Truehart v. Blandon, 88-3880

• Decision Date: 26 September 1989
• Docket Number: No. 88-3880,88-3880
• Citation: 884 F.2d 223
• Parties: Joan Robienczak TRUEHART, et al., Plaintiffs, v. Peter C. BLANDON, Defendant-Appellee, v. J. Robert LEE, III, The North River Insurance Company, and United States Fire Insurance Company, Defendants-Appellants, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 223

884 F.2d 223

Joan Robienczak TRUEHART, et al., Plaintiffs, v. Peter C. BLANDON, Defendant-Appellee, v. J. Robert LEE, III, The North River Insurance Company, and United States Fire Insurance Company, Defendants-Appellants, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Appellee.

No. 88-3880

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Sept. 26, 1989.

Hugh M. Glenn, Jr., Franklin H. Jones, New Orleans, La., for defendants-appellants.

Ashton R. O'Dwyer, Jr., J. Dwight LeBlanc, III, Lemle, Kelleher, Kohlmeyer, New Orleans, La., for U.S. Fidelity and Guar. Co.

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

Before HIGGINBOTHAM, JONES, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Three separate insurance carriers are potentially at risk in this case for the tortious conduct of J. Robert Lee, III. We are asked to review the district court's determination that all three policies should be construed as providing primary coverage for the costs to defend Lee and to settle various claims against him. The district court held that an excess or "umbrella" insurance policy "dropped down" into a pool of unexhausted and readily available primary insurance. The court then apportioned liability among the three insurers according to a Louisiana formula that divides each insurer's maximum policy coverage by the aggregate coverage afforded by all three policies. Truehart v. Blandon, 696 F.Supp. 210 (E.D.La.1988). Because we conclude that the district court misapplied Louisiana's doctrine of "mutual repugnancy" and erroneously gave operative effect to the umbrella policy's "drop down" provision, we reverse and remand.

I.

The relevant facts in this case are not in dispute. On the night of February 23, 1986, a yachting accident took the life of 24-year-old Victor Truehart. Peter Blandon had entrusted the nighttime operation of his 41-foot yacht "Buccaneer" to his companion, J. Robert Lee, III, while Blandon went below deck. Shortly after assuming control of the helm, Lee collided with the Lake Pontchartrain Causeway Bridge, sinking the vessel. Of the eight passengers on board, seven survived by clutching a small, overturned dinghy for 4-5 hours before rescue. The survivors, however, never located Victor Truehart, presumed thrown from the yacht upon initial impact.

Victor's father, Donald Truehart, and others brought a wrongful death action under general maritime law. The plaintiffs sued the yacht in rem, Peter Blandon as owner of the vessel, Blandon's yacht insurer United States Fidelity & Guaranty Company (USF & G), J. Robert Lee as operator of the vessel, and Lee's insurers, The North River Insurance Company (North River) and United States Fire Insurance Company (U.S. Fire).

Pursuant to admiralty jurisdiction under 28 U.S.C. Sec. 1333(1), the case was tried without a jury. During trial, the defendants and their insurance carriers settled plaintiffs' claim for $53,000. ¹ The trial continued, however, concerning the issue of liability as between defendants Blandon and Lee.

The district court found Lee liable for negligently operating the yacht and Blandon liable for negligently entrusting the vessel to an "obviously inexperienced person" at night. ² 696 F.Supp. at 214. The court held the operator (Lee) 75 percent at fault, and the owner (Blandon) 25 percent at fault, for all damages and related costs of defense.

The district court found that Blandon was covered solely by USF & G's $300,000 yacht liability policy but that three policies extended protection to Lee. The court reasoned that Blandon's USF & G policy covered Lee because he operated the "Buccaneer" at the direction of the owner. ³ In addition, Lee separately owned a $100,000 homeowner's policy from North River and a $1,000,000 "umbrella" or excess insurance policy from U.S. Fire. The final $53,000 settlement reached with the plaintiffs, and the $29,241.34 in stipulated litigation expenses for Lee, failed to exhaust any single policy at risk in this case.

The district court rejected U.S. Fire's argument that its umbrella or catastrophic policy provided excess insurance if, and only if, Lee's liability exceeded primary coverage of $400,000 ($300,000 from Blandon's USF & G policy and $100,000 from Lee's North River policy). Instead, the district court held that an "other insurance" clause ⁴ in U.S. Fire's excess policy, coupled with a "drop down" clause ⁵ in that policy, transformed U.S. Fire into a primary insurer.

