Schexnider v. McDermott Intern., Inc., Civ. A. No. 81-2358-LC.

• Decision Date: 07 July 1988
• Docket Number: Civ. A. No. 81-2358-LC.
• Citation: 688 F. Supp. 234
• Parties: John A. SCHEXNIDER v. McDERMOTT INTERNATIONAL, INC., et al.
• Court: U.S. District Court — Western District of Louisiana

688 F. Supp. 234

John A. SCHEXNIDER v. McDERMOTT INTERNATIONAL, INC., et al.

Civ. A. No. 81-2358-LC.

United States District Court, W.D. Louisiana, Lake Charles Division.

July 7, 1988.

Joseph J. Weigand, Jr., Weigand, Weigand & Meyer, Houma, La., Nick Pizzolatto, Jr., Caskey & Pizzolatto, Lake Charles, La., for plaintiff.

James B. Doyle, Henry E. Yoes, III, Woodley Barnett, Williams and Fenet, Lake Charles, La., for defendants.

MEMORANDUM RULING

VERON, District Judge.

In this slip and fall case of far-reaching implications, the court is called upon to decide important issues regarding the Louisiana Direct Action Statute¹ on a Motion for Summary Judgment filed by defendant Insurance Company of North America (INA).

I. BACKGROUND

The plaintiff, John A. Schexnider, is an American citizen domiciled in Lake Charles, Louisiana. He alleges an injury occurring on April 21, 1981 while serving as a crew-member of the Derrick Barge 21, an Australian flag vessel which was performing work in the Java Sea off the coast of Indonesia. Schexnider was employed at the time by Panamanian corporation McDermott International, Inc. pursuant to an employment contract entered in New Orleans on March 6, 1981 which called for him to work "in the Southeast Asia Area."

As defendants, the plaintiff has named his employer, McDermott International, Inc.; the vessel charterer, McDermott Southeast Asia, Pte., Ltd.; the vessel owner, McDermott Australia, Ltd.; the parent corporation, McDermott, Inc.; and INA as liability insurer of "all McDermott companies."

In Schexnider v. McDermott,² the Fifth Circuit affirmed this court's holding that Australian law, rather than the Jones Act, applies to the alleged tort. In the same opinion the Fifth Circuit also reversed this court's decision that the doctrine of forum non conveniens was applicable and remanded the case with instructions to retain jurisdiction and to apply Australian law to Schexnider's maritime claim.³

II. THE DIRECT ACTION CLAIM

INA advances two arguments for summary judgment in its favor. The first argument is that the Direct Action Statute does not apply on its face because the accident did not occur in Louisiana, and the liability policy was neither issued nor delivered in Louisiana. The second argument is that whether or not the statute purports to apply, this case is governed by Australian law which grants no direct action and consequently the plaintiff cannot avail himself of the Louisiana statute.

A. Facial Application of the Direct Action Statute

On the face of the statute creating it, the Louisiana direct action is available to a claimant when the policy was issued or delivered in Louisiana, or the accident or injury occurred in Louisiana.⁴ In this case the accident and injury occurred in the Java Sea around the globe from Louisiana, and the INA policy was issued outside Louisiana, probably at INA's Pennsylvania headquarters. The bone of contention is whether the policy was delivered in Texas or in Louisiana. The material facts are not in dispute.

The policy in question pertained to the period from April 1, 1981 to April 1, 1982. Its cover sheet gives the name of insured as being "McDermott Incorporated, et al" having a New Orleans address. It is a "standard worker's compensation and employer's liability policy" covering broadly all employees in offshore activity. The "et al" refers to one hundred and one subsidiaries, affiliates, joint ventures, divisions, branches and employee benefit plans worldwide in the McDermott, Inc. family of companies whose general headquarters is in New Orleans.

The original physical copy of the policy was initially sent to Adams & Porter Associates, Inc. of Houston, McDermott, Inc.'s longtime insurance agent. Pursuant to the instructions of J. Burns Smith, who was head of Risk Management for the entire McDermott organization in New Orleans, James P. Glotfelty of Adams & Porter sent or took the original policy to the office of Edward M. Nelson, Jr. at Hudson Engineering Corporation in Houston. Hudson Engineering is one of the McDermott subsidiaries covered by the policy.

