Case: 10-30886 Document: 00511566112 Page: 1 Date Filed: 08/09/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 9, 2011
No. 10-30886 Lyle W. Cayce
Clerk
STEPHEN MARSHALL GABARICK, on behalf of himself and all others
similarly situated; Et Al,
Plaintiffs
v.
LAURIN MARITIME (AMERICA) INCORPORATED; Et Al,
Defendants
________________________________________________________________________
INDEMNITY INSURANCE COMPANY OF NORTH AMERICA,
Plaintiff - Intervenor - Appellant
HOUSTON CASUALTY INSURANCE COMPANY,
Intervenor - Appellant
v.
AMERICAN COMMERCIAL LINES, L.L.C.; AMERICAN COMMERCIAL
LINES, INCORPORATED,
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
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No. 10-30886
Before HIGGINBOTHAM, OWEN, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
Appellants Houston Casualty Company and Indemnity Insurance
Company of North America (collectively, the “Excess Insurers”), appeal the
district court’s decision requiring them to pay prejudgment interest on the funds
deposited into the court’s registry in an interpleader action. The Excess Insurers
argue that the district court erred by: (1) finding that coverage under the excess
policy was triggered by the primary insurer’s filing of an interpleader complaint;
(2) holding that a marine insurer that files an interpleader action and deposits
the policy limits with the court is obligated to pay legal interest in excess of the
policy limits; and (3) applying the incorrect interest rate and awarding interest
from the incorrect date. Because the Excess Insurers’ liability had not been
triggered at the time the Excess Insurers filed their interpleader complaint, we
conclude that the district court erred in finding that they unreasonably delayed
in depositing the policy limit into the court’s registry and in holding them liable
for prejudgment interest; therefore, we REVERSE and do not reach the Excess
Insurers’ remaining issues.
I. FACTS AND PROCEDURAL HISTORY
On July 23, 2008, the M/V TINTOMARA struck the DM-932, which was
in tow of the M/V MEL OLIVER, resulting in an oil spill in the Mississippi River.
American Commercial Lines, LLC (“ACL”) owned the DM-932, but DRD Towing
Company, LLC (“DRD Towing”) operated the MEL OLIVER. After the accident,
several lawsuits were filed against ACL and DRD Towing.
DRD Towing had a protection and indemnity policy with Indemnity
Insurance Company of North America (the “Primary Insurer”)1 that provided
coverage of up to $1 million. DRD Towing also had an excess insurance policy
1
Indemnity Insurance Company of North America is also one of the Excess Insurers.
2
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with the Excess Insurers that provided coverage of up to $9 million. In the trial
court, ACL claimed that it was an additional insured under the excess policy.2
Due to the various claims filed against DRD Towing and ACL, the Primary
Insurer filed an interpleader complaint on August 11, 2008, seeking to deposit
$985,000 (the policy limit less the deductible) with the court and requesting that
the court determine the rights of the various claimants, including the Primary
Insurer, to the funds. The Primary Insurer did not disclaim its interest in the
funds, and it requested that the court declare that several coverage defenses
applied to the policy.3
On January 7, 2009, the district court granted ACL’s motion to dismiss
two of the coverage defenses, ruling that they were inapplicable; however, the
court declined to dismiss the entirety of the Primary Insurer’s requests for
declaratory relief, concluding that the policy might exclude coverage of certain
expenses under the punitive damages clause and the pollution exclusion clause.4
On March 24, 2010, the Excess Insurers filed an interpleader complaint
seeking release from further liability under the excess policy upon deposit of the
policy limit of $9 million into the court’s registry. ACL opposed the Excess
2
In a separate but related appeal, No. 09-30549, Stephen Gabarick v. Laurin Maritime
(America), Inc., ACL asserted that it was a tort claimant and not an additional insured under
the primary policy. Given our disposition of this appeal, we do not address the impact, if any,
of this assertion on the outcome of ACL’s claim.
3
Specifically, the Primary Insurer requested that the court declare that: (1) the
DM-932 was not a covered vessel under the policy; (2) the losses caused as a result of a breach
of seaworthiness of the vessel were not covered; (3) claims for punitive or exemplary damages
were not covered; and (4) many of the claims were not covered as a result of a pollution
exclusion clause.
