National Union Fire Ins. Co. of Pittsburgh, Pa. v. Circle, Inc.
| Decision Date | 26 October 1990 |
| Docket Number | No. 90-3136,90-3136 |
| Citation | 915 F.2d 986 |
| Parties | NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., Plaintiff-Appellee, v. CIRCLE, INC., Grillot Co., Inc., and Cirlot Co., Inc., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David S. Kelly, John M. Page, Jr., Lemle & Kelleher, New Orleans, La., for defendants-appellants.
Margot Mazeau, Clayton G. Ramsey, James B. Kemp, Jr., Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for plaintiff-appellee.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before JONES, DUHE, and WIENER, Circuit Judges.
Plaintiff-appellee, National Union Fire Insurance Co. of Pittsburgh (National Union), sued defendants-appellants, Circle, Inc.; Grillot Co., Inc.; and Cirlot Co. (the Assureds), under diversity jurisdiction, claiming $280,230.00 in additional insurance premiums based on loss experience. As the basis for rejecting National Union's claim for additional premiums, the Assureds relied on a mutual release with National Union. The Assureds conceded only that they owed $66,116.00 in premiums, against which they claimed an offset for legal fees and out-of-pocket litigation expenses of $21,916.54 incurred when National Union allegedly breached its contractual duty to defend. After a bench trial, the district court rendered judgment for National Union, 731 F.Supp. 750, and the Assureds appealed. We affirm in part and reverse in part and render.
National Union issued certain insurance policies to the Assureds, effective from December 1, 1979 through December 1, 1982. In connection with the issuance of these policies, National Union and the Assureds entered into a written agreement (the Retention Premium Agreement) governing the calculation of the premiums for the insurance coverage. Pursuant to the Retention Premium Agreement, each "loss experience" under the insurance coverage would be used, retroactively, in the calculation of a portion of the premiums to be paid retrospectively. That portion, however, of the premiums was subject to a specified maximum amount or "cap."
In September of 1980, Willie Smith, one of the Assureds' employees, died while working on a dredge. Smith's survivors sued National Union and the Assureds. National Union engaged three separate attorneys to represent its various interests in the case and engaged a fourth attorney to defend the Assureds. In doing so, however, National Union reserved the right to deny coverage under the policies. Because National Union provided counsel under a reservation of rights, the Assureds also engaged counsel to represent their interest in the Smith litigation, thereby incurring $16,556.80 in legal fees and out-of-pocket litigation expenses.
In connection with National Union's settlement and payment of the Smith claim, all interested parties, including National Union and the Assureds, executed an agreement drafted by National Union and dated January 7, 1983 (the Smith Release Agreement). As part of the Smith Release Agreement, National Union and its Assureds mutually agreed and convenanted as follows:
[National Union and the Assureds] 1 without limitation release, remise, and forever discharge [each other] from any and all rights, claims, liens, demands, remedies, or causes of action of whatever nature arising out of or in any way connected, either directly or indirectly, with the death of Willie M. Smith ... including but not limited to all present and potential cross-claims and third-party demands, for damages, compensation benefits, indemnity, contribution, unjust enrichment, expenses, attorney's fees, incidental costs, and all other claims and demands, without limitation, which were or could have been made by the parties in the aforementioned proceedings, it being the intention of the undersigned parties to fully settle, compromise, discharge, release and relinquish any and all claims which they or any of them have or may have against each other as the result of the death of Willie M. Smith....
National Union ultimately invoiced the Assureds for $280,630 in additional insurance premiums allegedly due under the terms of the Retention Premium Agreement. None of the parties disputes that the Smith loss experience was used by National Union in calculating the sum demanded--actually $280,230, and not the slightly larger sum it invoiced. The Assureds refused to pay the premiums as invoiced, contending that the language of the Smith Release Agreement foreclosed National Union's contractual right to use the Smith loss experience in calculating the sums due under the Retention Premium Agreement. The Assureds do concede that they owe National Union $66,116 in retention premiums, calculated excluding the Smith loss experience, but assert the right to offset $21,915.54 in legal fees and out-of-pocket litigation expenses that the Assureds incurred in connection with the defense of another claim--the Nguyen case.
