Montgomery Elevator Co. v. Building Engineering Services Co., Inc.

Citation730 F.2d 377
Decision Date23 April 1984
Docket NumberNo. 82-3704,82-3704
PartiesMONTGOMERY ELEVATOR COMPANY, Plaintiff-Appellant, v. BUILDING ENGINEERING SERVICES CO., INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

L. Kevin Coleman, New Orleans, La., for plaintiff-appellant.

Deutsch, Kerrigan & Stiles, Robert E. Kerrigan, Jr., New Orleans, La., for defendants-appellees.

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

Before POLITZ, JOHNSON and WILLIAMS, Circuit Judges.

JOHNSON, Circuit Judge.

In 1976, Building Engineering Services Co., Inc., ("BESCO") hired the Montgomery Elevator Company ("Montgomery") to service and maintain the elevators and escalators in the Louisiana Superdome in New Orleans, Louisiana. Shortly thereafter, a young visitor to the Superdome was injured while using the escalator and a personal injury action was brought against BESCO and Montgomery. Montgomery and BESCO both prevailed in the personal injury action, but upon the conclusion of the personal injury action, Montgomery commenced this diversity action against BESCO contending that BESCO breached its contractual duty to name Montgomery as an additional insured under BESCO's insurance policy. As damages, Montgomery sought to recover the attorney's fees that it incurred in defending the personal injury action. The district court rendered judgment for BESCO and Montgomery appealed. We affirm.


In April 1976, Montgomery entered into a contract with BESCO under which Montgomery was to service and maintain the elevators and escalators in the Louisiana Superdome. The contract contained two clauses that are of interest here, an insurance clause and an indemnity clause.

The insurance clause required BESCO to maintain comprehensive liability insurance and to name Montgomery as an additional insured on the policy. The insurance clause recited:

You [BESCO] shall at all times and at your own cost, maintain comprehensive bodily injury and property damage insurance (naming Montgomery Elevator Company as an additional insured), including bodily injury and property damage caused by the ownership, use or operation of the equipment described herein.

BESCO did obtain insurance, but the insurance obtained did not name Montgomery as an additional insured.

The indemnity clause of the contract required BESCO to indemnify Montgomery against all claims of liability asserted against Montgomery arising from the operation of the equipment, except, of course, those directly attributed to Montgomery's negligence. The indemnity clause recited:

Nothing in this Agreement shall be construed to mean that Montgomery Elevator Company, or its subsidiaries, officers, directors, agents or employees ... assume any liability for damages or otherwise on account of accidents to persons or property ... except those directly due to the negligence of Montgomery Elevator Company. You [BESCO] shall be solely responsible for supervising the use of the equipment, and you shall provide whatever attendant personnel, warning signs and other controls and cautions that may be required or desirable to insure safe operation. You shall at all times be solely liable for the operation of the equipment and you shall indemnify, protect and save harmless Montgomery Elevator Company and its affiliates from and against liabilities, losses and claims of any kind or nature imposed on, incurred by, or asserted against Montgomery Elevator Company or its affiliates arising out of the operation of the equipment.

In August 1976, sixteen year-old Zelta Huinker sustained injuries when the hem of her formal gown became enmeshed in a moving escalator. Huinker brought a personal injury suit against Montgomery, BESCO, and others. At all times, Montgomery took its own defense. At no time did Montgomery cross-claim against BESCO, or otherwise call to BESCO's attention that the contract would require BESCO to defend Montgomery's interest in the litigation. At trial, the trial judge directed a verdict in favor of BESCO, and the jury returned a verdict in favor of Montgomery and the remaining defendants.

After final judgment was rendered in favor of all defendants in Huinker's personal injury suit, Montgomery commenced this diversity action in federal district court. Montgomery's complaint alleged simply that BESCO had breached its contractual duty to procure insurance for the benefit of Montgomery, and that BESCO was therefore liable to Montgomery for nearly $29,000 in attorney's fees and costs. The parties submitted the case for judgment on the basis of documentary evidence and memoranda. The district court initially ruled in favor of Montgomery, and BESCO moved for a new trial.

