Woods v. Dravo Basic Materials Co., Inc.

• Decision Date: 06 November 1989
• Docket Number: No. 88-3725,88-3725
• Citation: 887 F.2d 618
• Parties: Jimmie Lee WOODS, Plaintiff, v. DRAVO BASIC MATERIALS CO., INC., and Liberty Mutual Insurance Co., Defendants-Cross Claimants Plaintiffs-Appellants, Cross-Appellees, v. UNITED STATES GYPSUM CO., Defendant-Cross Claim Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 618

887 F.2d 618

Jimmie Lee WOODS, Plaintiff, v. DRAVO BASIC MATERIALS CO., INC., and Liberty Mutual

Insurance Co., Defendants-Cross Claimants Plaintiffs-Appellants, Cross-Appellees, v. UNITED STATES GYPSUM CO., Defendant-Cross Claim

Defendant-Appellee, Cross-Appellant.

No. 88-3725.

United States Court of Appeals Fifth Circuit.

Nov. 6, 1989.

Paul G. Preston, Susan A. Anderson, Dravo & Liberty, New Orleans, La., for defendants-cross claimant plaintiffs-appellants-cross appellees.

Joseph G. Gallagher, Jr., Hulse, Nelson and Wanek, New Orleans, La., for defendant-cross claim defendant-appellee-cross appellant.

Appeals From the United States District Court Eastern District of Louisiana.

Before WISDOM, JOHNSON, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Dravo Basic Materials Company and its insurer, Liberty Mutual Insurance Company, appeal from a decision of the district court in favor of United States Gypsum Company on the issue of insurance coverage provided by a Liberty policy and required by a contract between Dravo and Gypsum. The district court found that paragraph 12 of the Agreement required Dravo to provide insurance to cover Gypsum's liability for the injury suffered by the plaintiff, Jimmie Lee Woods.

Gypsum appeals from the district court's finding that paragraph 13 of the Agreement would require it to indemnify Dravo if the liability to Jimmie Lee Woods were not covered by Liberty's insurance policy, and from the district court's refusal to impose statutory penalties against Liberty for refusing to defend and indemnify Gypsum.

We hold that the district court was correct in its interpretation of the Agreement as requiring Dravo to purchase insurance to cover Gypsum's liability for the injury suffered by Jimmie Lee Woods. Because the amount of the policy Dravo purchased from Liberty is greater than the amount of damages for Jimmie Lee Woods's injury, there is no need to reach the indemnity issue. We also do not find that the district court erred in refusing to impose penalties, when it found that Liberty had not acted arbitrarily or capriciously, but had refused coverage in good faith.

I. FACTS AND PROCEDURAL HISTORY

Gypsum and Dravo ¹ entered into an Agreement in July 1984, covering the sale and delivery of clam shells to Gypsum. The Agreement contained the following provision:

12. Insurance: [Dravo] shall carry at its own expense such types and amounts of insurance to protect [Dravo] and [Gypsum] of and from all risks, losses, damages, claims, expenses, suits or actions arising out of loss, damage or expense to [Dravo] equipment used in the performance of this agreement or arising out of [Dravo's] performance of this Agreement, with insurance coverages and with insurance carriers satisfactory to [Gypsum]. Coverage shall be maintained insuring [Dravo] and all marine units employed by it in the performance of this Agreement, whether owned or chartered, against liabilities, direct or indirect, to [Dravo], crew, employees, or third parties on account of loss of life or personal injury to crew, employees, or third parties, or property damage, with aggregate limits of liability not less than $5,000,000.00 for each occurrence. The coverage shall include contractual liability which will specifically cover the indemnity in Paragraph 13 of this agreement.

... Nothing contained in this Paragraph 12 shall be construed to effect or limit in any way any rights or obligations of either party under any other provision of this agreement.

The first part of Paragraph 13 of the Agreement provided that Dravo would indemnify Gypsum for various losses unless caused by the sole fault or neglect of Gypsum, or the joint fault of Gypsum and any third party other than Dravo. The last section of Paragraph 13 provided that Gypsum would indemnify Dravo from various losses caused by Gypsum's negligent acts or omissions in performing its obligations under the Agreement. Paragraph 13 also contained the following: "Nothing contained in this Paragraph 13 shall be construed to affect or limit in any way the provisions of Paragraph 12 hereof, or any other provisions of this Agreement."