Nelson, whose job entailed no insurance or risk matters, had been notified by Smith in New Orleans that Nelson would be receiving some McDermott liability policies for safekeeping. Pursuant to further instructions of Smith, by a letter dated July 3, 1980, Nelson promptly forwarded photocopies of the policies to McDermott's Corporate Insurance Risk Management Office in New Orleans, where they were to be used, and locked the originals in his credenza. Smith's letter explained that "it has been determined to be in the Corporation's interest to take possession of Liability-oriented insurance policies, binders, and endorsements in the Houston offices of McDermott." A memorandum of July 21, 1982 (i.e., after the period of the policy concerned here) from Smith to nine individuals, including Nelson, continues this procedure and clarifies its aim, which was "that those policies having liability coverages not be issued or delivered in Louisiana."⁵

Smith's instructions to Glotfelty, Nelson and others were given on the advice of Arden J. Lea, corporate counsel for McDermott, Inc. Lea's purpose in giving that advice was to avoid the application of the Louisiana Direct Action Statute in those instances where the accident did not occur in Louisiana. His two primary concerns regarding the statute were prejudice to McDermott's ability to limit vessel liability under then-existing law⁶ and the prospect of a forum non conveniens defense being defeated on the grounds that the suit, being a direct action peculiar to a few jurisdictions, could not be brought elsewhere. Therefore, he recommended to Smith and to Assistant General Counsel Frank Allen that McDermott policies be delivered to Hudson Engineering in Houston and that Babcock & Wilcox policies be delivered in that subsidiary's Barberton, Ohio office.

The plaintiff contends that under these facts the policy was, in legal effect, delivered in New Orleans, Louisiana and that the Texas "delivery" was nothing more than a hollow and ineffectual subterfuge.

Our research reveals but a single case where the "constructive delivery" argument was made, namely Signal Oil & Gas Co. v. Barge W-701.⁷ Ironically McDermott, as J. Ray McDermott and Company, Inc., was on the other side of the argument in that case. The dispute involved an off-shore pipeline rupture caused by a McDermott subcontractor. McDermott had agreed to indemnify its principals, who owned the pipeline, but the subcontractor, Williams-McWilliams Company, Inc., had not agreed to indemnify McDermott. Williams-McWillaims, the only negligent party, succeeded in limiting its liability to the $450,000 value of the tug whose anchor ruptured the pipeline. McDermott's indemnification liability was in excess of a million dollars.

At that time, limitation of liability was held a strictly personal defense unavailable to the insurer in a direct action.⁸ Williams-McWilliams had primary and first excess policies totalling $500,000 which were amenable to direct action since they had been delivered directly to that Louisiana-based company.

Williams-McWilliams was also covered, as a subsidiary of a subsidiary of Zapata Norness, by a five million dollar umbrella liability policy issued and delivered to the parent corporation at its Houston headquarters and covering dozens of Zapata companies and divisions worldwide. McDermott's argument was that since the umbrella policy expressly continued the coverages of the first two Williams-McWillaims policies which were delivered in Louisiana, it too was "constructively delivered" in Louisiana. Both the district court and the court of appeal rejected the argument out of hand as having no basis in Louisiana law.⁹ That holding did justice because the delivery of the umbrella policy to the parent Zapata Norness in Texas was wholly downstream in effect vis-a-vis the subsidiaries. The policy was delivered to the location from which it was procured and where it would be administered, that is, the parent corporate headquarters.

It is the reverse in the present case. Unlike the Zapata umbrella policy, the Houston delivery here was nothing other than a fiction. As soon as it was received in Houston, copies were made to be sent to and used in New Orleans at McDermott's Corporate Insurance Risk Management Office which oversaw not only McDermott, Inc.'s claims but also the major claims against McDermott subsidiaries the world over, while the originals were locked in a credenza and forgotten.¹⁰ The Houston delivery here, unlike that in Signal Oil, was to be wholly upstream in effect, and was orchestrated specifically to avoid the Direct Action Statute despite the fact that the coverage was procured by and the policies to be used by the parent company in Louisiana.

Under Louisiana law, a transaction which is intended to have no effect between the parties is classified as an absolute simulation.¹¹ A declaratory action, called an action in declaration of simulation, is allowed to third persons, typically forced heirs or creditors, whose interests are impaired by the sham.¹² Juridical facts (events having prescribed legal effects) deserve the same scrutiny as juridical acts such as contracts, when they are charades brought about solely for legal effects as to third persons and have no independent significance.

This plaintiff alleging injury by the fault of INA's insureds has standing to assert the simulation in fraud of his rights under the Direct Action Statute. So far as the evidence shows, it made no difference as between McDermott and INA whether the policy was delivered in Houston or New Orleans. That the sole purpose of the Houston charade was to defeat the rights of direct action plaintiffs is clear. While there is no evidence that INA knowingly participated in the hoax, neither is there any indication that INA placed any special reliance on this...