On reconsideration, the district court entered judgment in favor of BESCO. The court initially noted that BESCO committed a "passive breach" of contract by failing to name Montgomery as an "additional insured." Applying Louisiana contract law, the court determined that Montgomery's failure to put BESCO in default extinguished its right to seek damages from BESCO. The court reasoned that, had Montgomery put BESCO in default when the breach occurred, BESCO may have been able to take some action to avoid the duplicative litigation costs that did in fact arise. The opinion concluded:

After careful reconsideration, the Court now determines that it was ill advised to find that, under the circumstances described above, it would have been futile and useless to put BESCO in default. The Court recognizes, of course, that it would have been impossible for BESCO to have named Montgomery as an additional insured at such a late hour. Who is to say, however, what actions BESCO would have taken if it had been put in default? To make such a determination at this time would be to engage in dangerous speculation. The Court is in agreement with BESCO's position that a contrary finding might very well advance a policy which encourages duplicative litigation and costs.

This appeal followed.


This threshold question was raised during the hearing on BESCO's motion for new trial and is hinted at in the trial court's opinion: is Montgomery's claim one which must have been asserted as a compulsory counterclaim in the Huinker suit? See, Fed.R.Civ.P. 13(a). If so, the present claim for attorney's fees was waived by Montgomery's failure to assert it during the Huinker litigation, and it may not be pursued now.

Rule 13(a) requires that any claim which "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim" is a compulsory claim and must be asserted, or it will be deemed waived. Fed.R.Civ.P. 13(a). This circuit has adopted the "logical relationship" test to determine if a claim is sufficiently related to the primary claim so as to be compulsory. United States v. Aronson, 617 F.2d 119, 121 (5th Cir.1980). A logical relationship exists when "the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights, otherwise dormant, in the defendants." Plant v. Blazer Financial Services, Inc., 598 F.2d 1357, 1361 (5th Cir.1979).

The Huinker suit involved personal injury and liability therefor; it was not concerned with any subsequent shifting of the burden of satisfying the judgment from one defendant to another or with the terms of the agreement under which the burden was to be apportioned. Resolution of Montgomery's claim here depends only upon interpretation of the terms of its contract with BESCO and is concerned only peripherally with the existence and causes of liability for personal injury. The same operative facts were not the bases of both claims. It therefore does not appear that Montgomery's claim was compulsory in the Huinker case, and it is not, for that reason, barred here.


In interpreting the terms of this Louisiana contract, this Court is "bound to give legal effect to all such contracts according to the true intent of the parties. LSA-C.C. art. 1945." Louisiana National Leasing Corp. v. ADF Service, Inc., 377 So.2d 92, 95 (La.1979). The determination of the true intent of the parties is to be made in accordance with the plain, ordinary and popular sense of the language used in the contract. LSA-C.C. arts. 1945, 1946. See also Texaco, Inc. v. Vermillion Parish School Board, 244 La. 408, 152 So.2d 541, 548 (1963). We consider it unlikely that both the insurance clause and the indemnity clause would have been included if both had the same intent and purpose. Accordingly, we begin with the assumption that the insurance clause demanded duties of BESCO, which were not the same as the duties demanded of BESCO by the indemnity clause.

The language of the insurance clause requires BESCO to maintain comprehensive liability coverage for bodily injury and property damage and to include Montgomery as an additional insured, thereby affording to Montgomery the same comprehensive insurance against tort claims as that afforded to BESCO. One of the benefits of such insurance to those insured thereunder is that the insurer is obligated to assume the costs of any litigation that might arise from claims for personal injury or property damage. It therefore appears that the insurance clause was intended to provide Montgomery with the same comprehensive insurance...

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