Dravo purchased insurance from Liberty Mutual, and the policy was to cover all claims for which insurance was required under paragraph 12 of the Agreement. Gypsum was not a named insured under the policy, but the policy specifically stated that it would cover all persons for whom Dravo was required to purchase insurance under the Agreement. ²

On April 23, 1985, Jimmie Lee Woods was employed as a crane operator for Dravo. He was assigned to operate a crane located on a Dravo barge in order to remove clam shells from another barge, and place them on a conveyor system owned by Gypsum. A piece of wood became lodged in part of the conveyor belt, causing the conveyor to stop. Mr. Woods left the crane, turned off the conveyor system, and climbed on the conveyor belt in an attempt to dislodge the wood. While engaged in this operation, he slipped and twisted, causing injury to his back.

Jimmie Lee Woods filed a complaint against Dravo, Liberty, and Gypsum. The claims against Dravo and its liability carrier were based on the Jones Act and the General Maritime Law. The claims against Gypsum were founded on negligence and strict liability under Louisiana law. Gypsum filed a cross claim against Dravo and Liberty seeking contractual indemnity from Dravo, and requesting insurance coverage from Liberty. Dravo and Liberty filed cross claims against Gypsum seeking contractual indemnity. Liberty, as worker's compensation carrier for Dravo, intervened seeking reimbursement of compensation paid to or on behalf of Woods.

Dravo and Liberty argued for summary judgment against Woods on the ground that he was not a seaman. The district court found that Woods was not a seaman, and dismissed Woods's claims against Dravo and Liberty. The trial court granted summary judgment in favor of Gypsum against Liberty, declaring that, pursuant to the Agreement, Liberty was required to provide coverage to Gypsum for the claims asserted by Woods.

Woods's claim against Gypsum was tried to a jury which returned a verdict finding Gypsum 60%, Dravo 30%, and Woods 10% at fault. Pursuant to its earlier grant of summary judgment for Gypsum, the district court ordered Liberty to indemnify Gypsum for its liability to Woods. The district court denied Gypsum's request for penalties against Liberty Mutual under LSA R.S. 22:658 because it found Liberty's denial of coverage and refusal to defend to have been in good faith. The district court went on to find that the contractual indemnity provisions of the contract were moot because of the court's prior ruling on insurance coverage, but nonetheless entered findings on the indemnity provision, and stated that Dravo would be entitled to indemnity from Gypsum. Dravo, Liberty, and Gypsum all appeal from this judgment.

II. INSURANCE REQUIREMENT

Dravo and Liberty contend that the district court erred in its interpretation of Paragraph 12 of the Agreement, when it held that the Agreement required Dravo to purchase insurance covering Gypsum's liability for the claims made by Woods. Dravo and Liberty raise the same argument on appeal that they raised below, asserting that the first sentence of Paragraph 12 meant that Dravo would provide insurance protecting Gypsum and Dravo for claims solely relating to damage which might occur to Dravo's equipment; that the clause "arising out of the seller's performance of this agreement" was to broaden the circumstances for which insurance of the equipment was required; and that it was not intended to require Dravo to obtain insurance for all claims which occurred as a result of the performance of the contract. The district court found this interpretation "nonsensical," and we also are not persuaded that this is an accurate interpretation of the Agreement.

A court should look for an interpretation of a contract which, if possible, will give validity to the instrument without eliminating wording which was included in the agreement by the parties. Bland v. Conner, 25 So.2d 815 (La.App.2d Cir.1946). Contrary to Dravo's contention, the district court's interpretation of Paragraph 12 does not ignore any language of the contract. The district court found "that the phrase 'arising out of (Dravo's) performance of this agreement' was used to modify the terms 'all risks, losses, damages, claims, expenses, suits or actions.' " The district court's interpretation recognizes two types of insurance that Dravo would be obligated to procure: (1) insurance to protect Dravo and Gypsum from all risks, etc. "arising out of loss or damage or expenses to seller's equipment used in the performance of this agreement" and (2) insurance to protect Dravo and Gypsum from all risks, etc. "arising out of seller's performance of this agreement." This interpretation gives the "arising out of seller's performance of this agreement" language its most logical meaning, while Dravo's interpretation makes that language essentially superfluous. Furthermore, the trial judge's interpretation is supported by the grammatical structure of the paragraph, with its double use of the words "arising out of" in the first sentence.

Dravo argues that when Paragraph 12 is read in light of Paragraph 13, it becomes clear that the interpretation adopted by the district court was not intended by the parties, because if the parties intended Dravo to provide insurance, there would be no need for the indemnity provisions of Paragraph 13, especially "if Gypsum could effectively require Dravo to provide Gypsum insurance coverage for effectively any amount Gypsum desired." Appellant's Brief, p. 22. This argument is based on the premise that Gypsum could require Dravo to procure insurance coverage for any amount Gypsum desired, even after the fact. This ignores the standard workings of the insurance industry and the dealings of the...