Blair v. Sealift, Inc., Civ. A. No. 84-5367.

• Decision Date: 23 March 1994
• Docket Number: Civ. A. No. 84-5367.
• Parties: Dwayne BLAIR, et al. v. SEALIFT, INC.
• Court: U.S. District Court — Eastern District of Louisiana

848 F. Supp. 670

Dwayne BLAIR, et al. v. SEALIFT, INC.

Civ. A. No. 84-5367.

United States District Court, E.D. Louisiana.

March 23, 1994.

Lynn L. White and S. Daniel Meeks, Abbott & Meeks, New Orleans, LA, for third-party plaintiff, Sealift, Inc.

Daniel R. Atkinson, T.A., Judith R. Atkinson, Carey J. Gugliemo, Thomas E. Balhoff, Baton Rouge, LA, for Louisiana Ins. Guar. Assoc.

Perrin Butler, Ltd., Perrin C. Butler, T.A., Robert C. Stern, Metairie, LA, for Dwayne Blair and Gloria Blair.

HEEBE, District Judge.

This cause came on for hearing on a previous day on the motion of defendant and third-party plaintiff, Sealift, Inc., objecting to the Magistrate Judge's report and recommendation. Both parties agreed to waive oral argument.

The Court, having studied the legal memoranda submitted by the parties, is now fully advised in the premises and ready to rule.

REASONS

I. FACTS AND PROCEDURAL HISTORY

This action arose out of a suit by a crew member against his employer for injuries allegedly sustained on July 23, 1984. Plaintiff, Dwayne Blair, was employed by defendant and third-party plaintiff, Sealift, Inc. (Sealift), as a deckhand and crew member of the M/V SHERRIE M. Plaintiff and his wife filed suit against Sealift under the Jones Act, 46 App.U.S.C. § 688, and general maritime law. At the time of the incident, Sealift was insured by a "Standard Workmen's Compensation and Employer's Liability" insurance policy (WC/EL), issued by Transit Casualty Company (Transit), an admitted insurer in the State of Louisiana, that provided coverage for the plaintiff's injuries. As an admitted insurer in the State of Louisiana, Transit was a member of the Louisiana Insurance Guaranty Association (LIGA). On December 3, 1985, the Commissioner of Insurance for the State of Louisiana declared Transit to be an insolvent insurer.

LIGA is designed to reinsure the obligations of insolvent insurers who do business in Louisiana. Sifers v. General Marine Catering Co., 892 F.2d 386, 388 (5th Cir.1990). In the event that a member becomes insolvent, LIGA assumes all the obligations of the direct insurance policies underwritten by the insolvent insurer, unless the policy is one which is specifically excluded from LIGA coverage by La.Rev.Stat. § 22:1377. Id. La.Rev.Stat. § 22:1377 states that the Insurance Guaranty Association Fund "shall apply to all kinds of direct insurance, except life, health and accident, title, disability, mortgage guaranty, financial guaranty, ... and ocean marine insurance." La.Rev.Stat.Ann. § 22:1377 (West Supp.1994) (emphasis added). As a result of these exceptions, LIGA can not be held at risk for claims made by policyholders who possessed ocean marine insurance written by insolvent carriers. Id. Since Transit was a member of LIGA, LIGA would be obligated to provide protection to Transit's insureds for any claims which arose under an insurance policy issued by Transit, unless the claim arose from one of the exempted coverages.

On January 10, 1986, Sealift made written demand upon LIGA for protection from the plaintiffs' claims. On January 29, 1986, LIGA rejected Sealift's demand on the ground that the insurance policy was "ocean marine insurance," which is specifically excluded from coverage by LIGA under La. Rev.Stat. § 22:1377. Sealift then filed a third-party complaint with this court on February 25, 1986, seeking protection from LIGA for plaintiffs' claims.

In the fall of 1986, during the pendency of this action, Sealift settled with the plaintiffs. On June 3, 1986, Sealift filed a motion for summary judgment against LIGA, seeking a determination from the Court that LIGA was obligated to pay Sealift's attorneys' fees and costs.¹ On August 19, 1986, this Court granted Sealift's motion for summary judgment.

On October 14, 1986, LIGA appealed the ruling of this Court to the United States Court of Appeals for the Fifth Circuit,² raising several issues, two of which are relevant to Sealift's claim for attorneys' fees: (1) whether LIGA was obligated to pay preinsolvency attorneys' fees incurred by an insured and (2) whether LIGA is liable for attorneys' fees incurred in prosecuting a claim against LIGA for coverage under a policy of insurance issued by an insolvent member. The appeal was consolidated by the Fifth Circuit with other cases in which the plaintiffs sought recovery from LIGA as a reinsurer in Deshotels v. SHRM Catering Services Inc., 842 F.2d 116 (5th Cir.1988). Before deciding the consolidated appeals, the Fifth Circuit certified the issue of the scope of the "ocean marine exclusion" under LIGA to the Louisiana Supreme Court in Deshotels v. SHRM Catering Services Inc., 845 F.2d 582 (5th Cir.1988). The Fifth Circuit certified the following question to the Louisiana Supreme Court:

Does this claim for maritime-related injuries, brought on the Standard Workmen's Compensation and Employers' Liability policy with a marine endorsement, involve `ocean marine insurance' so as to be excluded, by virtue of La.Rev.Stat. § 22:1377, from the coverage of the Insurance Guaranty Association Fund?

