Pursuant to 5 T H C IR . R. 47.5, the court has determined that thi s opinion should not * be publishe d and is not precedent except under the limited circu mstance s set forth in 5 T H C IR . R. 47.5 .4. 

### INTHE UNI TED S TATESCOU RT OFAPPEALS

FORTHE FIFTH CIRCU IT

N o. 08- 30064

DANRI K CONST RUCTI ON I NC P l ai n t i f f

- A pp el l ee v. AM ERI CAN CAS UALT Y C OM PA NY OF READI NG PENNSY LVANI A; T RA NS CO NT I NENTALI NS URA NCE C O D efen da n t s- A pp el l an t s

A p p ea lf

rom the U n i tedS tates D i stri ct C ou rt f ort he W es t er n D i st r i c tof Loui si ana U SD C N o. 6: 05- c v- 1940

B ef ore G A R W O O D , D E N N IS, an d P R A D O , C i rcui tJu dg es . P E R C U R IA M: * T h i s a p p e a l p r e s e n t s a d i s p u t e b e t we e n ac o n s t r u c t i o n c o mp a n ya n dt wo i nsur er s. Pl ai nt i f

f

- A ppel l ee D anrik C ons t r uct i on , I nc. (“ D anrik” ) as se r t s t hat D e fe n d a n ts -A p p e lla n ts A m e r ic a n C a s u a ltyC o m p a n yo f R e a d in g , P e n n s y lv a n ia ( “A C C ” ) and Transc ont i nent alI nsur ance C om pany ( “ TIC ” ) (c ol l ec t ively,

“ I nsur er s” ) br eac hed t hei r f i duci ar y dut y t o D anrik by fai l i ng t o pay sev er al cl ai m s un der D an ri k’ s c om m erci algen erall i abili t y pol i cy (“ C G L pol i cy” )

. A f t er United States Court of App eals

Fifth Circuit 

### F I L E D Ma rc h 16, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 08- 30064

2 a ben ch tr i al , th e di st ri ctcou rtrul ed i n favor of D an ri k. W e revers e an d rend er j u dg m en ti n favor of I n surers. I . F A CT UA L A ND P ROC E DUR A L B A CK GRO UND D a n ri ki s a co n stru cti on su b con tractortha t i n stall s u n d erg rou n dcon d u i ts andc o m m uni c at i o n c ab l e s . Danr i k o bt ai ne d CG L p o lic yc o v e r a g ef r o m AC C, a nd T IC re n e w e dth is p o lic y , fo rth e tim e p e r io d s re le v a n t t o th is a p p e a l. D a n r ikw o r k e do n fo u rp r oje c ts d u r in gt h e p o lic yp e r io d s in w h ic h it al l eges itincurred covered li abili t i es. In pa rt i cul ar, D an ri k’ s negl i gen tw ork on p rojects f

