Court Opinion

ID: 4379747
Source: CourtListenerOpinion
Date Created: 2019-03-22 00:00:21.053968+00
Date Added: 2024-06-11T14:49:47.538494
License: Public Domain

Case: 17-60094      Document: 00514883008         Page: 1    Date Filed: 03/21/2019

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                      No. 17-60094                         March 21, 2019
                                                                            Lyle W. Cayce
COLONY INSURANCE COMPANY,                                                        Clerk

              Plaintiff - Appellant

v.

FIRST SPECIALTY INSURANCE CORPORATION,

              Defendant - Appellee

                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 1:16-CV-191

Before WIENER, GRAVES, and HO, Circuit Judges.
PER CURIAM:*
       Colony Insurance Company (“Colony”) appealed the district court’s grant
of summary judgment in favor of First Specialty Insurance Corporation (“First
Specialty”). After hearing oral argument from the parties, we certified two
questions to the Mississippi Supreme Court regarding Mississippi’s voluntary-
payment doctrine. The Mississippi Supreme Court having now provided its
answer, we conclude Colony’s claims of equitable subrogation and implied

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 17-60094      Document: 00514883008     Page: 2   Date Filed: 03/21/2019

                                   No. 17-60094
indemnity are foreclosed. We therefore affirm the district court’s judgment in
favor of First Specialty.
                                         I.
        Because we previously recited the relevant facts in our opinion certifying
questions to the Mississippi Supreme Court, Colony Ins. Co. v. First Specialty
Ins. Corp., 726 F. App’x 992 (5th Cir. 2018), we provide a shorter recitation
here.
        This case arises out of an explosion that occurred at an Omega Protein
Corporation (“Omega”) facility in July 2014. The explosion killed Jerry Lee
Taylor, II, an employee of Accu-Fab & Construction, Inc. (“Accu-Fab”). At the
time of the incident, Omega had two insurance policies—a primary policy with
Ace American Insurance Company (“AAIC”) for $1 million, and a secondary
policy with First Specialty that provided $10 million in excess coverage.
Colony’s insurance policy did not list Omega as an insured; rather, Accu-Fab
was the named-insured with a policy limit of $1 million. However, the Colony
Policy also contained an “Additional Insured” endorsement which covered “all
persons or organizations as required by written contract with” Accu-Fab. This
endorsement only applied with respect to an injury “caused, in whole or in part,
by” Accu-Fab’s acts or omissions or “the acts or omissions of those acting on
[Accu-Fab’s] behalf.”
        In March 2015, Omega demanded that Accu-Fab and Colony “defend and
fully indemnify” it from any personal injury and/or wrongful death claims it
might receive based on the July 2014 explosion. Colony agreed to investigate
the explosion, but fully reserved its rights to disclaim coverage should it
determine that Omega was not an “additional insured” or that the incident was
precluded under a pollution exclusion. In April 2015, Colony filed a declaratory
judgment action in Mississippi state court seeking a judgment that its policy
did not cover any damages or injuries stemming from the July 2014 explosion.
                                         2
    Case: 17-60094    Document: 00514883008     Page: 3   Date Filed: 03/21/2019

