Liberty Mutual Fire Insurance v. Fireman's Fund Insurance

United States Court of Appeals
Fifth Circuit
IN THE UNITED STATES COURT OF APPEALS FILED
FOR THE FIFTH CIRCUIT May 30, 2007
_____________________
Charles R. Fulbruge III
No. 06-60446
_____________________ Clerk

LIBERTY MUTUAL FIRE INSURANCE COMPANY,

Plaintiff-Appellee
v.

FIREMAN’S FUND INSURANCE COMPANY,
Intervenor Defendant-Appellant

----------------------
Appeal from the United States District Court
for the Southern District of Mississippi
(3:01-CV-860)
----------------------
Before HIGGINBOTHAM, WIENER, and CLEMENT, Circuit Judges.

WIENER, Circuit Judge*:

During the pendency of an underlying state court lawsuit,

Defendant-Appellant Fireman’s Fund Insurance Company (“Fireman’s

Fund”), an excess insurer, settled the lawsuit on behalf of its

insured. Thereafter, Fireman’s Fund sought to recover partial

reimbursement from Plaintiff-Appellant Liberty Mutual Fire

Insurance Company (“Liberty Mutual”), a primary insurer, in a

separate federal declaratory judgment action. The district court

dismissed Fireman’s Fund’s reimbursement claim, concluding that

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
it was barred by Mississippi’s voluntary payment doctrine.

Perceiving no reversible error, we affirm.

I. FACTS AND PROCEEDINGS

In a 2001 Mississippi state court lawsuit (“the Doe

lawsuit”), Tina Doe alleged that, while she was a tenant in the

Signature Square Apartment Complex (“the Complex”), she was

assaulted and raped by an employee of the Complex. Just days

before the alleged incident, Virtu Signature Square Associates,

L.L.C. (“Virtu”) had purchased the Complex.

In her complaint, Doe asserted claims against two categories

of defendants: (1) Virtu, as owner of the Complex at the time of

the incident, and Linda Denham, as Virtu’s office manager at the

time of the incident, and (2) the immediately preceding owner of

the Complex, its allegedly related entities, and one of its

employees —— Jorad-Jackson I Limited Partnership d/b/a Signature

Square Apartments, Del Development Corporation, SGI Nevada, Inc.

and Pete Brown (collectively, “the Del Defendants”).

At the time of the incident, Virtu was a named insured under

a primary commercial general liability policy issued by Liberty

Mutual Insurance to Property Owners Purchasing Group (“the

Liberty Mutual Policy”). The policy limit of the Liberty Mutual

Policy was $1 million.

Pursuant to the terms of that policy, Liberty Mutual agreed

2
to defend Virtu and Denham against the claims asserted in the Doe

lawsuit, subject to a reservation of rights, and thus retained

and paid for defense counsel. Liberty Mutual also filed the

present action in the district court, seeking a judicial

declaration that the Liberty Mutual Policy did not provide

coverage for the claims asserted against Virtu and Denham in the

Doe lawsuit.

In December 2002, Doe amended her state court lawsuit,

adding additional defendants. These additional defendants

included Greystar Management Services, L.P. (“Greystar”), which

was the management company for the Complex at the time of the

incident, and two other allegedly related entities.

Greystar was an additional insured under the Liberty Mutual

Policy. As such, Liberty Mutual agreed to defend Greystar

against the claims in the Doe lawsuit and thus retained and paid

for defense counsel. Liberty Mutual did not deny coverage or

seek a judicial determination that the Liberty Mutual Policy did

not provide coverage to Greystar for the claims asserted in the

Doe lawsuit, and thus did not proceed under a reservation of

rights.

Liberty Mutual assigned two claims professionals to work the

Doe lawsuit. Jamie Moray handled and monitored the defense of

Virtu, Denham, and Greystar in the Doe lawsuit; Antonio Glenn

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handled all issues of coverage under the Liberty Mutual Policy.

At the time of the incident, Greystar was also insured under

an excess/umbrella policy issued by Fireman’s Fund (“the

Fireman’s Fund Policy”). The policy limit of the Fireman’s Fund

Policy was $25 million.

In July 2003, after the conclusion of an unsuccessful

mediation, Fireman’s Fund was notified of the Doe lawsuit, which

was set to be tried approximately three to four weeks later. On

receiving notice, Fireman’s Fund assigned James Shaw to handle

the claims asserted against Greystar in the Doe lawsuit.

