XL Specialty Insurance Company v. Bollinger Shipyards, Inc. et al
Filing
271
ORDER AND REASONS denying Bollinger's cross- motion 88 for Summary Judgment; granting XL's motions 142 146 for Summary Judgment; and denying as moot XL's motion 197 to Dismiss for Failure to State a Claim. Signed by Chief Judge Sarah S. Vance on 10/31/14. (Reference: ALL CASES)(jjs)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
XL SPECIALTY INSURANCE COMPANY
CIVIL ACTION
VERSUS
NO: 12-2071
BOLLINGER SHIPYARDS, INC., ET AL.
SECTION: R(2)
ORDER AND REASONS
Before the Court are three motions for summary judgment and a
motion to dismiss. The first motion, filed by Bollinger,1 seeks a
ruling that its liability insurer, XL Specialty Insurance Company,
is obligated to pay Bollinger the defense costs it has incurred in
defending against an underlying lawsuit.2 Bollinger also requests
that the Court award it statutory penalties, attorneys' fees,
costs, and legal interest. The second motion, filed by XL, seeks a
ruling that XL is not required to reimburse Bollinger for those
defense costs.3 In the third motion, filed by Continental Insurance
Company,
Bollinger's
excess
liability
insurer,
Continental,
contends that its insurance policies do not afford Bollinger
defense or indemnity in the underlying lawsuit.4 The fourth motion,
1
"Bollinger" refers collectively to Bollinger Shipyards,
Inc.; Bollinger Shipyards Lockport, L.L.C.,; and Halter Bollinger
Joint Venture, L.L.C.
2
R. Doc. 88.
3
R. Doc. 142.
4
R. Doc. 146.
filed by XL,5 seeks to dismiss Bollinger's First Amended and
Supplemental Complaint,6 which was filed after briefing was nearly
complete on the three motions for summary judgment. The Court heard
oral argument on the motions for summary judgment on July 1, 2014.
The Court finds that XL is entitled to summary judgment
because the policy unambiguously does not cover the allegations in
the underlying lawsuit. Accordingly, the Court GRANTS XL's motion
for
summary
judgment
and
DENIES
Bollinger's
cross-motion
for
summary judgment. In light of the Court's grant of summary judgment
in XL's favor, XL's motion to dismiss Bollinger's amended complaint
is DENIED as moot.
The Court GRANTS Continental's motion for summary judgment
because the only claims remaining in the underlying lawsuit are not
covered by Continental's excess policies.
I.
BACKGROUND
This is an insurance coverage dispute regarding whether XL and
Continental are obligated to pay defense costs that Bollinger
incurred in defending against a False Claims Act suit brought by
the United States. Both the False Claims Act suit and the present
action are substantively and procedurally complex, and so it is
necessary to set out the background of this case in some detail.
5
R. Doc. 197.
6
R. Doc. 184.
2
The Court will, first, describe the underlying lawsuit giving rise
to Bollinger's claim for insurance coverage and outline the events
leading to the present litigation; second, set forth the procedural
history of this case; third, analyze the provisions of the various
insurance policies that Bollinger claims provide coverage for the
underlying lawsuit; and finally, identify the various grounds upon
which the parties move for summary judgment.
A.
The Underlying Lawsuit
1.
The United States' Allegations
The underlying lawsuit arose out of Bollinger's involvement in
the United States Coast Guard's Deepwater program to modernize its
fleet of water vessels, aircraft, and electronics systems.7 The
United States alleged that Bollinger violated the False Claims Act,
31 U.S.C. §§ 3729, et seq., and committed fraud and negligent
misrepresentation in connection with its work on that program. The
facts giving rise to that suit, as alleged in the United States'
complaint, are as follows.
In 1999, the United States selected Integrated Coast Guard
Systems (ICGS), an entity comprised of Lockheed Martin Corporation
(LMC) and Northrop Grumman Ship Systems, Inc. (NGSS), to serve as
lead
contractor
7
of
the
Deepwater
program,
and
ICGS
R. Doc. 88 Ex. J at BGR-RAP-02049-50, ¶ 11.
3
in
turn
subcontracted a portion of that work to Bollinger.8 Bollinger was
responsible for incorporating a thirteen-foot extension into eight
110-foot Coast Guard patrol boats.9 Bollinger's responsibilities
included the "design, engineering, performance requirements, and
construction" of the modified cutters.10
During the initial stages of the program, the Coast Guard grew
concerned
about
Specifically,
the
the
feasibility
Coast
Guard
of
extending
worried
"that
the
cutters.11
lengthening
the
vessel[s] w[ould] increase primary stress in the hull girder" and
consequently make the vessels more susceptible to damage.12 In
October 2000, in response to these concerns, Bollinger prepared a
longitudinal strength analysis that compared the section modulus (a
measure of the vessel's longitudinal strength) of its design with
the section modulus required by the American Bureau of Shipping
(ABS).13 Bollinger submitted this analysis to the Coast Guard
stating that "the required section modulus is 3113 [inches cubed]
and the actual section modulus of the patrol boat is 7152 [inches
cubed]." This statement indicated that Bollinger's proposed design
8
Id. at BGR-RAP-02050, ¶¶ 12-13.
9
Id. at BGR-RAP-02050, ¶ 13; R. Doc. 88 Ex. G at 2-3.
10
Id. at BGR-RAP-02050, ¶ 13
11
Id. at BGR-RAP-02050-51, ¶ 15.
12
Id. at BGR-RAP-02051, ¶ 15.
13
Id. at BGR-RAP-02051, ¶ 16.
4
of the modified cutters yielded a section modulus that was greater
than the ABS standard by a factor of 2.3.14 Bollinger allegedly
obtained this value by using a thicker hull plating in its design
calculations than would actually be used in the modified cutters.15
The United States alleged that, because "there was no provision in
the proposal for replacing the hull plating on the 100-Ft [boats]
with thicker hull plating during the conversion, using this thicker
hull plating in the calculations was not reasonable."16
According to the complaint, the Coast Guard, relying in part
on Bollinger's representations that the modified cutters would
possess sufficient hull strength, selected IGCS to perform the work
on the Deepwater program.17 The Coast Guard and ICGS entered into
a contract in June 2002.18 The contract "contained a Contract Data
Requirements List (CDRL), which identified information that ICGS
and its subcontractors were required to provide the Coast Guard
concerning the assets and other contract deliverables," and the
contract required that "[f]inal deliverables . . . accurately
represent the delivered condition of each asset."19 Specifically,
14
Id. at BGR-RAP-02051-52, ¶¶ 16-18.
15
Id. at BGR-RAP-02052, ¶ 18.
16
Id.
17
Id. at BGR-RAP-02052, ¶ 20.
18
Id. at BGR-RAP-02052, ¶ 21.
19
Id.
5
the contract "required ICGS and its subcontractors to provide the
Coast Guard with CDRL S012-11, a Hull Load and Strength Analysis
(HLSA) to verify that the 123-Ft WPB modification design met
program and contract requirements."20
In August 2002 the Coast Guard awarded the first Delivery Task
Order for modification of the 110-foot patrol boats.21 Later in
August 2002, ABS offered to provide Bollinger with a "confidential
assessment" of the proposed hull design for the converted boats.22
Bollinger executives discussed the offer internally, but ultimately
decided to decline the offer, allegedly because they were concerned
that an ABS assessment "would find that the 123-Ft WPB design would
require additional structure or structural support."23
Around the same time, Bollinger performed three different
calculations of the section modulus of the proposed 123-foot cutter
design using three different sets of input values.24 Two of the
calculations yielded a section modulus below the ABS standard; the
third yielded a value of 5232 cubic inches, which was above the
standard but still significantly below the value contained in
20
Id. at BGR-RAP-02053, ¶ 21.
21
Id. at BGR-RAP-020553, ¶ 22.
22
Id. at BGR-RAP-02053, ¶ 23.
23
Id. at BGR-RAP-02053-54, ¶¶ 23-25.
24
Id. at BGR-RAP-02054, ¶ 26.
6
Bollinger's initial longitudinal strength analysis.25 On September
4, 2002, Bollinger submitted an initial version of CDRL S012-11
"that reported an actual section modulus of 5,232 cubic inches, the
highest of the calculated values."26 It then submitted a final
version of CDRL S012-11 on December 16, 2002, again "reporting that
the actual section modulus was 5,232 cubic inches."27
The complaint alleges that the input values used to obtain
this
highest
result
"did
not
reflect
the
actual
structural
characteristics of the converted vessels."28 Bollinger did not
report the two lower section modulus values to the Coast Guard.29
The complaint further alleges that Bollinger told the Coast Guard
that ABS would review the section modulus calculation of the
proposed design and would "review compliance with ABS rules," but
Bollinger never in fact requested such a review.30
Bollinger delivered the first of the 123-foot vessels, the
USCGC MATAGORDA, to the Coast Guard in March 2004.31 In September
2004, the "MATAGORDA suffered a structural casualty that included
25
Id.
26
Id. at BGR-RAP-02054, ¶ 29.
27
Id. at BGR-RAP-02055, ¶ 33.
28
Id. at BGR-RAP-02054-55, ¶¶ 29.
29
Id. at BGR-RAP-02055, ¶ 30.
30
Id. at BGR-RAP-02055, ¶¶ 31 & 33.
31
Id. at BGP-RAP-02055, ¶ 34.
7
buckling
of
subsequent
the
Coast
hull."32
Guard
According
and
IGCS
to
the
United
investigation
States,
revealed
a
that
Bollinger had misrepresented the longitudinal strength of the hulls
of the cutters it delivered to the United States.33 The United
States further alleged that the eight vessels, all delivered after
2004,34
March
had
insufficient
longitudinal
strength
and
consequently were unusable.35 The Coast Guard and ICGS made efforts
to increase the longitudinal strength of the modified cutters, but
they were unsuccessful.36
2.
Procedural History of the Underlying Suit
On December 14, 2006, the U.S. Department of Justice issued a
litigation hold letter to Bollinger, advising Bollinger that it had
opened an investigation into Bollinger's role in the Deepwater
project and requesting that Bollinger retain documents related to
the conversion of the 110-foot patrol boats.37
On
May
17,
2007,
the
United
States
officially
revoked
acceptance of the eight cutters, explaining that "hull and shaft
alignment
problems"
with
the
cutters
32
Id. at BGR-RAP-02056, ¶ 36.
33
Id.
34
Id. at BGR-RAP-02055, ¶ 34.
35
Id. at BGR-RAP-02056, ¶ 37.
36
Id.
37
R. Doc. 142-5.
8
had
compromised
their
"physical
integrity
specifications
sustained."38
.
under
On
.
.
the
June
14,
to
such
a
degree
contract
cannot
2007,
Bollinger
the
be
performance
achieved
entered
into
and
a
"Sponsorship Agreement" with NGSS providing that the two parties
would cooperate in attempting to resolve the Coast Guard's claims.39
On November 29, 2007, the government issued a subpoena duces
tecum to Bollinger that covered several categories of documents
related to Bollinger's work on the Deepwater project.40
On December 23, 2008, Bollinger and the United States executed
a statute of limitations tolling agreement.41 The agreement provided
in relevant part:
WHEREAS, On December 5, 2008 the United States of America
informed Bollinger . . . that the United States . . .
[believes it] may have certain civil causes of action and
administrative claims against Bollinger under the False
Claims Act, 31 U.S.C. §§ 3729 et seq., other statutes and
regulations including the Program Fraud Civil Remedies
Act, 31 U.S.C. §§ 3801 et seq., equity, or the common
law, arising from Bollinger's performance of conversion
work on the U.S. Coast Guard Deepwater Program's 110 Foot
Island Class vessels under Bollinger's contract with
Northrop Grumman Ship Systems, Inc.; and
WHEREAS, the parties have entered into discussions
relating to the possible settlement of the United
States's above claims prior to suit;
NOW, THEREFORE, . . . the United States and
Bollinger agree that, as consideration for the United
States not filing, or initiating claims against Bollinger
38
R. Doc. 88 Ex. I at 1.
39
See R. Doc. 142-12; R. Doc. 142-14 at 10-11.