or G ra d y C ra w ford C on stru cti on C o. (“ G ra d y C ra w fordC on stru cti on ”)
an d B el l S ou t h T el ecom m u n i cat i on s, Inc. ( “ B el l S ou t h ” ) l ed t o vari ou s d a m a ges f or bot h enti t i es as w el las f or another contr act or, Stel l y C on str u ction , I n c. (“S C I” ), w h o h a do r ig in a llyin s ta lle das e w e rlin e th a t D a n r ik d a m a g e d
. D a n r ik report ed these cl ai m s t o I n surers, aski n g t h e m to p ay G radyC raw f ord C on st ructi on , B el l S ou t h , an d S C I f or i t s c l ai m s. For each of t h e l osses , I n surers bega n t h ei r adj u st m en t procedu re an d s ou gh tan i n dep en den teval u ati on f rom an eng i n eeri n g exp erton w h et h er t h e am ou n t s of t h e c la im e d d am ages w ere reasona bl e an d n ecess ary. B ased o n th e en gi n eeri n g report s, I n surers of fered G r a d yC r a w fo r dC o n s tr u c tio n , B e llS o u th , a n d S C I a m o u n ts th a t w e r e s lig h tly l ow er t h an t h e ori gi n alcl ai m s. A l lthree en t i t i es r ef u sed t h e set t l em en tof fers. D anr i k l at e rpa i d t he s e e nt i t i e s t he f ul l am o unt s o f t he i rc l ai m s i n a n a t t e m pt to co n tin u e d o in gb u s in e s s w ith th e m . Im p o r ta n tly , D a n r ikd idn o t o b ta in Insurers’ consen t bef ore set t l i n g t h e u n derl yi n g cl ai m s. In fac t, Insurers
s t i pul at e t hatt he y w e r e w i l l i ng ata l lm at e r i alt i m e s t o pa y t he s e t t l e m e nt
am o unt s t he y hado f fe r e d t o t he t hr ee en t i t i e s a nd h av e D anr i k p ayt he d iffe r e n c e . In s te a do f a g r e e in gto t h is a r r a n g e m e n t, h o w e v e r , D a n r ik
u n i l ater al l y chose t o set t l e t h e cl ai m s. D an ri k then f

i l ed s u i tagainstI n surers, cl ai m i n g t h at I n surers breached t h ei r f i du ci ary du t y t o t i m el y pa y t h e cl ai m s i n f u l lan d cau sed D an ri k to s u f ferN o. 08- 30064

3 lo s tfu t u r e p r o fi t s b a s e do n B e ll S o u t h ’s a n dG r a d yC r a w fo r dC o n s t r u c t i o n ’s
u ltim a te d e c is io n to ce a s e d o in gb u s in e s s w ith D a n r ik . I n p a r t i c u la r , D a n r ik
c la im e dth a t I n s u r e r s p u r p o s e lyd e la y e dta k in ga n ya c tio n o n th e cla im s u n til th e u n d e r ly in gto r t c la im s p r e s c r ib edu n d erL o u is ia n ala w , k n o w in gth a t D a n r ik
w ou l drem a i n con tractu a l l y l i a b l e b a sed o n D a n ri k ’ s i n d em n i ty con tracts w i th th e s e e n tit ie s . The di st r i c tc o ur tf

i r s tde ni e d I ns ur e r s ’m o t i o n f o rs um m ar y j udg m e nt
w i t ho utw r i t t e n e xp l ana t i o n. The c o ur tt he n c o nduc t e d ab e nc h tr i al
. Att he concl u si on of

t h e ben ch tr ia l, i trul ed that D an ri k h adnot m eti t s burd en of provi n g l ostprof

i t s, especi al l y becau se G radyC raw f ord C on st ructi on conti n u ed d oin g b u sine ss w i th D a n ri kf or so m e ti m e a ft er th ese cl a i m s ar ose an dB ell S ou th di d nothave any busi nes s oppor t uni t i es f orD anrik. D anrik doe s notc hal l enge th e s e fin d in g s o n a p p e a l. T h e c o u r t a ls o ru le dth a t I n s u r e r s h a db r e a c h e dth e ir f i du ci ary du t y by n otpay i n g t h ree of t h e fo u r u n derl yi n g cl ai m s and aw arded D an ri k d am ages i n t h e am ou n tof t h e cost o f th e cl ai m s ( $33 , 486
. 03) pl u s a s ta tu to r yp e n a ltyo f th e s a m e a m o u n t, fo rato ta l o f $ 6 6 ,9 7 2 .0 6
. In s u r e r s a p p e a l.

I I . J URI S DI CT I ON AND S TA NDARD OF RE VI EW Th e di st r i c t c our t , w hi c h had diver sit y j uri sdi c t i on, i ss ue d a fi nal j udgm ent , m eani ng t hatt hi s c our thas j uri sdi c t i on under28 U
. S. C

. § 1291.

