Opinion ID: 2750362
Heading Depth: 2
Heading Rank: 2

Heading: MMR’s Insurance Contracts

Text: MMR insured its liabilities under the BOA by acquiring contractualliability insurance under a commercial general-liability policy and an umbrella excess-liability policy with Liberty. The general-liability policy defined as an insured any person or organization for whom MMR agreed to provide liability insurance, but only to the extent the insurance applies to personal injury or property damage arising out of MMR’s work. The excess-liability policy provided contractual-liability coverage only when “[a]ssumed in a contract or agreement that is an insured contract provided the bodily injury, property damage, personal injury or advertising injury occurs subsequent to the execution of the contract or agreement” and covered the assumption of another’s “liability that would be imposed by law in the absence of any contract or agreement.” C. Events Leading Up to and Including the Trailer Fire When MMR took possession of trailers from Fluor, the LP detectors were already installed in the trailers and MMR played no part in selecting or installing the devices. On July 14, 2006, MMR hauled and installed the trailer that would eventually be given to Jean Joseph, a hurricane survivor, and would subsequently give rise to this suit (the “Joseph trailer”). Once installation of the Joseph trailer was complete, Fluor employee Reginald McCoy and MMR employee Steven Stanley conducted a “Quality Control/Quality Assurance” (“QC/QA”) inspection of the trailer. At trial, Stanley testified that he could not 5 Case: 13-30541 Document: 00512832743 Page: 6 Date Filed: 11/11/2014 No. 13-30541 specifically recall the Joseph trailer inspection, but discussed what a routine QC/QA inspection entailed. He testified that it was not MMR’s job to test the LP detector, but that he would sometimes perform various tasks, including testing the LP detector, at the request of the Fluor inspector; for instance, because the trailer was so small and Stanley was “right there” or because Stanley was in the way, and the Fluor inspector could not get to it. Some detector models lacked a test button, so if a Fluor inspector asked Stanley to test this type of detector, Stanley would use an ordinary cigarette lighter to release a stream of butane gas under the detector’s sensor, which was the test Fluor selected based on the manufacturer’s instructions. The Joseph trailer had this model of detector. Although Stanley could not recall whether he had tested the Joseph trailer’s LP detector, he stated that if he had and it had not alarmed, he would not have signed off on the trailer. At the end of the inspection, Stanley and McCoy both signed a “Unit Installation Work Authorization and Completion” form, listing the specific tasks that MMR had performed. The form made no mention of an LP detector. The form indicated that MMR had completed the work, and Fluor signed it indicating that it agreed that MMR had completed the work. After July 14, 2006, MMR had no further contact with or duties relating to the Joseph trailer and Fluor assumed physical control and responsibility for the trailer. Five weeks later, on August 22, 2006, Fluor conducted a “lease-in” of the Joseph trailer, a necessary step before Jean Joseph could move in. A lease-in involved conducting an inspection of the trailer in the presence of the new occupant and generally explaining the trailer’s basic functions. Fluor never 6 Case: 13-30541 Document: 00512832743 Page: 7 Date Filed: 11/11/2014 No. 13-30541 contracted with MMR to do lease-ins; rather, Fluor retained this obligation. 2 As part of the standard lease-in, a Fluor inspector would perform certain tests to determine that the electricity was connected, that the propane-gas system was not leaking, and that all alarms—including the LP detector—were working properly. Additionally, the Fluor inspector would connect the gas tanks and check the gas appliances, igniting the burners on the stove and in the oven, lighting the furnace, and lighting the water heater. Documentation from the lease-in of the Joseph trailer indicates that Fluor performed a leak test on the LP gas system and determined that it did not leak. The documentation also indicates that Fluor tested the trailer’s range and LP detector, and both appeared to be functioning properly. The Fluor employee who conducted the lease-in testified that he lit the gas burners in the trailer, tested the LP detector with a butane lighter as suggested by the manufacturer, and performed a gas-pressure test, which involved turning on the gas valve on the stove top. On August 25, 2006, three days after the lease-in, Joseph and her friend, Bernard Mabry II, entered the trailer and smelled gas. Joseph testified at her deposition that Mabry went to the stove, at which point the fire erupted. Joseph heard no alarm when she entered the trailer. The New Orleans Fire Department concluded that one of the knobs on the stove had been left in an open position since August 22, 2006 (the day of the lease-in) and that Mabry had inadvertently ignited the accumulated gas when he turned a knob on the stove in an attempt to