Source: https://openjurist.org/177/f3d/326
Timestamp: 2019-04-25 09:54:33+00:00

Document:
Lawrence D. Wade, Robert Brittain Virden, Campbell, DeLong, Hagwood & Wade, LLP, Greenville, MS, for Plaintiff-Appellee.
John B. MacNeill, Kenneth Charles Miller, MacNeill & Buffington, Flowood, MS, for Defendant-Appellant.
Before KING, Chief Judge, and REAVLEY and BENAVIDES, Circuit Judges.
In this insurance coverage dispute, plaintiff-appellee Liberty Mutual Fire Insurance Company ("Liberty Mutual") sued defendant-appellant Canal Insurance Company ("Canal") seeking, inter alia, (1) a declaratory judgment that Canal breached its duty to defend Anderson-Tully Company ("ATCO") in an underlying lawsuit arising from an automobile accident, and (2) recovery of the reasonable attorneys' fees and expenses incurred in defending ATCO in the underlying litigation, the amount paid to settle the claims against ATCO before trial, and prejudgment interest. Canal responded by (1) asserting that ATCO was not an insured under the Canal policy, alternatively, that any coverage for ATCO was excess to the primary coverage provided by Liberty Mutual, and that the Liberty Mutual policy provided primary or co-primary coverage for J.W. McConnell ("McConnell")1 and Wilmer D. Wilson ("Wilson"), the two other defendants in the underlying lawsuit, and (2) seeking recovery of the attorneys' fees and expenses incurred in the defense of McConnell and Wilson in the underlying suit, the amount of the judgment paid by Canal on behalf of McConnell and Wilson, and prejudgment interest. Considering cross-motions for summary judgment, the district court granted summary judgment for Liberty Mutual and against Canal on all issues and awarded damages to Liberty Mutual, which included the attorneys' fees and expenses incurred to defend ATCO, the settlement amount paid on behalf of ATCO, and prejudgment interest thereon from the date of each payment. We agree with the holdings on the policy coverages and affirm Liberty Mutual's recovery of its fees and expenses paid to defend ATCO. We modify the judgment, however, to eliminate the recovery by Liberty Mutual of the amount it paid to settle the claims against ATCO, because that settlement was not causally connected to Canal's breach of its duty to defend ATCO.
McConnell is a contract logger whose business entails cutting trees, converting them into forest products, and transporting logs to his customers' sawmills. ATCO is in the business of lumber production and operates several sawmills. In April 1993, McConnell and ATCO entered into a Cutting and Hauling Agreement (the "Agreement"), whereby McConnell agreed to "furnish and provide all labor, tools, materials and equipment for the cutting and converting in[to] sawtimber and other products, all trees that have been designated by Anderson-Tully for such purposes" and "to cut, process, load, transport and deliver" such products to ATCO sawmills or log dumps. Under the terms of the Agreement, ATCO had the right to inspect McConnell's operations to ensure compliance with the Agreement; but ATCO had no right to control the time, manner, or method by which McConnell fulfilled his obligations under the contract and had no right to select or control the activities of McConnell's employees. The Agreement did not require McConnell to use any particular vehicle to fulfill the contractual transportation and delivery obligations. Nor did it entitle ATCO to use or operate any vehicles owned by McConnell or to select the delivery routes taken by McConnell or his employees. During the relevant time period, Canal provided $300,000 of primary and excess automobile liability insurance to McConnell in connection with McConnell's logging business. Likewise, Liberty Mutual provided ATCO with $1,000,000 of business automobile liability coverage.