Shaw believed that Greystar’s potential exposure in the Doe

lawsuit exceeded the $1 million policy limit of the Liberty

Mutual Policy. Moray believed that the facts and circumstances

did not demonstrate a significant potential liability on the part

of Virtu, Denham, or Greystar.

After numerous communications between Moray and Shaw, Moray

advised Shaw that $200,000.00 was the maximum amount that Liberty

Mutual would pay to settle the claims against Greystar. Moray

also advised Shaw that he was not the adjuster responsible for or

involved in the handling of any coverage issues under the Liberty

Mutual Policy and that these issues were being handled by Glenn.

During one telephone conversation, Shaw advised Moray that

Fireman’s Fund might, after settling the Doe lawsuit, file suit

4
against Liberty Mutual.

Following these discussions, Shaw sent Moray an email which

stated, in part:

[Fireman’s Fund] is not convinced that [the Liberty
Mutual Policy] does not apply. As such, we are forced
to negotiate settlement in [the Doe lawsuit] with
minimal contribution from [Liberty Mutual]. Please be
advised that we are doing so under a full reservation
of rights under the policies, and that we specifically
reserve the right to resolve the coverage issues after
the fact.

After sending this email, Shaw, together with his Fireman’s Fund

counterparts handling the Doe lawsuit under the policy issued to

the Del Defendants, assumed complete control of the settlement

negotiations in the Doe lawsuit. Shaw and his counterparts

agreed to pay Doe $3 million to settle all claims she asserted in

the Doe lawsuit and agreed among themselves to allocate this

settlement equally between the Del Defendants and Greystar ——

actually between their respective insurers —— each paying $1.5

million.

Of Greystar’s allocated $1.5 million, Liberty Mutual paid

$200,000.00, which was consistent with its prior representations

to Fireman’s Fund. Fireman’s Fund paid $1.3 million, the balance

of the settlement.

In February 2005, Fireman’s Fund, which had previously

intervened in Liberty Mutual’s federal declaratory judgment

5
action, filed a motion for summary judgment, contending that the

Liberty Mutual Policy provided coverage to Greystar and, as such,

Fireman’s Fund was entitled to recover $800,000.00 (the $1

million Liberty Mutual Policy limit minus the $200,000.00 already

paid by Liberty Mutual) of the $1.3 million that Fireman’s Fund

had paid in settling the claims against Greystar. On the same

day, Liberty Mutual filed its own cross-motion for summary

judgment, contending that Mississippi’s voluntary payment

doctrine precluded any recovery from Liberty Mutual by Fireman’s

Fund.

In February 2006, the district court granted, without

reasons, Liberty Mutual’s summary judgment motion and entered

final judgment in Liberty Mutual’s favor. Fireman’s Fund timely

filed a notice of appeal.

II. ANALYSIS

A. Standard of Review

We review grants of summary judgment de novo, applying the

same standard as the district court.1 Summary judgment is

appropriate when there is no genuine issue of material fact and

the moving party is entitled to judgment as a matter of law.2

1
Abarca v. Metro. Transit Auth., 404 F.3d 938, 940 (5th Cir.
2005).
2
Dallas Fire Fighters Ass’n v. City of Dallas, 150 F.3d 438,
440 (5th Cir. 1998).

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The parties agree that Mississippi law applies in this diversity

action.3

B. Applicable Law

The voluntary payment doctrine is a common law construct

that has been consistently followed in Mississippi.4 Under this

maxim,

“[A] voluntary payment can not be recovered back, and a
voluntary payment within the meaning of this rule is a
payment made without compulsion, fraud, mistake of
fact, or agreement to repay a demand which the payor
does not owe, and which is not enforceable against him,
instead of invoking the remedy or defense which the law
affords against such demand.”5

In contrast, an “involuntary payment” is one “‘not proceeding

from choice.’”6 Thus, payments made by virtue of a legal

obligation, by accident, by mistake, or under compulsion are not

considered voluntary and thus are not barred from recovery under

the voluntary payment doctrine.7 In addition, a mutual agreement

between insurance companies to litigate their respective

liabilities between themselves after settling an underlying

3
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
4
Genesis Ins. Co. v. Wausau Ins. Co., 343 F.3d 733, 736 (5th
Cir. 2003).
5
Id. (quoting McDaniel Bros. Constr. Co. v. Burk-Hallman Co.,
175 So. 2d 603, 605 (Miss. 1965)).
6
Id. at 738.
7
Id.

