Court Opinion

ID: 32647
Source: CourtListenerOpinion
Date Created: 2010-04-25 18:56:02+00
Date Added: 2024-06-11T11:50:03.848287
License: Public Domain

United States Court of Appeals
                                                             Fifth Circuit
                                                           F I L E D
                 UNITED STATES COURT OF APPEALS           September 10, 2003
                      For the Fifth Circuit
                                                      Charles R. Fulbruge III
                                                              Clerk

                          No. 02-30387

                 XL SPECIALTY INSURANCE COMPANY,

                              Plaintiff-Appellee-Cross-Appellant,

                             VERSUS

                BOLLINGER SHIPYARDS LOCKPORT LLC,

                              Defendant-Appellant-Cross-Appellee.

               NAVIGATORS INSURANCE COMPANY, INC.

                              Plaintiff-Appellee-Cross-Appellant,

                             VERSUS

                BOLLINGER SHIPYARDS LOCKPORT LLC,

                              Defendant-Appellant-Cross-Appellee.

          Appeals from the United States District Court
              For the Eastern District of Louisiana
                           (01-CV-623)

Before HIGGINBOTHAM, EMILIO M. GARZA, and DENNIS, Circuit Judges.

                                1
PER CURIAM:*

      These consolidated declaratory judgment actions sounding in

diversity were brought by the primary and excess general liability

insurers of a Louisiana shipbuilding company.              The insurers seek a

declaration that they are not obliged to pay certain repair costs

or loss of profits or use paid by the shipbuilder to its customers.

In counterclaims, the shipbuilder seeks approximately $7 million in

coverage.      The district court granted summary judgment for the

insurers but ordered each party to bear its own costs.              All parties

appealed.    We now AFFIRM summary judgment, VACATE the denial of

attorney    fees   and   costs,    and    REMAND    for   further   proceedings

consistent with Part IV of this opinion.

                                         I.

      Bollinger Shipyards Lockport, LLC (“Bollinger”), built three

lift boats for Cardinal Services (“Cardinal”) under a “Vessel

Construction Agreement.”1         It built one lift boat for Montco, Inc.

(“Montco”), under a “Construction Contract.”                  These contracts

warrantied     workmanlike    performance          but    limited   Bollinger’s

obligation to repair and replace defects to those problems arising

from faulty workmanship discovered within 180 days of delivery and

  *
    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.
  1
    A liftboat is a supply vessel equipped with three or four
hydraulic “jack-up” legs, which can be lowered and secured on the
seabed so that the boat can be raised out of the water.

                                         2
reported to Bollinger within 180 or 210 days of delivery.2              The

agreements expressly disclaimed any obligation on the part of

Bollinger for consequential damages, including loss of profits

and/or use. The Cardinal contract stated that the warranty was “in

lieu of all other express or implied warranties.”              The Montco

contract   stated   that   all   other   warranties   by   Bollinger   were

“expressly excluded and negated.”

      The three lift boats that Bollinger built for Cardinal under

the “Vessel Construction Agreement” are the J. HANKINS, the W.

LOPEZ, and the P.G. JONES.3       The boat built for Montco under the

“Construction Contract” is the TAMMY.        The TAMMY was completed on

May 15, 1997; the J. HANKINS on June 12, 1997; the W. LOPEZ on

January 15, 1998; and the P.G. JONES on February 27, 1998.4

      On July 27, 2000, a crew member of the P.G. JONES noticed

water seeping from one of the vessel’s jack-up legs.         The boat was

taken to a Bollinger facility, where further inspection revealed

cracks in each of its legs.       Bollinger began repairs on August 1,

2000.   The parties do not dispute that it was quickly determined

  2
    Montco’s contract with Bollinger gave it 180 days to report
defects. Cardinal’s contract gave it 210 days.
  3
    The J. HANKINS has a benighted history. It was launched as the
D.L. HANSEN, capsized, and was launched again as the J. HANKINS.
During its post-capsize repair, one of its legs was replaced.
  4
    The parties do not identify the precise dates on which each
vessel was delivered.   In the absence of any suggestion to the
contrary, we assume that each vessel was delivered close to the
date of its completion.

                                     3
that Bollinger had performed faulty welds during the original

construction of the vessels; that the defective welding had, at

some point, resulted in cracks in the gear racks attached to the

legs; and that this cracking had propagated into the legs.   The W.

LOPEZ, the J. HANKINS, and the TAMMY were subsequently inspected

and discovered to have similar cracks.5   Bollinger began repairs on

the J. HANKINS on August 14, 2000.   In a letter dated August 19,

2000, Bollinger informed Cardinal that it was “ready, willing, and

able” to repair “weld cracking” on the W. LOPEZ.        Ultimately,

Bollinger replaced a total of ten legs on four vessels, at a cost

of approximately $4.5 million.