This dispute stems from an August 1993 accident in which Wilson, a McConnell employee, negligently collided with a vehicle driven by Jane Love ("Love"), killing Love and seriously injuring her husband Homer Love. At the time of the accident, Wilson was driving a McConnell truck hauling an empty trailer on his way to pick up a load of timber to deliver to ATCO's sawmill pursuant to the Agreement. Love's beneficiaries and Homer Love filed a wrongful death and negligence suit against Wilson, McConnell, and ATCO (the "Carlock litigation" or the "Carlock plaintiffs"). The Carlock plaintiffs alleged that both McConnell and ATCO had a master-servant relationship with Wilson and were therefore liable for Wilson's negligence. Liberty Mutual demanded that Canal defend and indemnify ATCO under the Canal policy asserting that the claim brought ATCO under the policy's definition of an "insured" because the Carlock complaint alleged that ATCO was vicariously liable for Wilson's negligence. Canal refused, asserting that ATCO was using the McConnell truck pursuant to a lease or contract of hire, and therefore the E-45 Truckman's Endorsement attached to the Canal policy excluded coverage for ATCO. Additionally, Canal asserted that the Liberty Mutual policy provided coverage for McConnell and Wilson and demanded that Liberty Mutual provide their defense. Liberty Mutual denied Canal's request.
Canal defended McConnell and Wilson in the Carlock litigation and attempted to settle the suit by offering its combined $300,000 policy limit. The Carlock plaintiffs, however, were unwilling to settle the suit for this amount. Liberty Mutual undertook ATCO's defense and moved for summary judgment, asserting that McConnell was an independent contractor and therefore ATCO was not liable for the negligence of Wilson, McConnell's employee, because there was no master-servant relationship. After the motion for summary judgment was denied, Liberty Mutual negotiated and settled the claims against ATCO for $112,500 in order to reduce its potential liability for a verdict in excess of Canal's $300,000 policy limit. The parties agree that, even assuming the Canal policy provided primary coverage for ATCO, the Liberty Mutual policy provided excess coverage and consequently, Liberty Mutual would be obligated to pay on behalf of ATCO any adverse judgment in excess of $300,000, up to the stated Liberty Mutual policy limit. McConnell and Wilson proceeded to trial and were found liable for damages in excess of $513,000, for which Canal paid its full policy limits, leaving those defendants liable for the excess.
Liberty Mutual, as equitable subrogee, filed the instant action against Canal for breach of its duty to defend ATCO, seeking, inter alia, the attorneys' fees and expenses incurred in the defense of ATCO, the $112,500 it paid to settle the Carlock litigation, and prejudgment interest thereon from the date each payment was made. Canal counter-claimed, asserting that Liberty had breached its duty to defend McConnell and Wilson and sought to recover, inter alia, the attorneys' fees and expenses incurred in the defense of McConnell and Wilson, the amount paid as a result of the judgment against McConnell and Wilson, and prejudgment interest thereon. Considering cross-motions for summary judgment, the district court held that (1) ATCO was insured under the Canal policy and was not using the McConnell truck pursuant to a lease, contract of hire, or similar agreement; (2) Liberty Mutual had no duty to defend McConnell and Wilson under its policy; (3) as a result of its breach of the duty to defend ATCO, Canal was liable for the attorneys' fees and defense costs incurred by Liberty Mutual, as well as the $112,500 paid to settle the claims against ATCO; and (4) Liberty Mutual was entitled to prejudgment interest from the date each payment was made. Canal appeals each of these rulings. For the reasons discussed below, we reverse that portion of the judgment awarding the $112,500 to Liberty Mutual and affirm the judgment as modified.
Canal had a duty to defend ATCO in the Carlock litigation under the terms of the policy issued to McConnell. Under the general insuring provision, Canal is obligated to defend an insured against suits arising from the ownership, maintenance, or use of a covered automobile during the policy term and to pay damages on the insured's behalf up to the stated policy limits.7 There is no dispute that the truck driven by Wilson was a covered automobile under the Canal policy or that the suit arose from the use of a covered automobile. ATCO also falls within the policy's definition of an insured. Section III defines the "PERSONS INSURED" to include the named insured--i.e., McConnell--and those employees using a covered auto with permission--e.g., Wilson--as well as "[a]ny other person or organization but only with respect to his or its liability because of acts or omissions" of the named insured, partners or executives, or permissive users.8 Because the Carlock complaint alleged that ATCO was liable for the negligence of Wilson--a permissive user--ATCO clearly falls within the last category of persons insured.
