Indus. Risk Insurers v. New Orleans Public Service

• Citation: 666 F. Supp. 874
• Decision Date: 30 June 1987
• Docket Number: Civ. A. No. 81-2635.
• Parties: INDUSTRIAL RISK INSURERS, an Association of Capital Stock Companies Consisting of: the Aetna Casualty & Surety Company, et al. v. NEW ORLEANS PUBLIC SERVICE, INC., et al.
• Court: United States District Courts. 5th Circuit. United States District Court (Eastern District of Louisiana)

666 F. Supp. 874

INDUSTRIAL RISK INSURERS, an Association of Capital Stock Companies Consisting of: the Aetna Casualty & Surety Company, et al. v. NEW ORLEANS PUBLIC SERVICE, INC., et al.

Civ. A. No. 81-2635.

United States District Court, E.D. Louisiana.

June 30, 1987.

Fred L. Herman, David K. Fox, New Orleans, La., for Industrial Risk Insurers.

Robert N. Ryan, P. Albert Bienvenu, New Orleans, La., for intervenor.

Joseph W. Rausch, Dermot S. McGlinchey, McGlinchey, Stafford, Mintz, Cellini & Lang, William V. Dalferes, Jr., Eve B. Masinter, Robert E. Leake, Jr., George D. Fagan, New Orleans, La., for New Orleans Public Service, Inc.

MEMORANDUM OPINION

MENTZ, District Judge.

This matter came on for bench trial on April 7, 1986. At issue is whether third-party plaintiff, the City of New Orleans (City) has insurance coverage for the alleged negligent acts of the New Orleans Fire Department (NOFD) under a primary and two excess general liability policies issued by its insurers, the third-party defendants, Southern American Insurance Company (Southern American), American Universal Insurance Company (American Universal), and National Union Fire Insurance Company (National Union). The plaintiff herein, Industrial Risk Insurers (Industrial Risk), adopted the contentions of the City. With the consent of all parties, Industrial Risk presented additional argument against the third-party defendants pursuant to the Louisiana Direct Action Statute, La.R.S. 22:655.

By stipulation of the parties, this matter was submitted to the Court on exhibits and depositions without live testimony. The parties have agreed as to the authenticity of the documents, but not as to their materiality, relevancy, construction or admissibility.

Considering the briefs submitted by counsel, the evidence, the pleadings and the applicable law, the Court makes the following findings of fact and conclusions of law. To the extent that any of the factual findings constitute legal conclusions, they are adopted as such; to the extent that any of the conclusions of law constitute findings of fact, they are so adopted.

FINDINGS OF FACT

1. On July 7, 1980, at approximately midnight, or shortly thereafter on July 8, 1980, a fire occurred on property located in New Orleans, Louisiana, owned by American Standard, Inc., and insured by Industrial Risk.

2. Industrial Risk brought suit against New Orleans Public Service, Inc., the City of New Orleans, the New Orleans Fire Department and the Sewerage and Water Board of New Orleans for $70,000,000 dollars on a partial subrogation claim arising out of the alleged failure of the NOFD to properly fight the fire at the American Standard facility.

3. The City filed a third-party demand for indemnity against its primary and excess insurers at the time of the fire, Southern American, National Union, and American Universal, alleging that these insurers provided coverage for liability on the part of its Fire Department for the alleged failure to properly fight the fire at the American Standard facility.

4. On July 7 and 8, 1980, the City had in effect the following policies: (a) Southern American policy number SL 605 750; (b) American Universal policy number AXTPL 5416; and (c) National Union policy number CE 115 78 62.

5. Southern American policy number SL 605 750 provided primary coverage of $300,000 per occurrence effective September 15, 1979 through September 15, 1980, and provided only the coverage specified on the declarations page. This page limited the Southern American policy to three types of coverage¹: (a) Contractual Liability Insurance; (b) Manufacturer's and Contractor's Liability Insurance (M & C); and (c) Owner's, Landlord's and Tenant's Liability Insurance (OL & T). The Southern American policy does not provide comprehensive general liability insurance.

The coverage part for contractual liability insurance states that it applies to "contractual liability assumed by the insured under a contract designated in the schedule for this insurance." There is no contract whereby the City agreed to assume liability for the activities of the NOFD and none is designated in the schedule for contractual liability insurance. Plaintiff does not assert coverage under this insurance.

