OFFSHORE LOGISTICS SER. v. MUT. MARINE OFFICE

• Decision Date: 20 August 1981
• Docket Number: 75-1036.,Civ. A. No. 75-1021
• Parties: OFFSHORE LOGISTICS SERVICES, INC., Offshore Logistics, Inc. and Gulf Coast Marine, Inc. v. MUTUAL MARINE OFFICE, INC., and Arkwright-Boston Manufacturers Mutual Insurance Company. SOUTHERN NATURAL GAS COMPANY v. ARKWRIGHT-BOSTON MANUFACTURERS MUTUAL INSURANCE COMPANY, and Mutual Marine Office, Inc.
• Court: U.S. District Court — Eastern District of Louisiana

520 F. Supp. 237

OFFSHORE LOGISTICS SERVICES, INC., Offshore Logistics, Inc. and Gulf Coast Marine, Inc. v. MUTUAL MARINE OFFICE, INC., and Arkwright-Boston Manufacturers Mutual Insurance Company.

SOUTHERN NATURAL GAS COMPANY v. ARKWRIGHT-BOSTON MANUFACTURERS MUTUAL INSURANCE COMPANY, and Mutual Marine Office, Inc.

Civ. A. Nos. 75-1021, 75-1036.

United States District Court, E. D. Louisiana.

August 20, 1981.

James H. Roussel, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, for plaintiff Offshore Logistics.

Charles E. Lugenbuhl, Don Richard and James H. Daigle, Lemle, Kelleher, Kohlmeyer & Matthews, New Orleans, La., for Southern Natural Gas.

Donald L. King, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for defendant Mut. Marine Office, Inc. and Arkwright-Boston Manufacturers Mut. Ins. Co.

MEMORANDUM AND ORDER

SEAR, District Judge.

Defendant Arkwright-Boston Manufacturers Mutual Insurance Company ("Arkwright-Boston") moves for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b).¹ In deciding the motion, I am once again presented with the question of under what circumstances may an insurer be penalized under Louisiana Revised Statute Annotated 22:658 (West 1978)² for refusing to pay a claim under a policy of insurance. Pretermitting that question, however, is the issue of whether I can grant relief from the judgment in this matter notwithstanding the fact that it was affirmed by the United States Court of Appeals for the Fifth Circuit.

The facts giving rise to these cases have been fully recounted elsewhere;³ for purposes of this motion, a summary will be sufficient. Offshore Logistics Services, Inc., and Offshore General, Inc. ("the Offshore group") and Southern Natural Gas Company ("Southern") were sued by a Southern crane operator for injuries he sustained during a crew change at an offshore oil rig. The Offshore group owned and operated the crew boat involved in the incident. Before the case was tried, the plaintiff agreed to settle his claim for $160,000. Southern and Offshore group's primary insurer contributed $100,000, the maximum amount covered by the policy, to the settlement fund, and the Offshore group looked to its excess insurer, Arkwright-Boston, for its share of the balance. Although Arkwright-Boston agreed that the settlement amount was reasonable, it refused to pay, contending that because it received late notice of the claim, it was not liable under the policy.⁴ In order to preserve the settlement, the Offshore group borrowed $30,000 from its insurance broker, Gulf Coast Marine, Inc. ("Gulf Coast"), in return for an assignment of its right of reimbursement against Arkwright-Boston. The settlement was consummated, and the Offshore group and Gulf Coast then sued Arkwright-Boston to recover the $30,000 and attorney's fees as provided by the policy. Alleging that Arkwright-Boston's refusal to pay was arbitrary, capricious and without probable cause, the Offshore group and Gulf Coast also sought the penalty and attorney's fees authorized by section 658.

In an opinion entered on July 20, 1978, and reported at 462 F.Supp. 485, I found that although the company had received late notice of the claim, it had not been thereby prejudiced. Since under Louisiana law an insurer cannot refuse to pay under its policy unless the late notice of a claim results in actual prejudice, Travelers Indemnity Co. v. Gulf Weighing Corp., 352 F.Supp. 335 (E.D.La.1972); Heimbaugh v. Federal Insurance Co., 281 So.2d 839 (La. App.1973); Miller v. Marcantel, 221 So.2d 557 (La.App.1969), and Arkwright-Boston had not "proved or even alleged prejudice," I held that the company was liable for the $30,000. I did not award attorney's fees under the policy, however. 462 F.Supp. at 495. As for the penalty and attorney's fees sought under section 658, I concluded that the statute did not apply:

The failure to pay the Offshore group's claim was not in my estimation arbitrary because a very real question existed concerning the late notice issue. Defendant's failure to pay the Offshore group cannot be deemed capricious when defendant sincerely believed it had a legal defense to the Offshore group's claim — a legal defense which was not patently frivolous.

Id. at 496 (emphasis in original). Accordingly, I denied recovery under section 658 and entered judgment in accordance with my opinion.

