Burdue v. U.S. Steel Corp., 80-3639

• Citation: 676 F.2d 1129
• Decision Date: 30 April 1982
• Docket Number: No. 80-3639,80-3639
• Parties: Lucille M. BURDUE, et al., Plaintiffs, v. UNITED STATES STEEL CORPORATION, Defendants, and The American Ship Building Company, Defendant-Appellee, and Home Insurance Company, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1129

676 F.2d 1129

Lucille M. BURDUE, et al., Plaintiffs, v. UNITED STATES STEEL CORPORATION, Defendants, and The American Ship Building Company, Defendant-Appellee,

and

Home Insurance Company, Defendant-Appellant.

No. 80-3639.

United States Court of Appeals, Sixth Circuit.

Argued Dec. 11, 1981.

Decided April 30, 1982.

Thomas J. Dorchak, Cleveland, Ohio, for defendant-appellant.

Albert J. Knopp, Paul S. Turner, Wayne Dabb, Jr., Cleveland, Ohio, for defendant-appellee.

Before ENGEL and BROWN, Circuit Judges, and CECIL, Senior Circuit Judge.

BAILEY BROWN, Circuit Judge.

Home Insurance Company ("Home Insurance"), insurer of appellee American Shipbuilding Company ("AmShip"), is appealing from the grant of summary judgment to AmShip and the denial of its motion for summary judgment with regard to AmShip's cross-claim in this consolidated wrongful death action. For the reasons stated herein, we reverse and vacate the grant of summary judgment in favor of AmShip and remand for entry of summary judgment in favor of Home Insurance.

AmShip entered into an agreement with United States Steel Corporation ("United States Steel") on January 25, 1968 to construct a Great Lakes freighter. The agreement included the following "hold harmless" provision:

The Contractor (AmShip) will hold and save the Owner (United States Steel) harmless from any and all claims to damage to persons or property asserted by employees, invitees or guests of the Contractor (AmShip).

Thereafter, on July 1, 1968, Home Insurance contracted with AmShip to insure AmShip for workmen's compensation coverage. ¹ Under the terms of the policy, Home Insurance agreed to indemnify any loss over $50,000 sustained by AmShip on account of "compensation and other benefits required of the insured by the workmen's compensation law...." The policy expressly extended its coverage to include liability incurred under the federal Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901-950 (1976) ("Compensation Act").

On June 24, 1971, four AmShip employees, Clyde Ray Burdue, Leonard C. Moore, Jr., John D. Alexander, and George E. Adams, were killed in a fire and explosion on the Great Lakes freighter under contract. Pursuant to its obligations under the Compensation Act, AmShip began making compensation payments to the plaintiffs in this action, Lucille Burdue, Mary Ann Moore, and Angela Alexander. ²

In 1973 these three widows, although continuing to receive compensation payments from AmShip, each filed, as administratrix of their deceased husband's estate, wrongful death actions against, inter alia, United States Steel, AmShip, and Home Insurance. ³ These actions were permissible under the Compensation Act, which provides that, in addition to receiving compensation payments from the employer, an employee or representative may also recover compensatory damages. 33 U.S.C. § 933 (1976). In order to avoid double recovery by the employee, however, § 933 provides, in general, that employers who have paid compensation under the Compensation Act may assert a lien in the amount of such payments against the amount recovered as compensatory damages and, with respect to the employer's obligation to pay compensation, it may claim a setoff to the extent that the employee has recovered compensatory damages. In addition, § 933 of the Compensation Act provides, in general, that where the employer has paid compensation and the employee has not pursued his claim for compensatory damages the employer, by subrogation, may pursue the employee's claim for compensatory damages.

The three suits were consolidated and, at a pretrial conference on December 22, 1975, a settlement was reached. The settlement agreement provided that United States Steel and AmShip would make total lump sum payments as compensatory damages to Burdue, Moore, and Alexander in the respective amounts of $175,000, $450,000, and $430,000. In addition, $60,000 was to be paid to the estate of George Adams. ⁴ Under the terms of the settlement, AmShip agreed that the compensation payments were to continue to be paid and were not to be considered as liens against the settlement fund and no claim of setoff would be made. Home Insurance was allegedly represented at the conference by Mr. Harley McNeal, who was assigned by the Hartford Insurance Company to defend Home Insurance against a negligence claim based on failure to inspect. ⁵ Mr. McNeal agreed that, in the event compensation payments by AmShip exceeded $50,000, Home Insurance would waive any lien or right of setoff it might otherwise be entitled to assert under the Compensation Act. ⁶

Home Insurance, however, subsequently refused to reimburse AmShip for its payments exceeding $50,000 on the ground that Mr. McNeal possessed no authority to waive any liens or rights of setoff which Home Insurance may have had against the recovery of the plaintiffs in their suits against AmShip and United States Steel. The district court agreed with Home Insurance as to Mr. McNeal's lack of authority and, on August 7, 1978, denied AmShip's request for an order enjoining Home Insurance from not complying with the settlement agreement. There was no appeal from this ruling.

The district court, however, did grant AmShip leave to file a declaratory cross-claim against Home Insurance in light of the possibility that AmShip's hold harmless agreement with United States Steel, executed prior to the issuance of the Home Insurance policy to AmShip, operated to extinguish any right of subrogation, lien and setoff that AmShip (and arguably, by extension, Home Insurance) obtained by virtue of AmShip's payments made and to be made under the Compensation Act. AmShip filed its cross-claim on November 6, 1978, and both parties subsequently moved for summary judgment.

On August 15, 1980, the district court granted AmShip's motion for summary judgment and denied the motion of Home Insurance. Home Insurance had argued before the district court that AmShip's agreement with the plaintiffs to waive its lien and setoff rights under the Compensation Act as a condition of the settlement rendered all compensation paid by AmShip as voluntary in nature and therefore not insured under the excess compensation policy. AmShip, on the other hand, contended that it had no lien or setoff rights against United States Steel because of the January 25, 1968 hold harmless agreement, which was executed prior to the insurance agreement between AmShip and Home Insurance. Because this hold harmless agreement extinguished any rights that AmShip may have possessed against United States Steel, AmShip argued, any corollary lien or setoff rights of AmShip as to the plaintiffs' recovery from United States Steel were also eliminated. Therefore, AmShip argued, since it could not have recouped its compensation payments to the plaintiffs from any recovery fund because of the hold harmless agreement, the waiver of its lien rights or setoff rights as a condition of the settlement did not render payments voluntary and, consequently, payments were insured under the excess compensation policy.

The district court agreed with AmShip. In analyzing the problem, the court considered the relative rights of AmShip and Home Insurance had there been no settlement but instead a recovery on the part of the plaintiffs against United States Steel after a trial. In such a situation, the...