                                 No. 17-60094
Several months later in September 2015, Taylor’s estate brought a wrongful
death action against Omega. Omega requested that Colony assume its defense
and Colony agreed, again “subject to a full and complete reservation of Colony’s
rights.” In fact, Colony later sent a letter to Omega’s counsel reiterating its
position that its policy insuring Accu-Fab provides no “coverage whatsoever for
the unfortunate incident which occurred at the Omega [] facility.” Colony
further stated it would consider any settlement demand in the Taylor action,
but that such a demand would “be reviewed in light of the insurance coverage
issue which is currently the subject of Colony’s declaratory judgment action.”
      A settlement conference was set for January 2016, which, according to
First Specialty, “present[ed] an excellent but limited opportunity to settle [the
Taylor] claim for $2 million or less.” Consequently, First Specialty “request[ed]
Colony be prepared to tender its limits to settle the Taylor claim” to avoid
“substantial unnecessary losses” to Omega, AAIC, and itself. At the settlement
conference, Colony agreed to pay its $1 million policy limit in exchange for
Omega’s “full and complete release” from the Taylor lawsuit. AAIC also settled
for its policy limits. Colony then demanded reimbursement from First
Specialty for the $1 million it paid in excess of AAIC’s policy. When First
Specialty refused, Colony filed the instant action against First Specialty.
                                       II.
      In the case at bar, Colony alleged it was entitled to recover its costs in
settling and defending the Taylor lawsuit on the basis of equitable subrogation
and implied indemnity. Both Colony and First Specialty filed motions for
summary judgment and the district court found in favor of First Specialty.
Noting that Colony’s position had always been that it did not insure Omega,
the district court concluded Colony was a “voluntary payor” who could not
“recover for payments made on behalf of a defendant that it did not even insure
simply because it feared that the defendant might be an additional insured
                                       3
     Case: 17-60094        Document: 00514883008          Page: 4     Date Filed: 03/21/2019

                                        No. 17-60094
under its policy.” The district court concluded that virtually the same
reasoning defeated Colony’s implied indemnity claim.
       Colony appealed, and we certified the following question to the
Mississippi Supreme Court: “Does an insurer act under ‘compulsion’ if it takes
the legal position that an entity purporting to be its insured is not covered by
its policy, but nonetheless pays a settlement demand in good faith to avoid
potentially greater liability that could arise from a future coverage
determination?” 1 See Colony Ins., 726 F. App’x at 995–96. The Mississippi
Supreme Court answered the question in the negative. Colony Ins. Co. v. First
Specialty Ins. Corp., 262 So.3d 1128, 1135 (Miss. 2019). After reviewing
Colony’s position that Omega was not an “additional insured” and that the July
2014 explosion was not covered under Colony’s policy, the court determined, in
words quite similar to the district court, that “Colony’s fear that Omega might
be an additional insured under its policy does not amount to compulsion.” Id.
at 1133. Observing that the court had previously held that “a threat to sue is
not considered compulsion,” the court declined “to adopt Colony’s argument
that a payment is not voluntary if the payor is acting under compulsion to
protect its own interests.” Id. at 1134. The court further noted “Colony was not
under an immediate and urgent necessity to pay the settlement demand” given
the pending nature of Colony’s declaratory judgment action, as well as the
early stage of the Taylor lawsuit. Id. Ultimately, the court found that “[t]he
critical distinction in this case is that if Colony continually maintained that it
was not Omega’s insure[r], Colony did not act out of compulsion when it

       1  We certified a second question to the Mississippi Supreme Court, but the court
declined to answer it, finding the answer to its first question dispositive. See Colony Ins., 726
F. App’x at 996; Colony Ins. Co. v. First Specialty Ins. Corp., 262 So.3d 1128, 1135 (Miss.
2019) (“Because the first certified question is dispositive, we decline to address the second
certified question.”).

                                               4
    Case: 17-60094    Document: 00514883008       Page: 5   Date Filed: 03/21/2019

                                   No. 17-60094
negotiated the settlement,” especially when it “failed to pursue its legal
remedies.” Id. at 1135.
                                       IV.
      We agree that the Mississippi Supreme Court’s answer to our first
certified question is dispositive of this case. However, in supplemental post-
certification briefing, Colony contends the Mississippi Supreme Court
overreached factually by ignoring that Colony had already assumed Omega’s
defense of the Taylor action and therefore became obligated to act in the best
interest of Omega until the coverage issue was resolved. Colony also claims the
court disregarded the fact that it was presented with a settlement offer prior
to the state court ruling on its declaratory judgment action and that refusing
to settle at that time could have led to an even larger judgment against Omega.
We disagree. The Mississippi Supreme Court expressly considered these facts
and still held that the settlement lacked compulsion, observing that “Colony
had the option to pursue its declaratory-judgment action before it paid the
Taylor settlement.” Id. at 1134.
                                        V.
      Given the foregoing, we conclude the district court properly granted
summary judgment in favor of First Specialty on Colony’s claims. We AFFIRM.

                                        5