Liberty Mut. Ins. Co. v. Elgin Warehouse and Equipment

• Decision Date: 13 September 1993
• Docket Number: No. 92-2687,92-2687
• Citation: 4 F.3d 567
• Parties: LIBERTY MUTUAL INSURANCE CO., Appellant, v. ELGIN WAREHOUSE AND EQUIPMENT; L.P. Head, Defendants Phyllis States, Appellee. Phyllis STATES, as personal representative of Randall W. States, deceased, Plaintiff, v. L.P. HEAD, Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 567

4 F.3d 567

LIBERTY MUTUAL INSURANCE CO., Appellant, v. ELGIN WAREHOUSE AND EQUIPMENT; L.P. Head, Defendants

Phyllis States, Appellee.

Phyllis STATES, as personal representative of Randall W.

States, deceased, Plaintiff, v. L.P. HEAD, Defendant.

No. 92-2687.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 13, 1993.

Decided Aug. 19, 1993.

Order Denying Rehearing En Banc Sept. 13, 1993.

John Robin Nix, Jonesboro, AR, argued (Bill Penix, on the brief), for appellant.

Anthony F. Avalone, Las Cruces, NM, argued (Thomas R. Figart, on the brief), for appellee.

ON PETITION FOR REHEARING

Appellant's petition for rehearing has been considered by the court and is granted. The opinion and judgment of this court filed on June 29, 1993, are vacated and the attached opinion is being filed in their stead.

Before WOLLMAN and BEAM, Circuit Judges, and NANGLE, ^* Senior District Judge.

BEAM, Circuit Judge.

This is the second time this controversy has reached this court. Earlier, Liberty Mutual Insurance Co. (Liberty) requested a declaratory judgment that it had no duty to defend its insured, L.P. Head (Head), and that it was not responsible for any damages arising out of Head's liability for a fatal traffic accident. Phyllis States (States), the decedent's widow, filed a counterclaim contending that Liberty was responsible for her judgment against Head. The district court found for Liberty, and this court reversed. Liberty Mut. Ins. Co. v. States, 940 F.2d 1179 (8th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 874, 116 L.Ed.2d 778 (1992) (Liberty I ). We ordered the district court to enter judgment for States and to assess her damages. Id. at 1182. The district court entered judgment for States, awarding damages of $377,796.65. Liberty appeals. We affirm.

I. BACKGROUND

In October 1984, a tire fell onto an Arkansas road from a truck allegedly driven by Head's employee and leased by Head from Saunders Leasing Systems, Inc. (Saunders). Another truck, driven by Randall States, struck the tire and plunged approximately sixty feet off a bridge. The accident killed Randall States.

Liberty insured Saunders under a master policy. This policy permitted Saunders to offer insurance to those who rented its trucks. It also covered those using Saunders' trucks with Saunders' permission except lessees who rejected Saunders' coverage and agreed to provide other insurance. That policy's liability limit is $1,000,000. Head, an interstate livestock hauler, was a regular customer of Saunders who rented Saunders' trucks for months at a time, renewing his rentals on a weekly basis. In the rental agreement, Head accepted Saunders' coverage. The fine print on the back of the rental agreement set the liability coverage at $250,000. Head paid Saunders a mileage-based fee for this coverage. Saunders in turn paid mileage-based insurance premiums to Liberty. ¹

Some time after the accident, Phyllis States and her daughter filed a diversity action in district court against Head, Saunders, and the driver of the truck. By July 1986, Liberty had learned of the lawsuit against its three insureds and knew of its exposure due to its coverage of the three. Liberty tendered a defense for Saunders, but not for Head or the driver because, although named parties, neither had been served with process at that time. Liberty instead monitored the docket for their service of process. Head was served on August 14, 1987. Unaware of Liberty's identity, he sent the process papers to Saunders by certified mail. Saunders misplaced the papers. On October 5, 1987, the clerk entered a default judgment against Head. Finally, Liberty hired an attorney to defend Head. It was not until late November 1987, that a motion to set aside the default was filed on Head's behalf. The motion was denied.

In March 1988, Liberty filed for a declaratory judgment that it had no duty to defend Head and was not liable for any judgment against Head arising out of the underlying accident. Liberty argued that Head's violation of the policy's cooperation clause negated its otherwise admitted duty to defend him, and that neither Arkansas nor federal law, which void the operation of such policy defenses against injured third parties in commercial contexts, applied. In response, States filed a counterclaim based on her judgment against Head. She argued that Head did cooperate and that Liberty's noncooperation defense was void as to innocent injured third parties under both federal and Arkansas law. After trial, the district court entered judgment for Liberty on all grounds. Liberty Mut. Ins. Co. v. Hughes, No. H-C-88-20, mem. op. (E.D.Ark. July 2, 1990).

