OFFSHORE LOGISTICS, ETC. v. ARKWRIGHT-BOSTON MFR'S

• Decision Date: 08 March 1979
• Docket Number: Civ. A. No. 77-2079.
• Citation: 469 F. Supp. 1099
• Parties: OFFSHORE LOGISTICS SERVICES, INC. and Offshore Logistics, Inc. v. ARKWRIGHT-BOSTON MANUFACTURERS MUTUAL INSURANCE COMPANY.
• Court: U.S. District Court — Eastern District of Louisiana

469 F. Supp. 1099

OFFSHORE LOGISTICS SERVICES, INC. and Offshore Logistics, Inc. v. ARKWRIGHT-BOSTON MANUFACTURERS MUTUAL INSURANCE COMPANY.

Civ. A. No. 77-2079.

United States District Court, E. D. Louisiana, New Orleans Division.

March 8, 1979.

COPYRIGHT MATERIAL OMITTED

Clayton G. Ramsey, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for plaintiffs.

Donald L. King, John J. Broders, Jones, Walker, Waechter, Poitevant, Carrere & Denegre, New Orleans, La., for defendant.

COLLINS, District Judge.

On April 6, 1973, the M/V STONEWALL JACKSON, owned by Offshore Logistics Services, Inc. and operated by Offshore Logistics, Inc. ("OLI") (plaintiffs herein), struck and damaged a production platform in the Gulf of Mexico that was owned by Chevron Oil Company ("Chevron"). In trial on the issue of liability, the Court ruled in favor of Chevron. Before the trial as to quantum, Chevron and the plaintiffs agreed to settle the case for $108,000.

Plaintiffs claim that although their primary Protection and Indemnity underwriters tendered the full amount due under the primary policy, their excess Protection and Indemnity underwriters refused to pay any of the monies owed under the excess policy. As a result, plaintiffs claim to have been forced to pay out of their own pockets $9,865.03 to Chevron in order to effect the settlement and $7,500 in legal expenses and fees. They have brought this suit against defendants for reimbursement and for statutory penalties.

Defendants deny any liability for plaintiffs' loss and contend that the plaintiffs' failure to settle within the limits of the primary policy was arbitrary, capricious and unreasonable.

Trial was before the Court sitting without a jury. Having heard the evidence and considered the briefs and argument of counsel, the Court makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. On April 26, 1973, the M/V STONEWALL JACKSON struck and damaged a production platform in the Gulf of Mexico owned by Chevron. Chevron's damages amounted to at least the $118,227.18 detailed in its list of damages.

2. On May 3, 1973, counsel for OLI recommended to its primary insurer, Market Faculties/Houston, Inc. ("Market Faculties"), that a reserve of $85,000 be established to cover potential liability from the collision. A reserve of $85,000 was established and maintained through the February, 1975 trial. Primary coverage was provided in Policy No. XCOM 12113 ("Primary Policy").¹

3. Arkwright-Boston Manufacturers Mutual Insurance Company ("ABM") (defendants herein), the excess Protection and Indemnity underwriter for OLI, was notified of the claim by August 2, 1974. Excess coverage was provided by ABM in Policy GCM No. 5150 ("Excess Policy").²

4. Both Market Faculties and ABM relied on OLI to conduct negotiations with Chevron prior to the February, 1975 trial.

5. Chevron won the trial as to liability. Chevron Oil Company v. Offshore General, Inc., et al., Civil Action No. 74-863 (E.D.La. June 4, 1975).

6. Before the trial as to quantum, Chevron agreed to settle its claims against OLI for $108,000.

7. In order to effect the settlement, Market Faculties tendered the $100,000 due within the Primary Policy limits.

8. ABM refused to pay the excess portion of the proposed compromise.

9. OLI paid Chevron the $8,000 difference in order to take advantage of the settlement offer.³

10. ABM refused to pay OLI for any legal fees associated with its defense against Chevron's claim.

CONCLUSIONS OF LAW

1. OLI is the proper party to sue ABM for its alleged failure to pay the excess portion of the proposed compromise. If, as plaintiffs argue, ABM's failure to pay Chevron under the terms of the Excess Policy was wrongful, the injury was done to Offshore General, Inc. and Offshore Logistics Services, Inc. as insureds under the Excess Policy. It is undisputed that OLI is the legal successor to both Offshore General, Inc. and Offshore Logistics Services, Inc.⁴ The assets and liabilities of merging corporations are the responsibility of the surviving corporation. Travis-Edwards, Inc. v. Texas-Edwards, Inc., 299 So.2d 389, 393 (2nd Cir.), writ of review denied, 302 So.2d 36 (1974); LSA-R.S. 12:115(D), (E). OLI has the right to sue for monies that may be owed its corporate predecessors.

2. ABM claims that the notice it received on August 2, 1974 was over a year late and that it was prejudiced by such late receipt.

Under the Excess Policy,

"8. The Assured, upon knowledge of any occurrence likely to give rise to a claim hereunder, shall give immediate written notice thereof to the Company." Excess Policy, ¶ 8.