In so holding, the district court calculated an aggregate pool of $1,400,000 in primary insurance coverage from all three policies. Applying principles of Louisiana insurance law, the court held each insurer proportionally liable in accordance with each policy's maximum coverage: USF & G incurred 3/14 liability, and North River and U.S. Fire (Lee's insurers) were jointly responsible for the remaining 11/14. ⁶

II.

North River and U.S. Fire do not challenge the district court's application of the Louisiana rule concerning apportionment of separate insurance underwritten by multiple carriers for claims against a single tortfeasor. Instead, they question the court's construction of U.S. Fire's umbrella policy as providing primary insurance coverage. The application of the Louisiana formula yields a dramatically different result if U.S. Fire is treated as an umbrella insurer and its $1,000,000 policy is excluded from the primary pool: 3/4 liability for USF & G, 1/4 liability for North River, and none for U.S. Fire.

U.S. Fire believes itself to be at no risk for claims against Lee because $400,000 in unexhausted primary insurance coverage is readily available. However, U.S. Fire today finds itself principally responsible for claims and litigation costs against Lee because of the particular mechanics of Louisiana's insurance apportionment rules and a $1,000,000 policy that dwarfs all other available insurance. Similarly, North River finds itself responsible for an undivided 11/14 share of all claims and costs against Lee, as compared to the more agreeable 1/4 share that results if U.S. Fire is treated as a true excess insurer. Not surprisingly, this appeal is limited to the single issue of whether the trial judge erred in holding U.S. Fire to be a primary insurer under the terms of its umbrella policy issued to Lee.

A.

Our first task is to determine the applicable law governing our interpretation of U.S. Fire's policy. U.S. Fire's yacht policy insures against certain maritime risks and losses. Consequently, we conclude that it provides maritime insurance within the meaning of Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955). We have previously interpreted Wilburn Boat as requiring the application of state insurance law principles if there is no specific and controlling federal rule. See, e.g., Transco Exploration Co. v. Pacific Employers Ins. Co., 869 F.2d 862, 863 (5th Cir.1989); Ingersoll-Rand Fin. Corp. v. Employers Ins., 771 F.2d 910, 911-12 (5th Cir.1985), cert. denied, 475 U.S. 1046, 106 S.Ct. 1263, 89 L.Ed.2d 573 (1986). We are aware of no such federal rule here.

In identifying the appropriate state law to apply, we look to the state having the greatest interest in the resolution of the issues. See Transco, 869 F.2d at 863. We believe that the district court correctly applied Louisiana law since, as noted by the court, the vessel owner was a Louisiana resident, the vessel was moored in Louisiana, and the accident occurred in Louisiana. See USF & G v. Williams, 676 F.Supp. 123, 125 (E.D.La.1987). Moreover, because the "interpretation of a contract is a question of law, including the question whether the contract is ambiguous," Ross v. Western Fidelity Ins. Co., 872 F.2d 665, 668 (5th Cir.1989), we will apply de novo review to the district court's decision. Accord Reid v. State Farm Mut. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986).

B.

The district court's analysis first focused upon Blandon's USF & G and Lee's North River policies. Each policy included an "other insurance" clause claiming secondary liability and purporting to be excess "over any other valid and collectible insurance." The court interpreted Louisiana law as requiring the abrogation of mutually repugnant "other insurance" clauses and the ratable allocation of damages among insurers. See Williams, 676 F.Supp. at 128 n. 28. ⁷ The parties do not contest the district court's interpretation of Louisiana law regarding the mutual repugnancy doctrine for primary insurance or the treatment of USF & G and North River as co-primary insurers.

The district court proceeded to consider U.S. Fire's umbrella policy, noting that it too contained an "other insurance" clause as well as a "drop down" provision. ⁸ Unlike USF & G's and North River's policies, however, U.S. Fire's policy expressly limited its contractual liability to "the ultimate net loss in excess of the insured's [Lee's] Retained Limit." "Retained Limit" is defined in the policy as the greater of

(a) the total of the applicable limits of the underlying policies listed in the Schedule of Underlying Insurance [North River], and the applicable limits of any other underlying insurance available to the insured [USF & G]; or

(b) an amount stated as "Retained Limit" in the Declarations as a result of any one occurrence not covered by the policies listed in the Schedule of Underlying Insurance or any other insurance. ⁹

Only North River's $100,000 policy is listed in the Schedule of Underlying Insurance; USF & G's unlisted $300,000 policy is other insurance available to Lee.

The district court agreed that U.S. Fire intended to provide umbrella coverage, at least with respect to North River's $100,000 policy. ¹⁰ However, it failed to treat U.S. Fire as an excess insurer because of what the district court believed to be the combined effect of the policy's "other insurance" and "drop down" clauses.

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