United States Court of Appeals,
Fifth Circuit.
Nos. 95-30290, 95-30568.
Herman Joseph ZIMMERMAN, Jr., Plaintiff-Appellee,
v.
INTERNATIONAL COMPANIES & CONSULTING, INC., Defendant-Appellee,
v.
SPHERE DRAKE INSURANCE GROUP, PLC., Defendant-Appellant.
Frank MORALES, Plaintiff-Appellee,
v.
INT'L COMPANIES, INC., Defendant-Appellee,
v.
SPHERE DRAKE INSURANCE GROUP, PLC., Defendant-Appellant.
March 13, 1997.
Appeal from the United States District Court for the Western
District of Louisiana.
Appeal from the United States District Court for the Eastern
District of Louisiana.
Before JONES, REYNALDO G. GARZA and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
In these cases consolidated for argument on appeal, the
question is whether a protection and indemnity insurer's
contractual right to have coverage disputes with its insured
submitted to arbitration also entitles the insurer to a court order
staying an injured worker's suit against the insurer under
Louisiana's direct action statute during arbitration. In the
Matter of Talbott Big Foot, Inc., 887 F.2d 611 (5th Cir.1989)
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answered this question in the negative. The answer is still "no".
In each of these cases, a worker suffered injury in an
accident aboard his employer's vessel and filed a direct action for
damages in a Louisiana federal court against the employer's
protection and indemnity insurer, Sphere Drake Insurance Group, PLC
("Sphere Drake"). The policy that Sphere Drake issued to the
employer, International Companies & Consulting, Inc. ("ICCI"),
provided in its arbitration clause that any coverage dispute
between insurer and insured was subject to arbitration in London
according to English law. In each case, Sphere Drake denied
coverage and moved the district court to stay the worker's direct
action pending arbitration. The district court in each case denied
the motion to stay, and Sphere Drake appealed from the decisions.
We consolidated the appeals and now affirm both district court
judgments.
I. Denial of Motion to Stay Arbitration
The district courts correctly followed the applicable
Louisiana law as interpreted by In the Matter of Talbott Big Foot,
Inc., 887 F.2d 611 (5th Cir.1989). In Big Foot this court
recognized that when the Louisiana direct action statute, La. R.S.
22:655, is applicable and authorizes a direct suit against a
tortfeasor's insurer, the statute is read into and becomes a part
of the insurance policy by law, even though the policy does not
contain the language required by the statute, or contains language
prohibited by the statute. See also, Grubbs v. Gulf Int'l Marine,
Inc., 625 So.2d 495, 498 (La.1993); Quinlan v. Liberty Bank &
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Trust Co., 575 So.2d 336, 352 (La.1990)(on reh'g),and authorities
cited therein. Accordingly, as Big Foot noted, the Louisiana
courts have held that terms and conditions of a policy that have
the effect of defeating the purpose of the direct action statute,
such as "no action" clauses, are annulled or superseded by the
statute. Id., 887 F.2d at 613 (citing authorities). By the same
token, this court in Big Foot held a policy clause that requires a
personal injury claimant to await arbitration of a coverage dispute
before litigating a suit against the insurer would have the same
effect and must therefore meet the same fate of annulment or
supersession. Id.
The district courts also correctly followed the steps of Big
Foot in interpreting the Federal Arbitration Act, 9 U.S.C. §§ 1 et
seq. ("FAA"), as not requiring arbitration for parties who have
not contractually bound themselves to arbitrate their disputes.
The FAA does not require arbitration unless the parties to a
dispute have agreed to refer it to arbitration. Big Foot, 887 F.2d
at 614 (citing AT & T Technologies v. Communications Workers, 475
U.S. 643, 647-648, 106 S.Ct. 1415, 1417-1418, 89 L.Ed.2d 648 (1986)
and other cases). Likewise, the mandatory stay provision of the
FAA does not apply to those who are not contractually bound by the
arbitration agreement. Id. (citing Coastal (Bermuda) Ltd., v.