      Bollinger owned a comprehensive general liability (“CGL”)

policy issued by XL Specialty Insurance (“XL Specialty”) that

provided coverage between July 1, 2000, and October 1, 2001.    The

policy provided primary liability coverage for sums that Bollinger

became “legally obligated to pay as damages” because of “property

damage” that was caused by an “occurrence” during the policy

period.   It further provided that XL Specialty had “the right and

duty to defend any ‘suit’ seeking these damages,” defining “suit”

as “a civil proceeding in which damage because of ‘bodily injury,’

‘property damage,’ ‘personal injury’ or ‘advertising injury’ to

which this insurance applies are alleged.”

  5
    The cracks in the J. HANKINS were discovered on August 13,
2000; those in the W. LOPEZ on August 18, 2000; and those in the
TAMMY on September 18, 2000.

                                 4
      Bollinger also purchased $25 million worth of excess CGL

coverage for the policy period October 1, 1999, to October 1, 2001.

The excess coverage was subscribed to by XL Specialty, Navigators

Insurance Company, Inc. (“Navigators”), and National Union Fire

Insurance Company.6      This umbrella policy also covered sums that

Bollinger    became    “legally      liable       to   pay.”        Its   terms    were

essentially identical to those of the primary coverage.

      On August 18, 2000, Bollinger’s insurance agent, Willis of

Louisiana,    Inc.    (“Willis”),      notified        XL    Specialty’s        managing

general partner, Trident Marine Managers, Inc. (“Trident”), of a

new CGL claim involving vessels Bollinger had built for Cardinal

and Montco.    On August 30, 2000, Willis sent a notice of loss to

Trident.     The notice stated that four vessels built by Bollinger

had   “sustained     cracks    in    some    of    the      legs”   sometime     “after

10/1/98.”     It did not identify any related claims, demands, or

suits.   On August 31, 2000, Willis informed Trident that Bollinger

had begun to repair the vessels because it believed it bore

responsibility for the damages: “Bollinger has investigated the

matter and . . . feels responsible for the damages.”

      On September 18, 2000, Cardinal issued a written demand to

Bollinger     relating    to    Bollinger’s            “breach      of    its    vessel

construction contracts.”            The demand letter specifically stated

  6
    Navigators provided 50% of the excess coverage; XL Specialty
provided 30%; and National Union provided 20%. National Union is
not a part of these proceedings.

                                         5
that Cardinal’s remedies against Bollinger lay “in contract rather

than in tort.”

     At some point, Montco’s president told Bollinger’s chairman

that his company expected the shipbuilder to pay for repairs to the

TAMMY, as well as for its downtime.       According to the testimony of

Montco’s president, Bollinger’s chairman agreed to the demand, even

though he questioned his company’s obligation to do so under the

terms of the Construction Contract.

     On September 19, 2000, Trident acknowledged its receipt of the

loss notice sent by Willis on August 30.             Following additional

correspondence, Trident sent Bollinger a reservation of rights

letter on September 25, 2000, reserving the insurers’ right to

contest coverage.

     On November 2, 2000, Bollinger notified Cardinal that it would

pay up to $1.5 million to cover loss of use of the W. LOPEZ, the J.

HANKINS, and the P.G. JONES, in the event that its insurers denied

coverage.   On February 13, 2001, Bollinger notified Montco that it

would pay $875,000 to cover loss of use of the TAMMY, in the event

that its insurers denied coverage.         Bollinger and Montco entered

into a formal settlement agreement on June 28, 2001.         Bollinger and

Cardinal    entered   into   such   an   agreement   on   July   25,   2001.

Subsequently, Bollinger entered into new agreements with both

Cardinal and Montco to build additional vessels.          Those agreements

                                     6
were worth approximately $33 million.7

         On   March    9,   2001,   XL   Specialty      filed    suit     seeking    a

declaration of its rights and obligations.               On March 13, 2001, it

denied Bollinger’s claim.           Bollinger filed a counterclaim seeking

coverage       and    bad   faith   damages.        Navigators     also    filed    a

declaratory judgment action contesting coverage, in response to

which Bollinger filed a counterclaim. The suits were consolidated.

All parties moved for summary judgment. The district court granted

summary judgment for the insurers but denied costs.

         Bollinger appeals from the court’s judgment finding a lack of

coverage.       The insurers appeal from the court’s order that the

parties bear their own costs.

                                         II.

