Joslyn Mfg. Co. v. Liberty Mut. Ins. Co.

Decision Date02 September 1994
Docket NumberNo. 93-5563,93-5563
Citation30 F.3d 630
Parties25 Envtl. L. Rep. 20,150 JOSLYN MANUFACTURING COMPANY, Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

T. Haller Jackson, III, Tucker, Jeter, Jackson & Hickman, Shreveport, LA, Stephen D. Davis, Jay A. Canel, Canel, Davis & King, Chicago, IL, for appellant.

Jack O. Brittain, Sr., Brittain & Sylvester, Natchitoches, LA, Martha J. Koster, Lee H. Glickenhaus, Boston, MA, for appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before REYNALDO G. GARZA, SMITH and PARKER, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

Joslyn Manufacturing Company ("Joslyn") filed this action for declaratory judgment seeking to enforce an insurance policy with Liberty Mutual Insurance Company ("Liberty"). The policy would obligate Liberty to defend and indemnify Joslyn against Louisiana Department of Environmental Quality ("DEQ") Compliance Orders directing Joslyn to investigate and remediate environmental damage at Joslyn's former wood treatment plant in Bossier City, Louisiana. Joslyn seeks reimbursement for its past defense costs, indemnity of its past clean-up costs, and a declaration that Liberty must pay Joslyn's future defense and clean-up costs. For the following reasons, we affirm the district court.


Joslyn purchased the Lincoln Creosoting Plant in Bossier City on July 24, 1950, where it treated wood with creosote. It operated the facility until 1969 when it sold the plant to Koppers, Inc. on December 1, 1969. Joslyn has been a Liberty Mutual insured since 1945. From 1962 through 1969 the creosote plant was an insured location under Joslyn's policies with Liberty. Neither party can locate any of the pre-1962 liability policies between Joslyn and Liberty.

In 1985, the DEQ began studying the old Lincoln Creosoting Plant site. On October 14, 1985, a report was issued to the DEQ that found the soil at the site, as well as an extremely high probability of the groundwater, to be contaminated. On December 6, 1985, the DEQ sent Joslyn an information request concerning the site, and Joslyn responded on February 7, 1986. On August 2, 1986, the DEQ issued a compliance order finding that Joslyn and twelve other parties were subject to liability for clean-up and remedial costs, and ordered the parties to submit an approved clean-up plan for the site. This order was stayed because of requests for a hearing. The August 2, 1986 DEQ Compliance Order was amended on December 17, 1987.

Joslyn first advised Liberty of the DEQ's actions on May 19, 1987, and on June 23, 1987. Liberty denied coverage by letter of March 30, 1989. This suit seeking declaratory judgment ensued.

On July 8, 1993, United States District Judge Tom Stagg issued a Memorandum Ruling, 836 F.Supp. 1273. In it the court found that Liberty had no duty to indemnify Joslyn because Joslyn failed to comply with the "immediate notice" condition precedent by waiting nine months before giving notice of an August 2, 1986 DEQ Compliance Order asking Joslyn to submit a letter to the DEQ stating whether it would voluntarily investigate and remediate the contamination at the property. The court further held that Liberty had no duty to defend Joslyn because the Compliance Order directing Joslyn to investigate and clean up the property was not a "suit." Finally, the court struck the affidavit of Philip Gehrke, Joslyn's Risk Manager from 1947 to 1983, regarding the missing insurance policies for 1950 to 1962. Joslyn has timely appealed.


This case is subject to a de novo review by this court. Fritiofson v. Alexander, 772 F.2d 1225, 1239 (5th Cir.1985). The pertinent portions of the insurance contract provided:

As respects the insurance afforded by the other terms of this policy the company shall:

(a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent.

The "Conditions" section of the Liberty policies stated:

NOTICE OF CLAIM OR SUIT If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice summons or other process received by him or his representative.

