XL Specialty Ins. Co. v. Bollinger Shipyards, Inc.

• Decision Date: 27 August 2015
• Docket Number: No. 14–31283.,14–31283.
• Citation: 800 F.3d 178
• Parties: XL SPECIALTY INSURANCE COMPANY, Plaintiff–Appellee Cross–Appellant v. BOLLINGER SHIPYARDS, INCORPORATED; Bollinger Shipyards Lockport, L.L.C.; Halter Bollinger Joint Venture, L.L.C., Defendants–Appellants Cross–Appellees. Bollinger Shipyards, Incorporated; Bollinger Shipyards Lockport, L.L.C.; Halter Bollinger Joint Venture, L.L.C., Plaintiffs–Appellants Cross–Appellees v. XL Specialty Insurance Company, Defendant–Appellee Cross–Appellant Continental Insurance Company, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

800 F.3d 178

XL SPECIALTY INSURANCE COMPANY, Plaintiff–Appellee Cross–Appellant

v.BOLLINGER SHIPYARDS, INCORPORATED;

Bollinger Shipyards Lockport, L.L.C.;

Halter Bollinger Joint Venture, L.L.C., Defendants–Appellants Cross–Appellees.

Bollinger Shipyards, Incorporated;

Bollinger Shipyards Lockport, L.L.C.;

Halter Bollinger Joint Venture, L.L.C., Plaintiffs–Appellants Cross–Appellees

v.XL Specialty Insurance Company, Defendant–Appellee Cross–Appellant

Continental Insurance Company, Defendant–Appellee.

No. 14–31283.

United States Court of Appeals, Fifth Circuit.

Aug. 27, 2015.

Kenneth G. Engerrand, I, Esq. (argued), Brown Sims, P.C., David Stephen Toy, Michael Aaron Varner, Esq., Atty., Houston, TX, Carmelite M. Bertaut, Abigayle Clary McDowell Farris, Phillip A. Wittmann, Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA, for Plaintiff–Appellee Cross–Appellant.

Robert S. Reich, Esq. (argued), Michael Thomas Wawrzycki, Reich, Album & Plunkett, L.L.C., Metairie, LA, for Defendant–Appellant Cross–Appellee.

John Francis Emmett, I (argued), Jordan Nichole Teich, Esq., Waits, Emmett & Popp, L.L.C., New Orleans, LA, for Defendant–Appellee.

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

Before STEWART, Chief Judge, and JONES and GRAVES, Circuit Judges.

Opinion

EDITH H. JONES, Circuit Judge:

Bollinger Shipyards won a multimillion dollar contract to upgrade eight United States Coast Guard 110–foot cutters to 123–foot craft. The vessels failed and the United States sued Bollinger. The defendant insurers refused to undertake Bollinger's defense. In Bollinger's suit to enforce the insurance contract, the district court in a comprehensive opinion, granted summary judgment for the insurers. We need not reach numerous issues raised concerning the insurance contracts' interpretation because we may affirm on a narrow basis.

BACKGROUND¹

As part of the Coast Guard's “Deepwater” modernization program, Bollinger Shipyards converted eight 110–foot patrol boats (vessels it had built originally) to 123–foot patrol boats. The underlying lawsuit alleges that throughout the bidding and development stages of the project, the Coast Guard was concerned about the ability of the boats' hulls to accommodate the extensions. In response, Bollinger submitted a longitudinal strength analysis that compared the “required section modulus” for the redesign to the upgraded vessels' “actual” section modulus. This report showed that the redesigned boats would have well over twice the required strength. Bollinger later revised its reported figure down to a number still well above the “required” figure. This revised calculation allegedly produced three different results, two of which indicated the hull strength was not sufficient for the conversion. Bollinger allegedly did not disclose the problematic results but completed the work anyway and delivered the vessels.

On September 10, 2004, one of the vessels Bollinger refitted “suffered a structural casualty that included buckling of the hull.” The Coast Guard determined that all eight vessels were similarly and irreparably deficient; all of them are now “unusable” despite efforts to remedy the hull strength. The Department of Justice sent Bollinger a litigation hold letter in December 2006 and the Coast Guard revoked acceptance of the vessels on May 17, 2007. Bollinger cooperated with the Government investigation and entered into 21 successive agreements tolling the statute of limitations.

During the 21st tolling agreement, in July 2011, the United States sued Bollinger, alleging five causes of action: two under the False Claims Act and one each of common law fraud, negligent misrepresentation, and unjust enrichment. The district court dismissed the case for failure to state a claim, United States v. Bollinger Shipyards, Inc., 979 F.Supp.2d 721 (E.D.La.2013), and this court reversed, 775 F.3d 255 (5th Cir.2014). However, the Government had only appealed the dismissal of the FCA claims, and those are the only claims remaining in the underlying lawsuit. See Brief of United States at 13 n. 5, Bollinger Shipyards, 775 F.3d 255 (“The United States also alleged liability under common law theories, but has not pursued those theories on appeal.”). Trial is currently scheduled for April 11, 2016. Scheduling Order, Bollinger Shipyards, 979 F.Supp.2d 721, No. 12–920–SSV–MBN (E.D.La. Apr. 14, 2015), ECF No. 193.

