Psarianos v. Standard Marine, Ltd., Inc.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 92-4486

JANE ALICE PSARIANOS, ET AL.,
Plaintiffs-Appellants,

versus

STANDARD MARINE, LTD., INC., ET AL.,

Defendants,

EAGLE TRANSPORT, LTD.,

Defendant-Third Party
Plaintiff-Appellant,

versus

UNITED KINGDOM MUTUAL STEAMSHIP ASSURANCE
ASSOCIATION (Bermuda), Limited, A/K/A
UNITED KINGDOM P&I CLUB,
Third Party Defendant-
Appellee.

Appeal from the United States District Court
for the Eastern District of Texas

(January 14, 1994)

Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge, and
PICKERING*, District Judge.

HIGGINBOTHAM, Circuit Judge:

*
District Judge of the Southern District of Mississippi,
sitting by designation.
 We hold that the victims of an accident on the high seas lack

the requisite special relationship to proceed directly against the

insurer of the parties at fault for causing the accident.

I.

The M/V Thomas K sank in international waters on February 1,

1984. Plaintiffs, the surviving crew members and the survivors of

the deceased crew members, brought personal injury and wrongful

death actions in the United States District Court for the Eastern

District of Texas against the vessel's owner, Eagle Transport

Limited, Inc., its manager and operator, Standard Marine Ltd., the

alleged alter ego of Eagle and Standard Marine, Peter Kikis, and

the American Bureau of Shipping. After trial, a jury returned a

verdict in favor of the plaintiffs in excess of $22,000,000.

United Kingdom Mutual Steamship Assurance Association, the vessel's

protection and indemnity insurer, declined to cover any liability.

Eagle Transport, Standard Marine and Kikis instituted third party

proceedings against the Assurance Association claiming breach of an

insurance contract and seeking indemnification for the amount that

they were required to pay to the plaintiffs. The district court

then granted the Association's motion to compel arbitration as

required by the insurance contract and in the interim stayed

proceedings on the coverage issue.

While the arbitration was pending, the plaintiffs expressed

their intention to initiate an action against the Association in

Texas state court. The Association responded by requesting the

district court to declare that plaintiffs had no claim against the

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Association. The plaintiffs filed a counter-claim seeking a

declaratory judgment that the insurance contract provided by the

Association covered the liabilities of Eagle and that the

plaintiffs were entitled to proceed directly against the

Association.

The arbitration panel found that Eagle had not complied with

the insurance contract under the indemnity policy. The panel also

found that the Association's obligation would arise only when Eagle

paid, which Eagle has yet to do. As a result, Eagle could not

recover from the Association. The district court confirmed the

arbitral award and dismissed plaintiffs' claim against the

Association.

Plaintiffs challenge the district court's exercise of

jurisdiction over their claim, the district court's declaratory

judgment against them, and the underlying arbitral award. We find

that the district court did not abuse its discretion in exercising

jurisdiction over plaintiffs' claim, that the district court's

declaratory judgment was sound, and that plaintiffs lack standing

to attack the arbitral award.

II.

We first identify the proper appellants. The Association has

moved to dismiss Eagle's appeal. Eagle has not filed a brief on

appeal, or adopted plaintiffs' arguments. We have no reason to

believe that Eagle wishes to pursue this matter or, if it does,

that it would pursue it in the way the plaintiffs have chosen. We

dismiss Eagle's appeal. See Rule 31(c) FRAP.

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 III.

Plaintiffs first argue that the district court should not have

entertained the Association's motion for a declaratory judgment.

When the Association moved for declaratory judgment, the plaintiffs

had already indicated their intention to proceed directly against

the Association in state court.1 Plaintiffs argue that the

district court should not have allowed the Association to deny the

plaintiffs the choice of forum in which to litigate their claims.

We must determine whether the district court abused its

discretion in hearing the declaratory judgment action. Sandefer

Oil & Gas, Inc. v. Duhon, 871 F.2d 526, 528 (5th Cir. 1989) (citing

Mission Insurance Co. v. Puritan Fashions Corp., 706 F.2d 599, 601

& n.1 (5th Cir. 1983)) ("our review of the district court's

exercise of discretion to hear a declaratory judgment action is

limited to whether the court abused its discretion"). In

particular, the abuse of discretion standard applies to the

district court's decision whether to stay or dismiss a declaratory

judgment suit in deference to a state court action. Magnolia

Marine Transport Co. v. Laplace Towing Corp., 964 F.2d 1571, 1581

(5th Cir. 1992).

A district court may refuse declaratory relief for one of

several reasons: the matter may be before a state court capable of

resolving all the issues between the parties; the declaratory

1
The plaintiffs notified the Association before filing suit
in an effort to satisfy the requirements of the Texas Deceptive
Trade Practices--Consumer Protection Act. See Business and
Commercial Code of Texas, § 17.41 et seq (1993).

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complaint may have anticipated another suit and may allow forum

shopping; the complaint may allow the plaintiff to gain precedence

in time or forum; or it may inconvenience the parties or the

witnesses. Id. (quoting Rowan Cos. v. Griffin, 876 F.2d 26, 29

(5th Cir. 1989)).

Plaintiffs originally filed suit in federal court. The

Association later filed its motion for summary judgment. The

plaintiffs filed a counter-claim in federal court and did not sue

in state court. Plaintiffs chose the district court, and we do not

find that the district court abused its discretion in forcing

plaintiffs to pursue all aspects of the case in a single forum.2

III.