E.W.Saybolt & Co., Inc., 761 F.2d 198, 203 n. 6 (5th Cir.1985);
Nederlandse Erts-Tankersmaatschappij v. Isbrandtsen Co., Inc., 339
F.2d 440, 441 (2d Cir.1964)). Thus, the FAA, the source of the
federal policy favoring arbitration, has no application to require
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direct action plaintiffs to arbitrate or to stay their lawsuits
during arbitration. Big Foot, 887 F.2d at 614.
We are not persuaded by Sphere Drake's argument that direct
action plaintiffs are deemed to have consented to be bound by the
insurance policy's arbitration clause simply because courts have
said that such plaintiffs are to be treated as if they were third
party beneficiaries of the insurance contract having standing to
sue the insurer on the contract. See Federal Deposit Insurance
Corporation v. Duffy, 47 F.3d 146, 150 (5th Cir.1995); Shockley v.
Sallows, 615 F.2d 233, 238 (5th Cir.1980). Independently of the
analogy between the direct action plaintiff and a third party
beneficiary, the direct action statute grants a personal injury
claimant a right of direct action against the tortfeasor's insurer
on the policy regardless of any provision in the policy forbidding
an immediate direct action. LA.REV.STAT.ANN. § 22:655. Moreover,
the statute does not require the direct action plaintiff to consent
to or abide by any policy provision that would contravene the right
of the injured party to bring a direct action as provided by the
statute. See Big Foot, 887 F.2d at 613 (citing Ruiz v. Clancy, 182
La. 935, 162 So. 734 (1935); Rambin v. Southern Sales Co., Inc.,
145 So. 46 (La.App.1932), and other Louisiana cases). Contrary to
Sphere Drake's contention, Allied-Bruce Terminix Companies, Inc. v.
Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), is
inapposite because in that case the plaintiffs-homeowners sued
Terminix on a written "Termite Protection Plan," containing an
arbitration clause, to which they became a party when the plan was
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transferred to them by their vendors. Typically, and in the
present case, the direct action plaintiffs are not parties to the
insurance contract or in privity with the insured. See Big Foot,
887 F.2d at 614 and n. 4.
Accordingly, we find the district court did not err in holding
that Morales and Zimmerman, as direct action plaintiffs, were not
bound by the arbitration clause.
II. Waiver of Non-Coverage Defense as to Morales
In one of these cases, Morales v. ICCI and Sphere Drake,
Morales successfully moved for partial summary judgment declaring
that Sphere Drake had waived its non-coverage defense based on an
alleged misrepresentation by ICCI as to the number of crew members
aboard the vessel. Sphere Drake argues that the district court
erroneously granted Morales' motion for summary judgment striking
the insurer's defense of non-coverage. ICCI argues, however, that
we are without appellate jurisdiction to review an interlocutory
judgment granting partial summary judgment in a direct action.
Appellate Jurisdiction and Standard of Review
As a general rule, "a partial summary judgment determining
that a certain issue shall be deemed established for the trial of
the case generally is not appealable until after the case has been
tried." 10 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL
PRACTICE AND PROCEDURE § 2715 (2d ed.1983). This circuit follows the
general rule. Resolution Trust Corp. v. U.S. Fidelity and Guaranty
Co., 27 F.3d 122 (5th Cir.1994) (per curiam)(quoting WRIGHT ET AL.).
Here, the issue deemed established for the trial of the case
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is that Sphere Drake waived its defense of non-coverage by
defending ICCI against Morales' claims for eight months without
reservation of rights despite factual notice that the crew number
limitation had been violated at the time of the accident. We find
that this determination is not final and separable from the rest of
the issues, all turning on Sphere Drake's liability to its insured
and Morales, so as to be reviewable on interlocutory appeal.
Sphere Drake also appeals from the denial of its motion for
reconsideration of the district court's ruling that the insurer had
waived its defense of non-coverage. For the same reasons that we
lack jurisdiction to review the grant of partial summary judgment,
we find the denial of the motion for reconsideration unreviewable.
Conclusion
We conclude that both district courts properly denied Sphere
Drake's motions to stay litigation pending arbitration.
Zimmerman's motion to dismiss and Sphere Drake's motion in
opposition are denied as moot. Accordingly, the district courts'
judgments are AFFIRMED.
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