Steptore v. Masco Const. Co., Inc.

Decision Date18 August 1994
Parties93-2064 La
CourtLouisiana Supreme Court
Concurring Opinion by Justice Ortique
Aug. 24, 1994.
Opinion Denying Rehearing

Sept. 30, 1994.

Gary Paul Koederitz, Luther F. Cole, George Ann Hayne Graugnard, Philip Bohrer, Koedertiz & Bohrer, Baton Rouge, Michael Joseph Kincade, Bailey, Rossi & Kincade, Metairie; and R.A. Redwine, Sessions & Fishman, New Orleans, for applicant.

Robert Collin Evans, Mark Fierro, Michael W. Mallory, Evans & Company; and Michael Leever McAlpine and J. Clayton Davie, Jr., McAlpine, Peuler, Cozad & Davie, New Orleans, for respondent.

[93-2064 La. 1] DENNIS, Justice. *

We granted certiorari to consider, inter alia, whether the liability insurer in this case waived its right to deny coverage based on its insured's violation of a warranty as to the location of the insured's barge because the insurer, with knowledge of facts indicating noncoverage, voluntarily assumed and continued the insured's defense without obtaining a nonwaiver agreement to reserve its rights. We conclude that the insurer waived its coverage defense based on the warranty violation. Because this decision is dispositive of the case, we pretermit the other issues raised by the petition for certiorari.

Facts

This case arises out of a claim for personal injuries sustained by Cornell Steptore, Sr. on November 20, 1986, while working as a laborer aboard the M/V DONNA RITA. The DXE-25, a steel crane barge, was moored alongside the M/V DONNA RITA to unload cargo. The plaintiff, Steptore, was injured when a steel cable affixed to the DXE-25's crane bucket broke and struck him in the face. Steptore fell nine feet to the deck of the DXE-25 and [93-2064 La. 2] sustained disabling injuries.

The plaintiff filed suit against the owner of the DXE-25, Masco Construction Co. (Masco) its primary liability insurer, Ocean Marine Indemnity Co. (Ocean Marine), and its excess liability insurer, Certain Underwriters at Lloyd's, London (Lloyd's). The petition for damages alleged that the accident was caused by Masco's negligence and that both insurance companies had insurance contracts providing coverage for the type of liability asserted. Commercial Union Insurance Company (Commercial Union), the plaintiff's employer's primary insurer, intervened in the suit to recover amounts it had paid Steptore in Longshore and Harbor Workers' Compensation Benefits.

Upon receiving notice of the suit on September 21, 1987, Ocean Marine engaged Evans & Co. to represent both Masco and Ocean Marine. On March 2, 1988, approximately six months after undertaking the defense of Masco, Ocean Marine denied coverage on the grounds that Masco breached a navigation warranty contained in the policy. Ocean Marine asserted that the warranty had been violated when the DXE-25 was moved from its designated location to another site several days before the accident. Evans & Co. withdrew from the representation of Masco but remained in the case as attorneys for Ocean Marine.

After Ocean Marine denied coverage, Masco retained counsel and filed a third party demand naming as defendants Ocean Marine, Martin Insurance Agency, the individual insurance agency which had obtained the insurance policy for Masco, and Gulf Coast Marine, Inc., the insurance broker representing Ocean Marine and Lloyd's. This demand alleged that the third party defendants were liable to Masco for indemnity for any judgment against Masco on the main demand with interest and attorney's fees. Martin also filed a third party demand against Lloyd's and Ocean Marine for the attorney's fees it incurred as a result of the insurers' denial of defense and indemnity to Masco.

[93-2064 La. 3] Procedural History

Prior to trial, Ocean Marine and Lloyds filed a motion for summary judgment seeking a determination that there was no coverage under the policy. Steptore, Masco and Martin filed cross motions for summary judgment seeking a ruling on the coverage issue in their favor. The trial court granted the motions of Steptore, Masco and Martin and denied the motion of Ocean Marine and Lloyd's. After trial on the merits the court entered judgment in favor of Steptore and against Masco, Ocean Marine and Lloyd's in the sum of $277,000 for lost wages and earning capacity, $125,000 for general damages, $63,295.05 for past medical expenses, and $15,000 for future medical expenses. The judgment in favor of the plaintiff was made subject to judgment in favor of Commercial Union for $63,693.05 for past medical expenses, $45,266.27 for past payments and for any additional payments to plaintiff since the date of trial made pursuant to the Longshore and Harbor Worker's Compensation Act. The trial court also awarded attorney's fees in the amount of $24,412.50 to both Masco and Martin, which were incurred as a result of Ocean Marine's denial of coverage and defense under the policy.

Ocean Marine and Lloyd's appealed the judgment finding coverage, alleging that Masco's breach of the policy's navigation warranty voided coverage, and appealed the judgments awarding attorney's fees to Masco and Martin.

