Ergon - St. James, Inc. v. PRIVOCEAN M/V
Filing
493
ORDER AND REASONS: Denying 479 Motion for Modification and/or Reconsideration of Courts Findings of Fact and Conclusions of Law and Denying 480 Motion to Limit Recovery of Ergon and Certain of Its Underwriters as set out in document. Signed by Judge Jay C. Zainey on 10/17/2018. (Reference: All Cases)(ajn)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ERGON - ST. JAMES, INC.
CIVIL ACTION
VERSUS
NO: 15-1121 and
consolidated cases
PRIVOCEAN M/V, ET AL.
SECTION: "A" (3)
ORDER AND REASONS
The following motions are before the Court: Motion for Modification and/or
Reconsideration of Court’s Findings of Fact and Conclusions of Law (Rec. Doc. 479)
filed by Ergon – St. James, Inc., Ergon Refining, Inc., and Magnolia Transport Co.
(collectively “Ergon”) and their Underwriters;1 Motion to Limit Recovery of Ergon and
Certain of Its Underwriters (Rec. Doc. 480) filed by Privocean Shipping, Ltd. and Bariba
Corp., as owners and managing owners respectively of the M/V PRIVOCEAN.
Both motions are opposed. The motions, noticed for submission on September 19,
2018, are before the Court on the briefs without oral argument.
I.
Ergon2 moves the Court to reconsider its determination that Ergon’s recovery should
The “Underwriters” are: “Certain underwriters are foreign organizations and underwriters of
insurance policies. These underwriters subscribed to Lockton London Contract Nos. PE1410635,
PE1410636, PE 1410633 and PE1410695. Specifically, certain underwriters include Certain
Interested Underwriters at Lloyd’s of London and its Members, comprised of a group of syndicates
acting by and through their appointed active underwriters, including Syndicates 435, 1967, 318, 510,
1225, 33, 2623, 623, 1969, 2001 and 1200 (collectively “Lloyd’s”) and PartnerRe Ireland Insurance.
At all times described herein, certain underwriters provided a policy(ies) of insurance to Ergon-St.
James, Inc., Ergon, Inc., and/or Ergon Refining, Inc.” (Rec. Doc. 101, Claim and Third-Party
Demand ¶ 5).
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2
Because the interests of Ergon and its co-claimant underwriters are completely aligned, for
purposes of the Motion for Modification and/or Reconsideration only, the Court refers to them
collectively as “Ergon.”
1
be reduced by $1,856,926.00. This is the amount of damages that the Court attributed to
Ergon’s negligence in pushing the BRAVO completely over MD-4 at the lower end of the
Ergon ship dock. Ergon argues that it was inconsistent for the Court to find the
PRIVOCEAN liable for the destruction of the lower ship dock and MD-4 while at the same
time holding Ergon responsible for the damages to the BRAVO’s lower port side hull—
damages that the Court found to be caused by the BRAVO being pushed over MD-4.
For the detailed reasons given in the Court’s Findings of Fact and Conclusions of
Law (Rec. Doc. 476), it was the tugs acting alone that pushed the BRAVO over MD-4,
causing significant damage to the vessel’s lower hull. The PRIVOCEAN was clear of the
BRAVO when this occurred. Any perceived inconsistency in the findings derives from the
Court’s conclusion that Privocean should pay for the cost to replace MD-4. As the Court
explained in its findings, it was possible that the need to replace MD-4 (as opposed to
simply repairing it) was attributable to the BRAVO passing over MD-4, an act that was
caused by Ergon’s own negligence. On the other hand, it was also possible that MD-4,
which clearly sustained some amount of damage even before the BRAVO passed over it,
would have required replacement no matter what. The Court resolved the dispute in Ergon’s
favor by casting Privocean with the cost of replacing that dolphin.3 The motion for
reconsideration is therefore denied except insofar as the Court does agree that the BRAVO
repair costs should not be “deducted” from Ergon’s judgment against Privocean but rather
should form the basis of a separate judgment in favor of Privocean and against Ergon. The
In fact, the Court was inclined to deny Ergon’s recovery for the replacement cost of MD-4 based on
the testimony of Privocean’s expert, Jason Fernandes, whom the Court found to be credible and
persuasive. That witness testified that it was the tugs acting alone that damaged MD-4 without any
help from PRIVOCEAN. If the Court was persuaded that its findings were irreconcilable as to the
BRAVO and MD-4, then the Court would simply deny Ergon recovery for the cost of replacing MD-4.
