance Company. The judgment was based upon final audits by the insurer of the payrolls of the insured company's Workman's Compensation policies using a premium basis of $100 per week for 52 weeks of employment for each of the employees. The defendants contended that the audit was wrong in several respects: (1) That a 26 week basis should have been used because the offshore employees were employed to work "seven on seven off;" (2) That certain listed employees were executives and not properly included in the schedule for offshore workers; (3) As to those workers who were scheduled as "onshore" workers, the policies were invalid as to them because the retrospective rating plan in effect as to the offshore policies, which purported to apply also to the onshore policies, were invalid because the plan was not filed with the Louisiana Insurance Commission.

The record discloses that some time prior to the issuance of this policy, offshore workers had worked 10 days on and five days off. At that time, it was the custom in the industry for insurance premiums to be calculated on the basis of every week during which an employee performed any services. This would, of course, cover every week of total employment, because the ten day period would extend into parts of two weeks. Sea Drilling Corporation had initially insured with Highlands beginning in 1966. It entered into a three year program beginning in 1969, while American Marine and Louisiana Materials were insured through other companies until January and February of 1971. The policies issued to American Marine and Louisiana Materials included an endorsement which adopted by reference the retrospective rating program attached to the Sea Drilling policy.

When Highlands discovered that Sea Drilling had been reporting its seven on seven off employees on a 26 week basis for 1969, it demanded a change from Sea Drilling, and as a result a meeting was had in May of 1970. Highlands contends that this meeting resolved the issue between the parties by an agreement by Sea Drilling that the basis for premium computation would be 52 weeks per year for 1969 and subsequent years. It is not necessary for us, however, to determine whether this meeting actually produced a final agreement, because the company's agent wrote a letter to Sea Drilling within a few weeks which we find did resolve this issue in favor of the insurance carrier as a basis for Sea Drilling's continuing to insure with Highlands for the future. This letter follows:

I have received an answer to my letter of July 2, 1970 to Mr. Dan Jones of the Highlands Insurance Company.

Letter reads in part as follows:

"We are threfore (sic) willing to continue coverage on the following basis:

1. The payroll for 1969 be $814,000.

2. The rates to be $16. (s) and $5.50 and $8.00 (e) as broken by the increase in limits.

3. The rates for the 1970 year be $16. (s) and $8.00 (e).

4. That the final audits for 1969 be released on the basis of payroll and rates as indicated above and prompt payment established.

5. The basis of the exposure payroll for the year 1969 be continued as the basis of our normal method of calculation of the average weekly limitation.

6. That the difference in the years prior to 1969 rather than adjusting the rates or payrolls for the period of time in question be resolved to a settlement basis whereby Sea Drilling would pay two-thirds of the final amount over maximum with adjustments, both debits and credits, being made on an annual basis until all reserves are closed.

As all of us are aware this matter has been drawn out over an extended period of time and since all of the thought and study has gone into it we must insist we have an answer either negatively or affirmatively no later than Tuesday of next week. If affirmatively, we will release the final audits, retro adjustments and necessary endorsements. If negatively, we will have no alternative but to release notice of cancellation of all existing policies and seek final settlement through legal processes."

I would appreciate receiving your answer at your earliest convenience.

Two days following the receipt of this letter, Sea Drilling accepted its terms by a telephone conversation. The significant feature of this letter, as dealing with the seven on seven off question is the paragraph numbered 1. The dispute that was the subject of the May meeting was over the correctness of the insurance company's contention that the payroll of 1969 was $814,000 rather than half that amount. As already indicated, the insurer's claim was based on the contention that the payroll would represent minimum $100 per week for 52 weeks, as against the insured's claim that the amount should be based on 27 weeks. Thus, the agreement by the parties that "the payroll for 1969 be $814,000" fully supports the finding by the trial court that "the $814,000 payroll figure was Exactly twice that reported by defendant's using a 26 week basis." Thus, the provision of paragraph 5 in the letter stating "payroll for the year 1969 be continued as the basis of our normal method of calculation of the average weekly limitation" was an agreement that the 52 week base for 19...