7
lawsuit will preclude application of the voluntary payment

doctrine.8

C. Merits

1. Voluntary Payment

The first issue on appeal is Fireman’s Fund contention that

its settlement payment was not voluntary, because it had a legal

obligation to settle the Doe lawsuit on behalf of Greystar. In

support of its position, Fireman’s Fund relies on State Farm

Mutual Automobile Insurance Co. v. Allstate Insurance Co.9

Fireman’s Fund’s reliance on State Farm is misplaced, however.

State Farm stands for the legal proposition that a primary

insurer is under a legal obligation to defend and settle a

lawsuit in the best interests of its insured; and thus, if a co-

primary insurer fails to participate in a successful settlement

negotiation, the voluntary payment doctrine does not preclude an

action for contribution. Under the Fireman’s Fund Policy,

though, Fireman’s Fund is not a primary insurer charged with the

duty to defend. Rather, Fireman’s Fund is an excess/umbrella

insurer under no obligation to defend or settle any lawsuit

against Greystar. Fireman’s Fund’s sole obligation was to pay

any amount, up to the limit of its policy, that exceeded the

8
Id. at 736.
9
255 So. 2d 667, 669 (Miss. 1971).

8
limits of any primary insurance policy. Thus, Fireman’s Fund has

inappropriately attempted to agglomerate to itself as an

excess/umbrella insurer the primary insurer’s duty to defend and

thereby avoid the consequences of the voluntary payment doctrine.

In addition, Fireman’s Fund relies on Canal Insurance Co. v.

First General Insurance Co.10 as imposing on it another legal

obligation to settle the claims against Greystar. This reliance

is also misplaced.

In First General, Canal, an insurer, had no duty to defend

the claims against its insured in an underlying lawsuit, but

nonetheless provided a defense, under a reservation of rights,

after First General, another insurer, wrongfully refused to

provide one.11 After providing the defense, Canal sought to

recover its defense costs from First General, which argued in

opposition that Canal’s defense payments were voluntary and thus

unrecoverable.12

In reversing the district court’s ruling in favor of Canal,

we determined that Canal was not a volunteer.13 After

acknowledging that Canal had no policy obligation to provide a

10
889 F.2d 604 (5th Cir. 1989).
11
Id. at 611-12.
12
Id.
13
Id.

9
defense to its insured, which seemingly would have rendered Canal

a volunteer, we nevertheless held that, because of a mandatory

state-law insurance endorsement that effectively made Canal its

insured’s surety as to any judgments rendered against the

insured, Canal (1) reasonably could have feared that a court

might construe this endorsement as requiring Canal to provide its

insured a defense, and (2) had a manifest interest in controlling

the underlying litigation to minimize the size of any judgments

after First General had denied coverage and refused to provide a

defense.14 Based solely on these two circumstances, both of

which arose from an endorsement mandated by state-law, we

concluded that Canal could not be characterized as a volunteer.15

Here, there exists nothing akin to the mandatory state-law

endorsement in First General that (1) might have reasonably

caused Fireman’s Fund to fear that a court could conclude that it

had a duty to defend, or (2) imbued Fireman’s Fund with a

manifest interest in controlling the litigation. Furthermore,

even if there had been a similar endorsement, Liberty Mutual

never denied coverage as to Greystar and had agreed from the

outset to provide Greystar with a defense, thereby nullifying any

interest that Fireman’s Fund might have had in controlling the

14
Id.
15
Id.

10
litigation. We are satisfied that Fireman’s Fund had no legal

obligation to make a settlement payment on Greystar’s behalf and

thus cannot avoid the application of the voluntary payment

doctrine by means of an “involuntary” payment defense.

2. Mutual Agreement to Litigate Post-Payment

The second issue on appeal is Fireman’s Fund’s contention

that summary judgment was improperly granted, as —— it asserts ——

there exists a genuine fact issue whether a mutual, pre-

settlement agreement to litigate coverage issues post-settlement

existed between it and Liberty Mutual. According to Fireman’s

Fund, sufficient evidence of such a mutual agreement exists to

create a genuine issue of material fact and thus make the

district court’s grant of summary judgment erroneous.