The court of appeal found that the navigation warranty was unambiguous and that Ocean Marine was not precluded from asserting the navigation warranty as an exclusion to coverage. Therefore, the court of appeal reversed the judgment of the trial court and rendered judgment in favor of Ocean Marine and Lloyd's, declaring that there was no insurance coverage for the plaintiff's accident, 619 So.2d 1183. The court of appeal also reversed the judgments awarding attorney's fees to Masco and Martin because it found that Ocean Marine was entitled to deny coverage for the loss, 621 So.2d 214.

Steptore, Masco, Martin, and Commercial Union jointly applied for writs, seeking review of the decisions of the court of appeal [93-2064 La. 4] finding no coverage under the insurance policies and reversing the judgments awarding attorney's fees. The parties assert various theories supporting coverage under the policy and waiver of the coverage defense. We conclude that the insurer waived its coverage defense and now reverse the judgment of the court of appeal.

Waiver

Waiver is generally understood to be the intentional relinquishment of a known right, power, or privilege. Tate v. Charles Aguillard Ins. & Real Estate, Inc., 508 So.2d 1371 (La.1987); Ledoux v. Old Republic Life Ins. Co., 233 So.2d 731 (La.App. 3d Cir.), cert denied 256 La. 372, 236 So.2d 501 (1970); Peavey Co. v. M/V ANPA, 971 F.2d 1168 (5th Cir.1992); Comment, Waiver and Estoppel in Louisiana Insurance Law, 22 La.L.Rev. 202 (1961); 16B Appleman, Insurance Law and Practice, § 9081 (1981); Couch on Insurance 2d, § 35:249 (Rev. ed. 1985). Waiver occurs when there is an existing right, a knowledge of its existence and an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished. Tate, supra; Peavey, supra; Ledoux, supra; 16B Appleman, supra, § 9085. A waiver may apply to any provision of an insurance contract, even though this may have the effect of bringing within coverage risks originally excluded or not covered. Tate, supra.

It is well established that an insurer is charged with knowledge of the contents of its own policy. Youngblood v. Allstate Fire Ins. Co., 349 So.2d 462 (La.App. 3d Cir.1977); Davis v. Aetna Casualty & Surety Co., 329 So.2d 868 (La.App. 2d Cir.), writ denied, 333 So.2d 233 (1976); Pellets, Inc. v. Millers Mutual Fire Ins. Co., 241 So.2d 550 (La.App. 2d Cir.1970), writ denied, 257 La. 607, 243 So.2d 274 (1971). In addition, notice of facts which would cause a reasonable person to inquire further imposes a duty of investigation upon the insurer, and failure to investigate constitutes a waiver of all powers or privileges which a reasonable search would have uncovered. Swain for and on behalf [93-2064 La. 5] of Swain v. Life Ins. Co. of Louisiana, 537 So.2d 1297 (La.App. 2d Cir.1989), writ denied, 541 So.2d 895 (1989); Foret v. Terrebonne Towing Co., Inc., 632 So.2d 344 (La.App. 1st Cir.1993); Peterson v. Pacific Fire Ins. Co., 148 So. 283 (La.App.Orl.Cir.1933); Franz v. United Casualty Co., 49 F.Supp. 267 (E.D.La.1943); Comment, La.L.Rev. supra 206; 16B Appleman, supra § 9084.

Waiver principles are applied stringently to uphold the prohibition against conflicts of interest between the insurer and the insured which could potentially affect legal representation in order to reinforce the role of the lawyer as the loyal advocate of the client's interest. Employers Mutual Liability Ins. Co. of Wisconsin v. Sears, Roebuck & Co., 621 F.2d 746, 747 (5th Cir.1980); Pacific Indemnity Co. v. Acel Delivery Serv., 485 F.2d 1169, 1173 (5th Cir.1973), cert denied, 415 U.S. 921, 94 S.Ct. 1422, 39 L.Ed.2d 476 (1974); Parsons v. Continental National American Group, 113 Ariz. 223, 550 P.2d 94 (1976); Employers Casualty Co. v. Tilley, 496 S.W.2d 552 (Tx.1973); Transamerica Ins. Group v. Chubb and Son, Inc., 16 Wash.App. 247, 554 P.2d 1080 (1976). Cf. Dugas Pest Cont. v. Mutual Fire, Marine and Inland Ins. Co., 504 So.2d 1051 (La.App. 1st Cir.1987); Brasseaux v. Girourd, 214 So.2d 401 (La.App. 3d Cir.), writ denied, 253 La. 60, 216 So.2d 307 (1968); Storm Drilling Company v. Atlantic Richfield Corp., 386 F.Supp. 830 (E.D.La.1974). See Rule 1.7, La.Rules of Professional Conduct; Restatement of the Law (3rd), The Law Governing Lawyers, Chapter 8, Introductory Note, §§ 201 & 202 (Tentative Draft 1990); Opinion 342, Opinions of the Committee on Professional Responsibility (La.State Bar Ass'n 1974); 15 McKenzie & Johnson, Insurance Law and Practice § 216 (1986). Accordingly, when an insurer, with knowledge of facts indicating noncoverage under the insurance policy, assumes or continues the insured's defense without...

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