4
During oral argument, counsel for the Excess Insurers stated that the pollution
exclusion clause was not a part of the primary policy; however, the record indicates that the
Primary Insurer did, in fact, raise the pollution exclusion defense, and the district court
refused to dismiss the request for declaratory relief with respect to the pollution exclusion
clause. Thus, according to the record, the pollution exclusion issue remained pending in the
district court after the January 7, 2009 ruling.
3
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Insurers’ motion for leave to deposit the policy limit with the court, arguing that
the Excess Insurers should have to pay prejudgment interest on the interpleaded
funds in order to be released from liability. ACL argued that interest should be
awarded because the Excess Insurers unreasonably delayed in depositing the
funds with the court. ACL stated that “[h]ad the Excess Insurers deposited the
$9 million policy limit in a timely manner, the interest would have been accrued
for well over twelve months to the benefit of the claimants, rather than to the
benefit of the Excess Insurers.”
After hearing arguments on this issue, the district court concluded that
the Excess Insurers should be required to pay prejudgment interest from
January 7, 2009. The court held that the rate to be applied was 3.5% and
ordered the Excess Insurers to pay $495,369.86 in prejudgment interest. The
Excess Insurers timely filed an interlocutory appeal of this order under 28
U.S.C. § 1292(a)(3).
II. STANDARD OF REVIEW AND JURISDICTION
We have jurisdiction to hear this interlocutory appeal pursuant to 28
U.S.C. § 1292(a)(3) which gives this court jurisdiction to review “[i]nterlocutory
decrees of such district courts or the judges thereof determining the rights and
liabilities of the parties to admiralty cases in which appeals from final decrees
are allowed.” 28 U.S.C. § 1292(a)(3). Here, the district court’s order requires the
Excess Insurers to pay almost $500,000 more than they contend they are liable
to pay as compensation to the injured parties for the delay in depositing the
funds with the court. The district court’s order affected a “liability”; therefore,
we have jurisdiction.
Generally, the decision to award prejudgment interest is reviewed under
an abuse of discretion standard. Jauch v. Nautical Servs. Inc., 470 F.3d 207, 214
(5th Cir. 2006) (per curiam). ACL argues that this standard applies; however,
this issue requires the court to interpret the insurance contract to determine
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whether the Excess Insurers’ obligations under the contract have been triggered.
Such a question of law is subject to de novo review. Theriot v. United States, 245
F.3d 388, 394 (5th Cir. 1998) (per curiam) (“Contract interpretation is a question
of law, subject to de novo review.”).
III. DISCUSSION
The Excess Insurers argue that their liability was not triggered on
January 7, 2009 because the primary policy was not exhausted at that time (or
any time before they filed their interpleader action). Therefore, the Excess
Insurers allege that the district court erred in holding them liable for
prejudgment interest.
Because this is a case brought under maritime law, it is first necessary to
determine whether state law or federal maritime law should be used to analyze
whether the primary policy has been exhausted. Generally, “[s]tate law . . .
governs the interpretation of marine insurance policies unless an available
federal maritime rule controls the disputed issue.” Albany Ins. Co. v. Kieu, 927
F.2d 882, 886 (5th Cir. 1991). Although this case was brought under federal
admiralty jurisdiction, “[w]here . . . no federal law, legislative or judicial, relating
to the question exists, the law of the state where the marine insurance contract
was issued and delivered is the governing law.” Elevating Boats, Inc. v. Gulf
Coast Marine, Inc., 766 F.2d 195, 198 (5th Cir. 1985). The parties have not cited
and we have not located any federal maritime rule that addresses the issue of
exhaustion of a primary insurance policy5; therefore, we conclude that Louisiana
5
Federal maritime law does provide that “prejudgment interest should be awarded in
maritime collision cases, subject to a limited exception for ‘peculiar’ or ‘exceptional’
circumstances.” City of Milwaukee v. Cement Div., Nat’l Gypsum Co., 515 U.S. 189, 195
(1995). This general principle is inapplicable to these facts, however, because this case does
not concern whether to award prejudgment interest to the injured party, but rather whether
the insurer should have to pay prejudgment interest for its alleged failure to timely deposit
the funds with the court.
