Rsui Indem. Co. v. Am. States Ins. Co.

• Citation: 768 F.3d 374
• Decision Date: 25 September 2014
• Docket Number: No. 14–30033.,14–30033.
• Parties: RSUI INDEMNITY COMPANY, Plaintiff–Appellant v. AMERICAN STATES INSURANCE COMPANY, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

768 F.3d 374

RSUI INDEMNITY COMPANY, Plaintiff–Appellant

v.AMERICAN STATES INSURANCE COMPANY, Defendant–Appellee.

No. 14–30033.

United States Court of Appeals, Fifth Circuit.

Sept. 25, 2014.

Daryl Arthur Higgins, Esq., Ryan Charlton Higgins, Esq., Gaudry, Ranson, Higgins & Gremillion, L.L.C., Gretna, LA, for Plaintiff–Appellant.

H. Minor Pipes, III, Catherine Fomias Giarrusso, Esq., Barrasso, Usdin, Kupperman, Freeman & Sarver, L.L.C., New Orleans, LA, for Defendant–Appellee.

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

Before REAVLEY, ELROD, and SOUTHWICK, Circuit Judges.

Opinion

REAVLEY, Circuit Judge:

This is a dispute between excess and primary insurance carriers with a common insured. The excess insurer seeks to recover from the primary the amount that it paid on the insured's behalf to settle excess claims in an underlying lawsuit after the primary insurer had settled its own liability with the underlying plaintiff by paying its policy limit. The excess insurer sued under a theory of subrogation based on the primary insurer's alleged bad faith failure to defend properly the common insured.

The district court held that the excess insurer could not maintain the suit because there had been no adjudicated excess judgment against the insured in the underlying case. We hold that no excess judgment is required if the primary insurer's alleged bad faith failure to defend exposed the insured to excess liability and caused the excess settlement. We therefore REVERSE the district court's summary judgment in favor of the primary insurer and remand for further proceedings.

I.

In June 2010 Stacia Barrow was in a motor vehicle accident at an intersection in Port Allen, Louisiana, with Lamar Thomas, an employee of Ameraseal, L.L.C. Barrow's vehicle struck the rear of Thomas's vehicle as Thomas made a left turn in front of Barrow, who was allegedly speeding and made no effort to avoid the collision. Ameraseal owned Thomas's vehicle and maintained a primary liability insurance policy with a $1 million policy limit issued by Defendant–Appellee American States Insurance Company (“American”). It also maintained an excess insurance policy with a $4 million policy limit issued by Plaintiff–Appellant RSUI Indemnity Company (“RSUI”).¹

As a result of the accident, Barrow allegedly suffered numerous injuries to her back, lower extremities, hip, neck, and head. In June 2011, she filed suit in Louisiana state court against Thomas, Ameraseal, and American, but not RSUI.² Although it undertook defense of the suit, American did not immediately notify RSUI of Barrow's claims.

The state court set an initial discovery deadline of January 11, 2012, with a trial date in March 2012. In August 2011, Barrow's discovery responses indicated that she was claiming brain and spinal injuries. Despite the significant injuries claimed by the plaintiff and the possibility that Barrow's speeding was a contributing cause of the accident, the defense counsel assigned by American did not take depositions of Barrow, her doctors, or a potential witness-passenger of the insured, nor did he attempt to obtain an independent medical examination. Defense counsel also failed to oppose Barrow's motion for summary judgment as to liability, which was granted by the state trial court.³

Two weeks before the expiration of the discovery deadline, American notified RSUI of Barrow's suit against their mutual insured. American took the position that the case was worth only between $150,000 and $500,000. In February 2012, however, American retained new defense counsel to review the file. Counsel opined that much more defensive action should have been taken to depose Barrow's doctors and experts, and he believed that the value of the case not only exceeded the $1 million primary policy limit but that a jury verdict could also exceed all excess coverage. Counsel advised the insured that American was nevertheless unwilling to offer the plaintiff its policy limits at that time.

Barrow subsequently demanded the combined policy limits of both American and RSUI ($5 million) to settle the case. In February 2012, after the close of discovery and only a few weeks before the scheduled start of trial, American agreed to provide Barrow its $1 million policy limit. In return, American received a release that (1) released American from any and all claims and (2) released the insured from liability for damages in excess of the available insurance limits provided by both American and RSUI. American then tendered the defense of the insured to RSUI, which had never been a named party in the case.