Second, plaintiffs claim that the district court erred by

dismissing their claims against the Association. They argue that

the laws of both Britain and Texas provide them a cause of action

against the Association. They are mistaken on both counts.

Plaintiffs cite Morewitz v. West of England Ship Owners Mut.

Protection & Indem. Ass'n, 896 F.2d 495 (11th Cir. 1990) as support

for their claim that under English law they have a cause of action

against the Association. Plaintiffs argue that the court in

Morewitz interpreted an English bankruptcy act, The Third Parties

(Rights Against Insurers) Act of 1930, as creating for a party in

a position to benefit from insurance a cause of action directly

2
Plaintiffs argue that the Burford abstention doctrine
required the district court to decline to resolve this case. See
Burford v. Sun Oil Co., 319 U.S. 315 (1943). We need not
consider this argument as plaintiffs raise it for the first time
in their reply brief.

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against an insurance company once the insured has become bankrupt.

The court did not have reason to recognize such a cause of action.

Neither did it decide, as plaintiffs claim, that the direct action

statute would defeat a defense based on the requirement that the

insured pay its obligation before the insurer would become liable.3

Rather the court of appeals held that the district court did not

lack subject matter jurisdiction over the marine insurance claim

simply because plaintiff based the claim on a direct action

bankruptcy statute. Id. at 500.

The House of Lords in Firma C-Trade S.A. v. Newcastle P. & I.

Ass'n, Lloyd's Rep. (Vol. 2) 191 (H.L. 1990), decided when a party

in a position to recover from an insured may file suit directly

against an insurer. When the terms of the insurance require the

insured to pay its obligation before it may collect against the

insurer, the House of Lords held, the insured must pay before any

other party can sue on the contract. Id. at 197. Plaintiffs

acknowledge that Eagle has yet to satisfy the judgment against it.

Indeed, they pursue this suit against the Association precisely

because Eagle has failed to pay. Because under English law, such

payment is a "condition precedent" to a direct suit against the

insurer, plaintiffs cannot proceed under English law.4

3
Indeed, the Eleventh Circuit did not so much as conclude
that the British direct action statute applied in the case before
it rather than American state law. Id. at 499 n.5 ("the forum
state's law may be the applicable law for purposes of applying
any direct action statute") (citations omitted).
4
For the Bankruptcy Act to have effect, the plaintiffs
also have to establish that the insured was bankrupt or had been
"wound up." Id. at 195. Plaintiffs claim Eagle is insolvent.

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 Plaintiffs' recourse to the laws of Texas is similarly

unavailing. Plaintiffs correctly note that Texas allows an

employee to sue directly a carrier of workers' compensation

insurance. Aranda v. Insurance Co. of North America, 748 S.W.2d

210, 212 (Tex. 1988). This right is merely a special instance of

the general rule that in Texas every insurer owes a duty "to deal

fairly and in good faith with its insured in the processing and

payment of claims." Id. As Texas courts treat the workers'

compensation scheme of the state as a "three-party agreement"

between the insurer, the employer, and the employee, this approach

is unexceptional. Id. It casts little light on whether parties

that stand to benefit from an insurance policy may proceed directly

against the provider of the policy or whether only the insured or

a third party beneficiary has that right.

We have already considered the contours of Texas law on this

matter. In Warfield v. Fidelity and Deposit Co., 904 F.2d 322 (5th

Cir. 1990), we addressed the circumstances in which a party that

may benefit from insurance, but is not the insured or a third party

beneficiary, may sue directly an insurance carrier. We held that

Texas law requires "a direct and close relationship" between the

party and the insurer. Id. at 326-27. Thus, for example, where an

insurance company stated to a hospital that a prospective patient

was covered by insurance, the hospital could then proceed directly

The Association suggests plaintiffs have offered no evidence to
support this allegation. As plaintiffs have failed to meet the
requirements to establish a claim under the Act, we need not and
do not decide this issue.

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against the insurance company in response to a denial of benefits

to the patient. Id. at 327 (citing Hermann Hops. v. National

Standard Ins., 776 S.W.2d 249 (Tex. Ct. App. 1989)). Plaintiffs do

not claim any such special relationship with the Association.

Thus, as this court noted in Warfield, a "line limiting liability

must be drawn somewhere and the appellants fall outside of this

line." Id.

IV.

Finally, plaintiffs challenge the district court's order

enforcing the arbitral award in favor of the Association. They

have no standing to do so. The relevant provisions of the Federal

Arbitration Act, 9 U.S.C. §§ 201-08 (1993), do not confer such

standing on parties not participating in arbitration. See 9 U.S.C.

§208 (1993) (incorporating, inter alia, 9 U.S.C. §10); 9 U.S.C. §10

(1993) (allowing "order vacating" an arbitration award "upon

application of any party to the arbitration") (emphasis added);

McNair v. United States Postal Service, 768 F.2d 730 (5th Cir.

1985) (citing Acuff v. United Papermakers and Paperworkers, 404

F.2d 169, 171 n.2 (5th Cir. 1968)) (interpreting 9 U.S.C. §10 to

afford standing to challenge arbitration only to parties that

participated in arbitration). Moreover, as we explained, the law

does not provide plaintiffs an independent basis for suing the

Association. Warfield, 904 F.2d at 326-27. Eagle, the other

participant in arbitration, is not a party to this appeal. Under

these circumstances, plaintiffs lack standing to challenge the

underlying arbitral award.

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AFFIRMED.

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