40
R. Doc. 142-15.
41
R. Doc. 142-20.
9
under the False Claims Act, 31 U.S.C. §§ 3729 et seq., or
the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801
et seq., on or before December 31, 2008, the period of
time between and including December 5, 2008 and May 5,
2009 shall be excluded when determining whether any civil
or administrative claims are time-barred by the statute
of limitations, laches, or any other time-related
defenses. Bollinger further agrees it will not assert or
argue in any judicial or administrative forum that the
United States has failed to act in a timely fashion and
will not plead statute of limitations, laches, or any
other similar defense to any civil or administrative
action filed or initiated against Bollinger on or before
May 5, 2009 under the False Claims Act, 31 U.S.C. §§ 3729
et seq., other statutes and regulations, including the
Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801 et
seq., equity or the common law, based on the performance
of conversion work on the U.S. Coast Guard Deepwater
Program's 110 Foot Island Class vessels . . . except to
the extent such defenses were available to Bollinger on
or before December 5, 2008.42
Bollinger has since confirmed that as of the date of execution of
the Tolling Agreement, it had entered into settlement discussions
with
the
United
States
regarding
the
Coast
Guard's
claims.43
Bollinger did not inform XL of its intent to enter into the Tolling
Agreement.44 Bollinger and the United States agreed to extend the
Tolling Agreement twenty-one times over the course of the next two
and a half years.45
Over
the
several-year
course
of
the
United
States'
investigation of the Deepwater project, Bollinger made several
42
R. Doc. 142-20 at 1.
43
R. Doc. 142-14 at 5.
44
Id. at 7-9.
45
R. Doc. 142-21.
10
document productions to the United States, totaling about 40,000
documents.46 It also made eight Bollinger employees available for
interviews with the United States.47
On July 29, 2011, the United States filed a complaint against
Bollinger based on allegations that "Bollinger knowingly misled the
Coast Guard to enter into a contract for the lengthening of Coast
Guard
cutters
by
falsifying
data
relating
to
the
structural
strength of the converted vessels."48 The United States' complaint
alleged two violations of the False Claims Act, 31 U.S.C. §§ 3729
et seq., as well as common law fraud, negligent misrepresentation,
and unjust enrichment.49
On January 30, 2013, this Court dismissed the United States'
complaint. See United States v. Bollinger Shipyards, Inc., Civil
Action No. 12-920, 2013 WL 393037 (E.D. La. Jan. 30, 2013). The
Court held that Bollinger's FCA allegations and its common law
fraud claim were deficient because the United States had not
plausibly alleged that Bollinger acted with the requisite scienter
or that Bollinger's allegedly false statements were material. Id.
at *6-10. The Court also held that, while the complaint stated a
negligent misrepresentation claim based on its allegations that
46
R. Doc. 142-9 at 13-14.
47
Id. at 14.
48
R. Doc. 88 Ex. J at BGR-RAP-02047, ¶ 1.
49
See id.
11
Bollinger submitted false section modulus values to the Coast
Guard, that claim was time-barred. Id. at *11-14. Finally, the
Court dismissed the United States' unjust enrichment claim because
"there can be no claim for unjust enrichment when an express
contract exists between the parties." Id. at *15. The Court granted
the United States leave to amend its FCA and common law fraud
allegations. Id. at *16.
The United States then filed an amended complaint, which
presented additional factual allegations concerning Bollinger's
alleged submission of false section modulus calculations to the
Coast Guard. See United States v. Bollinger Shipyards, Civil Action
No. 12-920, 979 F. Supp. 2d 721, 2013 WL 5720340, at *1 (E.D. La.
Oct. 21, 2013). This Court found that the United States had once
again failed to plausibly allege that Bollinger acted with the
requisite scienter to support an FCA or a common law fraud claim,
and accordingly dismissed the suit with prejudice. Id. at *10-11.
The United States has appealed that ruling to the Fifth Circuit.50
The United States has not appealed the Court's dismissal of its
negligent misrepresentation, unjust enrichment, or common law fraud
claims.51
50
See United States of America v. Bollinger Shipyards,
Inc. et al., No. 13-31301.
51
See id., Appellant's Br. at 13.
12
B.
Procedural History of the Present Lawsuit
After the Coast Guard revoked acceptance of the ships in May
2007, Andrew St. Germain, Bollinger's Chief Financial Officer,
wrote in an e-mail to Bollinger's insurance agent, Willis of
Louisiana, that "[a]t this point, it may be prudent to put the
appropriate underwriters on notice of this event."52 Michael Tubbs,
a Willis employee, responded, "OK! We will need a copy of the
executed subcontract between [Bollinger] and NGSS."53 The next day,
Bollinger sent Tubbs the materials that he had requested.54 Tubbs
then relayed that information to Mike Johnson at Trident Marine
Managers, XL's claims administrator, and asked "whether that was a
claim that should be reported."55
According to Tubbs, Johnson
responded "that it was not a claim that needed to be reported
because he [Johnson] interpreted the letter from the Department of
[J]ustice to implicate possible criminal actions, which he said
were not covered by the [XL] Policy."56 Johnson told Tubbs to
"follow up if a specific claim for a specific dollar amount was
made."57
52
R. Doc. 142-8 at 1.
53
Id.
54
See id. at 2.
55
R. Doc. 140-2 at 2.
56
Id.
57
Id.
13
On June 14, 2007, Bollinger entered into the "Sponsorship
Agreement" with NGSS that provided the two parties would cooperate
in attempting to resolve the Coast Guard's claims.58 It did not seek
XL's consent.59 Indeed, Bollinger did not inform XL of the existence
of the agreement for over four years.60
After the government issued the subpoena duces tecum on
November 29, 2007, Bollinger contacted Willis to request again that
Willis advise the appropriate underwriters of a "possible claim."61
By February 2008, however, Bollinger knew that Willis had not
notified any insurers of the potential claim.62 Willis reasoned that
"[i]t is doubtful that any underwriter would respond directly to
the subpoena as no claim has been formally presented by any
particular party and there is no claim of damage alleged at this
point."63 The record indicates that neither Bollinger, Willis, nor
Bollinger's subsequent insurance agent, Arthur J. Gallagher Risk
Management Services, Inc.,64 ever did in fact apprise any of
58
See R. Doc. 142-12; R. Doc. 142-14 at 10-11.
59
See R. Doc. 142-9 at 16-17.
60
Id.; see also R. Doc. 142-10 at 2.
61
R. Doc. 142-16 at 3.
62
R. Doc. 142-14 at 9-10.
63
R. Doc. 142-16 at 1.
64
Bollinger appointed Gallagher as its insurance agent on
February 1, 2008. R. Doc. 142-17.
14
Bollinger's insurers about the possibility of a claim related to
the Deepwater project until days before the underlying lawsuit was
filed.65
On July 19, 2011, Bill Condon, a Gallagher employee, e-mailed
an XL employee advising her of the Deepwater investigation and
asking if XL had a file on the subject.66 Condon described the
investigation as "a claim that should have been reported by Willis
but apparently wasn't."67 Gallagher put Continental on notice of the
possible claim one day later, on July 20.68
Upon receipt of the United States' complaint on August 2,
2011, Bollinger notified XL of the FCA lawsuit.69 According to the
affidavit
Officer,
of
Andrew
"[r]eceipt
St.
of
Germain,
the
U.S.
Bollinger's
lawsuit
was
Chief
the
Financial
first
time
65
See R. Doc. 142-9 at 10 (Willis has no record of having
given notice of the United States' subpoena to any insurers); id.
at 11 (Bollinger has no record of Gallagher giving notice of the
United States' subpoena to any underwriters in 2008); id. at 11-12
(Bollinger admits that it has "no record of XL receiving notice of
the United States' claims against Bollinger prior to July 19,
2011," or of Willis or Gallagher providing such notice); R. Doc.
142-14 at 5-6 (admitting that Bollinger did not inform XL of its
discussions with the United States concerning the Deepwater project
investigation until after July 18, 2011); R. Doc. 146-8 at 1
(Continental first received notice of the claim on July 20, 2011).
66
R. Doc. 142-23 at 1.
67
Id.
68
R. Doc. 146-8.
69
R. Doc. 88 Ex. J at BGR-RAP-2045 (letter from Bollinger
to Gallagher regarding the underlying lawsuit).
15
Bollinger learned that the United States would allege that it had
negligently misrepresented anything, or that it had allegedly
enriched itself unjustly."70 On September 30, 2011, counsel for XL
issued a reservation of rights letter to Bollinger stating that XL
had not yet made a determination whether the insurance policies it
had issued to Bollinger covered the United States' allegations.71
XL requested that the Bollinger entities "act as prudent uninsureds
and file the necessary responsive pleadings in the lawsuit" while
XL conducted an evaluation of Bollinger's claims.72
In November 2011, XL requested that Bollinger produce certain
documents that XL needed in order to perform a complete coverage
analysis.73 The requested documents included those that Bollinger
had produced to the United States in the course of the Deepwater
investigation.74 Bollinger did not produce those documents until
after XL and Bollinger had filed the suits regarding coverage
consolidated
in
this
case,75
which
according
to
XL,
made
it
impossible for XL to determine whether coverage was owed to
70
R. Doc. 88 Ex. G at 4.
71
R. Doc. 88 Ex. K; R. Doc. 142-10 at 2.
72
R. Doc. 88 Ex. K at 2.
73
R. Doc. 142-10 at 3; R. Doc. 142-26.
74
R. Doc. 142-19 at 9-11.
75
R. Doc. 142-10 at 3; R. Doc. 142-14 at 10.
16
Bollinger for the underlying suit.76 Denice Borne, Bollinger's Risk
Manager, stated that Bollinger did not produce all the requested
documents because "it was over 300,000 documents[,] [a]nd it just
became too cumbersome to provide."77 It is undisputed that XL never
denied or accepted coverage for defense of the underlying lawsuit,
and Bollinger incurred its own attorneys' fees and costs defending
against the United States' claims.78
XL initiated this action on August 13, 2012, seeking a
declaration that it owed no duty to defend or indemnify Bollinger
against the claims brought by the United States in the underlying
suit.79 XL's complaint for declaratory judgment alleged that (1)
some or all of the claims in the underlying suit did not involve
"property damage" or an "occurrence" as defined by the policy and
therefore did not trigger the policy; (2) the claims fell within
one or more policy exclusions; and (3) Bollinger breached its
obligations under the policies in various material ways (failure to
give notice, failure to cooperate, failure to obtain consent).80
On August 15, 2012, XL removed a related action that Bollinger had
filed in Louisiana state court, which sought coverage and bad faith
76
R. Doc. 142-10 at 3.
77
R. Doc. 142-19 at 10.
78
R. Doc. 88 Ex. G at 4-5.
79
See R. Doc. 1.
80
See id. at 20-26.
17
damages from XL and Continental.81 In that suit, Bollinger alleged
that XL was liable to it under Policy No. PXMC-850942, which
covered a policy period from December 31, 2006, to March 1, 2008,
and that Continental was liable to it under "multiple policies of
excess insurance . . . covering the period of December 31, 2006,
through March 1, 2012."82 Bollinger also brought bad faith claims
against both XL and Continental under Louisiana Revised Statutes §§
22:1892 and 22:1973.83 Continental filed a counterclaim seeking a
declaratory
judgment
that
none
of
the
policies
issued
by
Continental to Bollinger afford Bollinger coverage, defense costs,
or indemnity in connection with the United States' claims.84 The
Court consolidated that case with the suit initiated by XL.85
On December 12, 2012, Continental filed a motion for partial
summary judgment on Bollinger's bad faith claims. On June 24, 2013,
the Court issued an Order and Reasons granting Continental's motion
on the grounds that the express language of the excess policy
issued by Continental indicated that Continental had no duty to
81
See Bollinger Shipyards, Inc., et al. v.
Insurance Company, et al., No. 12-02098, R. Doc. 1.
82
XL Specialty
See Bollinger Shipyards, Inc., et al. v. XL Specialty
Insurance Company, et al., No. 12-02098, R. Doc. 1-1 at 4.
83
See id. at 3.
84
R. Doc. 14.
85
See R. Doc. 6.
18
defend,86 and that in any event no duty to defend could arise for
an excess insurer before the underlying policy had been exhausted,
which
had
not
occurred.87
As
Continental
had
therefore
acted
reasonably in denying Bollinger a defense, the Court dismissed
Bollinger's bad faith claims against Continental.88
On December 18, 2013, Bollinger filed a motion for summary
judgment against XL, arguing that the Court should hold as a matter
of law that the policies XL issued to Bollinger require XL to pay
the costs of defense that Bollinger incurred in the underlying
lawsuit.89 Bollinger further contends that XL was unreasonable in
withholding payment of those costs, and hence should be liable for
statutory penalties, attorneys' fees, costs, and interest. On April
3, 2014, XL filed a cross-motion for summary judgment, contending
that XL is not responsible for Bollinger's defense costs, and
seeking full summary judgment on its original complaint for a
declaratory judgment that it has no duty to defend or indemnify
Bollinger for the claims in the underlying suit.90 On April 8,
86
R. Doc. 59.
87
Id. at 11-15 ("The [Continental] policies provide that
that [Continental] has the right to participate in Bollinger's
defense but has no obligation to do so." (citing Inst. of London
Underwriters v. First Horizon Ins. Co., 972 F.2d 125, 126 (5th Cir.
1992))).
88
Id. at 15-18.