After the July 1980 death of Bao Van Nguyen, another of the Assureds' employees, his survivors sued National Union and the Assureds. National Union engaged counsel to represent its interest in the Nguyen case and engaged separate counsel to defend the Assureds. In doing so, it reserved the right to deny coverage under the policies. Because National Union engaged separate counsel for the Assureds under a reservation of the right to deny coverage, the Assureds also engaged counsel to represent their interests in the Nguyen case and incurred $21,915.54 in legal fees and out-of-pocket litigation expenses--the amount of the offset claimed in this suit.
The district court, applying Louisiana law to this diversity action, held, "[b]ased on the Court's experience and understanding of insurance contracts and settlement agreements":
1. National Union did not release, by executing the Smith Release Agreement, its right to use the Smith loss experience in calculating the premium due under the Retention Premium Agreement; and
2. The Assureds were not entitled to recover (to offset damages) for the attorneys' fees and out-of-pocket litigation expenses that they incurred by engaging separate counsel in the Nguyen case because, under Louisiana law, an insurer fulfills its duty to defend when it employs separate counsel to defend the assured, even though the insurer reserves its right to deny coverage.
Rejecting the Assureds claim for offset based on retaining independent counsel in both the Smith 2 and Nguyen litigation, the district court entered judgment in favor of National Union for $280,230.00, plus interest from the date of judicial demand, and for costs.
The standard of review for contract interpretation is de novo, see Gulf Colo. & S.F. Ry. v. Coca-Cola Bottling Co., 363 F.2d 465, 467 (5th Cir.1966); but if the interpretation of the contract turns on the consideration of extrinsic evidence, such as evidence of the intent of the parties, the standard of review is clearly erroneous, see City of Austin v. Decker Coal Co., 701 F.2d 420, 425-26 (5th Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 348, 78 L.Ed.2d 314 (1983). If, however, intent is determined solely from the language of the contract, then contractual interpretation is purely a question of law. See id. at 427 n. 18. The threshold question whether extrinsic evidence should be considered in determining the intent of the parties is itself a question of law and thus reviewable de novo. See id. at 425-26.
The district court relied on its own experience and familiarity with agreements of the kind before it to conclude that for the Smith Release Agreement to prohibit the inclusion of the Smith loss figures in the Retention Premium Agreement calculations would be an "absurd" result and contrary to the judicially inferred intention of the parties. Because the district court had no unresolved doubt about the parties' intent, it did not invoke article 2056 of the Louisiana Civil Code, which requires that such unresolved doubt be eliminated by interpreting the contract against the party furnishing its text.
The district court made no express finding of fact as to the intent of the parties. Rather, it based the decision entirely on its own interpretation of the intent of the Smith Release Agreement within its "four corners" and without reference to any extrinsic evidence. Consequently, the district court's interpretation of the release is reviewable de novo as is its decision to look no further than the document itself in determining its meaning.
Under Louisiana law, a contract is the law between the parties, see Ingram Corp. v. J. Ray McDermott & Co., Inc., 698 F.2d 1295, 1312 (5th Cir.1983), and is read for its plain meaning, see id. "When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent." La.Civ.Code Ann. art. 2046 (West 1987). We agree with the Assureds that the plain meaning of the clear and explicit language of the Smith Release Agreement is that "any and all rights, claims, liens, demands, remedies, or causes of action of whatever nature arising out of or in any way connected, either directly or indirectly, with the death of Willie Smith" includes National Union's contractual right to use the Smith loss experience in calculating premiums. We find it inescapable that by executing the Smith Release Agreement, National Union released, inter alia, its right to use the Smith loss experience in calculating the premium due under the Retention Premium Agreement. Use of that loss experience is clearly a "right," and it clearly is connected, at least indirectly if not directly, with Smith's death.
National Union argues that it is inconceivable that such broad...
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