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final judgment will reflect this point.
II.
Privocean moves the Court to give recognition to the settlement that it reached with
some of Ergon’s underwriters (“the Settling Underwriters”) prior to trial. Privocean contends
that Ergon and the Underwriters are only entitled to recover 54.5% of the damages found by
the Court at trial. Although Privocean has styled its motion as one to “limit” Ergon’s
recovery, Privocean’s motion raises the issue of whether Ergon and its Underwriters
(hereafter “the Non-Settling Underwriters”) actually own 100% of the claim that was tried to
the Court. The issue further boils down to whether the Settling Underwriters were
subrogated to Ergon’s rights against Privocean.4
The “subrogated” underwriters split their claim against Privocean into two parts: 1)
the claim jointly asserted by Ergon and the Non-Settling Underwriters, and 2) the claim
separately asserted by the Settling Underwriters, who undisputedly insured 45.5% of the
risk on Ergon’s property damage policy. For reasons that remain unknown, the full
complement of the underwriters that insured the risk on Ergon’s property damage policy
declined to pursue their subrogation rights against Privocean together or to be represented
Ergon’s and the Non-Settling Underwriters’ reliance on McDermott, Inc. v. AmClyde, 511 U.S. 202
(1994), and the collateral source rule is misplaced. Privocean is not trying to reduce its own liability
for damages by relying on the insurance payments that the Settling Underwriters made to Ergon.
Rather, Privocean paid those Settling Underwriters directly to “buy them” out of the case for their
share of the litigation assuming of course that they were properly subrogated to an interest in the
litigation. As for AmClyde, that decision dealt with multiple defendants, not plaintiffs.
Ergon also argues that the Rules of Evidence preclude consideration of Privocean’s
settlement with the Settling Underwriters. This argument, which Privocean characterizes as legally
frivolous, is unpersuasive.
Ergon’s reliance on the policy’s waiver of subrogation clause is similarly misplaced. None of
the underwriters have sought subrogation against Ergon. Rather, the issue is one of Ergon’s
ownership of the claim that it tried in light of the significant insurance proceeds that it received from
the underwriters, and the policy’s subrogation clause. (Rec. Doc. 480-6, Exhibit 5).
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by the same counsel.5
As noted above, the actual issue before the Court is whether and to what extent the
Settling Underwriters were subrogated to Ergon’s rights against Privocean. Ergon and its
co-plaintiffs, the Non-Settling Underwriters, deny that the Settling Underwriters were
actually subrogated to pursue Ergon’s claims against Privocean. Thus, their position is that
Privocean settled with a party with no rights in the litigation.
The Court finds this argument to be a specious one given that the Non-Settling
Underwriters have asserted claims in this litigation—claims in which Ergon has joined—
solely by virtue of the fact that they claim subrogation in their favor. Ergon and the NonSettling Underwriters point to nothing to suggest that the Settling Underwriters are
positioned differently than the Non-Settling Underwriters for purposes of subrogation. If the
Non-Settling Underwriters are entitled to subrogation—an issue that Ergon has judicially
admitted—then the Settling Underwriters are also entitled to subrogation. Having failed to
point to anything that would suggest that the Settling Underwriters are not similarly situated
to the Non-Settling Underwriters’ rights, Ergon and the Non-Settling Underwriters might very
well be estopped from even arguing that the Settling Underwriters have no subrogation
rights in this matter.
The policy contains a subrogation clause: “In the event of any payment under this
policy, Insurers shall be subrogated to the extent of such payment to all the Insured’s
rights of recovery there from.” (Rec. Doc. 480-6, Exhibit 5) (emphasis added). It further
states: “If any amount is recovered, after deducting the costs of such recovery, such
5
In its opposition Ergon discusses a previously undisclosed agreement with some of the
underwriters regarding recovery at trial and increases to Ergon’s annual insurance premiums. Any
connection between this agreement and the claim split is not clear, however.