The Offshore group and Gulf Coast then moved to amend the judgment, contending that I had erred in declining to award attorney's fees under the policy and the penalty and attorney's fees under section 658. In an opinion entered on December 15, 1978, I granted the motion in all respects. On the section 658 issue, I held that even though Arkwright-Boston had acted in good faith, under Louisiana law its misinterpretation of the policy's coverage was enough to subject it to the statutory penalty. After my opinion was announced, Arkwright-Boston moved for reconsideration, but I denied its motion in an order entered on January 26, 1979. Soon thereafter, on February 5, 1979, Arkwright-Boston noticed an appeal from my order.

Then, acting sua sponte, I entered an opinion on February 22, 1979, in which, after thoroughly reviewing the applicable Louisiana jurisprudence, I concluded that I had been right the first time in not penalizing Arkwright-Boston under section 658. Although I recognized there was authority for treating an insurer's reasonable misinterpretation of its policy as "arbitrary" action under section 658, see, e. g., Gulf Oil Corp. v. Mobile Drilling Barge or Vessel known as Margaret, 441 F.Supp. 1 (E.D.La. 1975), aff'd, 565 F.2d 958 (5th Cir.1978); Reichert v. Continental Insurance Co., 290 So.2d 730, 734-35 (La.App.1971), there was also authority supporting what I believed to be the better view that when an insurer acts reasonably though erroneously in reading its policy, it should not be penalized for acting upon that interpretation by withholding payment on a claim. Halford v. Republic Underwriters Insurance Co., 348 So.2d 87 (La.App.1977); Cotlar v. Gulf Insurance Co., 318 So.2d 923 (La.App.1975). Reiterating my finding that Arkwright-Boston had refused to pay the Offshore group's claim because of its "sincere belief that it had a valid defense," Opinion at 4, I amended the judgment to deny any penalty and attorney's fees under section 658.

After I determined an appropriate award of attorney's fees due under the policy, a final, amended judgment was entered in the matter on November 2, 1979. Both sides noticed appeals from this judgment.

On February 26, 1981, the Court of Appeals for the Fifth Circuit affirmed, without opinion, the judgment entered on July 24, 1978, as amended by my decision of December 15, 1978. Offshore Logistics Services, Inc. v. Mutual Marine Office, Inc., 640 F.2d 382 (5th Cir., 1981). As for the appeals taken from the November 2, 1979, judgment, the Fifth Circuit determined that once Arkwright-Boston had noticed its appeal on February 5, 1979, I lost jurisdiction to enter any further orders on the issue of statutory penalties. Accordingly, my February 22 order was a nullity; the court of appeals vacated it and dismissed the appeals filed by the parties. Offshore Logistics Services, Inc. v. Mutual Marine Office, Inc., 639 F.2d 1168 (5th Cir. 1981). The court noted that it was leaving the December 15 order imposing statutory penalties as the final disposition of the section 658 issue, but found no injustice in this result, since

our determination of Louisiana law, more fully explained in another case decided today, would have compelled the holding that Arkwright-Boston was liable for the penalty and attorney's fees under section 658, though for reasons different from those relied upon by the district court in his January 26, 1979, order denying reconsideration of the December 15 ruling.

639 F.2d at 1170-71 (footnote omitted).

The other case cited by the court of appeals is Offshore Logistics Services, Inc. v. Arkwright-Boston Manufacturers Mutual Insurance Co., 639 F.2d 1142 (5th Cir. 1981) (coincidentally involving the same parties as the instant matter but arising from a different incident; for the sake of clarity, I shall refer to it as "the companion case"). In the companion case, statutory penalties under section 658 were imposed against an insurer who had refused to contribute to a settlement negotiated by its insured. In its decision, the district court relied, inter alia, on Gulf Oil Corp. v. Mobile Drilling Barge or Vessel, etc., supra, as authority that even an innocent misinterpretation of an insurance policy renders the insurer subject to section 658. On appeal, the Fifth Circuit acknowledged that a recent Louisiana Supreme Court decision, Rudloff v. Louisiana Health Services & Indemnity Corp., 385 So.2d 767 (La.1980), had apparently overruled cases like Gulf Oil. Rudloff held that an insurer who refused payment on a claim because of its good faith reliance on an exclusion clause in the policy could not be penalized under Louisiana Revised Statute Annotated 22:657, an insurance penalty statute similar to section 658,⁵ even though another statute required that the policy cover the claim. In discussing Rudloff, the Fifth Circuit noted that it could not "predict the extent of Rudloff on the previously existing rule that an erroneous, though reasonable interpretation of the policy by an insurer subjects the insurer to the statutory penalty and attorney's fees." 639 F.2d at 1145. However, it also noted that this rule was "in doubt even before Rudloff," and observed that while Rudloff dealt with section 657, the opinion cited with approval a case dealing with section 658, Cotlar v. Gulf Insurance Co., supra. Id. Without expressly deciding whether Louisiana law was now different because of Rudloff, the court of appeals nevertheless affirmed the district court, ruling that the lower court had made a factual finding that the insurer's refusal to pay...