Certain Underwriters at Lloyd's, London v. Oryx Energy Co.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 99-40544
Summary Calendar

CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, Who Are Members of
Lloyd’s Syndicates Numbered 658, 483, 741, 687, 79, 872, 535, 552,
123, 114, 741, 209, 1023, 309, 872 and 500; INDEMNITY MARINE
ASSURANCE CO LTD; ZURICH RE (U K), Ltd; OCEAN MARINE INSURANCE CO
LTD; COMMERCIAL UNION ASSURANCE; THE TOKIO MARINE & FIRE; PHOENIX
ASSURANCE PLC, LSA; NORTHERN ASSURANCE COMPANY LIMITED; GAN MINSTER
INSURANCE CO, LTD; TERRA NOVA INSURANCE COMPANY LTD; PHOENIX
ASSURANCE PUBLIC LTD; CORNHILL INSURANCE PLC; YORKSHIRE INSURANCE
CO, LTD; SKANDIA MARINE INSURANCE COMPANY (U K); SCOTTISH LION
INSURANCE CO, LTD; HANSA RE & MARINE INSURANCE COMPANY (UK)
LIMITED; THREADNEEDLE INSURANCE CO, LTD; SPHERE DRAKE INSURANCE;
DAI-TOKYO INSURANCE CO; COMPAGNIE D’ASSURANCEY MARTINES; AERIENNES
& TERRESTRES (CAMAT); AMERICAS INSURANCE COMPANY; HANSA RE-MARINE;
ANGLO AMERICAN INSURANCE COMPANY; GAN FRANCE; PHOENIX 09/01/75;
TERRA NOVA; CAMAT 1992; CORNHILL D A/C; SKANDIA MARINE; INDEMNITY
MARINE; YORKSHIRE L A/C; ZURICH RE; OCEAN MARINE; PHOENIX LSA A/C;
NORTHERN MARINE; LONDON & EDINBURGH; GAN MINSTER; GENERALI; SPHERE
DRAKE NO. 1; SCOTTISH LION,

Plaintiffs-Appellants,

VERSUS

ORYX ENERGY COMPANY,

Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of Texas
February 25, 2000

Before SMITH, BARKSDALE and PARKER, Circuit Judges.

1
PER CURIAM:

Plaintiffs-appellants (“Underwriters”) appeal a summary

judgment for their insured, Defendant-appellee Oryx Energy Company

in their suit for reimbursement for monies paid in settlement of a

personal injury claim. We affirm.

FACTS AND PROCEDURAL HISTORY

Henry Mote filed a personal claim against Oryx for

compensatory and punitive damages arising out of an injury he

sustained while working on Oryx’s fixed platform located on the

Outer Continental Shelf offshore Texas. A mediation involving

Mote, Oryx and Underwriters resulted in a $12,000,000 settlement of

Mote’s claims. Underwriters paid $11,050,000 of the settlement and

sued Oryx for reimbursement. Oryx sued Underwriters for a

declaration that Underwriters owed full coverage.

The trial court initially entered judgment against Oryx on the

coverage question. This court reversed, holding that neither the

terms of the policy nor the relevant Texas law1 limited coverage

for compensatory damages. See Certain Underwriters at Lloyd’s

London v. Oryx Energy Co., 142 F.3d 255, 258-60 (5th Cir. 1998).

We then noted that Underwriters were entitled to reimbursement for

any funds paid in the Mote settlement to cover punitive damages and

1
Under the Outer Continental Shelf Lands Act, 43 U.S.C. §
1349(b)(1)(A)(1986), the law of the state adjacent to where the
accident occurred governs. See Hodgen v. Forest Oil Corp., 87 F.3d
1512 (5th Cir. 1996). Mote’s accident occurred in Texas waters
and, consequently, Texas law governs this case.

2
remanded the case to district court to determine how much, if any,

of the settlement payment was attributable to punitive damages.

See id. at 260. On remand, the district court granted summary

judgment to Oryx,2 holding that all of the settlement funds were

compensatory and not punitive in nature.

DISCUSSION

We review the grant of summary judgment de novo, affirming

only if there is no genuine issue of material fact and the moving

party is entitled to a judgment as a matter of law. See H.E. Butt

Grocery Co. v. Nat’l Union Fire Ins. Co., 150 F.3d 526, 528-29 (5th

Cir. 1998).