89
R. Doc. 88.
90
R. Doc. 142.
19
Continental filed its own motion for summary judgment, arguing that
it has no duty to defend or indemnify Bollinger against the
underlying suit.91
On April 28, 2014, after briefing on the three motions was
mostly completed, Bollinger moved the Court for leave to file an
amended complaint that lists additional insurance policies under
which
XL
and
Continental
may
be
liable.92
The
Court
granted
Bollinger's motion.93 Bollinger's complaint now alleges simply that
it is the "named insured[] under multiple liability insurance
policies issued by XL Specialty and Continental."94
C.
The Policies at Issue
1.
The XL Policies
From September 30, 2001, through March 15, 2008, Bollinger
obtained six separate Marine Comprehensive Liability policies from
XL (the XL Policies).95 The policies are virtually identical in all
relevant respects, save that they cover different policy periods.
The Court will analyze Policy Number PXMC-850151, which covers the
91
R. Doc. 146.
92
R. Doc. 163.
93
R. Doc. 185.
94
R. Doc. 186 at 2.
95
R. Doc. 88 Ex. G at 1-2.
20
period from September 30, 2003 to September 30, 2004,96 as a
representative example of the XL Policies.97
Section I of the policy, which sets forth the basic outline of
the coverage it affords to Bollinger, provides in relevant part:
1.
2.
We will pay those sums that the insured becomes
legally obligated to pay as damages because of
"bodily injury" or "property damage" to which this
insurance applies. We will have the right and duty
to defend any "suit" seeking those damages. We may
at our discretion investigate any "occurrence" and
settle any claim or "suit" that may result. . . .
. . . .
This insurance applies to "bodily injury" and
"property damage" only if:
a.
The "bodily injury" or "property damage" is
caused by an "occurrence" that takes place in
the "coverage territory;" and
b.
The "bodily injury" or "property damage"
occurs during the policy period.98
"Property damage" is defined as follows:
a.
b.
96
Physical injury to tangible property, including all
resulting loss of use of that property. All such
loss of use shall be deemed to occur at the time of
the physical injury that caused it; or
Loss of use of tangible property that is not
physically injured. All such loss shall be deemed
to occur at the time of the "occurrence" that
caused it.99
R. Doc. 88 Ex. C.
97
As the Court explains below, Policy Number PXMC-850151
is in fact the only policy that could potentially cover the
underlying lawsuit, because the only "occurrence" giving rise to
the underlying suit happened during the policy period of this
policy. See infra Section III.C.
98
R. Doc. 88 Ex. C. at XL 00318.
99
Id. at XL 00346.
21
A "suit" is defined as "a civil proceeding in which damage because
of . . . 'property damage' . . . to which is this insurance applies
are [sic] alleged."100 "Occurrence" is defined as "an accident,
including continuous or repeated exposure to substantially the same
general harmful conditions."101 The parties do not dispute that all
of the relevant events took place in the "coverage territory" as it
is defined in the policy.
Section II of the policy contains several exclusions to
coverage. Relevantly for purposes of this case, the policy does not
apply to:
1.
"Bodily injury" or "property damage" expected or
intended from the standpoint of the insured. . . .
. . . .
26. "Property damage" to "impaired property" or
property that has not been physically injured,
arising out of:
a.
A defect, deficiency, inadequacy or dangerous
condition in 'your product' or your work;' or
b.
A delay or failure by you or anyone acting on
your behalf to perform a contract or agreement
in accordance with its terms.
This exclusion does not apply to the loss of use of
other property arising out of sudden and accidental
physical injury to 'your product' or 'your work'
after it has been put to its intended use.
27. Damages claimed for any loss, cost or expense
incurred by you or others for the loss of use,
withdrawal,
recall,
inspection,
repair,
replacement, adjustment, removal or disposal of:
a.
"Your product";
b.
"Your work"; or
c.
"Impaired property".
100
Id.
101
Id. at XL 00344.
22
28.
. .
32.
. .
if such product, work or property is withdrawn or
recalled from the market or from use by any person
or organization because of a known or suspected
defect,
deficiency,
inadequacy
or
dangerous
condition in it.
The failure of your products and/or "your work" to
meet any predetermined level of fitness or
performance and/or guarantee of such fitness or
level or performance and/or any consequential loss
arising therefrom.
. .
. . .
. .
e.
Actual or alleged liability arising out of or
incidental to any alleged violation(s) or any
federal or state law regulating, controlling,
and governing . . . deceptive acts and
practices in trade and commerce . . .; or
f.
Actual or alleged liability arising out of or
contributed
to
by
your
dishonesty
or
infidelity.102
"Impaired property" is defined as
tangible property, other than "your product" or "your
work," that cannot be used or is less useful because:
a.
It incorporates 'your product' or 'your work' that
is known or thought to be defective, deficient,
inadequate, or dangerous; or
b.
You have failed to fulfill the terms of a contract
or agreement;
if such property can be restored to use by:
a.
The repair, replacement, adjustment, or removal of
"your product" or "your work;" or
b.
Your fulfilling the terms of the contract or
agreement.103
102
Id. at XL 00320, XL 00328-29.
103
Id. at XL 00342.
23
"Your product" means "[a]ny goods or products, other than real
property, manufactured, sold, handled, distributed or disposed of"
by the insured.104 "Your work" is defined as
a.
Work or operations performed by [the insured] or on
[its] behalf; and
b.
Materials,
parts
or
equipment
furnished
in
connection with such work or operations.
"Your work" includes:
a.
Warranties or representations made at any time with
respect to the fitness, quality, durability,
performance or use of "your work"; and
b.
The providing of or failure to provide warnings or
instructions.105
Section VIII, "General Conditions," provides in relevant part
as follows:
All
all
the
. .
5.
coverages provided by or included in this policy and
endorsements attached to this policy are subject to
following conditions. . . .
. .
Duties In The Event of Occurrence, Claim or Suit
a.
You must see to it that we are notified as
soon as practicable after you become aware of
an "occurrence" or an offense which may result
in a claim. To the extent possible, notice
should include:
(1) How, when and where the "occurrence" or
offense took place;
(2) The names and addresses of any injured
persons and witnesses; and
(3) The nature and location of any injury or
damage arising out of the "occurrence" or
offense.
b.
If a claim is made or "suit" is brought
against any insured, you must:
(1) Immediately record the specifics of the
claim or "suit" and the date received;
and
104
Id. at XL 00346.
105
Id. at XL 00347.
24
(2)
c.
d.
Notify us as soon as practicable after
you receive or are advised of a "suit" or
claim.
You must see to it that we receive written
notice of the claim or "suit" as soon as
practicable.
You and any other involved insured must:
(1) Immediately send us copies of any
demands, notices, summonses or legal
papers received in connection with the
claim or "suit;"
(2) Authorize us to obtain records and other
information;
(3) Cooperate with us in the investigation,
settlement, or defense of the claim or
"suit;" and
(4) Assist us, upon our request, in the
enforcement of any right against any
person or organization which may be
liable to the insured because of injury
or damage to which this insurance may
also apply.
No insureds will, except at their own cost,
voluntarily make a payment, assume any
obligation, or incur any expense, other than
for first aid, without our consent.
. . . .
10. Legal Action Against Us
No person or organization has a right under this
insurance policy:
. . . .
b.
To sue us on this Coverage Part unless all of
its terms have been fully complied with.106
106
Id. at XL 00336, 00338-40. Condition 5 has been amended
by an endorsement to additionally provide that "knowledge of an
occurrence by an agent, servant, or employee of the Insured shall
not in itself constitute knowledge by the Insured unless an
individual named insured, or a partner, or a manager or an
'executive officer' or other person specifically assigned to handle
such insurance related matters of the Insured's corporation shall
have received such notice from its agent, servant, or employee."
Id. at XL 00368. The parties do not dispute that Bollinger's
"executive officers" had knowledge of the relevant occurrence(s) at
the same time as did any of its employees. Accordingly, this
endorsement is not relevant to the issues implicated in the present
motions.
25
2.
The Continental Policies
Continental issued several excess liability insurance policies
to Bollinger for the years 2000-2004 and 2009-2010.107 The policies
relevant for purposes of these motions are the three issued for the
period from September 30, 2003 to September 30, 2004: (1) Policy
EXB118221, a second layer excess bumbershoot policy providing $25
million coverage in excess of $26 million,108 Policy EXB118222, a
third
layer
excess
bumbershoot
policy
providing
$50
million
coverage in excess of 51 million,109 and Policy EXB118223, a fourth
layer excess bumbershoot policy providing $50 million coverage in
excess of $101 million.110 The three policies all followed the terms
of a first layer excess bumbershoot policy issued by XL, Policy
PMEX 855191-S.111
The bumbershoot policy issued by XL covered a Policy Period
from September 30, 2003 to September 30, 2004 and provided $25
million of liability insurance excess of $1 million.112 One of the
policies
underlying
the
bumbershoot
107
general
R. Doc. 146-5.
110
the
R. Doc. 146-4.
109
was
R. Doc. 146-3 at 1-2.
108
policy
R. Doc. 146-6.
111
R. Doc. 146-3 at 2; see also R. Doc. 146-4 at 6-7,
13; R. Doc. 146-5 at 14; R, Doc. 146-6 at 7.
112
R. Doc. 146-7 at 1.
26
10,
liability policy discussed supra Section I.C.1.113 As relevant here,
the first layer bumbershoot policy indemnified Bollinger for
3.
All other sums which the Insured [Bollinger] shall
become legally liable to pay as damages on account
of:
a.
personal injuries, including death at any time
resulting therefrom, or
b.
property damage
caused by or arising out of each occurrence
happening anywhere in the world.114
An "occurrence" is defined as "an event or a continuous or repeated
exposure to conditions which unintentionally causes injury, damages
or destruction during the Policy Period which was unexpected by the
Insured."115 "Property damage" means "physical loss of or direct
physical damage to or destruction of tangible property (other than
property owned or occupied by the Named Insured)."116
The policy contains several exclusions to coverage. Those
relevant for the present motions are as follows:
A.
This insurance does not apply to:
1.
any liability or expense arising out of the
infidelity and/or dishonesty of any Insured,
or any employee or representative of Insured
whether committed individually or in collusion
with others.
. . . .
5.
any claims made by a national, state or local
Government, or sub-divisions or agencies
thereof, unless such claims be for damages
113
Id. at 19.
114
Id. at 3.
115
Id. at 6 (emphasis deleted).
116
Id. (emphasis deleted).
27
occasioned by actual or alleged personal
injury (fatal or otherwise) or property
damage.
. . . .
11. Any liability for, or any loss, damage, injury
or expense caused by, resulting from or
incurred by reason of:
. . . .
h.
any liability or expense from the failure
of the Insured's products or work
completed by or for the Insured to
perform the function or serve the purpose
intended by the Insured, if such failure
is due to a mistake or deficiency in any
design, formula, plan, specification,
advertising
material
or
printed
instructions prepared or developed by any
Insured except with respect to bodily
injury or property damage as a result of
said failure provided such property
damage or bodily injury is covered under
the Underlying Insurance.
. . . .
o.
liability arising our [sic] of the
following activities of the Insured
unless coverage is provided in the
Underlying Insurance, and then coverage
hereunder shall operate as excess of such
coverage:
. . . .
(5) arising out of goods or products
manufactured,
sold,
handled
or
distributed by the Insured . . . if
the
occurrence
occurs
after
possession of such goods or products
has been relinquished to others by
the assured . . . and if such
occurrence occurs away from premises
owned, rented or controlled by the
assured . . .
(6) arising out of operations, if the
occurrence
occurs
after
such
operations have been completed or
abandoned and occurs away from
premises owned, rented or controlled
by the
Insured; provided that
operations shall not be deeemed
28
incomplete because improperly or
defectively performed or because
further operations may be required
pursuant to an agreement . . . .117
Exclusions A.11.h and A.11.o are "conditional exclusions," meaning
that their operation is conditional on the underlying liability
policy not providing coverage. In other words, those provisions
would not exclude coverage for a given claim if the primary XL
policy discussed above covers that claim.
The XL bumbershoot policy also contains a notice provision,
which reads as follows:
L.
Notice of Occurrence
Whenever the Insured has information from which the
Insured may reasonably conclude that an occurrence
covered hereunder involved injuries or damages
which, in the event that the Insured should be held
liable, is likely to involve this Policy, notice
shall be sent to [XL] as soon as practicable
provided, however, that failure to notify [XL] of
any occurrence which at the time of its happening
did not appear to involve this Policy, but which at
a later date, would appear to give rise to claims
hereunder, shall not prejudice such claims.118
Each of the four Bumbershoot policies (the first layer policy
issued by XL and the second, third, and fourth layer policies
issued by Continental) provides that the insurer has no duty to
defend a claim made or suit brought against the insured.119
117
Id. at 6-10.
118
Id. at 13.
119
See id. at 11; R. Doc. 146-4 at 7; R. Doc. 146-5 at 14;
R. Doc. 146-6 at 7; see also R. Doc. 59 at 11.
29
D.