4
amount shall be divided between the interests concerned in the proportion of their
respective interests.” (Id.) (emphasis added).
Ergon has received at least $12,910,918.43 dollars from its underwriters.6 Ergon
argues that its underwriters were never subrogated to its rights against Privocean because
Ergon was not fully compensated or “made whole” following the Privocean incident. Ergon
advises that as of the time of trial its insurers had not paid Ergon in full for all of the insured
and uninsured losses. (Rec. Doc. 483-2, Exhibit 2 Ezell decl. ¶¶ 23, 24). Relying on
Mississippi law (as explained in Hare v. State of Mississippi, 733 So. 2d 277 (Miss. 1999)),
which governs the policy, Ergon argues that its underwriters never obtained contractual
subrogation rights because Ergon still had unpaid uninsured and insured losses at the time
of trial.7
In Hare, the plaintiff was injured by an uninsured motorist. His healthcare provider
paid about $6,000 for medical expenses, which did not cover all of them. Although the
plaintiff was legally entitled to receive at least $50,000 in compensatory damages for his
injuries, he actually received only $10,000 from his own UM carrier. The medical provider
claimed subrogation vis à vis the UM payment. But the state supreme court held that the
medical provider could not exercise its contractual subrogation rights because the plaintiff
6
Ergon has never divulged the total amount of insurance proceeds that it received from the
underwriters. In its briefing Privocean states that the insurers paid Ergon approximately $14 million
in insurance proceeds, over and above the deductible/waiting period amount of slightly more than
$650,000.00. (Rec. Doc. 480-1 at 3). The record indicates that Ergon was paid at least
$12,910,918.43 by its insurers but the document evincing this amount is undated. (Rec. Doc. 480-4
Exhibit 3). Thus, the Court has no way of knowing what the insurers had paid Ergon as of the time of
the trial.
7
For purposes of this argument, the Court refers to the underwriters collectively. Again, the Court
can discern no distinction between the Settling Underwriters and the Non-Settling Underwriters for
purposes of subrogation. If Ergon is challenging the subrogation rights of the Settling Underwriters
then it must challenge the subrogation rights of the Non-Settling Underwriters.
5
had not been “made whole” for his extensive personal injuries. Hare, 733 So. 2d at 284. The
crux of the court’s reasoning was that the purpose of subrogation is to prevent double
recovery by the insured but until an insured is fully compensated there cannot be a double
recovery. Id.
Even though the case did not involve Mississippi law, the Court agrees with the
reasoning that Judge Fallon employed in Global International Marine, Inc. v. US United
Ocean Services, LLC, No. 09-6233, 2011 WL 2550624 (E.D. La. June 27, 2011), regarding
the made whole doctrine and subrogation. In that case Judge Fallon explained that for
purposes of the subrogation analysis, the made whole doctrine focuses on the element of
damages covered by the policy, not every element of damages that the plaintiff suffers. In
other words, the relevant “loss” for which the plaintiff must be made whole before
subrogation applies is the specific loss that the subrogating insurer covered.8
Assuming that Ergon has some unpaid insured and uninsured losses (like for
instance, its deductible and waiting period expenses of $650,238.00), Ergon cannot garner
a complete double recovery in this case by keeping the $12 million plus dollars in insurance
proceeds that it received and by also collecting 100% of the judgment in this case, all to the
exclusion of its underwriters. That result would be completely at odds with Hare. The Court
recognizes that Ergon had different types of damages as a result of the Privocean
incident—for instance property damages and business interruption damages. The Court is
convinced that uncompensated business interruption losses (if those exist) would not trigger
8
To be clear, even though Global International Marine was not based on Mississippi law, the
reasoning is consistent with the disposition in the Hare decision. In Hare the medical insurer tried to
subrogate against a UM payment that was not associated with a specific element of damages, much
less medical payments.