         We review a grant of summary judgment de novo, applying the

same standard as the district court.8              We likewise review matters

of       contract     interpretation     de    novo.9    Summary    judgment        is

appropriate if the movant demonstrates that there are no genuine

issues of material fact and that it is entitled to a judgment as a

     7
     The insurers believe that Bollinger was eager to pay for
Cardinal’s and Montco’s repairs and down time in order to preserve
such future sales.
     8
    GeoSouthern Energy Corp. v. Chesapeake Operating Inc., 274 F.3d
1017, 1020 (5th Cir. 2001).
     9
    T.L. James & Co. v. Traylor Bros. Inc., 294 F.3d 743, 746 (5th
Cir. 2002).

                                          7
matter of law.10       Thus, “summary judgment is appropriate if the

nonmovant fails to establish facts supporting an essential element

of his prima facie claim.”11

                                      III.

                                       A.

       The policies at issue limited coverage to those sums that

Bollinger was “legally obligated to pay as damages.”12                Because the

record does not reasonably support the finding of a factual basis

upon which Bollinger could potentially be liable to Cardinal or

Montco, we conclude that there was no coverage under the policies.13

       The contracts under which Bollinger constructed the lift boats

included     express     warranty     provisions        limiting      Bollinger’s

obligation    to   repair     and   replace    defects    to    those    problems

discovered and reported within 180 or 210 days of delivery.                     The

lift boats were completed and delivered in 1997 and 1998, and the

defective    welds     were   discovered      between    July   27,     2000,   and

  10
       Fed. R. Civ. P. 56(c).
  11
       GeoSouthern Energy, 274 F.3d at 1020.
  12
     Bollinger contends that the insurers merely attempt to “re-
litigate the underlying claims between Bollinger, on the one hand,
and Cardinal and Montco, on the other, by arguing that Bollinger
could not have been found liable had the case proceeded to trial.”
Because neither Cardinal nor Montco ever filed a lawsuit against
Bollinger, however, no case between the parties existed; none was
litigated; none could have proceeded to trial; and none can be
“relitigated.”
  13
     For this reason, we need not consider the other triggers to
coverage—whether there was “property damage” that was caused by an
“occurrence” during the policy period.

                                       8
September 18, 2000.                    Hence, the express warranties had expired

before          the    cracking        in   the    jack-up      legs    was     discovered     and

reported.              Furthermore,         the    construction        contracts       expressly

precluded any obligation by Bollinger for consequential damages,

including             loss   of    profits        and    use.      Because       the     warranty

limitations             included       in   the     contracts      were       allowable     under

Louisiana law,14 neither Cardinal nor Montco had a valid warranty

claim against Bollinger. Accordingly, Bollinger faced no potential

liability in contract.

           Bollinger argues that it was subject to potential liability

for breach of the implied warranty against redhibitory vices and

defects. We disagree. Under the Louisiana Civil Code, redhibition

is        the   rescission        of    a   sale    on   account       of   a   defect    in   the

manufacture or design of a thing sold:

           The seller warrants the buyer against                              redhibitory
           defects, or vices, in the things sold.

           A defect is redhibitory when it renders the thing
           useless, or its use so inconvenient that it must be
           presumed that a buyer would not have bought the thing had
           he known of the defect. The existence of such a defect
           gives a buyer the right to obtain rescission of the
           sale.15

Because redhibition is the avoidance of a sale, there can be no

     14
    See FMC Corp. v. Continental Grain Co., 355 So. 2d 953, 957-58
(La. App. 4th Cir. 1977).
     15
    La. Civ. Code art. 2520; see also Patin v. Thoroughbred Power
Boats Inc., 294 F.3d 640, 655 (5th Cir. 2002); see generally Saúl
Litvinoff, Sale and Lease in Louisiana Jurisprudence 439-40 (4th
ed. 1997) (discussing the general principles of the warranty
against redhibitory vices and defects).