“ ‘ T h e st an da rd of

revi ew f

or a bench t ri ali s w el les ta b li sh ed: f i n di n gs of fact are rev i ew ed f

or cleare rror a n dl eg a li ssu es a re re view ed de n ov o.’” B d

. of Trs. New O rlean s E mploye rs Int ’lL ongshorem en’ s A ss’ n v. G ab ri el , 529 F. 3d 506, 509 ( 5t h C i r . 2008) ( quot i ng W at e rCr af

tM gm t
. LLCv . Me r c ur yMar i ne , 457 F .3 d4 8 4 , 4 8 8 ( 5 t h C i r . 2 0 0 6 )). In co n s tr u in gs ta te la w in ad iv e r s ityca s e , a fede ra l cou rt m u st f

oll ow the su b stan tive de ci sion s of t h e sta te’ s h i gh est cou rt, h e r e th e L o u is ia n aS u p r e m e C o u r t. Se eEr i eR. R
. Co. v . Tompk i ns , 304 U
. S. 64, 7 8 (1 9 3 8 ); A m . I

n t ’lS peci alty L i n es Ins. Co. v. Can al Ind em . Co. , 352 F. 3d 254, 2 6 0 (5t h C ir. 2 0 0 3 ).N o. 08- 30064

4 I I I . DI S CU S S I ON Insurers r ai se s everali ssues on ap pea l , bu t w e di spose of t h i s c ase based
o n o n lyo n e : D a n r i k ca n n o t r e c o v e ru n d e rth e in s u r a n c e co n tr a c t b e c a u s e it
u n i l a tera l l y se ttl ed the u n d erlyingcl a i m s w i th ou t I n su rers ’con sen t. T h e C G L po l i cyi n this case pr ov i d ed tha t th ere w ere s ev era lco n d i ti on s to coverage i n t h e even tof an “ occurrence, of

fen se, cl ai m or su it. ” T h e pol i cy sp ecific a llystated , “N o insu red w i l l , ex cep t at t h a t i n su red ’ s ow n cost, vol u n t aril y m ak e a pay m en t , assum e an y obl i gati on , or i n cur an y exp en se, ot h er t h an f or f i rstai d, w i t h ou t ou r consen t
. ” A t t ri al , on e of D an ri k’ s ow n ers t est i f i ed th a t D a n ri kh a den tered i n to s e ttlem en t ag ree m en ts w i th allof th e claim a n ts f or al lof the cl ai m s an d ad m i t t ed t h at D an ri k t ook t h i s act i on w i t h ou tI n surers’
consen tor au t h ori zati on . Insu rers a sser ttha tthis a ct i on d i scharged I n surers f rom an y obl i gati on s un der t h e C G L p o li cy. I n surers al so note t h at th ey w ere w illin ga t a ll m a te r ia l tim e s to p a yth e a m o u n ts th e yo ffe r e da n dh a v e D a n r ik pa y t h e di f

ference. The c as e l aw s upp o r t s I ns ur e r s ’a r gum e nt
. I n R o se n th a l v. S ec u rity Insura n ce G roup of