The Parties' Arguments
Bollinger argues that it is entitled to summary judgment on
its claims for defense costs and bad faith penalties against XL
because the XL Policies unambiguously afford Bollinger defense
costs
in
the
underlying
lawsuit
and
because
XL
has
been
"unreasonable" in having paid no defense costs since the United
States filed its complaint. According to Bollinger, at least some
of the United States' allegations were based on "property damage"
caused by "occurrences" that took place in the coverage territory
and during the relevant policy periods, and are not otherwise
excluded by the policies. Hence, Bollinger contends, XL had a duty
to defend Bollinger against the entire lawsuit.
In response, XL offers two sets of arguments in favor of its
contention
that
it
Bollinger.
First,
is
XL
entitled
contends
to
that
summary
judgment
Bollinger
against
breached
its
obligations under the XL Policies to (a) provide prompt notice of
the United States' claim to XL; (b) cooperate with XL in the
investigation of that claim; and (c) obtain XL's consent before
incurring defense costs. Second, XL argues that, even putting aside
Bollinger's
breaches
of
the
policy
provisions,
the
factual
allegations of the United States' complaint do not disclose any
possibility
of
liability
under
the
policies
because
(a)
the
fortuity or "known loss" rule excludes coverage under several
policies; (b) there was no "occurrence" within the meaning of the
30
policies; and (c) the following exclusions exclude coverage: (i)
the
"Impaired
"Sistership"
Property"
exclusion
exclusion
"Predetermined/Guaranteed
(Exclusion
(Exclusion
Level
of
26);
27);
Fitness
(ii)
the
(iii)
or
the
Performance"
exclusion (Exclusion 28); and (iv) the "Dishonesty or Infidelity"
exclusion (Exclusions 32.e-f). XL also asserts that Bollinger has
not properly substantiated the amount of defense costs that it has
requested.
For its part, Continental contends that it is entitled to
summary judgment on all of Bollinger's claims because it has no
duty
to
defend
Bollinger;
because,
regardless
of
the
Fifth
Circuit's ruling on appeal of the underlying lawsuit, none of the
United States' remaining claims are covered under the Continental
policies; and because Bollinger failed to provide Continental with
adequate notice of the United States' claims.
II.
LEGAL STANDARD
Summary judgment is warranted when "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." Fed. R. Civ. P. 56(a);
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986);
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
When assessing whether a dispute as to any material fact exists,
the
Court
considers
"all
of
the
evidence
in
the
record
but
refrain[s] from making credibility determinations or weighing the
31
evidence." Delta & Pine Land Co. v. Nationwide Agribusiness Ins.
Co.,
530
inferences
F.3d
are
395,
drawn
398–99
in
(5th
favor
Cir.
of
the
2008).
All
nonmoving
reasonable
party,
but
"unsupported allegations or affidavits setting forth 'ultimate or
conclusory facts and conclusions of law' are insufficient to either
support or defeat a motion for summary judgment." Galindo v.
Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); see also
Little, 37 F.3d at 1075.
If the dispositive issue is one on which the moving party will
bear the burden of proof at trial, the moving party "must come
forward with evidence which would ‘entitle it to a directed verdict
if the evidence went uncontroverted at trial.'"
Int'l Shortstop,
Inc. v. Rally's, Inc., 939 F.2d 1257, 1264–65 (5th Cir. 1991). The
nonmoving party can then defeat the motion by either countering
with evidence sufficient to demonstrate the existence of a genuine
dispute of material fact, or "showing that the moving party's
evidence is so sheer that it may not persuade the reasonable
fact-finder to return a verdict in favor of the moving party." Id.
at 1265.
If the dispositive issue is one on which the nonmoving party
will bear the burden of proof at trial, the moving party may
satisfy its burden by merely pointing out that the evidence in the
record is insufficient with respect to an essential element of the
nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden
32
then shifts to the nonmoving party, who must, by submitting or
referring to evidence, set out specific facts showing that a
genuine issue exists. See id. at 324. The nonmovant may not rest
upon the pleadings, but must identify specific facts that establish
a genuine issue for trial. See, e.g., id.; Little, 37 F.3d at 1075
("Rule 56 'mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to
make a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party will bear
the burden of proof at trial.'" (quoting Celotex, 477 U.S. at
322)).
III. DISCUSSION
A.
The Admissibility of the St. Germain Declaration and
Related Exhibits
Before addressing the merits of this dispute, the Court must
attend
to
a
preliminary
evidentiary
matter.
XL
argues
that
paragraphs 14, 15, 22, 23, 25, and 26 of the declaration of
Bollinger's Chief Financial Officer, Andrew St. Germain,120 attached
to
Bollinger's
because
St.
motion
Germain
for
lacks
summary
personal
judgment,
knowledge
are
of
inadmissible
the
matters
asserted therein and because his statements are hearsay.121 XL also
objects to the admissibility of certain documents (the spreadsheet
120
R. Doc. 88 Ex. G.
121
See R. Doc. 139-1.
33
attached to St. Germain's declaration and Exhibits L and N to
Bollinger's motion for summary judgment) relating to the amount of
defense costs incurred by Bollinger in defending against the
underlying lawsuit and in bringing its claim against XL. The Court
finds some of XL's objections well-taken.
Federal Rule of Civil Procedure 56(c)(4) provides that "[a]n
affidavit or declaration used to support or oppose a motion [for
summary judgment] must be made on personal knowledge, set out facts
that would be admissible in evidence, and show that the affiant or
declarant
"Affidavits
is
competent
asserting
to
testify
personal
on
knowledge
the
matters
must
stated."
include
enough
factual support to show that the affiant possesses that knowledge."
Amie v. El Paso Indep. Sch. Dist., 253 F. App'x 447, 451 (5th Cir.
2007) (quoting El Deeb v. Univ. of Minn., 60 F.3d 423, 428 (8th
Cir.
1995)).
This
rule
regarding
affidavits
is
a
specific
application of the general rule that courts may consider only
admissible evidence in ruling on a summary judgment motion. See
Fed. R. Civ. P. 56(c)(2); Mersch v. City of Dallas, Tex., 207 F.3d
732, 734-35 (5th Cir. 2000).
In his declaration, St Germain avers as follows:
14.
Receipt of the U.S. lawsuit was the first time
Bollinger learned that the United States would
allege it had negligently misrepresented anything,
or that it had allegedly enriched itself unjustly.
15. Upon receipt of this lawsuit, Bollinger promptly
notified its insurers.
. . . .
34
22.
23.
. .
25.
26.
Attached to Bollinger's Motion for Summary Judgment
as Exhibit "L" is a true, correct, and complete
copy, kept in the regular course of business, of
Bollinger's submission to XL Specialty of legal
expenses relating to the damages alleged by the
United States of America, dated September 25, 2013.
Exhibit "N" attached to Bollinger's Motion for
Summary Judgment, is a true and accurate reflection
of the attorneys' fees and costs Bollinger has
incurred in relation to its claims against XL
Specialty, as of December 9, 2013, which have been
kept in the regular course of Bollinger's business.
These documents evidence that Bollinger has
incurred $24,959.00 in attorneys' fees and $478.18
in costs in pursuing XL Specialty for defense costs
and coverage in this matter.
. .
In relation to the damages alleged to the eight
USCG vessels, Bollinger, between February 29, 2008,
and July 29, 2011, incurred $3,332,585[122] in legal
and related expenses in dealing with the United
States of America.
Since the filing of the U.S. lawsuit, between July
29, 2011, and November 30, 2013,[123] Bollinger has
incurred $5,657,780[124] in legal and related
expenses in relation to the damage claims relating
to the eight USCG vessels.125
St. Germain's declaration is devoid of facts suggesting that
he has personal knowledge of the discussions between the United
States and Bollinger before the FCA suit was filed. His deposition
testimony confirms that he does not in fact have that knowledge.
122
In the affidavit, "$2,504,967.02" has been stricken out
and "$3,332,585" written in by hand.
123
In the affidavit, "August 31" has been stricken out and
"November 30" written in by hand.
124
In the affidavit, "$5,804,577.98" has been stricken out
and "$5,657,780" written in by hand.
125
R. Doc. 88 Ex. G. at 4-5.
35
With regard to the progress of the United States' investigation,
St. Germain admitted that he had no "independent knowledge of what
Bollinger knew or didn't know about the claims that the government
was making prior to receipt of the U.S. lawsuit."126 He did not
participate in the preparation of the tolling agreement; indeed, he
never
even
saw
any
of
those
agreements.127
Consequently,
his
statement that "[r]eceipt of the U.S. lawsuit was the first time
Bollinger learned that the United States would allege it had
negligently misrepresented anything, or that it had allegedly
enriched
itself
unjustly"
is
clearly
not
based
on
personal
knowledge, and hence is inadmissible. See Fed. R. Civ. P. 56(c);
Fed. R. Evid. 602. The Court will strike this paragraph. Cf. Bright
v. Ashcroft, 259 F. Supp. 2d 494, 498-99 (E.D. La. 2003) (striking
portions of affidavit not based on personal knowledge). Paragraph
15, however, will not be stricken. The Court is satisfied that St.
Germain has personal knowledge that Bollinger notified XL of the
lawsuit shortly after it was filed -- and, in any event, that fact
is not disputed. (The dispute concerns whether Bollinger should
126
R. Doc. 139-2 at 32; accord id. at 32-33 ("Q:. . . Were
you ever privy to any conversation or discussion between the United
States . . . and any Bollinger representative relative to the
nature of the claims that the government was making against
Bollinger, prior to the lawsuit being filed? A: The verbal
conversation? . . . No, ma'am."); id. at 36-37 (St. Germain was not
the "prime contact" in discussing the Deepwater investigation with
the government).
127
Id. at 39.
36
have notified XL earlier in the Deepwater investigation, before the
United States actually filed a complaint.) Further, the Court finds
that as Bollinger's CFO, St. Germain has personal knowledge of the
defense costs incurred by Bollinger. Accordingly, paragraphs 22,
23, 25, and 26 will not be stricken either.
B.
Louisiana Law On Insurance Contracts
1.
General Principles of Contract Interpretation
The parties agree that Louisiana law governs this contractual
dispute.
"Under Louisiana law, 'an insurance policy is a contract
that must be construed in accordance with the general rules of
interpretation of contracts set forth in the Louisiana Civil
Code.'" Coleman v. Sch. Bd. of Richland Parish, 418 F.3d 511, 516
(5th Cir. 2005) (quoting Am. Int'l Specialty Lines Ins. Co. v.
Canal Indem. Co., 352 F.3d 254, 262 (5th Cir. 2003)). The Civil
Code instructs that a court, in interpreting a contract, must
ascertain the common intent of the parties. La. Civ. Code art.
2045; Coleman, 418 F.3d at 516; La. Ins. Guar. Ass'n v. Interstate
Fire & Cas. Co., 630 So. 2d
759, 763 (La. 1994). "When the words
of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of
the parties' intent." La. Civ. Code art. 2046. The words in a
contract are assumed to carry their "generally prevailing meaning,"
unless the words have acquired a technical meaning. La. Civ. Code
37
art. 2047; La. Ins. Guar. Ass'n, 630 So. 2d at 763. Moreover,
"[e]ach provision in a contract must be interpreted in light of the
other provisions so that each is given the meaning suggested by the
contract as a whole." La. Civ. Code art. 2050.
"An
insurance
policy
should
not
be
interpreted
in
an
unreasonable or a strained manner so as to enlarge or to restrict
its provisions beyond what is reasonably contemplated by its terms
or so as to achieve an absurd conclusion." La. Ins. Guar. Ass'n,
630 So. 2d at 763. "Absent a conflict with statutory provisions or
public policy, insurers, like other individuals, are entitled to
limit
their
liability
and
to
impose
and
enforce
reasonable
conditions upon the policy obligations they contractually assume."
Id. That being said, if ambiguities remain after the court applies
the general rules of contractual interpretation, the ambiguities
must be construed in favor of the insured. Id. at 764; see also La.
Civ. Code art. 2056 ("In case of doubt that cannot be otherwise
resolved, a provision in a contract must be interpreted against the
party who furnished its text."); Garcia v. St. Bernard Parish Sch.
Bd., 576 So. 2d 975, 976 (La. 1991) ("Equivocal provisions seeking
to narrow the insurer's obligation are strictly construed against
the insurer, since these are prepared by the insurer and the
insured had no voice in the preparation."). When confronted by an
ambiguous provision in an insurance policy, the court will construe
the provision as a "reasonable insurance policy purchaser would .
38
. . at the time the insurance contract was entered." Breland v.
Schilling, 550 So. 2d 609, 610-11 (La. 1989).
"With respect to coverage, the insured bears the burden of
proving that the incident giving rise to a claim falls within the
policy's terms." Coleman, 418 F.3d at 517 (citing Doerr v. Mobil
Oil Corp., 774 So. 2d 119, 124 (La. 2000)). But the insurer bears
the burden of proving that an exclusion to coverage applies. Id.