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law applies, as the insurance policy in this case was issued in Louisiana to DRD
Towing, a Louisiana company. See id. at 198; see also Kieu, 927 F.2d at 886.
Under Louisiana law, “excess insurance . . . provide[s] supplemental
coverage that picks up where [the insured’s] primary coverage ends and thus
provide[s] protection against catastrophic losses.” La. Safety Ass’n of Timbermen
Self-Insurers Fund v. La. Ins. Guar. Ass’n, 17 So. 3d 350, 359 (La. 2009)
(emphasis omitted); see also JOHN A. APPLEMAN & JEAN APPLEMAN, INSURANCE
LAW AND PRACTICE § 2.16 (2d ed. 2003) (“The insured may obtain additional
coverage in the form of an excess policy which by its terms will only come into
play once the limits of the primary policy have been exhausted.”). Thus, “[t]he
very nature of excess insurance coverage is such that a predetermined amount
of underlying primary coverage must be paid before the excess coverage is
activated.” Samuels v. State Farm Mut. Auto. Ins. Co., 939 So. 2d 1235, 1239
(La. 2006) (quoting La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d
759, 767 (La. 1994)). Because coverage is only triggered after the primary
insurance limit has been exhausted, excess insurance “is generally available at
a lesser cost than the primary policy since the risk of loss is less than for the
primary insurer . . . .” APPLEMAN, supra, § 2.16.
At oral argument, ACL conceded that the primary policy was not
exhausted by payment of judgments and settlements at the time the Excess
Insurers filed their interpleader action. It argued instead that, once the Excess
Insurers filed an interpleader, they “took the case out of the policy,” making
“irrelevant” the language of the excess policy requiring primary policy
exhaustion to trigger the Excess Insurers’ liability. This somewhat circular
argument then continues with the notion that if the Excess Insurers were going
to file an interpleader, they had to do so no later than the January 2009 district
court ruling. Therefore, ACL concludes, the Excess Insurers unreasonably
delayed in depositing their funds with the court by waiting over a year to file
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their interpleader action and were unjustly enriched by reaping the time value
of that money in the interim.
ACL relies on Aetna Casualty & Surety Co. v. Hood, No. 95-60152, 1995
WL 581567 (5th Cir. Aug. 24, 1995) (per curiam) (unpublished), to support its
position. Aetna Casualty & Surety Co. mentions that, in evaluating whether
interest should be awarded in an interpleader action, the court considers “(1)
whether the stakeholder unreasonably delayed in instituting the action or
depositing the fund with the court, (2) whether the stakeholder used the fund for
his benefit and would be unjustly enriched at the expense of the claimants who
have claim to the fund, and (3) whether the stakeholder eventually deposited the
fund into the court’s registry.” 1995 WL 581567, at *2 (citing Gelfgren v.
Republic Nat. Life Ins. Co., 680 F.2d 79 (9th Cir. 1982)). However, the court in
Aetna Casualty & Surety Co. did not explicitly adopt this three-factor test.
Even assuming that the three-factor test should be used, we note that the
question of “unreasonable” delay and “unjust” enrichment cannot be divorced
from the source of the Excess Insurers’ obligations which, in turn, comes from
the language of their excess policy. ACL is not entitled to rewrite the policy to
place a burden on the Excess Insurers that they did not bargain for in their
contract. As noted above, excess insurance policies are less expensive than
primary policies precisely because the excess insurer carries less of a risk than
a primary insurer. Samuels, 939 So. 2d at 1239; see also APPLEMAN, supra,
§ 2.16. Because the primary policy had not been exhausted as of the time the
interpleader was filed, the Excess Insurers neither “unreasonably” delayed nor
were “unjustly” enriched by not filing the interpleader earlier. We thus conclude
that the district court erred in holding them liable for prejudgment interest on
the interpleaded funds.
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IV. CONCLUSION
For the foregoing reasons, we REVERSE the district court’s order directing
the Excess Insurers to pay prejudgment interest on the funds deposited with the
court and REMAND for proceedings consistent with this opinion.
8