New Haven , 2 0 5 S o . 2 d8 1 6 (L a . C t. A p p . 1 9 6 7 ), th e p la in tiff p a idacla im a n t forh is d a m a g e s a fterth e in su re r d e n iedli a b il ity
. T h e p la in tiff t h e n s o u g h tt o r e c o v e rf r o m t h e i n s u r e rt h e a mo u n th e p a i dt o s e t t l e t h e c l a i m. I d. at 81 7
. T h e L ou i sian acou rt he l d th a t th e p l a i n tiff h a dbre a ch ed the con sen tto -s e tt le la n g u a g e in th e in s u r a n c e p o lic y , p r e c lu d in gh im fr o m a s s e r tin g acla im
a g a in s t t h e in s u r e r . I d. T h e c o ur tr ej e c t e d t he pl ai nt i f f ’ s a r gum e ntt hatt he
consen t
- t o- set t l e l an gu age w as contr ary t o pu bl i c pol i cy, in th a t i tprovi des a d is in c e n tiv e fo ra n in s u r e dto p a yacla im “t o k e e p h is cr e d it n a m e a liv e in h is
com m u n i ty a n dto av oid civilaction ag a i n st h i m . ” I d. As t he c o ur ts t at e d, Iti s o b vi ou s t h at th e com pa n y i s obl i gated to pa y on l y t h ose a m ou n ts w h i ch the i n su red i s l eg a llylia b le to p a y. T h i s l i a b i l i ty m us tb e deter m i ne d e i t he rb y a c o ur to rb y t he c l ai m ant , t he c o m pa ny, a nd the i ns ur e d j o i nt ly. The r e a r e no pr o vi s i o ns o f t heN o. 08- 30064

Danrik di d not cite Babs t or raise this issue in connection with In surers’ consent-to- 1 settleargu ment, and thereforeitis arguablywaived. Regardless, this ca se i s dissim il ar to Bab st , a s w e di scu ss. 5 pol i c y unde rw hi c h t he i ns ur e d ha s a ny r i ghtt o m ak e a ny de t e r m i nat i o n a s t o hi s o w n li abil i t y. H i s fe ara s t o b e i ng t he su bj ect of a civilsu i t i s gro u n d l ess si n ce th e com p a n y is obli ga tedto d e fe n da n ys u it file da g a in s t h im , e v e n th o u g h it b e fr iv o lo u s . I d. at817- 18. In an ot h er Lou i si an a C i rcui tC o u rt o f A pp ealcase, how ever, t h e court
no t e d t hata“ no a c t i o n c l aus e [ s t at i ng t hata n i ns ur e d ha s no ac t i o n a ga i ns tt he in s u r e rif th e in s u r e db r e a c h e s th e te r m s o f th e in s u r a n c e p o lic y] h a s b e e n h e ld t o be of no ef fectw h en an i n su re r d e n ies coverage w h ere t h ere i s c overage, or u nj u sti fi a b l y d elay s settl em en t, forcin g th e i n su red to settl e se p a ra tel y.” E m ile M
. Ba b s t Co

. v . Ni c h o ls Co n s t r . Cor p. , 4 8 8 So. 2d 699 , 703 (La. C t
. A pp. 1986) (ho l di ng t he i ns ur e rl i abl e f o rfail i ng t o s e t t l e t he c l ai m w he n “t i m e w as o f t he
es se nce ” )

. U ndera br oad r eadi ng of D a n ri k ’ s a rgum ent , i ti s as se r t i ng t hat I ns ur e r s unj us t i f

i ab l y de l ay e d s e t t l e m e nt , f o r c i ng D anr i k t o s e t t l e o n i t s o w n. 1 T h e fac ts o f B ab st , how eve r , ar e no tatal ls i m i l art o the pr es entc as e. I n t hat
c as e , t he i ns ur e d, as ubc o nt r ac t o r , m ad e r e pai r s s t e m m i ng f r o m a n a c c i de nt
w i t h ou trec eivi n g f

orm alcon sent f

rom the i n surer so as t o f i n i sh the proj ecton ti m e . I

d. a t 7 0 3
. B e fo r e co m p le tin gth e re p a ir s , th e s u b c o n tr a c to r“fu lly cooperat[ ed]” w i t h t h e insurer, k ept t h e i n surer “f u l l y i n f orm ed, ” an d obtai n ed t h e a s s u r a n c e o f

