Seacor Holdings Inc. v. Commonwealth Ins. Co.

• Decision Date: 10 March 2011
• Docket Number: No. 10–30020.,10–30020.
• Parties: SEACOR HOLDINGS, INC., Plaintiff–Appellee/Cross–Appellant,v.COMMONWEALTH INSURANCE COMPANY, Defendant–Appellant/Cross–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

635 F.3d 675

SEACOR HOLDINGS, INC., Plaintiff–Appellee/Cross–Appellant,
v.
COMMONWEALTH INSURANCE COMPANY, Defendant–Appellant/Cross–Appellee.

No. 10–30020.

United States Court of Appeals, Fifth Circuit.

March 10, 2011.

[635 F.3d 677]

Thomas Allen Vickers (argued), Scott A. Ruksakiati, Vanek, Vickers, & Masini, P.C., Chicago, IL, Rufus Carrollton Harris, III, Harris & Rufty, L.L.C., New Orleans, LA, for Plaintiff–Appellee/Cross–Appellant.Benjamin Alan Fleischner, Jared T. Greisman, White, Fleischner & Fino, L.L.P., New York City, Paul Darren Palermo (argued), John Michael Herke, Spyridon, Palermo & Dornan, L.L.C., Metairie, LA, for Defendant–Appellant/Cross–Appellee.Appeals from the United States District Court for the Eastern District of Louisiana.Before JOLLY, HIGGINBOTHAM and SMITH, Circuit Judges.PATRICK E. HIGGINBOTHAM, Circuit Judge:

In this diversity case, Commonwealth Insurance Company appeals a grant of partial summary judgment in favor of SEACOR Holdings Inc. on an insurance contract interpretation question. The district court also granted summary judgment in favor of Commonwealth with regard to SEACOR's bad faith claims, which SEACOR now cross-appeals. We AFFIRM both judgments.

I.

SEACOR is a publicly traded Delaware corporation that owns and operates marine and aviation assets servicing the transportation and oil-and-gas industries worldwide. Commonwealth, a Canadian corporation, furnished SEACOR with an all-risk property insurance policy for the 2005 calendar year. The matter before us involves two interweaving factual backgrounds—the first for the insurance contract interpretation and the second for bad faith claims.

A.

SEACOR's all-risk policy includes a provision denoting various deductibles contingent on the source of the damage.

[635 F.3d 678]

Each occurrence resulting in a claim for loss shall be adjusted separately and [Commonwealth]'s liability shall be limited to that amount by which the loss exceeds the deductible amounts shown hereunder, up to the applicable Limit of Liability.

...

(c) In respect of loss caused directly by the peril of Windstorm, as defined: $25,000, except

(d) In respect of loss caused directly by the peril of a “Named Windstorm”, as defined, 3% of the total insurable values ... subject to a minimum of $50,000 per occurrence

(e) In respect of loss caused directly by the peril of Flood, as defined: $25,000; except Flood Zones A and V, excess maximum National Flood Insurance Program (NFIP) limits available....

SEACOR and Commonwealth disagree as to whether damages from Hurricanes Katrina and Rita should be covered using only the Named Windstorm deductible or using both the Named Windstorm and Flood deductible. The parties further dispute the application of the policy's limit of liability provision, which reads:

The Company's liability for the cumulative total of adjusted net claims resulting from any one loss, casualty, disaster or occurrence (including all costs, fees, charges and expenses) shall not exceed $10,000,000.

Without increasing the policy limit, it is agreed that:

(a) Loss caused by the peril of Flood, as defined, is subject to an Annual Aggregate Limit of Five Million Dollars ($5,000,000);....

Hurricanes Katrina and Rita¹ significantly damaged SEACOR's property, leading SEACOR to seek recovery of its losses under the Commonwealth insurance plan. From the start of the adjustment process, the parties agree they worked diligently and cooperatively to determine the scope of damage and costs to repair, with Commonwealth making an advance payment to SEACOR of $1.5 million. The parties promptly resolved the loss values and settled all contractual issues except for the legal questions of which deductible and liability limit applied. Commonwealth has now paid SEACOR over $4 million for undisputed claims. SEACOR contends that Commonwealth would owe an additional $3.2 million if SEACOR's interpretation of the contract is correct.

