Jones v. Southern Marine & Aviation Underwriters, Inc.

• Decision Date: 17 November 1989
• Docket Number: No. 89-4106,89-4106
• Citation: 888 F.2d 358
• Parties: Stephen T. JONES, et al., Plaintiffs-Appellants, v. SOUTHERN MARINE & AVIATION UNDERWRITERS, INC., et al., Defendants, Dennis Edward Jennings, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 358

888 F.2d 358

Stephen T. JONES, et al., Plaintiffs-Appellants, v. SOUTHERN MARINE & AVIATION UNDERWRITERS, INC., et al., Defendants Dennis Edward Jennings, et al., Defendants-Appellees.

No. 89-4106.

United States Court of Appeals Fifth Circuit.

Nov. 17, 1989.

Michael A. Akers, Charles G. Copeland, Susan H. Rushing, Thomas A. Cook, Copeland, Cook, Taylor & Bush, Jackson, Miss., Wilburn Huche, Rainer, Hyche & Toney, Brandon, Miss., for plaintiffs-appellants.

Walker W. Jones, III, Jean H. Sansing, Phelps, Dunbar, Marks, Claverie & Sims, Jackson, Miss., Winston E. Rice, Rice, Fowler, Kingsmill, Vance & Flint, New Orleans, La., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before THORNBERRY, GARWOOD and DUHE, Circuit Judges.

THORNBERRY, Circuit Judge:

Stephen T. Jones and other residents of Rankin County, Mississippi, (Plaintiffs) appeal from summary judgment granted to Dennis Edward Jennings, et al., the representatives of certain underwriters at Lloyd's, London, (Underwriters) in a garnishment action for amounts that Plaintiffs claimed were due from Underwriters pursuant to an agreed judgment in the E.N. Ross Well Blowout Litigation in Mississippi state court. We affirm the grant of summary judgment to Underwriters.

FACTS AND PROCEDURAL HISTORY

This case arises out of an action in Mississippi state court in which Plaintiffs sued the trustee in bankruptcy for Tomlinson Interests, Inc. (Tomlinson) and other defendants in connection with an above-ground blowout of the E.N. Ross No. 2 gas well on July 15, 1985. This well was owned by Tomlinson and located in Johns Field in Rankin County. Plaintiffs sought damages in Mississippi state court for bodily injury, property damage, and loss of use of their property caused by the escape of hydrogen sulfide and other toxic gases as a result of the blowout.

At the time of the blowout, Tomlinson had comprehensive general liability coverage under several insurance policies issued by Hartford Accident and Indemnity Company and Hartford Casualty Insurance Company (Hartford). Hartford covered Tomlinson under a primary policy and two umbrella policies providing up to $5,000,000 of coverage. Tomlinson also had coverage for controlling a blowout of the E.N. Ross No. 2 well and for redrill of a replacement well, under two certificates of insurance, numbers 35120 and 34595, subscribed to by Underwriters.

The damages alleged by Plaintiffs were covered under Section C of certificates 35120 and 34595, which provided insurance for cleanup expenses, seepage, pollution, and contamination. Section C says in pertinent part:

1. INSURING AGREEMENTS:

Underwriters, subject to the limitations, terms and conditions of this Certificate, agree to indemnify the Assured against or pay on behalf of the Assured:

(a) All sums which the Assured shall by law ... be liable to pay ... as damages for bodily injury (fatal or nonfatal) and/or loss of, damage to or loss of use of property caused by or alleged to have been caused directly or indirectly by seepage, pollution or contamination arising from wells insured....

After trial in the state court had begun, Tomlinson and the other defendants entered into an agreed judgment with Plaintiffs on October 16, 1986, in the amount of $1,665,283 plus interest. Hartford paid $1,065,283 toward satisfaction of this judgment, leaving $600,000 unpaid.

Plaintiffs then filed a suggestion for writ of garnishment against Underwriters and their issuing agent, Southern Marine & Aviation Underwriters, Inc., (Southern Marine) in Mississippi state court for the outstanding $600,000 balance of the agreed judgment. ¹ On August 7, 1987, the defendants removed the garnishment action to the federal district court for the Southern District of Mississippi. The district court dismissed Southern Marine on November 19, 1987, because it had acted merely as an agent for Underwriters.

Both Plaintiffs and Underwriters moved for summary judgment. The district court denied Plaintiffs' motion for summary judgment and granted Underwriters' motion on the ground that, because the agreed judgment did not hold Tomlinson personally liable, Underwriters did not have to pay insurance proceeds to Plaintiffs under Section C of the certificates, which requires personal liability of the insured as a condition of coverage. Plaintiffs appeal both the denial of their motion for summary judgment and the grant of Underwriters' motion for summary judgment.