t w o i n s u r a n c e a g e n t s t h a tt h e i n s u r e rw o u l dc o v e rt h e c l a i m. I d. H a dthe su b con tractor w a i ted for t h e insu rer’ s off i ci a lcon sen t t o com p l ete th e w o r k , it w o u ldh a v e lo s t t h e s u b c o n tr a c t a m o u n t a n dw o u ldh a v e b e e n lia b le
u n d e rth e “ h o ldh a r m le s s ” c la u s e o f th e s u b c o n tr a c t. I d. U n der t h ese c i r c um s t anc e s , t he c o ur t he l d t hat t he i ns ur e r ’ s c o nduc t“i n i nde f i ni t e l y de l ay i ng set t l em en tw h en . . . t h e cl ai m of [t h e subcon t rat or] w as cl earl y covered, w as a b rea ch of i ts du ty to i ts i n su red
. ” I d. H ere, i n contr ast, I n surers i n vest iga t edN o. 08- 30064

Inde ed, Danrik presente d littleevidence to su ggest that it had to act quickly to avoid 2 losing business. In fact, the district court foun d that GradyC rawford Con struction continued to dobu sine ss with Danrik for a little while afterthe claims arose an d that BellSouth did not have anybu sine ss opportunitie s for Danrik. Danrik do es not challengethese findin gson appeal. 6 t he c l ai m s a nd a t t e m pt e d t o s e t t l e t he m , a nd Danr i k d i d no tha ve a ny i m m e di at e r i s k o f

los i n g m one y i f

i tdi d no ts e t t l e . Danr i k c o nc e de s t hatt he 2 pol i cy requi red Insu re rs ’con sent pri or t o set t l em en tbu tsi m pl y asseverates , w i t h ou tf

u rt h er el aborati on , t h at s eeking c o ns e nta f t e rI ns ur e r s a lr e ad y “r e f u sed t o set t l e” w ou l d h ave been usel ess. D an ri k rest s vi rt u al l y i t s entire argu m en tf or t h i s i ssue on i t s c on t en t i on t hatI ns ur e r s di d no t s uf fe r any pr ej udi c e f

r o m D anr i k’ s fail ur e t o o bt ai n c o ns e nt be f o r e s e t t l i ng t he und e r l yi ng c l ai m s . To t he c o nt r ar y, t hi s c o ur t , i n c o ns t r ui ng T exas l aw regardi n g an i den t i cal consen t
- t o- set t l e cl au se, h el d that an i n surer s u f fe r s p r ej u d i c e a s ama t t e ro f l a w wh e n a n i n s u r e du n i l a t e r a l l ys e t t l e s ac l a i m: A ssu m i n g w i th ou t d ecidin g th a t a n in su rer m u st sh ow pr ejud i ce to av o i d it s ob l i ga t i o ns unde rt he poli c y w he n t he i ns ur e d br e ac he s t he c o ns e nt
- t o - s e t t l e pr o vi s i o n, b as e d o n t he s um m ar y j udg m e nt evi den ce i n t h i s c ase, w e are sati sf i ed t h at N ati on alU n i on suf fered pr ej udi c e a s am at t e ro f l aw. An i ns ur e r ’ s r i ght t o pa r t i c i pa t e i n t he settl em en t pro cess i s an esse n ti a lpr ere q u i sit e to i ts ob liga ti on to pa y a set t l em en t
. W h en , as i n t h i s case, t h e i n surer i s not consu l t ed ab o utt he s e t t l e m e nt , t he s e t t l e m e nti s nott e nde r e d t o i ta nd the i ns urerh as no o ppo r t uni t y t o pa r t i c i pa t e i n o rc o ns e ntt o t he u ltim a te s e tt le m e n t d e c is i o n , w e co n c lu d e th a t t h e in s u r e ris pr ej udi c e d a s am at t e ro f l aw. U nde rt he s e c i r c um s t anc e s t he b r e a c h o f th e c o n s e n t-t o -s e tt le p r o v is io n in th e p o lic yp r e c lu d e s th is ac t i o n. Mot i va E n t ers . , L L Cv. S t
. Pau lFi re & Mari n e I n s. Co. , 445 F. 3 d 3 81, 386- 87 (5 t h C ir . 2 0 0 6 ). M o r e o v e r , o n e o f I n s u r e r s ’ a dju s t e r s te s t if ie dth a tD a n r ik ’s
vo l u n tarysettl em en t prej u d i ced In su rers b eca u se i t eli m i n a tedth eir a b i l i ty to i nve s t i ga t e t he c l ai m o rde t e r m i ne a p roperpe r c e nt ag e o f l i ab i l i t y. The rep rese n tative also stated th a t a u n i l a tera lsettl em en t can su bj ect an i n su rer toN o. 08- 30064