Just days before the Government filed suit, Bollinger advised its general maritime liability insurer XL Specialty² and excess insurer Continental of the impending civil claims. XL responded with a “reservation of rights” letter indicating that it was unsure whether the policy covered the Government's claims; meanwhile, Bollinger obviously continued to pay for its own defense.

Before XL formally acted on Bollinger's claim, Bollinger sued XL and Continental in Louisiana state court to enforce its insurance policies, alleging common law breaches of contract and bad faith under Louisiana Revised Statutes §§ 22:1892 and 22:1973. Continental counterclaimed for a declaration that it owed Bollinger no duty to defend and no liability for bad faith. XL separately sued Bollinger in federal court for a declaratory judgment on coverage and removed the state case; the two were consolidated in the Eastern District of Louisiana. A few months later, Continental moved for and was granted summary judgment on the bad faith claims.

Bollinger and XL then filed competing summary judgment motions. The district court granted summary judgment for XL, holding “that the XL policy does not cover the United States' lawsuit and hence does not impose upon XL a duty to defend Bollinger[.]” XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F.Supp.3d 728, 752 (E.D.La.2014). The court granted summary judgment to Continental at the same time. Bollinger appealed and XL cross-appealed. We essentially agree with the district court on the points discussed below, and therefore affirm.

DISCUSSION

This court reviews appeals of summary judgment de novo, applying the same standard as the district court. Roberts v. City of Shreveport, 397 F.3d 287, 291 (5th Cir.2005). Louisiana law applies in this diversity action. See In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir.2007). “An insurance policy is a conventional obligation that constitutes the law between the insured and insurer, and the agreement governs the nature of their relationship.” Peterson v. Schimek, 729 So.2d 1024, 1028 (La.1999). “When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties' intent.” Id. at 1028.

“Whether an insurer has a duty to defend is determined solely by ‘compar[ing] the allegations in the complaint against the insured with the terms of the policy’ at issue—the so-called ‘eight corners' rule.” Lamar Adver. Co. v. Cont'l Cas. Co., 396 F.3d 654, 660 (5th Cir.2005) (quoting Selective Ins. Co. of Se. v. J.B. Mouton & Sons, Inc., 954 F.2d 1075, 1077 (5th Cir.1992) ). This rule requires the court to compare the complaint for which coverage is sought with the terms of the insurance policy: “If ‘there are any facts in the complaint which, if taken as true, support a claim for which coverage is not unambiguously excluded,’ the insurer must defend the insured.” Lamar, 396 F.3d at 660 (5th Cir.2005) (quoting In re Complaint of Stone Petroleum Corp., 961 F.2d 90, 91 (5th Cir.1992) ). The court considers the facts alleged in the underlying complaint rather than conclusory labels applied to claims. Quick v. Ronald Adams Contractor, Inc., 861 So.2d 278, 282 (La.Ct.App.2003).

We discuss each policy in light of these general principles and find no ambiguities.

I. XL Specialty

The underlying complaint contained five causes of action: two FCA claims, common-law fraud, unjust enrichment, and negligent misrepresentation. Under the eight-corners rule XL is obliged to defend Bollinger unless all of the claims in the underlying suit are excluded from policy coverage. The district court concluded that all five claims in the underlying complaint fit into either Exclusion 28 or Exclusion 32, but it rejected XL's argument that other exclusions applied.³ We agree that Exclusions 28 and 32 exempt all claims.

A. Exclusion 28: Predetermined Level of Fitness

Exclusion 28 of Bollinger's insurance contract with XL provides that it

shall not apply to ... [t]he failure of your products to meet any predetermined level of fitness or performance and/or guarantee of such fitness or level of performance and/or any consequential loss arising therefrom.

On appeal, Bollinger makes two arguments in support of its contention that this provision does not apply. First, Bollinger argues that Exclusion 28 does not preclude coverage for the claims in the underlying suit because the United States was seeking damages for the entire value of the vessels, not only the “work product” for which Bollinger was responsible. Second, Bollinger argues that the underlying suit did not allege a failure to meet a “predetermined level of fitness.” We conclude, however, that Exclusion 28 applies to the government's unjust enrichment and negligent misrepresentation claims.

The precedent on which Bollinger relies for its first argument is inapposite. In OSCA, for example, the contractor “had only been hired to set a bridge plug inside of an already constructed well, and the allegedly faulty work damaged not only the plug but the entire well[.]” Underwriters at Lloyd's London v. OSCA, Inc., No. 03–20398, 2006 WL 941794 (5th Cir. Apr. 12, 2006) (per curiam) (unpublished). The insurance policy at issue excluded coverage for claims

arising out of the failure of any Insured's Products or of work ... by or on behalf of any Insured to meet any warranty or representation by any Insured as to the level of performance, quality, fitness or durability or extent that such

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