DISCUSSION

I. STANDARD OF REVIEW

The standard of review at the appellate level of a district court's grant or denial of summary judgment remains the same as at the trial court level. Ayo v. Johns-Manville Sales Corp., 771 F.2d 902, 904 (5th Cir.1985). For summary judgment to be granted, the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, must demonstrate that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Id.; Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Under this standard, fact questions are considered with deference to the nonmovant. Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986). The appellate court decides questions of law, however, just as it decides questions of law outside the summary judgment context: de novo. Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.1988); Brooks, Tarlton, Gilbert, Douglas & Kressler v. United States Fire Ins. Co., 832 F.2d 1358, 1364 (5th Cir.1987). The construction and effect of an insurance policy are matters of law to be decided by the court. Diversified Group, Inc., v. Van Tassel, 806 F.2d 1275, 1277 (5th Cir.1987); Overstreet v. Allstate Ins. Co., 474 So.2d 572, 575 (Miss.1985). This court is thus free to come to its own conclusions on the coverage of certificates 35120 and 34595 by an independent examination of the record that was before the district court.

Because the pertinent provisions of certificates 35120 and 34595 are identical and the relevant facts are the same for both certificates, this court will consider the two certificates collectively.

II. SUMMARY JUDGMENT FOR UNDERWRITERS

A. Policy Provisions

On appeal, Plaintiffs argue that Underwriters are bound by the agreed judgment because the insurance certificates unambiguously cover the liability sued for in the state court action that was resolved by the agreed judgment, and the proceeds of the policy are thus subject to garnishment to satisfy the judgment. Under Mississippi law, insurance policy proceeds are properly subject to garnishment. Briggs v. Benjamin, 467 So.2d 932, 934 (Miss.1985). Therefore, it would appear at first glance that any proceeds due under the two certificates could be subject to garnishment by Plaintiffs to satisfy the agreed judgment. Indeed, the kinds of damages claimed by Plaintiffs and awarded to them in the agreed judgment fall under the unambiguous language of Section C of the insurance certificates, covering damages caused by seepage, pollution, and contamination. Other parts of Section C of the certificates, however, read in conjunction with the agreed judgment, preclude Underwriters' liability for these damages.

First, in section 1(a), quoted above, Underwriters agreed to pay on behalf of Tomlinson all sums that Tomlinson is liable to pay; in other words, Tomlinson's personal liability is a condition precedent to coverage. The terms of the agreed judgment itself provide, however, that Tomlinson and the other defendants are not legally obligated to pay it:

[T]his Agreed Judgment shall not constitute a lien or encumbrance against the Estate in Bankruptcy of Tomlinson Interests, Inc., [or] Gary J. Knostman (individually or as Trustee of said Estate) ... for their personal assets or properties (real or personal) but shall constitute only a lien and encumbrance against any insurance coverages available to said Defendants which are applicable to the claims made in these causes, for which execution, garnishment, and other legal process may issue.

Because Tomlinson is not personally liable under the agreed judgment, Underwriters cannot be liable to Plaintiffs under Section C of the insurance certificates. See Putman v. Insurance Co. of N. Am., 673 F.Supp. 171, 177 (N.D.Miss.1987), aff'd, 845 F.2d 1020 (5th Cir.1988) (under Mississippi law, a stipulation that removed the personal liability of the insured for any judgment in excess of $100,000 also removed the obligation of the insurer, where the insurance policy provided coverage only if the insured was liable).

Second, Underwriters may also rely on the Cost and Appeals Clause of Section C of certificates 35120 and 34595:

No settlement of losses by agreement shall be effected by the Assured without the consent of Underwriters where the Assured's final gross claim will exceed the retention of the Assured.

It is undisputed that, contrary to this provision's requirement, Underwriters did not consent to the agreed judgment. Neither did Underwriters participate in settlement negotiations. Plaintiffs' list of the persons who negotiated the agreed judgment confirms Underwriters' absence. In fact, neither Tomlinson nor Hartford ever notified Underwriters that settlement negotiations were being held, nor did Tomlinson ever seek Underwriters' consent before the settlement was executed and the agreed judgment was entered. Rather, Plaintiffs pursued the limits of coverage under Hartford's policies.

Generally, when an insured makes a settlement without the insurer's previous consent as required by the policy, the insured is not entitled to reimbursement from the insurer because the insured has breached a condition of coverage. See 7C J. Appleman, Insurance Law and Practice 4714 at 521 (1979). Therefore, by the very terms of the insurance certificates,...