Canal, however, asserts that an exclusionary endorsement, the E-45 Truckman's Endorsement, applies to exclude coverage for ATCO. The Truckman's Endorsement excludes coverage for "any person, firm or organization using the described motor vehicle pursuant to any lease, contract of hire, bailment, rental agreement or similar contract or agreement."9 According to Canal, ATCO was "using" the truck driven by Wilson pursuant to the Cutting and Hauling Agreement, which Canal contends is a "contract of hire" or similar agreement within the meaning of the Truckman's Endorsement.10 Because the term "contract of hire" is not defined in the policy, under Mississippi law the term must be given its plain and common, everyday meaning.11 To support its argument, Canal relies on the dictionary definition of the word "hire" and essentially asserts that the term "contract of hire" as used in the endorsement, includes any contract for labor or services. For example, Black's Law Dictionary defines the word "hire" to mean "to arrange for the labor or services of another for a stipulated compensation."12 Accordingly, Canal urges that because ATCO arranged for the services of McConnell for a stipulated compensation, the Cutting and Hauling Agreement constitutes a "contract of hire" within the meaning of the E-45 endorsement, thereby triggering the exclusion. The district court rejected such a broad interpretation relying on Canal Insurance Company v. T.L. James & Company, Inc., 911 F.Supp. 225 (S.D.Miss.1995); Canal Insurance Company v. Liberty Mutual Insurance, 395 F.Supp. 962 (N.D.Ga.1975); and Casino Air Charter, Inc. v. Sierra Pacific Power Company, 95 Nev. 507, 596 P.2d 496 (1979). We agree with the holdings of those courts and of the district court here.
The above cases all support the conclusion that the Cutting and Hauling Agreement was not a contract of hire of McConnell's truck within the meaning of the E-45 Endorsement. This contract for logging and transportation services is not a "contract of hire" of the McConnell truck since it is not similar to a lease, bailment, or rental agreement of a vehicle as contemplated by the endorsement. Although it incidentally contemplated the use of a vehicle in order for McConnell to fulfill his contractual obligations, the Agreement does not require McConnell to use any particular vehicle and did not entitle ATCO to operate, direct, or control any of McConnell's vehicles or drivers. And while ATCO selected the final delivery destinations, ATCO had no right under the Agreement to select the route taken by McConnell or his employees to deliver the timber products. We also reject Canal's assertion that this case is analogous to Wallace v. Boyte Enterprises, Inc,19 which held that an exclusionary provision essentially identical to the E-45 endorsement excluded coverage for Boyte, a materialman that contracted with a truck owner to provide a truck and driver for an hourly fee. On the contrary, the Cutting and Hauling Agreement at issue here was unlike an arrangement to provide a truck and driver to ATCO for an hourly fee.
Finally, while we agree with the general proposition that words, terms and phrases that are not expressly defined in insurance policies must be given their plain and common, everyday meanings, the interpretation urged by Canal myopically focuses on the word "hire" and takes the term "contract of hire" completely out of context. The endorsement excludes coverage for any person or business that uses "the described automobile pursuant to any lease, contract of hire, bailment, rental agreement, or any similar contract or agreement." When viewed in context, each of these terms--lease, contract of hire, bailment, and rental agreement--plainly contemplates a contract or agreement that specifically governs the described automobile. Hence, a "contract of hire" as used here cannot be construed as a broad reference to any contract for labor or services. Moreover, as noted above, we are required by Mississippi law to construe the Truckman's Endorsement narrowly against Canal.20 In sum, we agree with the district court's conclusion that the Cutting and Hauling Agreement simply does not constitute a contract of hire within the meaning of the Truckman's Endorsement.
We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto.
a. You for any covered auto.
