Davenport v. St. Paul Fire and Marine Ins. Co.

• Decision Date: 09 December 1992
• Docket Number: No. 91-1857,91-1857
• Citation: Davenport v. St. Paul Fire and Marine Ins. Co., 978 F.2d 927 (5th Cir. 1992)
• Parties: Phillip DAVENPORT, Jr., Plaintiff-Appellee, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 927

978 F.2d 927

Phillip DAVENPORT, Jr., Plaintiff-Appellee, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellant.

No. 91-1857.

United States Court of Appeals Fifth Circuit.

Dec. 9, 1992.

Luther T. Munford, Chuck D. Barlow, Carlton W. Reeves, Phelps Dunbar, Whitman B. Johnson, III, Steen, Reynolds, Dalehite & Currie, Jackson, Miss., for St. Paul Fire and Marine Ins. Co. Daniel E. Troy, Laura A. Foggan, Wiley, Rein & Fielding, Washington, D.C., for amicus curiae--American Ins. Ass'n.

William L. Denton, Biloxi, Miss., for Phillip Davenport, Jr.

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

Before VAN GRAAFEILAND ^*, KING and EMILIO M. GARZA, Circuit Judges.

VAN GRAAFEILAND, Senior Circuit Judge:

St. Paul Fire and Marine Insurance Company ("St. Paul") appeals from a judgment in favor of Phillip Davenport, Jr. in the amount of $20,125,000. For the reasons that follow, we reverse the judgment and remand to the district court with instructions to dismiss the complaint.

THE FACTS

On June 25, 1984, Judith Yearwood was undergoing relatively low-risk surgery at Methodist Hospital in Hattiesburg, Mississippi. Dr. William Pace was the surgeon and appellee Davenport was the nurse anesthetist. During the operation, something went tragically awry, and Mrs. Yearwood was taken from the operating room in a coma from which she never recovered. Four days later, a hospital nurse negligently dislodged Mrs. Yearwood's nasotracheal tube, and Mrs. Yearwood died the next day. St. Paul insured the Hospital under a policy that also covered its employees, Davenport and the negligent nurse, but did not cover Dr. Pace.

Dr. Pace blamed Davenport for the operating room mishap, contending that Davenport improperly supplied oxygen and failed to keep Dr. Pace informed of Mrs. Yearwood's deteriorating condition. Davenport contended on the other hand that Dr. Pace negligently cut Mrs. Yearwood's fallopian tube thus allowing CO sub2 to enter her blood stream and bring on a cardiac arrest. Davenport also contended that some improper changes were made in the operative record to cover up what actually had occurred. ¹ After Mrs. Yearwood's death, a co-administrator of her estate sued Davenport and the Hospital. St. Paul undertook their defense and assured both of them that they had full and adequate coverage, a fact that Davenport never has disputed. Despite his lack of personal exposure, however, Davenport expressed dissatisfaction with the attorney retained by St. Paul to defend him and the Hospital. He contended that the attorney was not focusing sufficiently on the conduct of the negligent nurse as the cause of Mrs. Yearwood's death. He also disagreed with the attorney's tactic of not making pretrial disclosure of information the attorney had received concerning alleged changes in the hospital record, the attorney preferring to save the information for use in his cross-examination of Dr. Pace. Davenport and his personally retained attorney demanded the right to have the attorney defend him at St. Paul's expense.

St. Paul's policy, however, contained the following pertinent provisions:

We'll defend any suit brought against you or any other protected person for covered claims, even if the suit is groundless or fraudulent. We have the right to investigate, negotiate and settle any suit or claim if we believe that is proper. We'll pay all costs of defending the suit, including interest on that part of any judgment that doesn't exceed the limit of coverage. But we won't defend a suit or pay a claim after the limit has been used up in paying judgments or settlements.

We'll also pay all reasonable costs that you or any protected person incur at our request while helping us investigate or defend a claim or suit.

If an accident or incident occurs that may involve this policy, you or any other protected person involved must ... [n]ot assume any financial obligation or pay out any money without our consent.

In order to pacify Davenport and secure his cooperation, St. Paul hired a second lawyer to represent him. However, it refused to retain and pay the lawyer whom Davenport wanted.

The case proceeded to trial with the bulk of the defense being handled by the two attorneys retained by St. Paul, with Davenport's personally retained attorney playing only a minor role. The jury returned a verdict of $150,000 against the Hospital but exonerated Davenport from liability. Instead of rejoicing in his exoneration, Davenport brought this suit on November 12, 1986 to recover his self-incurred expenses in preparing his defense and hiring his lawyer, plus $6 million for emotional distress and punitive damages based on St. Paul's alleged breach of contract, bad faith, etc., in refusing to hire the lawyer selected by Davenport.