In this circuit, "immediate" has been interpreted to mean "reasonable." See Nat'l Surety Co. v. Wells, 287 F.2d 102, 106 (5th Cir. 1961) ("transmission within a reasonable time considering all of the circumstances"); Standard Accident Ins. Co. v. Alexander, Inc., 103 F.2d 500, 501 (5th Cir. 1939) ("within a reasonable time"); Reagan v. Mid-Continent Underwriters, Inc., 150 So.2d 75, 79 (4th Cir.), writ refused, 244 La. 220, 151 So.2d 692 (1963) ("within a reasonable time or without unnecessary delay and admits of a reasonable excuse for some delay"). But there are limits to how far words will stretch. Notice was given to ABM four months after suit was filed and fifteen months after the original accident. The reserve had been established less than a month after the accident. While it is possible that until suit was filed OLI believed that the claim could be settled for less than $100,000, the Court finds that notice was not given to ABM within a reasonable time.

However, even if the notice is not given within a reasonable time, the burden is on ABM to show that it suffered some prejudice as a result.

"The function of the notice requirements is simply to prevent the insurer from being prejudiced, not to provide a technical escape-hatch by which to deny coverage in the absence of prejudice nor to evade the fundamental protective purpose of the insurance contract to assure the insured and the general public that liability claims will be paid up to the policy limits for which premiums were collected. Therefore, unless the insurer is actually prejudiced by the insured's failure to give notice immediately, the insurer cannot defeat its liability under the policy because of the non-prejudicial failure of its insured to give immediate notice of an accident or claim as stipulated by a policy provision." Miller v. Marcantel, 221 So.2d 557, 559 (3rd Cir. 1969).

The record does not support a finding of prejudice. There has been no "loss of evidence or any difficulty raised up in the way of preparing a defense." Young v. Travelers Ins. Co., 119 F.2d 877, 880 (5th Cir. 1941). Although, "speaking in terms of physical time, the notice could reasonably have been given sooner than it was," the record indicates that ABM never complained of any difficulty in locating witnesses, examining data, etc. because of the delay. Id. While OLI might consider changing its practices in order to insure prompt notice to its excess carriers, this Court refuses to find prejudice when defendants did not even attempt to prove that the notice given was "inadequate to permit ABM to investigate and exercise, if it so elected, the rights reserved to it under the policy." Greyhound Corp. v. Excess Ins. Co. of America, 233 F.2d 630, 636 (5th Cir. 1956). See Hague v. Liberty Mutual Ins. Co., 571 F.2d 262, 267 (5th Cir. 1978); Offshore Logistics Services v. Mutual Marine Offices, Inc., 462 F.Supp. 485, 495 (E.D.La. 1978), modified in part, December 14, 1978 and February 21, 1979 (unpublished).

3. The collision between the M/V STONEWALL JACKSON and Chevron's fixed platform was covered by the Primary Policy.⁵ ABM contends that the Excess Policy, however, did not cover the collision.

Under the Excess Policy ABM contracted "to indemnify the Assured for all sums which the Assured shall become legally obligated to pay for liabilities described in and insured against under the Protection and Indemnity policies specified in the schedule of underlying insurances . . .." Excess Policy, ¶ 2(a).

The Primary Policy is listed on the "Schedule of Underlying Insurance." Excess Policy, ¶ 2. The Court finds that the Excess Policy was meant to cover the same liabilities that were covered by the Primary Policy. The collision, therefore, was covered by ABM's Excess Policy.

4. ABM's primary defense to payment is that OLI arbitrarily and in bad faith failed to settle the claim within the limits of the Primary Policy. Ward v. State Farm Mutual Automobile Ins. Co., 539 F.2d 1044, 1049 (5th Cir. 1976); Cousins v. State Farm Mutual Automobile Ins. Co., 294 So.2d 272, 275-6 (1st Cir. 1974).

Both the Fifth Circuit and Louisiana have long used a "good faith" test in determining insurer accountability for failure to settle.⁶

"Under Louisiana law an insurer may be liable for an excess judgment against its insured if it is found that the insurer's failure to settle within policy limits was arbitrary or in bad faith." Ward, supra at 1049, using the language of Cousins, supra, 294 So.2d at 275.⁷

See also Manieri v. Horace Mann Mut. Ins. Co., 350 So.2d 1247, 1248 (La.App. 4th Cir. 1977); Younger v. Lumbermans Mut. Cas. Co., 174 So.2d 672, 674-5 (La.App. 3rd Cir. 1965) (citing Appleman, Insurance Law & Practice).⁸

On the other hand,

"A liability insurer is not required to settle a claim against its insured within the policy limits, under penalty of absolute liability for any excess judgment which may be rendered against the insured." Champion v. Farm Bureau Ins. Co., 352 So.2d 737, 740 (La.App. 3rd Cir. 1977), writ refused 354 So.2d 1050 (1978).

Determining what constitutes bad faith "depends on the facts and circumstances of each case . . ." including "whether the proposed settlements are rejected conscientiously in terms of deliberate judgment evaluation rather than for inadequate or no reason." Id.⁹ Among the factors to be...