Id. at 585.

In Deshotels v. SHRM Catering Services, Inc., 538 So.2d 988, 993 (La.1989), the Louisiana Supreme Court answered the Fifth Circuit's certified question, holding that the ocean marine exclusion does not apply to employer's liability policies which incidentally cover risks associated with maritime activities. The Fifth Circuit then applied the Deshotels rationale, as well as the rationale in the Louisiana Supreme Court's decision in Backhus v. Transit Casualty Co., 549 So.2d 283 (La.1989), in Sifers v. General Marine Catering Co., 892 F.2d 386 (5th Cir.1990).³ The Fifth Circuit held that WC/EL policies are not "ocean marine insurance." Sifers, 892 F.2d at 391, citing Deshotels, 538 So.2d at 993. As WC/EL policies are not "ocean marine insurance," claims for maritime-related injuries brought on a "Standard Workman's Compensation and Employer's Liability" policy with a marine endorsement are not excluded from coverage under La.Rev.Stat. § 22:1377 and LIGA must assume such claims. Deshotels, 538 So.2d at 993.

The Sifers court then addressed the issue of LIGA's obligation to pay attorneys' fees incurred before the insolvency of the insurer, fees incurred after insolvency, and fees incurred in successfully prosecuting a claim against LIGA. Id. 892 F.2d at 399. The court concluded that LIGA should be liable for attorneys' fees incurred by the insured prior to the insurer's bankruptcy. Id. As to the issue of LIGA's obligation to pay preinsolvency attorneys' fees incurred by law firms employed by the insolvent insurer, the court stated that LIGA's duty to pay does not extend under the Louisiana Insurance Guaranty Association Law (IGAL) to the bills from law firms under contract with the insolvent insurer but not the insured. Sifers, 892 F.2d at 400. As to post-insolvency legal fees, the court held that LIGA was not liable for fees and costs incurred by law firms with no contractual relationship with the insured. Id. As a further limit on LIGA's liability for attorneys' fees, the court stated that LIGA cannot be liable for legal services rendered in defense of a claim which is nonrecoverable under the exception of LIGA coverage for ocean marine insurance. Id.

With respect to attorneys' fees incurred in successfully prosecuting a claim against LIGA, the Sifers court found that LIGA would be liable for such fees only if LIGA "acted arbitrarily, capriciously, or without probable cause." Id. at 399. The Fifth Circuit, quoting from Deshotels,⁴ stated that the determination of whether LIGA had sufficient good-faith reasons to deny coverage is an "essentially factual question" to be determined by the district courts. Id. The court then remanded the separate case of Blair v. Sealift, Inc. to this Court for further proceedings consistent with the Sifers opinion. Sifers, 892 F.2d at 403.

On November 7, 1990, this Court referred the matter to the magistrate judge for a determination of the issue of attorneys' fees. The magistrate judge issued his decision on February 26, 1992, finding in favor of LIGA on the ground that plaintiff's claim for damages was a claim for "ocean marine insurance," as that term is defined for the first time in La.Rev.Stat. § 22:1379(9),⁵ passed by the Louisiana Legislature on July 6, 1989 while this case was on appeal. LIGA argues in their brief in opposition to Sealift's Motion objecting to the magistrate judge's Report and Recommendation that the Louisiana Legislature intended to alter the result of Deshotels, which interpreted La.Rev.Stat. § 22:1377 to refer to the type or kind of policy rather than the types or kinds of claims or risks. (Resp't Brief, Doc. No. 137 at 7-8). LIGA argues that the amendment now refers to the type or kind of risk or claim, not the form of the policy under which the claim arose and that the 1989 amendment should be given retroactive application. Id. at 8. LIGA states that as the policy in question was a WC/EL insurance policy with a marine endorsement, the amendments preclude coverage under LIGA. Id. If LIGA's arguments are upheld, then Sealifts' claims for attorneys' fees must be dismissed and the magistrate judge's decision should be affirmed.

The magistrate judge held that as Blair's claims would not be covered by LIGA under the 1989 amendment, any attorneys' fees incurred by Sealift in regard to that policy would also be excluded from LIGA coverage. (Mag.Report and Recommendation, Doc. No. 129 at 3). The magistrate judge followed H & B Const. Co. of La. v. Louisiana Ins. Guar. Ass'n, 580 So.2d 931 (La.Ct.App. 4th Cir.), writ denied, 587 So.2d 695 (La.1991), holding that the amending legislation should be given retroactive effect. Sealift filed an objection to the magistrate judge's Report and Recommendation on April 2, 1992, and that objection is currently before this Court for review.

The issue before this Court is whether Sealift's WC/EL insurance...