Specifically, Fireman’s Fund points to (1) Shaw’s deposition

testimony, (2) the August 2001 email from Shaw to Moray, (3)

Moray’s file notes, and (4) a September 2001 letter from Liberty

Mutual to Wausau, as support for its contention that a factual

conflict exists whether the parties agreed to litigate the

coverage issue subsequently.

a. Deposition Testimony

Initially, Fireman’s Fund contends that Shaw’s deposition

testimony evidences that the two insurers did mutually agree to

litigate their respective liabilities subsequently. In his

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August 17, 2004 deposition, Shaw testified, in part:

Q: Anything else you can recall about your
conversations with Mr. Moray?

A: Yes.

Q: What else?

A: When we came to settling the case, Liberty
Mutual’s contribution was $200,000. I did not
believe that that represented Liberty’s exposure,
and I told him directly that we were going to sue
them for it and that I was going to send him a
reservation of rights letter, and he said, “You do
what you have to do.”

And I told him that I felt Liberty was trying to
manipulate this from a position of noncoverage and
I was offended that they could take that position
and I was further offended, after we had had those
discussions, that there could now be raised the
element that we might have made a volunteer
payment there, which was at no time discussed
because the disagreements on coverage were pretty
stark.

Q: But you and Mr. Moray discussed a voluntary
payment issue?

A: No, that was never brought up.

Q: Never came up?

A: Well, I took his contribution to the settlement as
a ratification, that it was reasonable and that
what was being agreed to —— the settlement was
acceptable and not outside the bounds of what
should be paid in settlement for such a loss.

Q: At no time did you —— did Mr. Moray ever raise
with you voluntary payment?

A: Not at all.

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Q: Never used that term with you?

A: Not at all.

. . .

Q: So when you left off with Mr. Moray, it was,
“We’re going to get this case settled and then
we’re going to sue you”?

A: “We will do what we have to to seek recovery.”

Q: Well, did you tell him that you were going to sue
him or did you tell him that you were going to do
what you had to do to seek recovery?

A: I mentioned the word “sue.” I mentioned
“recovery.” I probably told him ten times what we
were going to do.

Q: Was there ever a verbal agreement between you and
Mr. Moray to the effect that Liberty Mutual would
contribute $200,000; Fireman’s Fund would
contribute the balance; and that both parties
would agree to resolve any coverage issues in a
subsequent proceeding?

A: Do you mean did I have his permission ——

Q: Yes.

A: —— to settle the claim or to sue Liberty Mutual?

Q: To sue Liberty Mutual.

A: I had his acknowledgment that we would do that if
we had to. He acknowledged that that would be
appropriate.

Q: He understood that that’s what you were going to
do?

A: That was —— yeah, one of the potential —— either
arbitration or litigation or even negotiation
later outside the realm of an arbitration, but

13
 that this would be brought to resolution at some
point.

Q: I mean, you made that clear to him that you were
going to do that?

A: Yes. And there was never any disagreement from
him on that part.

Q: Did he expressly agree that that would be fine?

A: Yes.

. . .

Q: And is that the reservation of rights letter ——
the reservation of rights you’re referring to?

A: That is, yes.

Q: And there’s nothing in this e-mail about Liberty
Mutual agreeing to resolve the coverage issues
after the fact?

A: The discussion had been that we will, and I didn’t
see the need to point out that, “You have agreed
that we” —— I didn’t believe there was any need to
gain Liberty Mutual’s agreement for us to sue them
later since they had disclaimed coverage and we
felt that they were not stepping up to the plate
fully in a defense obligation; that for us to have
the onus or the burden of obtaining their
agreement would be ludicrous. That ——

Q: That just wasn’t necessary in your mind?

A: —— wasn’t necessary, no.

Q: In your mind, you were doing everything you could
to preserve Fireman’s Fund’s right to litigate
later or arbitrate later against Liberty Mutual?

A: We were reserving our rights. We had told them
that we would do so.

14
 Q: And you’re telling them again?

A: And I’m telling them again, and now we’re sitting
here talking about it.

As can be seen from this deposition testimony, Shaw was

attempting to get Liberty Mutual to raise its settlement

contribution and, in this effort, he threatened the possibility

of a lawsuit. Moray responded, in essence, that, regardless of a

potential lawsuit, Liberty Mutual was not going to raise its

contribution and Fireman’s Fund could go do whatever it wanted.