Alternatively, Canal argues that, as to McConnell and Wilson, its policy is excess to or co-primary with the Liberty Mutual policy. Canal points to the "Other Insurance" clauses contained in both policies and argues that because each policy absent the other would provide coverage to McConnell and Wilson, the "rule of repugnancy" applies to negate both "other insurance" clauses and consequently each policy must provide coverage on a pro-rata basis. The rule of repugnancy provides that if there is a conflict in the "other insurance" or excess clauses of two policies, which standing alone would provide primary coverage to the insured, the clauses are mutually repugnant and are to be disregarded.23 As we have explained above, Wilson and McConnell were not insureds under the Liberty Mutual policy, and it cannot be said that this policy, standing alone, would provide primary coverage for Wilson and McConnell. We do not reach the rule of repugnancy.
After granting summary judgment in favor of Liberty Mutual, the district court awarded Liberty Mutual not only its costs to defend ATCO in the Carlock litigation, but also the $112,500 paid to settle the claims against ATCO before trial, plus prejudgment interest thereon. The district court rejected Canal's argument that it was not liable for the settlement costs because it had tendered its policy limits and because the settlement on behalf of ATCO was not proximately caused by the breach of its duty to defend ATCO. We agree with Canal that Liberty Mutual's decision to settle on behalf of ATCO in order to avoid the risk of liability for an excess judgment did not result from Canal's breach. The district court erred in allowing Liberty Mutual to recover the settlement costs.
In Mississippi, and as a general rule, an insurer's wrongful refusal to defend an insured renders it liable for any damages sustained as a result of the breach of contract.24 These damages include reasonable attorneys' fees, costs, expenses, and the negotiated or adjudicated amount of the claim.25 Generally, if the insurer has acted in good faith, it is not liable for any amount beyond the stated policy limit. With respect to excess judgments, an insurer is not liable for the amount in excess of the policy limit so long as the insurer has not acted in bad faith and has not wrongfully refused to settle the claim within its policy limits.26 The rationale is that the excess judgment was not caused by either a breach of the duty to defend or a breach of the duty to settle. That is, the insurer's defense of the insured would not have prevented a judgment in excess of the policy limit. Similarly, if the claim cannot be settled within the policy limit, the insurer's breach of its duty to settle in good faith is not the cause of any excess judgment. The same general rule applies with respect to settlements, i.e., in the absence of bad faith, an insurer is not liable for the amount of any settlement by the insured beyond the stated policy limit.27 In the present case there are no allegations that Canal acted in bad faith.
There are a few limited exceptions where an insurer has been held liable for consequential damages in excess of the stated policy limit where those damages resulted directly from the insurer's wrongful conduct.28 For example, if the insurer leads the insured to believe he will provide a defense, but does not, the insurer may be liable for a default judgment entered in excess of the policy limits.29 Also, if an insurer wrongfully withdraws from the defense too close to trial such that the insured is precluded from providing an adequate defense, the insurer may be liable for an excess judgment.30 The dispositive issue then is whether the settlement resulted from or was caused by Canal's breach of its duty to defend ATCO.
As you may know the automobile liability carrier for McConnell, Canal Insurance Company, has tendered their [sic ] $300,000 policy limits to the Court. However, the plaintiffs are demanding an additional $350,000 for a total settlement of both cases for $650,000, which is in my judgment, the top value of a jury verdict.
It is clear from this letter that regardless of whether Canal undertook the defense of ATCO, Liberty Mutual's decision to settle was based upon its potential exposure for a judgment in excess of $300,000 in the event ATCO's independent contractor defense failed at trial. Even if Canal had defended ATCO, it is undisputed that the Carlock plaintiffs were unwilling to settle within Canal's policy limit. Thus, the settlement costs were not caused by Canal's refusal to defend ATCO, and the district court erred in allowing Liberty Mutual to recover such costs.