Rather than intervene in the suit on the eve of trial, RSUI negotiated a further settlement with Barrow. RSUI provided $2 million to Barrow in return for a full release of Ameraseal from all liability. Because of RSUI's settlement with Barrow, the case was never tried and no judgment was ever entered against the insured.

RSUI filed the instant suit in federal district court against American as subrogee of the insured, alleging a claim based on American's bad faith failure to defend the insured properly in the underlying suit. RSUI sought recovery of the $2 million. Its theory was that American's failure to investigate and take appropriate defensive actions drove up the settlement value of the case, exposed the insured to additional liability, and left RSUI with no choice but to reach a settlement with Barrow on the eve of trial that was excess to the primary policy limit. RSUI's pleadings indicate that it believed American's improper defense included the failure to evaluate and investigate the claim adequately so as to develop a comparative default defense, which was lost when the defense failed to oppose the summary judgment motion as to liability; the failure to investigate the plaintiff's medical history and background and obtain prior medical records in order to contest damages; the failure to depose Barrow prior to the summary judgment; the failure to depose the passenger in Thomas's car, even though he told American that he believed Thomas was not at fault; the failure to retain appropriate neurological experts or to arrange for an independent medical examination; and the failure to consult with liability experts.

American moved for summary judgment, arguing that (1) RSUI's claim failed as a matter of law because it was an impermissible claim of legal malpractice against American's defense attorney, and (2) the claim failed as a matter of law because American never had an opportunity to settle with Barrow within its policy limits and there never was an adjudicated excess judgment. The district court granted American's motion, reasoning that the absence of an adjudicated excess judgment as to damages was dispositive and barred RSUI's claim. The district court looked to case law holding that, in the absence of an adjudicated excess judgment, there can be no claim for an insurer's bad faith failure to settle. The court did not separately analyze RSUI's distinction between cases involving an insurer's bad faith failure to settle and cases involving a bad faith failure to defend.

RSUI now appeals. We are faced with the purely legal question whether, in the absence of an adjudicated excess judgment against the insured, RSUI may maintain its subrogated bad faith claim against the primary insurer to recover monies it paid in settlement of claims against the insured above the primary policy limit. For the reasons stated below, we hold that RSUI may assert its claim and that further proceedings are necessary to resolve the ultimate issue of bad faith and then, perhaps, damages suffered by RSUI.

II.

We review the district court's ruling on summary judgment de novo, applying the same standard as the district court. Crownover v. Mid–Continent Cas. Co., 757 F.3d 200, 204 (5th Cir.2014). Summary judgment is appropriate only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). All purely legal issues are given de novo review. Clay v. F.D.I.C., 934 F.2d 69, 71 (5th Cir.1991).

III.

RSUI's position on appeal is simply stated: American, as the primary insurer, had a duty to defend Ameraseal but failed in bad faith to take basic, necessary defensive actions, which increased the amount of money necessary to settle the case and thereby exposed the insured to excess liability above the primary policy limit. It argues that by paying the increased amount necessary for the settlement on behalf of the insured, RSUI became subrogated to the insured's rights against American, and therefore RSUI may recover for its payment caused by American's bad faith. RSUI contends that, contrary to the district court's holding, an adjudicated excess judgment is not a prerequisite for a bad faith failure to defend claim.

American responds that summary judgment was proper because under Louisiana law an adjudicated excess judgment is essential to a bad faith claim for failure to settle, and that this requirement applies to both an insured's own claim against the insurer and to an excess insurer's claim based on subrogation to the insured's rights. American draws no distinction between failure to settle claims and failure to defend claims.

Under Louisiana law, “[t]he duty to indemnify and the duty to defend clearly are separate and distinct duties.” Fed. Ins. Co. v. St. Paul Fire & Marine Ins. Co., 638 So.2d 1132, 1137 (La.Ct.App.1994) ; see also Arceneaux v. Amstar Corp., 66 So.3d 438, 450 (La.2011) (“ ‘[T]he insurer's obligation to defend suits against its insured is broader than its liability for damage claims.’ ” (citation omitted)). The insurer has an obligation to its insured at all times to act in good faith and to protect its insured from excess liability. Smith v. Audubon Ins. Co., 679 So.2d 372, 376 (La.1996). This obligation clearly applies independently therefore to both the duty to defend and the duty to...