The OL & T liability insurance states that it provides coverage for liability arising out of the ownership, maintenance, or use of the insured premises which are listed in the policy as scheduled locations. The alleged liability of the City in the instant case does not arise out of the City's ownership, maintenance or use of the premises designated in the schedule for OL & T liability insurance. Rather, the risk arose from activities of the NOFD on non-scheduled premises, the American Standard plant.

The coverage part for M & C liability insurance entitled, "Coverage for Premises and the Named Insured's Operations in Progress," provides for liability coverage for property damage or bodily injury caused by specific activities or operations of the insured which are listed on the schedule as covered activities or operations.

6. The American Universal policy number AXTPL 5416 provided $700,000 dollars in excess coverage over the Southern American primary coverage, effective September 15, 1979 through September 15, 1980. The American Universal policy was a "following form" policy, which means that it provided coverage in accordance with the terms and provisions of the Southern American primary policy.

7. The National Union policy number CE 115 78 62, also a following form policy, provided a second layer of excess insurance for $2,000,000 dollars over the $1,000,000 dollars in coverage provided by the Southern American and American Universal policies. The second layer of excess insurance was obtained five months after the primary and first layer of excess insurance and was effective February 6, 1980 through September 15, 1980. On July 7, 1980, the National Union policy limit was increased from $2,000,000 dollars to $24,000,000 dollars. The terms and conditions of the policy remained unchanged.

8. There is no real issue in this case concerning whether the contractual liability and the OL & T liability insurance portions of the policy provide coverage for the activities of the NOFD. The sole question is whether the M & C liability insurance portion of the policy provides coverage for the activities of the NOFD.

9. The City argues that the policies in question provide coverage for the activities of the NOFD. Specifically, the City argues that the NOFD personnel should be classified as "municipal employees," which is the first category of covered hazards on the M & C liability insurance schedule. The insurers argue that the policy, by its terms, does not provide such coverage and that, for purposes of clarification, the policy expressly excluded from coverage the acts and omissions of the NOFD through an endorsement to the policy. Alternatively, the insurers argue that any expression of such coverage contained in the policy is the product of a mutual mistake or error of the parties and therefore, the policy should be reformed to reflect the actual intent of the parties not to provide coverage for the activities of the NOFD.

10. During the period of time in question (1978-1980), the Laurance Eustis Insurance Agency (Eustis Agency) was the insurance agent for the City. Thomas J. McMahon is the Vice-President and Laurance Eustis is the President of the Eustis Agency. Eustis was a member of the Insurance Advisory Committee of the City at various times for a total of 25 years, including the years 1978 through 1980.

11. McMahon and Eustis placed insurance for the City based on recommendations of the Insurance Advisory Committee of the City. At various times, they also discussed the City's insurance coverage with Reynard J. Rochon, the Chief Administrative Officer for the City; Leroy Aucoin, the Assistant Chief Administrative Officer; Don Hoffman, the City Attorney; and Eileen Barras, of the City's Purchasing Department, who handled the insurance program for the City on a daily basis.

12. In 1978, the City obtained a primary policy (number SL 605 733) of liability insurance from Southern American for the policy period of September 15, 1978 through September 15, 1979. The 1978-1979 policy did not provide coverage for NOFD activities or OL & T liability insurance for NOFD premises. The policy provided that the "usual municipality risk— this involves premises coverage for the OL & T only ... coverage will not be included for the Police Department, Sewer and Water Board, Superdome, ... or Fire Department."

13. The Southern American policy number SL 605 733 was renewed in 1979. In the summer of 1979, McMahon and Eustis met with Rochon, Aucoin and Hoffman to discuss renewal of the Southern American policy number SL 605 733. Liability for the activities of the police and fire departments was discussed at the meeting. McMahon testified that the City Attorney felt that any claims that arose out of the activities of the fire department ought to be handled by the City Attorney's Office. It was decided at the meeting that the activities of the police and fire departments were not to be covered. However, the City instructed the Eustis Agency to extend the OL & T coverage to include all police and fire stations for the reason that a number of people enter those premises for purposes such as vaccinations, voting, and visiting. The addition of police and fire stations to the schedule of other City premises covered under the OL & T insurance was the only change in the renewal policy which repeated in substance the terms of the policy from the preceding year.

14. Eustis testified that Southern American policy No. 605 750 was to be a renewal of the previous policy. He also testified that the Insurance Advisory Committee never recommended coverage for the activities of the NOFD and the City never placed an order for such coverage. As President of the ...