Exclusions "are construed strictly against the insurer and in favor
of coverage." Id.; accord Garcia, 576 So. 2d at 976.
The scope of a duty to defend contained in a liability
insurance policy is generally "broader than the scope of the duty
to provide coverage." Coleman, 418 F.3d at 523 (quoting Suire v.
Lafayette City-Parish Consol. Gov't, 907 So. 2d 37, 51-52 (La.
2005)); accord Lamar Advertising Co. v. Cont'l Cas. Co., 396 F.3d
654, 660 (5th Cir. 2005). When determining an insurer's duty to
defend, the court follows the "Eight Corners" rule: if, after
comparing the terms of the policy to the allegations of the
complaint, the Court determines that "'there are any facts in the
complaint which, if taken as true, support a claim for which
coverage is not unambiguously excluded,' the insurer must defend
the insured." Lamar Advertising, 396 F.3d at 660 (quoting Complaint
of Stone Petroleum Corp., 961 F.2d 90, 91 (5th Cir. 1992)). "In
making this determination, the Court must liberally interpret the
complaint." Id. But, while the Court must accept as true the facts
39
alleged in the complaint for purposes of applying the Eight Corners
rule, the Court need not credit "statements of conclusions . . .
that are unsupported by factual allegations." Coleman, 418 F.3d at
523 (quoting Jensen v. Snellings, 841 F.2d 600, 612 (5th Cir.
1988)); accord William S. McKenzie & H. Alston Johnson, III, 15
Louisiana Civil Law Treatise, Insurance Law & Practice § 7:2 (4th
ed. 2012) ("It is well settled that the allegations of fact, and
not conclusions, contained in the petition determine the obligation
to defend."); cf. PPI Tech. Servs., L.P. v. Liberty Mut. Ins. Co.,
515 F. App'x 310, 314 (5th Cir. 2013) ("[T]he court must focus on
the factual allegations that show the origin of the damages rather
than the legal theories alleged. . . . It is not the cause of
action alleged that determines coverage but the facts giving rise
to the alleged actionable conduct." (citations omitted) (internal
quotation marks omitted) (applying Texas law)). "[O]nce a complaint
states one claim within the policy's coverage, the insurer has a
duty to accept defense of the entire lawsuit, even though other
claims in the complaint fall outside of the policy's coverage."
Coleman,
418
F.3d
at
523
(alteration
in
original)
(quoting
Montgomery Elevator Co. v. Bldg. Eng'g Servs. Co., 730 F.2d 377,
382 (5th Cir. 1984)); accord McKenzie & Johnson, supra, § 7:2.
2.
Penalties for Failing to Pay Insurance Claims
Louisiana law authorizes the recovery of bad faith penalties
from insurers who fail to pay legitimate claims under two nearly
40
identical provisions. See La. Rev. Stat. §§ 22:1892, 22:1973.
Under section 22:1892(A)(1), "all insurers . . . shall pay the
amount of any claim due any insured within thirty days after
receipt of satisfactory proofs of loss from the insured." If an
insurer
refuses
to
pay
a
claim
within
30
days
of
receiving
satisfactory proofs of loss, and its failure to do so is found to
be "arbitrary, capricious, or without probable cause," then section
22:1892(B)(1) provides that the insurer is subject to pay a penalty
equal to 50% of the loss, or one thousand dollars, whichever is
greater. Section 22:1973 imposes on insurers "a duty of good faith
and fair dealing" and provides for penalties if an insurer fails to
pay a claim within sixty days after receipt of satisfactory proof
of loss when "such failure is arbitrary, capricious, or without
probable cause." La. Rev Stat. §§ 22:1973(A), 22:1973(B)(5). Both
Section 22:1892 and Section 22:1973 can authorize an award of
penalties
for
an
insurer's
breach
of
a
duty
to
defend.
See
Arceneaux v. Amstar Corp., 66 So. 3d 438, 452 (La. 2011) (section
22:1892); Credeur v. McCullough, 702 So. 2d 985, 987 (La. Ct. App.
1997) (section 22:1973).128 "A plaintiff may be awarded penalties
under
only
one
of
the
two
statutes,
whichever
is
greater."
Dickerson v. Lexington Ins. Co., 556 F.3d 290, 297 (5th Cir. 2009).
Nonetheless, a plaintiff may recover attorneys' fees under section
128
Section 22:1973 was formerly codified at La. Rev. Stat.
§ 22:1220. Credeur was decided before the revision and so cites to
§ 22:1220.
41
22:1892 while seeking damages and penalties under section 22:1973.
Id.
The phrase "arbitrary and capricious" means "[v]exatious" or
"unjustified, without reasonable or probable cause or excuse."
Dickerson, 556 F.3d at 297 (quoting Reed v. State Farm Mut. Auto.
Ins. Co., 857 So. 2d 1012, 1021 (La. 2003)). "An insurer does not
act arbitrarily and capriciously . . . when it withholds payment
based on a genuine (good faith) dispute about the amount of a loss
or the applicability of coverage." Id. at 297-98 (citing Calogero
v. Safeway Ins. Co. of La., 753 So. 2d 170, 173 (La. 2000)).
"Whether or not a refusal to pay is arbitrary, capricious, or
without probable cause depends on the facts known to the insurer at
the time of its action . . . ." Reed, 857 So. 2d at 1021.
C.
XL Is Entitled to Summary Judgment
1.
Duty to Defend
As a threshold matter, the Court briefly addressees the
question of which XL policy or policies are at issue in this
dispute. In its briefing, XL argued that the United States' claims
in the FCA lawsuit could potentially trigger only one of its
policies, Policy PXMC-850151, which covers the policy period from
September 30, 2003 to September 30, 2004. In contrast, Bollinger's
briefing on these motions suggested that more than one policy could
be triggered.
42
XL is correct. Each of the XL policies "applies to . . .
'property damage' only if . . . [t]he . . . 'property damage'
occurs during the policy period."129 Under Louisiana law, property
damage in construction defect cases is deemed to "occur at the
point when it becomes manifest, or when it is discovered." New
Orleans Assets, L.L.C. v. Travelers Prop. Cas. Co., Nos. 01-2171,
02-974, 2002 WL 32121257, at *2 (E.D. La. Sep. 12, 2002); see also
Rando v. Top Notch Props., L.L.C., 879 So. 2d 821, 834 (La. Ct.
App. 2004); McKenzie & Johnson, supra, § 6:5 ("The defective
construction itself does not trigger coverage [in construction
defect cases]. Instead, coverage is triggered under the . . .
policy in effect when that defect causes physical injury to
tangible property (e.g., the roof leaks or the wall collapses).").
In
the
United
States'
complaint,
the
only
"property
damage"
actually alleged to have become manifest is the structural casualty
suffered by the MATAGORDA in September 2004.130 Accordingly, Policy
PXMC-850151, which covers the policy period from September 30,
2003,
to
September
20,
2004,
is
the
only
policy
that
could
potentially cover the United States' claims. In addition, at oral
argument, counsel for Bollinger appeared to concede that only
Policy PXMC-850151 is at play.
129
R. Doc. 88 Ex. C. at XL 00318.
130
See R. Doc. 88 Ex. J. at BGR-RAP-02056, ¶ 36.
43
In any event, the parties agree that all of the XL policies
are identical in all relevant respects. Therefore, the Court's
analysis applies to each of the policies equally. Accordingly,
whether only one policy is implicated or more than one policy is
implicated does not affect the Court's analysis or conclusions
about whether XL had a duty to defend Bollinger in the FCA lawsuit.
For the purpose of clarity, the Court limits its discussion for the
remainder of this order to XL Policy PXMC-850151 (henceforth
referred to simply as the "XL policy").
The Court finds that the XL policy does not cover the United
States' lawsuit and hence does not impose upon XL a duty to defend
Bollinger because the claims for negligent misrepresentation and
unjust enrichment are based entirely on allegations that fall
within Exclusion 28 of the XL Policy and because the claims for
common law fraud and the claims under the False Claims Act fall
within Exclusions 32.e and 32.f. of the XL Policy.
Exclusion 28
(Predetermined/Guaranteed Level of Fitness/Performance)
Exclusion 28 provides that the XL Policy does not apply to
"[t]he failure of your products and/or 'your work' to meet any
predetermined level of fitness or performance and/or guarantee of
such fitness or level of performance and/or any consequential loss
arising therefrom."131 The XL policy provides that "your work" means
131
R. Doc. 88 Ex. C at XL 00328.
44
"work or operations performed by you or on your behalf; and . . .
[m]aterials, parts or equipment furnished in connection with such
work
or
operations."
In
addition,
"your
work"
includes
"[w]arranties or representations made at any time with respect to
the fitness, quality, durability, performance or use of 'your
work.'"132 The Court finds that the United States' claims for
negligent misrepresentation and unjust enrichment are based upon
conduct that falls squarely within this exception.
A plain reading of the complaint reveals that the basis of the
United States' claims for negligent misrepresentation and unjust
enrichment
is
the
failure
of
Bollinger's
work
to
meet
the
longitudinal strength "level represented by Bollinger" throughout
the bidding and development stages of the project.133 Bollinger
argues
that
because
the
words
"guarantee,"
"fitness,"
and
"predetermined" do not appear in the complaint, the exclusion does
not apply.134 Bollinger also argues that because the complaint does
not make clear that any particular section modulus calculation was
a "contract requirement," the complaint does not allege a failure
to meet a "predetermined level of fitness or performance" or a
"specific guarantee of fitness."135 Bollinger cites no case law,
132
Id. at XL 00347.
133
R. Doc. 88 Ex. J at BGR-RAP-02056, ¶ 37.
134
R. Doc. 245 at 9.
135
Id.
45
however, to support its proposition that a represented level of
performance cannot be a "predetermined level of performance" unless
it is a contract requirement. XL, for its part, cites Farrell
Construction Co. v. Jefferson Parish Louisiana, No. 86-4242, 1991
WL 68334 (E.D. La. Apr. 23, 1991), and First Horizon Insurance Co.
v. International Surplus Lines Ins. Co., No. 87-3616, 1989 WL
132856 (E.D. La. Oct. 31, 1989), for the proposition that the
exclusion applies even when an agreement to meet a particular level
of performance is only implicit. See Farrell Const. Co., 1991 WL
68334, at *4 (damages resulting from failure of insured's work to
meet an implied "expected level of quality and fitness" excluded);
First Horizon Ins. Co., 1989 WL 132856, at *3 ("Under the First
Horizon contract, Amex implicitly represented that its performance
would reach some minimum level."). These cases offer limited
guidance in interpreting Exclusion 28, however, as the exclusion at
issue in both cases is worded differently than Exclusion 28. Most
importantly, the exclusion at issue in both Farrell and First
Horizon Insurance excludes damages arising out of the failure of
the insured's work
fitness
or
"to meet the level of performance, quality,
durability
warranted
or
represented
by
the
named
insured," whereas Exclusion 28 excludes damages arising out of the
failure of the insured's work to meet a "predetermined level of
fitness
136
or
performance."136
Thus,
Farrell
R. Doc. 88 Ex. C at XL 00328.
46
and
First
Horizon
Insurance have little to say about what it means for a level of
fitness of performance to be "predetermined."137
After a careful review of the allegations in the complaint,
however, the Court concludes that even without using the precise
word
"predetermined,"
the
United
States
nevertheless
clearly
alleges that Bollinger's work failed to meet a "predetermined level
of fitness or performance." The Court applies the "Eight Corners"
rule, comparing the terms of the exclusion against the facts
supporting the United States' negligent misrepresentation and
unjust enrichment claims. The Court focuses on the facts alleged,
not conclusory labels applied to the claims. As the court stated in
Quick v. Ronald Adams Contractor, Inc., 861 So. 2d 278, 282 (La.
Ct.
App.
2003):
"While
the
allegations
of
the
petition
are
liberally interpreted in determining whether they set forth grounds
that bring the claim within the scope of insurer's duty to defend
a suit brought against an insured, allegations of fact, and not
conclusions, contained in the petition, determine the obligation to
defend." See also Lodwick, L.L.C. v. Chevron U.S.A., Inc., 126 So.
3d 544, 551 (La. Ct. App. 2013) (studying the factual allegations
137
Indeed, although Exclusion 28 shares elements with
common exclusions such as the "Your Products" and "Your Work"
exclusions, the precise formulation presented by Exclusion 28
appears to be sui generis. The Court's survey of the case law
reveals no cases interpreting an identically worded exclusion -in particular, one involving a "predetermined level of fitness or
performance" -- in state or federal court anywhere in the United
States.
47
in a complaint to determine whether the factual basis for a variety
of claims -- including, inter alia, breach of contract and unjust
enrichment -- was conduct falling within the pollution exclusion of
an insurance policy for purposes of evaluating duty to defend).