Although there was some mutual assent, it was not directed

towards a subsequent coverage lawsuit between the two insurers.

Instead, both parties acknowledged that Liberty Mutual would not

raise its settlement contribution over $200,000.00 and Fireman’s

Fund could do whatever it wanted in response. This is not

sufficient to constitute mutual assent to subsequent coverage

litigation.

b. Email

In the August 2001 email from Shaw to Moray, Shaw wrote, in

part:

We are not convinced that Liberty International
Underwriters’ Policy RG2-W31-004265-010 does not apply.
As such, we are forced to negotiate settlement in this
matter with minimal contribution from Liberty
International Underwriters. Please be advised that we
are doing so under a full reservation of rights under
the policies, and that we specifically reserve the
right to resolve the coverage issues after the fact.

15
Fireman’s Fund contends that this email constitutes a pre-

settlement, mutual agreement to reserve the right to litigate the

parties’ coverage issues subsequently. We disagree.

In his email, Shaw purports unilaterally to reserve

Fireman’s Fund’s right to litigate. This is not sufficient to

preclude application of the voluntary payment doctrine, which

requires that all interested parties mutually agree to litigate

subsequently.

c. File Notes

In his file notes relating to the Doe lawsuit, Moray

observed, in part: “Jim Morey —— 6/3/04 —— A review of the file

reveals that on 8/11/03, the case settled for $3,000,000.00 with

Liberty’s contribution being $200,000. Thereafter, the matter is

subject to coverage litigation. This part of the file is being

handled by Tony Glenn.” Fireman’s Fund asserts that this

notation also supports its position that the parties did reserve

their rights to litigate subsequently.

Fireman’s Fund’s position is unpersuasive. This file note

does not reference Shaw, Fireman’s Fund, or any agreement between

Liberty Mutual and Fireman’s Fund with respect to the Doe

lawsuit. In addition, this note was written approximately ten

months after the Doe lawsuit was settled and several months after

Fireman’s Fund filed its intervention complaint with the district

16
court. These notes are simply file documentation from a periodic

file review, not evidence of a ten-month-old mutual agreement to

litigate.

d. Letter

The last item of evidence offered by Fireman’s Fund is a

September 2001 letter from Liberty Mutual to Fireman’s Fund. The

letter states, in part:

I have enclosed in connection with the reference
matter Liberty Mutual Fire Insurance Company Check No.
8018688 in the amount of $200,000 made payable to [Ms.
Doe and her attorneys].

Tender of this check by Liberty Mutual Fire
Insurance Company is not intended as nor should it be
construed as an admission by Liberty Mutual Fire
Insurance Company or any related companies of any
liability under Policy No. RG2-W31-004265-010 in
connection with the matters at issue. Said tender is
made subject to Liberty Mutual Fire Insurance Company’s
full and complete reservation of rights under the
above-reference policy and without prejudice to any of
the claims and/or defenses currently asserted or which
may be asserted by Liberty Mutual Fire Insurance
Company in the lawsuit styled and numbered Liberty
Mutual Fire Insurance Company v. Virtu Signature Square
Associates, LLC, et al., in the United States District
Court for the Southern District of Mississippi, Jackson
Division, Civil Action No. 3:01CV860WS.

Like the other items, this letter too fails to prove a

mutual agreement between Fireman’s Fund and Liberty Mutual. It

does not mention Fireman’s Fund or any mutual agreement between

Fireman’s Fund and Liberty Mutual. Neither does it purport to

reserve any of Liberty Mutual’s rights with respect to Fireman’s

17
Fund. Instead, it unilaterally confirms Liberty Mutual’s

reservation of rights under the Liberty Mutual Policy with

respect to its insureds and reserves all existing claims and

defenses with respect to the pending lawsuit between Liberty

Mutual and Virtu and Denham. It is therefore insufficient to

constitute evidence of a mutual agreement to litigate

subsequently.

III. CONCLUSION

Based on the applicable law and our extensive review of the

parties’ briefs and the record on appeal, we hold that the

district court did not err in ruling that Fireman’s Fund’s claims

were barred by the application of Mississippi’s voluntary payment

doctrine.

AFFIRMED.

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