We are likewise unpersuaded by Liberty Mutual's argument that once Canal breached the insurance contract, it effectively waived its ability to invoke the policy limits provision. For this proposition, Liberty quotes language from Jones v. Southern Marine & Aviation Underwriters, Inc.,36 stating that insurers that breach their duty to defend waive their right to rely on policy provisions that preclude liability for a settlement agreement. Neither Jones, nor any other authority cited by Liberty Mutual has held that an insurer that wrongfully refuses to defend an insured waives the policy limits provisions such that it would be liable for settlement costs or other consequential damages that were not caused by its breach.
Canal also challenges the award of prejudgment interest to Liberty Mutual. The district court awarded prejudgment interest on the attorneys' fees, expenses, and settlement costs from the date each payment was made. In diversity cases, issues of prejudgment interest are governed by state law.37 We review the award of prejudgment interest for an abuse of discretion.38 "Under Mississippi law, prejudgment interest may be allowed in cases where the amount due is liquidated when the claim is originally made or where the denial of a claim is frivolous or in bad faith."39 In Canal Insurance Company v. First General Insurance Company,40 we held that a district court has discretion under Mississippi law to award prejudgment interest to the prevailing insurer in a coverage dispute on amounts paid on behalf of the insured for state court judgments and settlements from the date those amounts were paid. We reasoned that "these sums were clearly liquidated when paid" and although prejudgment interest is not mandated, "the district court would be acting within the discretion contemplated by Mississippi law if it awarded interest on such amounts from the dates they were paid."41 Following First General Insurance Company, we conclude that the district court did not abuse its discretion by awarding prejudgment interest on amounts paid by Liberty Mutual on behalf of ATCO from the date the payments were made since those sums were clearly liquidated when paid. Of course, in light of our holding that Liberty Mutual is not entitled to recover its settlement payment, we affirm the award of prejudgment interest only with respect to the award of attorneys' fees and defense expenses.
Also before this court is Liberty Mutual's motion to strike the depositions of McConnell, Wilson, and Mike Harrington (ATCO's corporate designee), attached as exhibits to Canal's Motion for Summary Judgment, and all references to such depositions in Canal's appellate brief. These depositions were taken in connection with the Carlock litigation and concerned the business relationship between McConnell and ATCO, McConnell's description of his business, and ATCO's description of its business. Because we have ruled in favor of Liberty Mutual on all issues other than the right to recover settlement costs paid on behalf of ATCO and because Canal's motion for summary judgment did not rely on these depositions with respect to that issue, Liberty Mutual's motion to strike is DENIED as moot.
For the foregoing reasons, we REVERSE only that portion of the judgment that awards Liberty Mutual the $112,500.00 paid to settle the claims against ATCO in the underlying Carlock litigation and prejudgment interest thereon of $27,594.54. Accordingly, we MODIFY42 the judgment to reduce Liberty Mutual's damages award to $38,237.41 for attorneys' fees and expenses incurred in the defense of ATCO, and prejudgment interest of $10,230.47 calculated from the date of each payment, for a total sum of $48,467.88, together with all costs of court and interest until finally paid consistent with 28 U.S.C.A. § 1961.
J.W. McConnell is also known as Billy McConnell and has done business as Billy McConnell Trucking Company and McConnell Logging. He will be referred to throughout this opinion as simply "McConnell."
[Canal] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use ... of an owned automobile ... and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage ..., but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
R. Vol. I at 8.
(d) any other person or organization but only with respect to his or its liability because of acts or omissions of an insured under (a), (b) or (c) above.
In consideration of the premium charged for the policy to which this endorsement is attached, it is understood and agreed that no coverage is extended to any person, firm or organization using the described automobile pursuant to any lease, contract of hire, bailment, rental agreement, or any similar contract or agreement either written or oral, expressed or implied, the terms and provisions of the Insuring Agreement of Section A, entitled "Persons Insured" notwithstanding.
In the event the automobile described in this policy is being used or maintained pursuant to any lease, contract of hire, bailment, rental agreement or any similar contract or agreement, either written or oral, expressed or implied, the insurance afforded the named insured shall be excess insurance over any other insurance.
R. Vol. I at 14 (emphasis added).

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 § 1961