According to the United States' complaint, Bollinger was
responsible for the "performance requirements" of the modified
cutters.138 The complaint alleges that in September of 2000, over
two years before the Coast Guard signed a contract with IGCS, it
raised feasibility concerns related to the conversion project, and
in particular regarding the structural integrity of the hulls in
light
of
the
proposed
modifications.139
In
response
to
these
concerns, Bollinger prepared a longitudinal strength analysis of
its design for the modified cutters that compared the section
modulus of its design with the section modulus required by the
American Bureau of Shipping (ABS).140 According the complaint,
Bollinger submitted this analysis to the Coast Guard stating that
"the required section modulus is 3113 [inches cubed] and the actual
section modulus of the patrol boat is 7152 [inches cubed]." This
statement
indicated
that
Bollinger's
proposed
138
R. Doc. 88 Ex. J at BGR-RAP-02050, ¶ 13.
139
Id. at BGR-RAP-02050, ¶ 15.
140
R. Doc. 88 Ex. J at BGR-RAP-02051, ¶ 16.
48
design
of
the
modified cutters yielded a section modulus that was greater than
the ABS requirement by a factor of 2.3.141
According to the complaint, the Coast Guard, relying in part
on Bollinger's representations that the modified cutters would
possess sufficient hull strength, selected IGCS to perform the work
on the Deepwater program.142 The Coast Guard and ICGS entered into
a
contract
in
June
2002,
which
"contained
a
Contract
Data
Requirements List (CDRL), which identified information that ICGS
and its subcontractors were required to provide the Coast Guard
concerning
the
assets
and
other
contract
deliverables."143
Specifically, the contract "required ICGS and its subcontractors to
provide the Coast Guard with CDRL S012-11, a Hull Load and Strength
Analysis (HLSA) to verify that the 123-Ft WPB modification design
met program and contract requirements."144 In accordance with this
contract requirement, Bollinger submitted an initial version of
CDRL S012-11 on September 4, 2002.145 Bollinger's initial CDRL
S012-11
"reported
an
actual
section
modulus
of
5,232
cubic
inches."146 Bollinger submitted a final version of CDRL S012-11 on
141
Id. at BGR-RAP-02051-52, ¶¶ 16-18.
142
Id. at BGR-RAP-02052, ¶ 20.
143
Id.
144
Id. at BGR-RAP-02053, ¶ 21.
145
Id. at BGR-RAP-02054, ¶ 29.
146
Id.
49
December 16, 2002, again "reporting that the actual section modulus
was 5,232 cubic inches."147 Although this section modulus was lower
than the section modulus of 7152 cubic inches submitted during the
first phase of the project, it still exceeded the "ABS required
section modulus" by a factor of 1.7.148
The Coast Guard went ahead with issuing its remaining work
orders for the cutters.149 Beginning in March 2004, "[i]n total
eight 123-Ft WPBs were delivered to the Coast Guard by Bollinger,
through ICGS" and "[n]one of the vessels possessed the longitudinal
strength represented by Bollinger in the CDRL S012-11s submitted in
September and December 2002."150 The same paragraph of the complaint
goes on to explain:
Efforts to increase the longitudinal strength of the
vessels were made by ICGS and the Coast Guard after the
MATAGORDA’s failure; these efforts did not increase the
longitudinal strength to the level represented by
Bollinger in its CDRLs. The modified cutters are now
unusable. Had the Coast Guard been aware of the true
section modulus at the time it issued the DTOs, it would
not have proceeded with Bollinger’s design for the
modification of the 110-Ft WPBs.151
After the failure of the first ship, calculations revealed that the
true section modulus of the modified cutters was 2,615 cubic
147
Id. at BGR-RAP-02055, ¶ 33.
148
Id. at BGR-RAP-02051-52, ¶ 18.
149
Id. at BGR-RAP-02053, ¶ 22.
150
Id. at BGR-RAP-02056, ¶ 37.
151
Id.
50
inches, well below the ABS standard.152 The complaint alleges that
as a result of the failure of the ships to meet the strength level
represented by Bollinger, the United States suffered damages in the
form of (1) payments of "approximately $78 million in response to
65 requests for payment . . . for the work performed by Bollinger
and (2) "the loss of the eight now-unusable [cutters]."153 In
specific support of its negligent misrepresentation claim, the
United States framed its damages as "a pecuniary loss."154 In
specific support of its unjust enrichment claim, the United States
claimed that Bollinger "obtained payments from the Coast guard in
return for the delivery of unseaworthy vessels."155
The entire basis for the allegations that the cutters were
"unusable," a "loss," and "unseaworthy" is that they did not meet
the
longitudinal
strength
"level
represented
by
Bollinger"
throughout the bidding and development stages of the project.156
Specifically, the complaint makes plain that Bollinger, the party
responsible
for
"performance
requirements,"157
recognized
and
communicated from the earliest stages of the project that the "ABS
152
Id. at BGR-RAP-02056, ¶ 36.
153
Id. at BGR-RAP-02056-57, ¶ 38.
154
Id. at BGR-RAP-02059, ¶ 54.
155
Id. at BGR-RAP-02059, ¶ 56.
156
Id. at BGR-RAP-02056, ¶ 37.
157
Id. at BGR-RAP-02050, ¶ 13.
51
required section modulus" was 3113 cubic inches.158 The complaint is
also unambiguous that at all times before ICGS was chosen for the
project, before the contract was signed, before any work orders
issued, and before any ships were delivered, Bollinger represented
that
the
cutters
would
not
only
meet,
but
would
in
fact
substantially exceed the 3113 cubic inches required "level of
performance." Finally, the complaint makes abundantly clear that
Bollinger's work failed to meet this level of performance.
In sum, the conduct that forms the basis of the United States'
claims for negligent misrepresentation and unjust enrichment is (1)
the
"representation"
that
Bollinger's
work
would
meet
a
"predetermined level of performance" -- specifically, at a minimum,
the 3113 cubic inches section modulus required by the ABS -- and
(2) the failure of Bollinger's work to meet this predetermined
level of performance. Because this failure both forms the entire
basis of the United States' claims for negligent misrepresentation
and unjust enrichment and falls squarely within Exclusion 28 of the
XL policy, the exclusion prevents the policy from covering either
claim.
Finally, although the United States did not make out a
distinct cause of action for property damage, to the extent that it
sought damages for "loss of the eight now-unusable [cutters]," the
Court finds that 100% of these damages fall within the exclusion as
158
Id. at BGR-RAP-02051-52, ¶ 18.
52
well. Bollinger argues that Exclusion 28 does not preclude coverage
for damage to the entire cutters because "[s]uch an exclusion is
intended to apply only to the specific work performed by an
insured."159 Bollinger is incorrect. Exclusion 28 of the XL Policy
is not limited only to damage to the specific work performed by
Bollinger; to the contrary, it explicitly covers "consequential
loss arising therefrom."
In support of its position, Bollinger cites Underwriters at
Lloyd's London v. OSCA, Inc., Nos. 03-20398, 03-20817, 03-21021,
2006 U.S. App. LEXIS 9717 (5th Cir. Apr. 12, 2006), and Todd
Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401 (5th Cir.
1982). Neither case applies here because the language of the
insurance policies in OSCA and Todd Shipyards differed markedly
from the language of the XL Policy. In OSCA, OSCA had been hired to
set a bridge plug in a fixed platform operated by a company called
Newfield. OSCA failed to include a "back pressure valve" in the
coiled tubing assembly that it used to set the bridge plug, and
this failure resulted in an "uncontrolled blowout" that severely
damaged the platform. 2006 U.S. App. LEXIS 9717, at *6-7. OSCA
carried a liability insurance policy containing an exclusion that
read as follows:
E.
EFFICACY,
insured:
LOSS
OF
USE,
159
R. Doc. 140 at 19; R. Doc. 245 at 8.
53
ETC.
Liability
of
the
(1) arising out of the failure of any Insured's
Products or of work, including architectural or
engineering services, by or on behalf of any
Insured to meet any warranty or representation by
any Insured as to the level of performance,
quality, fitness or durability or extent that such
liability is for the diminished value or utility of
Insured's Products or work by or on behalf of any
Insured;
(2) without
limiting
paragraph
(1)
of
the
Exclusion E. in respect of Property Damage to any
Insured's Products or of work, including, without
limitation, architectural or engineering services,
performed by or on behalf of any Insured, if such
Property Damage arises out of any portion of such .
. . work, or out of materials, parts or equipment
furnished in connection therewith.
Id. at *65 (emphasis added). The Fifth Circuit, noting that this
provision applied only to damage to the insured's work itself, held
that it did not apply to the damages to the platform, because the
platform was not considered the "work" of OSCA. OSCA's "work" was
the setting of the bridge plug, and consequently the exclusion
covered only damage to that specific part of the platform. Id. at
*69-73.
Similarly,
in
Todd
Shipyards,
the
court
interpreted
an
exclusion for "property damage to work performed by . . . the named
insured arising out of the work or any portion thereof" to apply
only to "the particular work performed by the insured, but not the
overall damage that the incorporation of the defective work product
causes to the entire entity." 674 F.2d at 420-21 (emphasis added).
Here, in contrast, Exclusion 28 of the XL Policy is not
limited to liability arising out of damage to the particular work
54
performed by the insured. It broadly provides that liability for
"[t]he failure of your products and/or 'your work' to meet any
predetermined level of fitness or performance and/or guarantee of
such fitness or level of performance and/or any consequential loss
arising therefrom" is not covered under the policy. Thus, the
exclusion unambiguously precludes coverage for the United States'
claims for damages to the cutters.
Exclusions 32.e and 32.f
(Dishonesty and Infidelity Exclusions)
XL
contends
that
two
exclusions
relating
to
deception,
dishonesty, and infidelity apply to the United States' claims: one
for "[a]ctual or alleged liability arising out of or incidental to
any alleged violation(s) of any federal or state law . . .
governing
.
.
.
deceptive
acts
and
practices
in
trade
and
commerce," and one for "[a]ctual or alleged liability arising out
of
or
contributed
to
by
[the
insured's]
dishonesty
or
infidelity."160
Bollinger rightfully concedes that these exclusions, by their
plain terms, preclude coverage for the United States' common law
fraud claims and its claims under the False Claims Act.161 But
Bollinger
claims
that
the
United
States'
negligent
misrepresentation and unjust enrichment allegations do not fall
160
R. Doc. 88 Ex. C at XL 00329.
161
See R. Doc. 140 at 20-21.
55
within this exclusion, and consequently that XL had a duty to
defend the entire lawsuit.162 Bollinger's alleged liability stemming
from those claims, however, falls entirely within the predetermined
level of fitness/performance exclusion to coverage as explained
above. Hence, none of the United States' claims were covered by the
XL Policy, and accordingly XL had no duty to defend Bollinger in
the underlying lawsuit.
2.
Other Exclusions
Since the Court has resolved the duty to defend issue on the
basis of Exclusion 28, Exclusion 32.e, and
Exclusion 32.f, the
other exclusions briefed by the parties are not essential to the
result and thus do not merit extended discussion. For the sake of
completeness, however, the Court briefly explains why the other
exclusions asserted by XL fail to exclude all of the claims in the
United States' complaint.
Exclusion 1
("Intentional Acts" Exclusion)
XL suggests that it does not owe Bollinger defense costs
because the United States' complaint alleges only intentional acts
of fraud. Specifically, XL argues that the United States' claims
for negligent misrepresentation and unjust enrichment are not
supported by the facts actually alleged. XL is incorrect. The
United States' complaint plausibly alleges negligent (as opposed to
162
Id. at 21 (citing Lamar Advertising Co. v. Cont'l Cas.
Co., 396 F.3d 654, 660 (5th Cir. 2005)).
56
intentional) misrepresentation. Indeed, when the Court granted
Bollinger's first motion to dismiss in the underlying suit, it
explicitly
held
that
"the
United
States'
factual
allegations
identify the elements of duty, breach, and damages necessary for a
plausible negligent misrepresentation claim." United States v.
Bollinger Shipyards, Inc., Civil Action No. 12-920, 2013 WL 393037,
at *11 (E.D. La. Jan. 30, 2013). Accordingly, at least one of the
United
States'
claims
alleged
a
non-intentional
act.
Thus,
Exclusion 1 does not absolve XL of the duty to defend.
Exclusion 26
("Impaired Property" Exclusion)
XL also contends that Exclusion 26 absolves it of any duty to
defend the United States' lawsuit. That exclusion provides that the
policy does not apply to
"Property damage" to "impaired property" or property that
has not been physically injured, arising out of:
a.
A defect, deficiency, inadequacy or dangerous
condition in "your product" or "your work;" or
b.
A delay or failure by you or anyone acting on your
behalf to perform a contract or agreement in
accordance with its terms.