ACTION AGAINST COMPANY No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company. 1

Appellant Joslyn argues that the trial court erred in ruling that they forfeited their insurance coverage because they failed to immediately notify Liberty of the August 2, 1986 DEQ Compliance Order, as was required by the insurance contract. Joslyn asserts that the August 2, 1986 DEQ order was not a claim or suit which triggers their duty to provide immediate notice to Liberty. 2 Appellant states that the DEQ Compliance Order asked it only to submit a letter stating whether it would voluntarily address the contamination. Joslyn and the other respondents declined and exercised their right to request a hearing. On May 19, 1987, Joslyn gave notice of the potential "future claim" when it was unclear what the DEQ would do. They then gave notice again on June 23, 1987, when it expected the DEQ to enter an amended Compliance Order directing the work to begin. When the DEQ served Joslyn with the amended order on December 17, 1987, Joslyn promptly sent it to Liberty on December 31, 1987. Therefore, Joslyn contends that it was only this amended letter that triggered their duty to notify Liberty, of which Joslyn gave timely notice, and that the district court erred in finding that the notice was late. We disagree.

The August 2, 1986 Compliance Order stated that Joslyn was subject to liability for clean-up and remedial costs, and ordered it to submit an approved clean-up plan for the site. The August 2, 1986 Compliance order is substantially equivalent to the Amended Compliance Order dated December 17, 1987, of which Joslyn agrees is a claim. This court concludes that this order was, at least, a claim which triggers Joslyn's contractual obligation to provide Liberty with immediate notice thereof as an express condition precedent to coverage. Joslyn waited nine months before providing Liberty with the requisite notice, thereby committing a material breach of a condition precedent to coverage under the policy. We next address the consequences of this late notice on the rights and liabilities of the parties to the contract.

Joslyn suggests that, even if they were late in providing Liberty with notice, Louisiana law interprets this clause to require "reasonable" notice to allow the insurer to adequately prepare a defense. Joslyn claims that they were reasonable in their conduct. Furthermore, Joslyn asserts that Liberty suffered no prejudice from any delay, and therefore should not be relieved from extending coverage to Joslyn. Appellant claims that Liberty had a full opportunity to participate in Joslyn's defense and to protect itself, but chose to do nothing and let Joslyn bear the costs of the defense. 3

In holding that prejudice was not a factor to consider in policies where notice was a condition precedent to coverage, the district court relied on three relatively recent Fifth Circuit opinions: Peavey Co. v. Zurich Insurance Co., 971 F.2d 1168 (5th Cir.1992); Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570 (5th Cir.1990); and MGIC Indemn. Corp. v. Central Bank of Monroe, La., 838 F.2d 1382 (5th Cir.1988). "The rule in Louisiana is that where the requirement of timely notice is not an express condition precedent, the insurer must demonstrate that it was sufficiently prejudiced by the insured's late notice." Peavey, 971 F.2d at 1173. But where prompt notice of a covered occurrence is a "condition precedent" to recovery under an insurance policy, and the insured fails to give such notice, the claim is no longer covered by the policy, regardless of whether the insurer can demonstrate prejudice. MGIC, 838 F.2d at 1385-87. In the present case, timely notice was an express condition precedent to coverage. In MGIC, we held that the words "condition precedent" mean exactly what they say, and failure to comply with the provision precludes coverage. Id. at 1385.

Notably, this court's decision in MGIC neglected to discuss a Louisiana Supreme Court opinion disposing of a substantially similar issue. The Louisiana Supreme Court has rejected the view that a non-prejudicial delay in notice breaches a "condition precedent" on similar facts to those presented here. In Jackson v. State Farm Mut. Auto. Ins. Co., 211 La. 19, 29 So.2d 177 (1946), the court reversed an intermediate appellate court decision which relieved an insurer of its obligations under a "condition precedent" analysis even though the insurer received notice soon enough to defend the claim. The Louisiana Supreme Court held that all the facts and circumstances must be considered in "balancing the equities" in...

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