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the made whole doctrine to prevent a property insurer from subrogating against a property
damage award arising from the same incident. Likewise, uninsured property losses would
not deprive the property insurer of its subrogation rights because the insurer is not required
to pay for losses that are not covered by its policy in order for subrogation to apply. Items
such as the deductible and waiting period are not covered by the policy so they will never
form part of the subrogated claim. If Ergon were correct on these points then no insurer
would ever be entitled to subrogation.9
The Court agrees with Privocean’s characterization that Ergon’s arguments really
have to do with how Ergon and its underwriters will or should allocate between themselves
the total recovery awarded by the Court. (Rec. Doc. 489, Reply at 4). In other words, the
actual point of contention in this case is between Ergon and its underwriters, as was the
case in Global International Marine, not between Privocean and Ergon. Ergon’s arguments
to the contrary notwithstanding, the issue is not whether the underwriters are subrogated or
not subrogated to Ergon’s rights because Ergon admitted that the underwriters were
subrogated to its rights when Ergon joined with the Non-Settling Underwriters to file a claim
against Privocean. The issue is whether the underwriters were subrogated to 100% of
Ergon’s rights against Privocean and therefore “own” 100% of the claim to the complete
exclusion of Ergon. The Court can reduce the award by 45.5% only if the claim is owned
completely by the underwriters because such a reduction, which is based on the percentage
of the risk that the Settling Underwriters insured, necessarily implies that the Non-Settling
9
To really confuse matters, Ergon also contends that it has insured losses that its underwriters
never paid. To the Court’s knowledge, there is no unresolved claim pending in this litigation for
unpaid first party insurance recovery brought by Ergon against its underwriters.
7
Underwriters own the other 54.5% of the claim to the complete exclusion of Ergon. 10
While the Court seriously questions whether the “made whole” doctrine renders no
part of the claim in this case subject to contractual subrogation (which is Ergon’s
contention), the Court is persuaded that it lacks sufficient information to conclude whether
the gross award should be reduced by the full extent of the Settling Underwriters’ 45.5% of
the insured risk.
Privocean advises that if the judgment should not be reduced by 45.5% because of
the settlement then Privocean would not be required to fund the settlement with the Settling
Underwriters and would instead pay the unreduced award to Ergon and to all of its
underwriters, both those that settled and those that did not. Privocean advises that from a
financial perspective, Privocean is indifferent as to which outcome is ultimately reached.
In light of Ergon’s and the Non-Settling Underwriters’ objection to the 45.5%
reduction, the Court will enter a final judgment against Privocean in the amount of
$12,436,630.60 in favor of Ergon and all of its underwriters. The Court will likewise issue a
judgment in favor of Privocean and against Ergon in the amount of $1,856,926.00 for the
damage to the BRAVO. Privocean will not be required to fund the settlement that it had
reached with the Settling Underwriters.11
Accordingly, and for the foregoing reasons;
10
Note, Ergon and the Non-Settling Underwriters with whom it joined to file suit may very well have
an agreement between themselves to allow Ergon to share in a portion of the 54.5% of the claim that
those underwriters own. That agreement, if there is one, would not affect the percentage of the claim
that the Settling Underwriters owned.
11 Ergon has attached to its opposition statements that the Court made to counsel from the bench
when Privocean’s counsel attempted to inform the Court about the settlement with the Settling
Underwriters. (Rec. Doc. 483-3, Exhibit 3). The Court’s statements alluding to the risk that Privocean
may have settled too high or too low obviously did not envision a situation where the settling party’s
ownership interest in the litigation has now been questioned.
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IT IS FURTHER ORDERED that the Motion for Modification and/or
Reconsideration of Court’s Findings of Fact and Conclusions of Law (Rec. Doc. 479)
filed by Ergon – St. James, Inc., Ergon Refining, Inc., and Magnolia Transport Co.
(collectively “Ergon”) and their Underwriters is DENIED;
IT IS FURTHER ORDERED that the Motion to Limit Recovery of Ergon and
Certain of Its Underwriters (Rec. Doc. 480) filed by Privocean Shipping, Ltd. and Bariba
Corp., as owners and managing owners respectively of the M/V PRIVOCEAN is DENIED as
explained above.
October 17, 2018
_______________________________
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE
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