This exclusion does not apply to the loss of use of other
property arising out of sudden and accidental physical
injury to "your product" or "your work" after it has been
put to its intended use.163
"Impaired property" is defined as "tangible property, other than
'your product' or 'your work,' that cannot be used or is less
useful because . . . [i]t incorporates 'your product' or 'your
163
R. Doc. 88 Ex. C at XL 00328.
57
work'
that
is
known
or
thought
to
be
defective,
deficient,
inadequate or dangerous," if the property "can be restored to use
by . . . [t]he repair, replacement, adjustment, or removal of 'your
product' or 'your work.'"164
Louisiana
case
law
is
clear
that
the
impaired
property
exclusion does not apply to property that has been physically
injured.
See,
e.g.,
Stewart
Interior
Contractors,
L.L.C.
v.
Metalpro Indus., L.L.C., 969 So. 2d 653, 664 (La. Ct. App. 2007)
(citations omitted) ("We find the 'impaired property' exclusion to
be clear and unambiguous. The exclusion precludes coverage for
damage to property that has not been physically injured or for
which only loss of use is sought. . . . [T]he exclusion does not
apply where there is physical damage to property other than the
insured's work or product after the product has been put to its
intended use."); see also Martco Ltd. P'ship v. Wellons, Inc., 588
F.3d 864, 876 (5th Cir. 2009) (holding that any damages based on
"actual physical injury" would not be excluded under an impaired
property provision); McKenzie & Johnson, supra, § 6:20 ("The
exclusion is not applicable when there is loss of use due to
physical injury to the tangible property."). This rule prevents
Exclusion 26 from absolving XL of its duty to defend, because the
United States' complaint alleges damages for "actual physical
injury" to the MATAGORDA. Martco, 588 F.3d at 876.
164
Id. at XL 00342.
58
In addition, the Fifth Circuit held in
Martco
that the
"restoration provision" of the "impaired property" definition
limits the exclusion to situations in which the impaired property
can be completely restored by the replacement or repair of the work
done
by
the
insured.
Id.
There,
Martco,
a
building
product
manufacturer, had hired Wellons to make certain improvements to a
thermal oil heating system located at a plant owned by Martco. Id.
at 870. The "improvements" did not work out as planned, however;
following the completion of Wellons' work, numerous problems arose
with the heating system that allegedly damaged the infrastructure
of the plant and resulted in "unplanned downtime." Id. at 870-71.
The Fifth Circuit held that an exclusion in Wellons' liability
insurance policy virtually identical to Exclusion 26 did not
preclude coverage for the lawsuit that Martco eventually brought
against Wellons. Id. at 875-76. The court reasoned that "for the
exclusion to apply, the complaint must unambiguously state that
'impaired
property'
is
susceptible
to
full
restoration
by
repairing, replacing, adjusting, or removing the insured's 'work'
or the insured's 'product.'" Id. at 876. "Nothing in the complaint
unambiguously demonstrate[d] such a simple solution would repair
Martco's infrastructure." Id. This was because Wellons' defective
work had caused other consequential damages to other parts of the
Martco plant that could not be repaired simply by replacing the
heating unit.
59
Here, the complaint does not "unambiguously state" that simply
remedying Bollinger's defective work would make the cutters usable.
Id. To the contrary: the complaint specifically alleges that
efforts to repair the cutters by "increas[ing] the longitudinal
strength of the vessels" had been attempted and had failed.165 For
this reason as well, Exclusion 26 does not absolve XL of its duty
to defend.
Exclusion 27
("Sistership" Exclusion)
Finally, XL argues that the policy's "sistership" exclusion
precludes coverage for the FCA lawsuit. The exclusion provides that
the policy does not apply to
[d]amages claimed for any loss, cost or expense incurred
by you or others for the loss of use, withdrawal, recall,
inspection, repair, replacement, adjustment, removal or
disposal of:
a.
"Your product";
b.
"Your work"; or
c.
"Impaired property".
if such product, work or property is withdrawn or
recalled from the market or from use by any person or
organization because of a known or suspected defect,
deficiency, inadequacy or dangerous condition in it.166
The name "sistership exclusion" is "derived from aircraft coverage
in situations in which the crash of an airplane would result in the
165
R. Doc. 88 Ex. J at BGR-RAP-02056, ¶ 37.
166
R. Doc. 88 Ex. C at XL 00328.
60
grounding or recall of all sisterships." McKenzie & Johnson, supra,
§ 6:22. "The exclusion deals only with damages resulting from
activities with respect to the sisterships; it is not applicable to
damages arising out of the original occurrence which gave rise to
the apprehension about sisterships." Id.; see also Todd Shipyards
Corp. v. Turbine Serv., Inc., 674 F.2d 401, 419 (5th Cir. 1982)
("The [sistership] provision is intended to exclude from coverage
the cost of preventative or curative action by withdrawal of a
product in situations in which a danger is to be apprehended. It is
not, however, intended to exclude from coverage damages caused by
the
very
product
whose
failure
to
perform
properly
aroused
apprehension about the quality of 'sister' products."). Thus, the
exclusion does not absolve XL of its duty to defend, because the
United States' complaint alleges damages "caused by the very
product whose failure to perform" led to the withdrawal of the
sisterships. Todd Shipyards, 674 F.2d at 419.
61
3.
Notice
Because the Court has already resolved the duty to defend
issue in XL's favor on the basis of XL's policy exclusions, the
Court need not reach the question of whether Bollinger's alleged
breach of the policy's notice provision might have also precluded
coverage. Nevertheless, again in the interest of comprehensiveness
and because the parties briefed the issue extensively, the Court
addresses the question of notice here.
The XL policy provides that Bollinger "must see to it that [XL
is] notified as soon as practicable after [Bollinger] become[s]
aware of an 'occurrence' or an offense which may result in a
claim."167 XL contends that this provision triggered a duty on the
part of Bollinger to notify XL about the Deepwater investigation
by, at the latest, May 17, 2007. XL points out that on that date
the Coast Guard officially revoked acceptance of the eight patrol
boats, citing "design flaws" that caused "hull buckling and shaft
alignment
issues."168
This
letter,
XL
argues,
certainly
made
Bollinger aware "that it was then confronting 'an offense which may
result in a claim,' if not an actual claim, requiring notice."169
But Bollinger did not notify XL of the investigation until July
2011, only days before the United States filed its complaint.
167
R. Doc. 88 Ex. C at XL 00338.
168
R. Doc. 142-6 at 1.
169
R. Doc. 142-1 at 13.
62
Bollinger argues that it fulfilled its notice obligations
under the XL policy because it contacted its insurance broker,
Willis, immediately after the Coast Guard revoked acceptance of the
vessels. Willis, in turn, contacted XL's claims administrator,
Trident, to relay the information about the revocation. The parties
agree that at that time, Trident told Willis no claim needed to be
reported because the "correspondence from the government implied
possible criminal actions," which were not covered by the XL
policy."170 Accordingly, Bollinger contends, its duty to notify XL
arose
only
when
"talks
had
broken
down,
and
a
lawsuit
was
imminent."
Nevertheless, Bollinger admits that Trident "advised that
Bollinger should follow-up if the United States brought a specific
claim for a specific dollar amount."171 Yet on June 14, 2007,
without
notifying
XL,
Bollinger
entered
into
a
"Sponsorship
Agreement" with NGSS that provided the two parties would cooperate
in attempting to resolve the Coast Guard's claims.172 On November
29, 2007, the government issued a subpoena duces tecum to Bollinger
that covered several categories of documents related to Bollinger's
work on the Deepwater project.173 Again, Bollinger did not notify
170
R. Doc. 140 at 3; R. Doc. 142-1 at 13.
171
R. Doc. 140.
172
See R. Doc. 142-12; R. Doc. 142-14 at 10-11.
173
R. Doc. 142-15.
63
XL. Finally, on December 23, 2008, Bollinger and the United States
executed a statute of limitations tolling agreement.174 Once again,
Bollinger did not notify XL.
It is clear that Bollinger was aware of an "'occurrence' . .
. which may result in a claim" by, at the latest, December 2008,
when
Bollinger
and
the
United
States
executed
the
tolling
agreement. Trident stated that Bollinger need not notify XL of the
revocation of the eight cutters because it "implicate[d] possible
criminal actions, which . . . were not covered by the Policy."175
But the tolling agreement explicitly states that the United States
believed it had "certain civil causes of action and administrative
claims against Bollinger under the False Claims Act, . . . other
statutes and regulations . . . , equity, or the common law."176 It
follows that, by December 2008, Bollinger knew that the United
States might file a civil lawsuit against it based on the failure
of the MATAGORDA and Bollinger's work on the Deepwater project more
generally.
That
is,
Bollinger
knew
that
there
had
been
an
"occurrence" that might result in a claim. Yet Bollinger did not
notify XL of that fact for nearly four years, until it was certain
that the United States would file suit. This constitutes a breach
of Bollinger's notice obligation under the XL Policy.
174
R. Doc. 142-20.
175
R. Doc. 140-2 at 2.
176
R. Doc. 142-20 at 1.
64
"[W]hen prompt notice of a covered occurrence is a 'condition
precedent' to recovery under an insurance policy, and the insured
fails to give such notice, the claim is no longer covered by the
policy,
regardless
of
whether
the
insurer
can
demonstrate
prejudice." Gulf Island, IV v. Blue Streak Mar., Inc., 940 F.2d
948, 955 (5th Cir. 1991) (citing MGIC Indem. Corp. v. Cent. Bank of
Monroe, 838 F.2d 1382, 1385-87 (5th Cir. 1988)); accord In re
Matter of Complaint of Settoon Towing, L.L.C., 720 F.3d 268, 277
(5th Cir. 2013);
Jackson v. Transp. Leasing Co., 893 F.2d 794, 795
(5th Cir. 1990). But when notice is not a condition precedent to
recovery, the insurer may avoid liability only if it can show that
it was prejudiced by the insured's failure to give timely notice.
Gulf Island, 940 F.2d at 956; see also Peavey Co. v. M/V ANPA, 971
F.2d 1168, 1173 (5th Cir. 1992).
"Whether a notice provision is a 'condition precedent' to
recovery depends on the language of the policy . . . ." Settoon
Towing, 720 F.3d at 277-78. The traditional rule in Louisiana has
been
that
"express
condition
precedent
language
.
.
.
[is]
necessary to make giving notice a condition precedent to recovery."
Gulf Island; 940 F.2d at 956; accord Peavey Co., 971 F.2d at 1173
("The rule in Louisiana is that where the requirement of timely
notice is not an express condition precedent, the insurer must
demonstrate that it was sufficiently prejudiced by the insured's
late notice." (emphasis added)); see also Transcontinental Pipe
65
Line Corp. v. Nat'l Union Fire Ins. Co. of Pittsburg, 378 F. Supp.
2d 729, 738 (M.D. La. 2005) ("Louisiana law requires that th[e
condition
precedent]
language
be
explicitly
included
in
the
insurance contract, and cannot be inferred." (citing Am. Safety
Risk Servs., Inc. v. Legion Indem. Co., 153 F. Supp. 2d 869, 876
(E.D. La. 2001))).
The
XL
policy
contains
no
express
condition
precedent
language. Rather, XL asks the Court to infer a condition precedent
by reading the notice provision in conjunction with the "no action"
clause
of
the
policy,
which
provides
that
"[n]o
person
or
organization has a right under this insurance policy . . . [t]o sue
us on this Coverage Part unless all of its terms have been fully
complied with."177 Settoon Towing, which XL cites in support of its
position, is distinguishable from this case. There, the court held
that a notice condition in an endorsement was "a 'condition
precedent'
despite
not
using
the
precise
phrase
'condition
precedent.'" 720 F.3d at 278. In that case, however, the court
confronted an endorsement providing that one of the policy's
exclusions
"shall
not
apply
provided
that
the
Named
Assured
establishes that all of the following conditions have been met: .
. . The occurrence was reported in writing to [the insurer] within
30 days after having been known to the assured." Settoon Towing,
720 F.3d at 274. The court found that the notice provision was a
177
R. Doc. 88 Ex. C at XL 00340.
66
condition precedent to recovery, reasoning that "[s]hort of the
exact phrase 'condition precedent,' there is almost no stronger
language that could establish a 'condition precedent' to recovery."
Id. at 278.
Here, however, the XL Policy does not contain such strong
language. The "no action" clause in the XL Policy provides that the
insured cannot sue on the policy without complying with its terms,
but it does not say that coverage is precluded if the General
Conditions are not satisfied. Without stronger language, the Court
concludes
that
a
condition
precedent
"cannot
be
inferred."
Transcon. Pipe Line Corp., 378 F. Supp. 2d at 738 (citing Am.
Safety & Risk Servs., Inc. v. Legion Indem. Co., 153 F. Supp. 2d at
876.). Thus, although XL "argue[s] strenuously that a condition
precedent is implied in the contract, [it] cannot point to an
express condition precedent, which is required by controlling law."