shut the gas off. The Bureau of Alcohol, Tobacco, and Firearms reached substantially the same conclusion. Both Joseph and Mabry 2 Although the BOA provided that “[MMR] shall be available for move-in inspection,” there is no indication in the record or briefing that MMR was required to be available for the Joseph trailer lease-in. 7 Case: 13-30541 Document: 00512832743 Page: 8 Date Filed: 11/11/2014 No. 13-30541 suffered serious burns from the flash fire and Mabry ultimately died from his injuries. D. The Joseph and Mabry Suits After the fire, Mabry’s estate and Joseph both sued several parties in Louisiana state court, including Fluor and MMR. Mabry’s estate and Joseph alleged that employees at either Fluor or MMR had failed to turn off one of the gas stovetop burners in the trailer before turning it over to Joseph, failed to ensure that the stovetop was functioning properly, and failed to ensure that the trailer’s LP detector, which did not alarm on the day of the fire, was functioning properly. Fluor, Fluor’s insurers (including Westchester), MMR, and MMR’s insurer (Liberty) agreed to settle Joseph’s claims against Fluor and MMR for $10 million, with the insurers reserving various rights to recover from one another the sums paid in the settlement. The insurers later agreed to settle Mabry’s claims against Fluor and MMR for a total of $2.75 million, again reserving certain rights to recover from one another. E. The Proceeding Below The insurance-coverage dispute giving rise to this appeal followed. Liberty (MMR’s insurer) sued Fluor’s insurers (including Westchester 3) in federal court to recover $4.375 million in settlement payments, and Westchester (Fluor’s insurer) counterclaimed to recover its own settlement contributions from Liberty. Liberty argued that MMR was not responsible for the fire and owed Fluor no indemnity, and so Fluor’s insurers (including Westchester) should reimburse Liberty for the settlement payments it had made. Westchester argued the reverse. Following a bench trial, the district 3 Westchester is the only one of Fluor’s insurers that remains a party to this suit. 8 Case: 13-30541 Document: 00512832743 Page: 9 Date Filed: 11/11/2014 No. 13-30541 court ruled in Liberty’s favor. It held that MMR was not required to indemnify Fluor based on the BOA’s indemnity provision and the facts of the underlying tort suit. Interpreting the indemnity provision under California law, the district court concluded that, to trigger MMR’s indemnity obligation, Fluor was required to show a “but-for causal connection between the ultimate harm and [MMR’s] duties under the contract.” Applying this standard, the district court determined that nothing in the scope of MMR’s work was a but-for cause of Joseph’s and Mabry’s injuries. Specifically, the court found that the fire was caused by an accumulation of gas in the trailer due to someone leaving the stovetop’s gas knob on. Significantly, the court found that “there was no evidence that connected MMR’s contract to the open gas knob on the stove” because “MMR had no contact with the trailer for five weeks before the fire, and Stanley [MMR’s employee] disconnected the propane source when he finished the QC/QA inspection.” The district court also concluded that the failure of the trailer’s LP detector to alarm contributed to the injuries. The court pointed out, however, “[t]hat the LP detector’s failure was a contributing cause of the fire does not mean that the fire arose directly or indirectly out of the BOA unless MMR’s work under the contract was a but-for cause of the injuries.” Examining the extensive BOA and its accompanying documents, the district court noted that the BOA contains no mention of the LP detector, much less an obligation on MMR’s part to test it. The district court acknowledged that a separate Fluor document, the “QC/QA RFO Checklist” listed various requirements for Fluor’s inspectors, including ensuring that the “LP detector [is] installed and operates correctly,” but pointed out that this document was meant to apply to Fluor—not MMR— inspectors and was not incorporated into the BOA. Indeed, the district court determined that the BOA’s integration clause further foreclosed a finding that the QC/QA RFO Checklist was binding on MMR. Thus, the district court held 9 Case: 13-30541 Document: 00512832743 Page: 10 Date Filed: 11/11/2014 No. 13-30541 that testing the LP detector was outside the scope of the BOA and therefore the fire did not arise directly or indirectly out of the BOA. In the alternative, the district court stated that, even if testing the LP detector had been within the scope of MMR’s work under the BOA, MMR’s obligation would have been limited to conducting the butane lighter test, which the court found would not have indicated that the LP detector was defective. Because the test would not have prevented the fire, the district court refused to find a causal connection between an obligation to perform the test and the injuries Joseph and Mabry sustained. Accordingly, the district court determined that, even in this alternative, the fire could not be said to have “arisen” out of the BOA, which forecloses Fluor’s indemnity claim.