In Liberty I, the panel reversed the district court and found Liberty liable for States' damages. Liberty I, 940 F.2d at 1179. The panel declined to consider either the federal law or the cooperation issue, because the policy contained an Arkansas endorsement and therefore Arkansas Transportation Commission Rule 13.1 voided the noncooperation defense. Liberty I, 940 F.2d at 1181-82. The panel remanded to the district court for entry of judgment in favor of States and for a determination of States' damages. Id. On remand, the district court scheduled the damages hearing for November 6, 1991, and ordered any party wishing to present an issue other than the amount of damages due to States from Head to inform the court by motion and brief filed before October 11, 1991.

On November 1, 1991, three weeks after the motion deadline, more than three years after initiating its declaratory judgment action, nearly six years after States initiated her suit, and after the mandate had issued on the previous appeal, Liberty filed a motion in district court arguing for the first time that its liability was limited to $25,000 under Arkansas law. The district court conducted the damages hearing, and found States' damages to be $377,796.65. After reviewing our opinion and States' opposition to Liberty's belated motion to limit its liability to $25,000, the district court held Liberty liable under the policy for the full amount of States' damages. Liberty appeals, arguing that our prior opinion did not declare the limit of its liability and that the judgment exceeds the policy limits.

II. DISCUSSION

Liberty raises two policy-limit arguments on appeal: 1) Arkansas law limits Liberty's liability to $25,000; and 2) Saunders' rental agreement with Head limits Liberty's liability to $250,000. Both of these arguments are now unavailable to Liberty as Liberty I decided those issues against it. The mandate in that case has long been issued and its holdings are now the law of the case. ²

A. The Law of this Case

Liberty's contention that our prior opinion in this case left open the question of whether its liability was limited to $25,000 is a misreading of that opinion. In Liberty I, the panel was faced with three issues: 1) whether the district court erred in determining that Head failed to "cooperate;" ³ 2) whether federal law voided the noncooperation defense as to States; and 3) whether Arkansas law voided the noncooperation defense as to States. Liberty I, 940 F.2d at 1181. The panel did not find it necessary to reach the first two issues, because it found in favor of States on the third issue. If the amount of coverage had varied by issue, or theory of recovery, the panel would have considered all three.

The only fair reading of the prior opinion is that the panel found that under Arkansas law, Liberty was liable up to the $1,000,000 policy limit. If the panel found that Head had cooperated, coverage would have been either $1,000,000 or $250,000, depending on whether the court focused exclusively on the insurance contract which by its terms covered Head, see Allstate Ins. Co. v. Sullivan, 643 S.W.2d 21 (Mo.Ct.App.1982), or considered the rental agreement as an amendment to the insurance contract. The later proposition raises unlicensed insurance concerns which we note, but need not reach. If the panel found the federal MCS-90 endorsement ⁴ in Liberty's policy applied to Head, or found, under the facts of this case, that a comparable de facto MCS-90 endorsement had been issued on Head's behalf, coverage would have been either $500,000 or $1,000,000. By reaching only the Arkansas law theory of recovery, which arguably was worth $25,000 (Arkansas's statutory minimum coverage), $250,000 (the rental contract coverage), or $1,000,000 (Liberty's policy limits), the panel impliedly decided the limits of liability question. A panel would not relegate a party with three theories of recovery, one of which was worth either $250,000 or $1,000,000, one of which was worth either $500,000 or $1,000,000, and one of which was worth only $25,000 or $250,000 to the least advantageous theory without an explanation of why the other, more advantageous, theories failed. By finding it unnecessary to address the first two theories, the prior panel implicitly decided that the third theory provided recovery comparable to or better than the recovery provided by the first two. That is, it decided that Liberty was liable up to its $1,000,000 policy limit under Arkansas law. ⁵

B. Law of the Case Doctrine

Historically, federal courts considered the law of the case doctrine to be jurisdictional in nature. In the context of a second or subsequent appeal, any questions answered in a prior appeal were considered to be no longer in controversy. Therefore, there was no case or controversy on which to base jurisdiction over those settled issues. See 1B James W. Moore, et al., Moore's Federal Practice, p 0.404, 0.404[4.-4] (2d ed. 1993).

Currently, the doctrine has been recast as one of discretionary restraint. In the interests of finality, a subsequent appeals panel should revisit those issues implicitly or expressly decided by a prior panel only with reluctance. It will not disturb a prior panel's decision unless intervening controlling authority has reached a contrary...