Am. Safety & Risk Servs., Inc. v. Legion Indem. Co., 153 F. Supp.
2d at 876.
Since notice is not a condition precedent to recovery, XL can
avoid liability on notice grounds only if it can show that it was
prejudiced by Bollinger's failure to give timely notice. Gulf
Island, 940 F.2d at 956. Under Louisiana law, it is extraordinarily
difficult for an insurer to show actual prejudice from breach of a
notice condition at the summary judgment stage. Insurers are not
entitled to summary judgment "based upon only 'the naked delay in
67
notifying the insurer of the suits brought against the insured,' .
. . absent unusual or aggravated circumstances, such as failure to
provide notice until after trial on the merits." State ex rel. Div.
of Admin., Office of Risk Mgmt. v. Nat'l Union Fire Ins. Co. of
Louisiana, 56 So. 3d 1236, 1246 (La. Ct. App. 2011) (quoting Miller
v. Marcantel, 221 So.2d 557, 559 (La. Ct. App. 1969)).
Relevant
here, Louisiana courts have rejected arguments by insurers that
they were prejudiced by reason of their inability to participate in
pretrial discovery. See, e.g., Champion v. Panel Era Mfg. Co., 410
So. 2d 1230, 1237-38 (La. Ct. App. 1982) (affirming jury finding
that insurer was not prejudiced by its failure to receive notice
until several weeks after trial because it had the opportunity to
"re-take any depositions which had already been taken, or pursue
any other discovery deemed necessary by counsel"). Prejudice has
generally only been found at the summary judgment stage when the
insurer is not notified until the eve of trial, or even after
trial. See MGIC, 838 F.2d at 1386 n.2 (citing Hallman v. Marquette
Cas. Co., 149 So. 2d 131, 135 (La. Ct. App. 1963)); Elevating
Boats, Inc. v. Gulf Coast Mar., Inc., 766 F.2d 195, 199-200 (5th
Cir. 1982); Branzaru v. Millers Mut. Ins. Co., 252 So. 2d 769, 770
(La. Ct. App. 1971).
Gulf Island and Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570
(5th Cir. 1990), are two clear examples of this phenomenon. In Gulf
Island, the court held that a four-year delay on the part of the
68
insured in notifying the insurer of damage to a vessel was not
necessarily
prejudicial,
even
though
the
delay
effectively
prevented the insurer from investigating the accident. 940 F.2d at
956
("[T]here
is
insufficient
summary
judgment
evidence
that
Lloyd's, by not having the opportunity to send in its own experts,
or otherwise by not being notified for over four years, has been
prejudiced."). In Stream, the Fifth Circuit found that summary
judgment in favor of the insurer on the prejudice issue was
improper
even
though
the
insurer
had
been
notified
of
the
underlying suit after the liability portion of the trial had taken
place. 891 F.2d at 579. The court noted that there was evidence
that the insurer would have denied coverage and a defense even had
it been timely notified, that the insurer was represented at the
liability portion of the trial, and that the insurer had not
forfeited any defenses it might otherwise have. Id.
Here, XL was not prejudiced by Bollinger's breach of its
notice obligation. First, there is no merit to XL's argument that
Bollinger, by executing the tolling agreements with the United
States, "waived rights that XL, on Bollinger's behalf, could have
exercised."178 The tolling agreement explicitly provides that it
does
not
bar
Bollinger
from
asserting
"defenses
[that]
were
available to Bollinger on or before December 5, 2008," the date
178
R. Doc. 142-1 at 20.
69
that the first tolling agreement was executed.179 Thus, the tolling
agreements did not cause Bollinger to "forfeit" any statute-oflimitations or other time-related defenses it had already accrued.
They simply stopped the clock to prevent any new statute-oflimitations
or
time-related
defenses
from
accruing
while
the
parties attempted to work out a settlement.
Next, XL argues that the extensive presuit discovery in which
Bollinger
engaged
was
unnecessary
given
that
the
case
was
ultimately dismissed on the pleadings. But that contention is not
necessarily accurate; the Court considered the advanced stage of
discovery in making the determination to dismiss the underlying
lawsuit with prejudice. See United States v. Bollinger Shipyards,
Inc., Civil Action No. 12-920, 2013 WL 5720340, at *11 (E.D. La.
Oct. 21, 2013). Moreover, given XL's consistent position that the
XL Policy does not cover the United States' claims, it appears
likely that XL would have refused to defend Bollinger even if it
had been timely notified. Cf. Stream, 891 F.2d at 579. Thus, XL's
contention that it might have "participate[d in] and comment[ed] on
the
scope
of
pre-suit
discovery
and
.
.
.
influence[d]
the
confection of a protective order" strains credulity.180
Finally, Bollinger succeeded in getting the United States'
claims dismissed. XL appears to argue that perhaps the United
179
R. Doc. 142-20 at 1.
180
R. Doc. 142-1 at 21.
70
States' claims could have been dismissed sooner had Bollinger
directly challenged the claims instead of pursuing a settlement. It
is impossible to say that XL could have gotten the suit dismissed
faster had it been notified of the Deepwater investigation earlier.
XL makes this argument with the benefit of hindsight. Because XL
was not prejudiced by Bollinger's failure to give timely notice, XL
is not entitled to summary judgment based on Bollinger's failure to
provide timely notice as required under the XL Policy.
4.
Bad Faith Claims
Because the Court has found that XL had no duty to defend
Bollinger against the United States' claims, Bollinger's argument
that XL acted in bad faith in refusing to reimburse Bollinger's
defense costs necessarily fails. See Little v. USAA Cas. Ins. Co.,
655 F. Supp. 2d 625, 635 (W.D. La. 2009) ("[T]he question of bad
faith is pretermitted by this Court's determination that there is
no coverage under the policies."). XL is not liable for statutory
penalties, attorneys' fees, costs, or interest.
5.
Duty to Indemnify
The United States has appealed this Court's dismissal of the
underlying suit to the Fifth Circuit.181 In its appeal, the United
States expressly chose to pursue only its claims under the False
181
See United States of America v. Bollinger Shipyards,
Inc. et al., No. 13-31301.
71
Claims Act.182 Thus, they are the only claims relevant to the
indemnity
question.
As
Bollinger
has
rightfully
conceded,
Exclusions 32.e and 32.f--the fraud exclusions--plainly preclude
coverage for the United States' claims under the FCA.183 Therefore,
XL is also entitled to a declaratory judgment that it has no duty
to indemnify Bollinger.
D.
Continental Is Entitled to Summary Judgment
As the basis for the Court's June 24, 2013 order granting
partial summary judgment to Continental on Bollinger's bad faith
claims, the Court held that the plain terms of the Continental
Policies
"unambiguously
exclud[e]
a
defense
obligation
under
Louisiana law." XL Specialty Ins. Co. v. Bollinger Shipyards, Inc.,
954 F. Supp. 2d 440, 446 (E.D. La. 2013) (quoting Inst. of London
Underwriters v. First Horizon Ins. Co., 972 F.2d 125, 126 (5th Cir.
1992)).184 Furthermore, the Court noted that any duty that could
arise on the part of Continental to reimburse Bollinger for defense
costs would not be triggered until exhaustion of the $26 million
underlying policies. See id. at 446-47. Bollinger has not yet come
182
See id., Appellant's Br. 13.
183
See R. Doc. 140 at 20-21.
184
The policies explicitly provide that Continental "shall
not be called upon to assume charge of the settlement or defense of
any claim made or suit brought or proceedings instituted against
the Assured." R. Doc. 146-4 at 7.
72
close to reaching that point; its claimed defense costs as of
December 2013 were just under $9 million.185
As
discussed
above,
the
Court
has
since
dismissed
the
underlying suit and the United States has appealed to the Fifth
Circuit. The only claims remaining in the case on appeal are those
brought under the False Claims Act. Therefore, any possible duty to
defend or indemnify on Continental's part could only arise from the
FCA claims. Accordingly, the Court limits its analysis to the FCA
claims. The FCA claims are not covered by Continental's policy.
The
Continental
Policies
follow
on
XL's
first
layer
bumbleshoot excess policy, which provides coverage to Bollinger for
"sums . . . [Bollinger] shall become legally liable to pay as
damages on account of: . . . personal injuries, including death at
any
time
resulting
therefrom,
or
.
.
.
property
damage."186
"Property damage" means "physical loss of or direct physical damage
to or destruction of tangible property (other than property owned
or occupied by the Named Insured)."187 In short, Continental's
policies are triggered only by liability for damages for personal
injuries or physical property damage.
A claim under the FCA is fundamentally not a claim for damages
for either personal injury or property damage. The FCA provides, in
185
See R. Doc. 88-1 at 14.
186
R. Doc. 146-7 at 3.
187
Id. (emphasis deleted).
73
relevant part, that any person who "knowingly presents, or causes
to be presented, a false or fraudulent claim for payment or
approval" or "knowingly makes, uses, or causes to be made or used,
a false record or statement material to a false or fraudulent
claim" is liable to the United States for treble damages and civil
penalties. 31 U.S.C. § 3729(a)(1)(A)&(B). In determining whether to
impose liability under the False Claims Act, the Fifth Circuit
considers "(1) whether there was a false statement or fraudulent
course of conduct; (2) made or carried out with the requisite
scienter; (3) that was material; and (4) that caused the government
to pay out money or to forfeit moneys due (i.e., that involved a
claim)." U.S. ex rel. Longhi v. United States, 575 F.3d 458, 467
(5th Cir. 2009). Accordingly, the government's damages in an FCA
claim consist solely of funds paid in reliance upon a false
statement. Thus, an FCA claim, by definition, is not a claim for
damages for personal injury or physical damages. Facts relating to
a personal injury or physical damage may help establish the
fraudulent nature of a claim for payment, but the personal injury
or physical damages are not the damages for which an FCA claim
seeks to recover.
The
Seventh
Circuit's
decision
in
Health
Care
Industry
Liability Insurance Program v. Momence Meadows Nursing Center,
Inc., is illustrative. 566 F.3d 689 (7th Cir. 2009). In that case,
a liability insurer brought a declaratory judgment action seeking
74
a declaration that it had no duty to defend its insured, a nursing
home called Momence, in an underlying suit. The underlying suit was
brought under the federal False Claims Act, 31 U.S.C. § 3729, et
seq., and its Illinois counterpart. Id. at 691. Former Momence
employees alleged that Momence had filed false claims with the
United States and the State of Illinois by falsely certifying that
it had met the standard of care required for payment under Medicare
and Medicaid. Id. (noting “the statutory requirement that Medicare
and Medicaid providers may not submit claims for services that
failed to meet ‘professionally recognized standards of health
care’”
(quoting
42
U.S.C.
§
1320c–5(a)(2))).
The
underlying
complaint included factual allegations that some nursing home
residents had sustained bodily injuries as a result of Momence's
failure to comply with the applicable standard of care. Id. Similar
to here, Momence's insurance policy provided that the insurer would
“pay
those
sums
that
the
insured
[Momence]
becomes
legally
obligated to pay as damages because of ‘bodily injury.’” Id. at 692
n.2.
The Seventh Circuit held that the insurer had no duty to
defend Momence in the underlying suit. The court explained that
“[a]lthough the allegations in the underlying complaint detailing
the injuries suffered by Momence residents put a human touch on the
otherwise administrative act of false billing, they need not be
proven
by
the
plaintiffs
to
prevail.”
75
Id.
at
695.
All
the
plaintiffs
needed
to
show
was
that
Momence
had
"billed
the
government for services and a level of care it knew it was not
providing." Id.
Just as the underlying suit in Momence Meadows contained
factual allegations of personal injury, the underlying suit here
contains
factual
allegations
of
property
damage.
Most
significantly, the United States alleges that on September 10,
2004, the Coast Guard cutter MATAGORDA "suffered a structural
casualty that included buckling of the hull."188 Neverthless, just
as in Momence Meadows, the factual allegations of physical damage
are not necessary for the False Claims Act claims to succeed.
Liability turns, rather, on whether Bollinger made materially false
statements
with
the
requisite
scienter,
and
on
whether
the
government paid money in reliance on those statements. Thus, though
the underlying suit involves some allegations of physical damages,
the United States' FCA claims cannot lead to liability for damages
for physical damages. Therefore, the FCA claims cannot trigger
Continental's policies.
Because neither of the two claims remaining in the underlying
suit are covered by Continental's policies, Continental is entitled
to summary and declaratory judgment that it has no duty to defend
or indemnify Bollinger in the under lying suit.
188
R. Doc. 88 Ex. J at BGR-RAP-02056, ¶ 36.
76
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS XL's motion for
summary judgment, DENIES Bollinger's cross-motion for summary
judgment, DENIES XL's motion to dismiss as moot, and GRANTS
Continental's motion for summary judgment.
New Orleans, Louisiana, this 31st day of October, 2014.
__
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
77
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