7 dou bl e l i abili t y, especi al l y i f t h e i n sured d oes not obtai n a p ro per rel ease of
c l ai m s. D anrik doe s notr ef ut e thi s t es t i m ony. I n s um , D anr i k, w i t ho utI ns ur e r s ’c o ns e nt , pa i d Be l l So ut h, G r ad y C r aw f or d C ons t r uct i on, an d S C I to set t l e t he cl ai m s. Th e c as es di sc uss ed ab ove sug gestt h at w h et h er a c ou rtw i l lexcuse a bre a ch o f a con sent- t o- set t l e cl au se dep en ds on t h e circum st an ces of t h e si t u ati on . H ere, I n surers i n i t i al l y of fered
as e tt le m e n t a m o u n t, a n da fte rth e cla im a n ts re fu s e dit, D a n r iku n ila te r a lly
se t t l ed t he cl ai m s. Th er e w as n o “ t i m e i s of t he e ss enc e” s it uat i on s i m i l art o t hat i n B ab stt hatm i ghte xc us e D anr i k’ s a c t i o n. Danr i k’ s s ugg e s t i o n t hata ny at t em ptt o o bt ai n co nse ntw oul d hav e b ee n usel es s orf ut i l e i s unavai l i ng, e s pe c i all y give n t hatI ns ur e r s s t i pul at e t hatt he y w o ul d ha ve pa i d t he a m o unt t h ei r expert st ated w as reasona bl e an d necessary an d w ou l d n otha ve obj ect ed t o D an ri k p aying the di f ference. Th u s, D an ri k’ s act i on di scharged I n surers’ responsibi l i t y u n der th e insuran ce pol i cy; pu tan ot h er w ay, t h e fact s are m ore l i ke t ho s e i n R o se n th a l and ar e di s s i m i l art o t he s i t uat i o n i n B ab st
. U n der t h ese facts, D a n ri k ’ s u n i l a tera lde ci sion to settl e th e u n d erlyingcl a i m s p reclu d es it s a b ilityto re c o v e rfr o m In s u r e r s . M o r e o v e r , th is re s u lt is p a r tic u la r ly appro pri at e given t hatt he poli c y e xpr es sly e xc l uded (w it h so m e exc ept i ons t hat
ar e i nap pl i c ab l e ) c o nt r ac t uala s s um e d li ab i l i t y. W e t he r e f o r e r e ve r s e t he j u dg m en tof

t h e di st ri ctcourtan d rend er j u dg m en ti n favor of I n surers. IV . C ONC L US I ON B ecau se t h e di st ri ctcourtden i ed Insu rers ’sum m ary j u dg m en tm ot i on on t h i s i ssue w i t h ou ta f u l lw ri t t en expl an ati on , itis un cl ear w h y t h e courtrej ect ed t hi s a r gum e nt
. N e ve r t he l e s s , give n t hat D anr i k b r e ac he d t he c o ndit i o ns o f t he C G L pol i cy b y u n i l ater al l y set t l i n g t h e u n derl yi n g cl ai m s, itcan n otrecover f rom I ns ur e r s . Ac c o r di ngly, w e RE VE RSE the j udg m e nto f t he di s t r i c tc o ur ta nd R E N D E R j u dg m en ti n favor of I n surers. RE VE RS ED A ND R END ER ED
.