The Full and Final Release (“Release”) signed by all parties

to the Mote settlement included the following language:

All sums set forth herein, be they lump sum payments or
periodic payments from the annuities, constitute damages
on account of personal injuries or sickness within the
meaning of Section 104(a)(2) of the Internal Revenue Code
of 1986, as amended.

It is well settled, and undisputed by the parties, that amounts

paid “on account of personal injuries or sickness” within the

meaning of § 104(a)(2) do not encompass punitive damages. See

Commissioner of Internal Revenue v. Schleier, 515 U.S. 323, 331-32

(1995). Underwriters argue that, in spite of the unequivocal

2
Our determination on the record before us on the first appeal
that the parties had raised a genuine issue of material fact
regarding the amount attributable to punitive damages did not
preclude summary judgment on remand based on settlement documents
not previously before the court.

3
language in the release, some part of the settlement funds were

punitive damages. They contend that the court must consider

factors other than the agreement in the release which, when taken

into consideration, raise a genuine issue of material fact

concerning the proper characterization of the payments.

Under Texas law, a settlement agreement is a contract subject

to the same rules of construction as other contracts. See Williams

v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). A court’s primary

concern in construing a contract is to ascertain the intentions of

the parties as expressed in the instrument memorializing their

agreement. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).

Underwriters maintain that the district court erred in not

taking into consideration (1) the allegations in the underlying

pleadings; (2) the evidence before the court in the underlying

case; (3) the intent of the payor; and (4) the principle that a

court should not unduly reward insureds who seek indemnification

for actions they never insured, citing Dotson v. U.S., 87 F.3d 682,

687-88 (5th Cir. 1996). Dotson, a case concerning a dispute

between the IRS and a taxpayer over the allocation of settlement

funds, is inapposite. Under the tax code, some kinds of damages

constitute taxable income and some do not. See, e.g., United

States v. Burke, 504 U.S. 229, 233 (1992). When a plaintiff seeks

both taxable and non-taxable damages, the parties may craft a

settlement purporting to allocate all proceeds to non-taxable

4
categories of damages, benefitting plaintiff and defendant at the

government’s expense. Thus, the courts allow the IRS to try to

prove that the allocation is a sham to conceal payment of taxable

damages. See Dotson, 87 F.3d at 687. Because the IRS is an

outsider to such a settlement, it is appropriate to permit the IRS

to question the allocation. Likewise, when an insurer denies

coverage and its insured proceeds unilaterally to settle a mixture

of covered and non-covered claims, the insurer may be allowed to

impeach the settlement allocation if there is a risk of collusion

between the insured and the claimant. See Enserch Corp. v. Shand

Morahan & Co., Inc., 952 F.2d 1485, 1493-94 (5th Cir. 1992).

The Underwriters, having participated fully in the settlement

in this case, do not occupy a position analogous to the IRS or to

an insurer absent from the negotiating table. Therefore, the

district court did not err in focusing on the Release as the

embodiment of the parties’ intent and declining to consider the

Underwriters’ other proposed factors.

The Underwriters next contend that language in the release

itself creates a genuine issue of material fact concerning whether

the settlement included punitive as well as compensatory damages.

The language in question reserves the Underwriters’ right to sue

for reimbursement of “all sums paid in excess of reasonable

compensatory damages sustained by Henry Mote . . . in other words,

for any and all punitive or exemplary damages which had to be paid

5
to settle the case.” This argument fails. The reservation of

rights merely preserves procedural avenues; it does not articulate

any agreement or substantive position that could be read to

conflict with the express language “all sums set forth herein . .

. constitute damages on account of personal injuries or sickness.”

Underwriters also call our attention to the section of the

Release where all defendants and counter-defendants and their

insurers agree to release their claims and potential claims against

one another. At the end of that paragraph, the Underwriters added

“it is the position of [the Underwriters] that the foregoing is

without prejudice to and does not waive or otherwise affect the

reservations raised by [the Underwriters].” This unilateral

statement of position concerning the reservation of rights does not

purport to characterize any settlement proceeds as punitive damages

in conflict with the clear agreement in the prior paragraph of the

Release.

The other evidence Underwriters submitted, including written

correspondence wherein they suggested amounts to be paid by Oryx

for punitive damages, Mote’s itemization of his damages prior to

the mediation, the opinion of Oryx’s trial counsel as to the amount

that should be allocated to punitive damages and boilerplate

disclaimers by Oryx and Underwriters regarding tax consequences

cannot undermine the unambiguous allocation set forth in the

Release.

We therefore affirm the summary judgment for Oryx.

6
AFFIRMED.

7