Parfait v. Central Towing, Inc.

• Decision Date: 05 November 1981
• Docket Number: No. 81-3010,81-3010
• Citation: 660 F.2d 608
• Parties: Hilton J. PARFAIT, Plaintiff, v. CENTRAL TOWING, INC., Defendant-Appellee Cross-Appellant v. TRAVELERS INSURANCE CO., Third Party Defendant Appellant Cross-Appellee and American Motorists Insurance Co., Third Party Defendant-Appellee Cross- Appellant. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 608

660 F.2d 608

Hilton J. PARFAIT, Plaintiff, v. CENTRAL TOWING, INC., Defendant-Appellee Cross-Appellant v. TRAVELERS INSURANCE CO., Third Party Defendant Appellant Cross-Appellee and American Motorists Insurance Co., Third Party

Defendant-Appellee Cross- Appellant.

No. 81-3010

Summary Calendar.

United States Court of Appeals Fifth Circuit.

Nov. 5, 1981.

Rehearing and Rehearing En Banc Denied Feb. 17, 1982.

Robert M. Contois, Jr., New Orleans, La., for plaintiff.

Phelps, Dunbar, Marks, Claverie, Edward F. LeBreton, III, New Orleans, La., for Central Towing.

Terriberry, Carroll, Yancey & Farrell, David B. Lawton, Rufus C. Harris, Jr., New Orleans, La., for American Motorists Ins. Co.

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

Before BROWN, POLITZ, and WILLIAMS, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

The push boat RAYCO 2, the central figure in this lawsuit, was constructed in 1975 by Rayco Shipbuilders and Repairers, Inc. Central Towing, Inc., a small corporation formed by Raymond Acosta, a principal of Rayco Shipbuilders, for the sole purpose of owning and operating the boat, took possession of RAYCO 2. Acosta was the sole shareholder, RAYCO 2 was the sole asset of Central Towing.

Central Towing purchased primary protection and indemnity insurance for RAYCO 2 from the Travelers Insurance Company (Travelers) through Harlan of Louisiana, Inc., an insurance agent, and obtained excess coverage from American Motorists Insurance Company through Harlan and Gulfcoast Marine, Inc., a surplus line broker.

The policies were issued on printed forms provided by the insurers. The Travelers' primary policy contained the following provision (lines 108-110):

This insurance shall be void in case the vessel named herein, or any part thereof, shall be sold, transferred or mortgaged, or if there be any change of management or charter of the vessel, or if this policy be assigned or pledged, without the previous consent in writing of this company.

(emphasis added)

RAYCO 2 operated as a tug boat pushing oil and grain barges in the Mississippi River and Gulf Intercoastal Waterway. Its three-man crew was made up of Anthony Leco, captain, plaintiff, Hilton Parfait, mate, and Elton Parfait, Hilton's son, deck hand.

In November of 1975, Johnny and Tony Callais approached Acosta with the intention of purchasing a push boat from Rayco Shipbuilders. Explaining that there would be substantial delay in getting a new boat, Acosta offered to sell them RAYCO 2. The parties began negotiations, a process which lasted for about one month. During the discussions, the Callais' accountant advised them that they could obtain a tax advantage by purchasing the corporation, Central Towing, rather than just the vessel.

Negotiations came to a fruitful conclusion. On December 11, 1975, Acosta sold all of the stock of Central Towing to the Callaises. He resigned as president and director of the corporation. An associate, Frank Deroche, resigned as secretary-treasurer and director. The new stockholders elected Johnny Callais president and Tony Callais secretary and treasurer. They assumed the responsibility of overseeing the operation of RAYCO 2 on behalf of Central Towing.

Acosta arranged for delivery of all the corporate records to the Callaises. That same day, they went to the American Bank in Houma, signed the mortgage note on the boat, and released Acosta as the principal obligor. They also went to the Coast Guard to complete the proper forms to show their status in the owning corporation. ¹ On that or the following day, the Callaises went to the boat and informed the crew that they had purchased it and that the crew would thereafter take its orders from them.

Prior to the sale, Acosta, Deroche, and Preston Blanchard, Acosta's father-in-law, handled the affairs of RAYCO 2. Following the sale, those individuals had nothing further to do with either the operation or management of the vessel. The port captain duties that Blanchard previously handled were assumed by Johnny Callais, while financial and business affairs were taken over by the Callaises and their accountant.

Central Towing had previously obtained work through the services of a New Orleans broker. After the sale, the Callaises undertook personally to obtain work for the tug. They got a commitment from Gulf Rivers to move grain barges from New Orleans to Mobile, Alabama.

On December 14, 1975, just three days after the sale of stock of Central Towing, plaintiff Parfait sustained a serious personal injury on the barges in the tow of RAYCO 2 while en route to Mobile. The next day, Tony Callais called the insurance agent to report the accident. That call was the first notice to the agent that a sale had taken place.

Travelers and American Motorists denied coverage on the basis that the internal changes in Central Towing amounted to a change in management of RAYCO 2 as specifically prohibited by the policy.

Central Towing had to defend itself on a claim filed by Parfait and then prosecute the present claim for coverage against Travelers and American Motorists. It paid $9,612.35 in maintenance and wages to Parfait. Following the arrest of RAYCO 2 by Parfait, Central Towing borrowed $125,000 to finance a letter of credit in Parfait's favor in order to obtain release of the vessel. On the morning of trial, Parfait and Central Towing settled for the sum of $150,000.

Central Towing filed a cross-claim against Travelers and American Motorists, asserting that it was entitled to full indemnity for the judgment plus attorney's fees and penalties as provided by the Louisiana wrongful denial of coverage statute, La.R.S. 22:658.

Following Central Towing's settlement with Parfait, the case proceeded to trial solely on the issue of the cross-claim. The District Judge gave the jury a single interrogatory asking whether a change of management of the vessel had occurred. The jury, finding that no such change had taken place, returned a verdict in favor of Central Towing.

The Court then held a further hearing concerning Central Towing's damages and its right to recover under the Louisiana wrongful denial of coverage statute. The Court entered judgment in favor of Central Towing against Travelers in the amount of $187,173.39. Travelers and American Motorists appealed. Although sympathetic to the plight of Central Towing, whose new ownership and management would likely have been acceptable to both underwriters on application, we have no alternative but to reverse.

I.

Counsel for both parties have overwhelmed us with citations to cases and principles of insurance law. Their efforts to address every possible question have all but obscured the one, true issue in this case: was the sale of all of Central Towing's stock to the Callaises and the immediate and complete change in directors and executive officers a "change of management" of the vessel so as to void the insurance contract?

We can accept the suggestion that we interpret an insurance policy in accordance with the understanding of the ordinary man. ² Likewise, we construe any ambiguities which arise against the insurer, since it drafted the forms in question. ³ Try as we might, however, we can find no ambiguities.

The language of the contract is plain: a change of management of the vessel voids the contract unless Travelers has agreed in advance to the change. What does that mean? Certainly it does not mean that any change in the management of the corporation, however slight, renders the contract void. If one of the original principals had died or retired, necessitating some reshuffling of positions in Central Towing, no one could argue that those changes abrogated the insurance contract. Nor is it correct to assume that because 482,600 shares of Texaco were traded on the New York Stock Exchange on September 23, 1981, ⁴ the management of Texaco has changed. Such a view would indeed be "absurd". Defendant-appellee's brief at 20.

But the changes were not minor. The entire corporation, literally, changed hands. Nor is the analogy to Texaco at all helpful. As a result of the sale of stock, RAYCO 2 changed hands just as completely and just as surely as if the Callaises...