In May of 1987, Davenport was discharged by the Hospital because of actions that were "disruptive to the organization", "outbursts" with other employees and nurses, and "employee/employer incompatibility." Witnesses from the Hospital and St. Paul testified that St. Paul had nothing to do with the discharge, and there was no evidence to the contrary.

Following Davenport's firing, he applied three times to St. Paul for personal insurance coverage and was rejected on each occasion. St. Paul's stated reason for these rejections was that its relations with Davenport were very adversarial and had deteriorated to such an extent that the handling of any future claims would be very difficult. ² Davenport then broadened the claims made in his pending action, asserting that St. Paul was the only carrier in Mississippi writing individual coverage for nurse anesthetists and that St. Paul's refusal to provide him with coverage handicapped him in securing employment and was a malicious interference in his business. The evidence submitted in support of Davenport's alleged difficulties in securing insurance and employment is far from convincing. However, because the evidence is not dispositive of the issues before us, we see no need to discuss it.

The $20,125,000 judgment that Davenport secured is made up of the following elements:

Failure to afford Davenport a defense                         $    25,000
                Intentional interference with Davenport's business relations      100,000
                Infliction of emotional distress                                5,000,000
                Punitive damages                                               15,000,000
                

For convenience of discussion, we address St. Paul's obligation to defend and its obligation to insure separately.

THE OBLIGATION TO DEFEND

The above-quoted provisions in St. Paul's policy are "customary provisions." See American Home Assur. Co. v. Hermann's Warehouse Corp., 117 N.J. 1, 3-4, 563 A.2d 444 (1989). As stated in 44 Am.Jur.2d Insurance § 1393 at 326:

Clauses are usually found in policies of liability insurance giving the insurer the right to make such investigation, negotiation, and settlement of any claim or suit as it deems expedient. Such policies usually also contain a clause which prohibits the insured from voluntarily assuming any liability, settling any claims, incurring any expense, or interfering in any legal proceedings or negotiations for settlement, unless with the consent of the insurer. The purpose of such provision is to prevent collusion as well as to invest the insurer with the complete control and direction of the defense or compromise of suits or claims, and there is no doubt as to the validity of such provisions.

It is a general rule of law, in Mississippi as elsewhere, that where an insurance contract is plain and unambiguous, it cannot be rewritten by the court. See Interstate Life & Accident Co. v. Matthews, 222 Miss. 821, 827, 77 So.2d 297 (1955). In accordance with our standard procedures, see Ross v. Western Fidelity Ins. Co., 872 F.2d 665, 668 (5th Cir.1989), we have reviewed de novo the above-quoted clauses from the St. Paul policy. We hold, as numerous other courts have done in construing similar clauses, that they are unambiguous and give the insurer the right to assume control of the defense of an action against the insured to the exclusion of the latter. American Casualty Co. v. Timmons, 352 F.2d 563, 568-69 (6th Cir.1965); American Home Assur. Co. v. Hermann's Warehouse Corp., supra, 117 N.J. at 5-6, 563 A.2d 444; Marginian v. Allstate Ins. Co., 18 Ohio St.3d 345, 347, 481 N.E.2d 600 (1985); Louisiana Farm Supply Co. v. Federal Mut. Ins. Co., 409 S.W.2d 239, 240-41 (Mo.Ct.App.1966); Snyder v. National Union Indem. Co., 65 F.2d 844, 845, 847 (10th Cir.1933), cert. denied, 291 U.S. 665, 54 S.Ct. 440, 78 L.Ed. 1056 (1934); 7C J. Appleman, Insurance Law and Practice § 4681 (Berdal rev. 1979).

As aptly put by one court, "[t]he obligation to defend the insured is not to be regarded simply as a duty owed to the holder of the policy but also as an essential right which the insurance company reserves to itself in order to protect itself against unwarranted liability claims." Podolsky v. Devinney, 281 F.Supp. 488, 499 (S.D.N.Y.1968). This court has said more succinctly that an insurer has "both the right and the duty to defend suits against its insureds." State of Mississippi v. Richardson, 817 F.2d 1203, 1207 (5th Cir.1987). The district court's statement that the pertinent provisions in St. Paul's policy were ambiguous and "can easily be interpreted to include coverage for an attorney selected by the insured," is manifestly erroneous.

The insurer's right to control the defense is at its strongest where, as here, the potential liability is solely that of the insurer. Adequate coverage for the potential liability being conceded, control by the carrier is virtually absolute, since the insured has no exposure whatever. St. Paul's retained attorney explained this very carefully to Davenport's personal attorney in a letter, from which we quote the following informative excerpts:

However, as I expressed to you, in my opinion...