Despite their collegiality in determining loss values, early on the parties disputed which deductibles should apply to the claims. Recognizing this tension, SEACOR filed a declaratory judgment action in August 2006 “with regard to whether the loss or damage suffered by SEACOR was caused by Windstorm, Named Windstorm or Flood, as defined and understood under the Commonwealth” policy. SEACOR asserted that all of its losses resulted from a Named Windstorm.² In contrast, Commonwealth argued Hurricane Katrina was a “multi-peril occurrence” that required the use of deductibles and liability limits for both Flood and Named Windstorm.

The policy defined Named Windstorm as “any Windstorm ... or any atmospheric disturbance which have [sic] been declared

[635 F.3d 679]

to be a tropical storm and/or hurricane by the National Weather Service or the National Hurricane Center.” Notably, this definition included “atmospheric disturbances” declared to be hurricanes, regardless of whether those disturbances met the policy's definitional requirements of a Windstorm. For Windstorm, the policy's definition section stated: “Windstorm shall constitute a single claim hereunder provided, if more than one windstorm shall occur within any period of seventy-two (72) hours during the term of this Policy, such windstorm shall be deemed to be a single windstorm within the meaning thereof.” Lastly, Flood was defined to mean “waves, tide or tidal water, inundation, rainfall and/or resultant runoff, and the rising (including overflowing or breakage of boundaries) of lakes, ponds, reservoirs, rivers, harbors, streams, or similar bodies of water whether wind-driven or not.” No separate provision in the policy denoted whether multiple deductibles could apply.

On opposing motions for partial summary judgment, the district court concluded that only the Named Windstorm deductible applied. Further, the court found the Flood liability limit did not apply because the Named Windstorm's percentage-based deductible structure already included the possibility of greater damages—and a correspondingly higher deductible—when compared to the Flood's flat-rate deductible. Commonwealth timely appealed.

B.

In August 2007, SEACOR amended its complaint to include penalties, fees, and costs pursuant to Louisiana Revised Statutes sections 22:1892 and 22:1973,³ alleging Commonwealth acted in bad faith in its interpretation of the policy. Section 22:1892 provides that an insurer shall pay claims amounts within thirty days after receipt of satisfactory proofs of loss. When the insurer fails to make this payment and is found to have acted arbitrarily, capriciously, or without probable cause, the insurer is subject to a penalty of fifty percent of damages or $1000, whichever is greater.⁴ Section 1973 is a similar statute, requiring that an insurer “owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly.... Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.” Failing to pay a claim within sixty days for arbitrary or capricious reasons or without probable cause constitutes a breach of good faith. The claimant may be awarded penalties not to exceed two times the damages sustained or $5000, whichever is greater.⁵

[635 F.3d 680]

Commonwealth paid SEACOR applying both the Flood and Named Windstorm deductibles, which resulted in lower payments. SEACOR contended that Commonwealth acted in bad faith by failing to timely pay claims for no reason other than a misinterpretation of its own policy. SEACOR noted that Commonwealth's position here was counter to its position in Six Flags, Inc. v. Westchester Surplus Lines Ins. Co.⁶ and argued these conflicting readings are clear evidence that Commonwealth here intentionally misinterpreted its policy. Commonwealth replied that its varying positions rested on differences between the SEACOR and Six Flags policies.

Commonwealth moved for summary judgment on the bad faith claim, which the district court initially denied. Commonwealth then filed a motion for reconsideration, which was granted, and the court found “no reasonable juror could return a verdict in favor of the policyholder on bad faith claims. As a matter of law, Seacor is not entitled to recover penalties or attorneys' fees....” SEACOR appeals this judgment.

II.

We review a district court's grant of summary judgment de novo.⁷ A court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”⁸ An issue as to a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”⁹ In our review, we consider all evidence “in the light most favorable to the party resisting the motion.” ¹⁰

Sitting in this diversity case, we apply Louisiana law. “Under Louisiana law, an insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil Code.”¹¹ In interpreting insurance contracts, courts seek to determine the parties' common intent, as reflected by the words in the policy.¹² The Civil Code provides that “words of a contract must be given their generally prevailing meaning.” ¹³ When those words are clear, explicit, and lead to no absurd consequences, the contract must be interpreted within its four corners and no parol evidence is permitted.

[635 F.3d 681]

¹⁴

III.

Our first question is whether, in the absence of a specific provision allowing multiple deductibles, the policy requires SEACOR to pay both the Flood and Named Windstorm deductibles or whether the single Named Windstorm deductible encompasses Katrina's wind and water damage. As an initial matter, we turn to the policy's definition of Named Windstorm, which reads, “any Windstorm, as defined [by the policy], or any atmospheric disturbance which have [sic] been declared to...