                                                    9
redhibition in the absence of a contract of sale.16

       We find that there is no genuine issue of material fact about

the nature of the contracts under which Bollinger built the lift

boats for Cardinal and Montco.   They were contracts to build.   The

record unequivocally shows that the vessels were built to the

specifications of Cardinal and Montco; that both contracts were

negotiated; and that Bollinger supplied the skill, labor, and

materials.17    Because the contracts between Bollinger and both

Cardinal and Montco were contracts to build rather than contracts

of sale, and because redhibition is not applicable to construction

contracts, Bollinger faced no potential liability for a breach of

  16
     Airco Refrigeration Serv., Inc. v. Fink, 134 So. 2d 880, 883
(La. 1961) (explaining that Article 2520 applies only to contracts
of sale); Hebert v. McDaniel, 479 So. 2d 1029, 1033 (La. App. 3d
Cir. 1985) (“[T]he law in Louisiana is that redhibition applies
only to contracts of sale and not to contracts to build.”); Duhon
v. Three Friends Homebuilders Corp., 396 So. 2d 559, 560 (La. App.
3d Cir. 1981) (same, citing La. Civ. Code art. 2520).
  17
     See La. Civ. Code art. 2756 (“To build by a plot, or to work
by the job, is to undertake a building or a work for a certain
stipulated price.”); Airco Refrigeration, 134 So. 2d at 882 (citing
art. 2756); Hebert, 479 So. 2d at 1032 (“Three major factors are
used to determine whether or not a contract is one of sale or one
to build: (1) The buyer has some control over the specifications of
the object, (2) the negotiations generally take place before the
object is constructed, and (3) the parties contemplate that one of
them will supply the materials and his skill and labor in order the
construct the specified object.”); Duhon, 396 So. 2d at 561 (same);
see generally Swope v. Columbian Chems. Co., 281 F.3d 185, 202-04
(5th Cir. 2002) (explaining that under Louisiana law “[t]he
distinction between obligations to give, e.g., sales, and
obligations to do, e.g., building constructions, is material to the
judicial determination of questions involving . . . remedies”).

                                 10
the warranty against redhibitory vices and defects.18

       In sum, we find that there was no coverage of Bollinger’s

claim because it was not potentially obligated to pay the sums it

expended on repairs and paid to Cardinal and Montco for down time.

                                       B.

       Bollinger contends that the insurers forfeited their right to

invoke the coverage limitation imposed by the phrase “legally

obligated   to   pay   as   damages”   because    they   refused   to   defend

Bollinger against Cardinal’s and Montco’s claims and then denied

coverage.    This argument is meritless.         By its terms, the primary

insurance policy required XL Specialty to provide a defense only

for any “suit” seeking damages.19           Because neither Cardinal nor

Montco named Bollinger in a “suit,” defined in the policy as a

“civil proceeding,” there was no duty to defend.20            In any event,

  18
     Bollinger asserted at oral argument that the replacement leg
used in reconstructing the J. HANKINS was purchased pursuant to a
contract of sale, thus suggesting that Cardinal had a redhibition
claim as to that leg. But because it identifies no record evidence
supporting its assertion, there is no triable issue of such a
redhibition claim. Likewise, the record evidence does not support
Bollinger’s argument that it faced liability for an unnamed tort,
the elements of which it does not articulate.
  19
    The excess insurers had only a secondary duty to defend. See
American Home Assurance Co. v. Czarniecki, 230 So. 2d 253 (La.
1969); see also William Shelby McKenzie & H. Alston Johnson III, 15
Louisiana Civil Law Treatise: Insurance Law & Practice § 214
(1986).
  20
    Even if there had been a suit based on Cardinal’s and Montco’s
demands for contract damages, there would not have been a duty to
defend because those demands, construed as the allegations of a
hypothetical legal petition, “unambiguously excluded coverage” for
the reasons stated above. See Cuté-Togs of New Orleans, Inc. v.

                                       11
the wrongful denial of a defense would not have expanded coverage.21

       Finally,   in    response     to    Bollinger’s        assertion    that   its

settlement    was      reasonable,    we        note   that    Bollinger    assumed

responsibility for the damages almost immediately after they were

discovered and negotiated down-time compensation with Cardinal and

Montco long before the insurers denied coverage.                    Bollinger may

have made an astute business decision in paying for Cardinal’s and

Montco’s losses.        But Bollinger cannot transfer costs it was not

legally obligated to pay to the insurers.22

                                          IV.

       The insurers complain that the district court erroneously

ordered the parties to bear their own costs.                  “[C]osts . . . shall

be allowed as of course to the prevailing party unless the court

Louisiana Health Serv. & Indem. Co., 386 So. 2d 87, 89 (La. 1980)
(“[T]he insurer’s duty to defend suits brought against its insured
is determined by the allegations of the injured plaintiff’s
petition, with the insurer being obligated to furnish a defense
unless the petition unambiguously excluded coverage.” (quoting
Czarniecki, 230 So. 2d at 259)).
  21
    See Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1493
(5th Cir. 1992) (explaining that even in the face of a breach of
the duty to defend, coverage “cannot be created ex nihilo by
estoppel” (quoting Hartford Cas. Co. v. Cruse, 938 F.2d 601, 605
(5th Cir. 1991)); see also Foster v. Hampton, 352 So. 2d 197, 203
(La. 1979) (stating the basic rule that there can be no liability
on the part of an insurer where there is no liability on the part
of its insured).
  22
     Because we hold that Bollinger cannot establish coverage, we
need not consider whether it is entitled to damages for the
wrongful denial of coverage.

                                          12
otherwise directs . . . .”23      Our cases recognize that there is a

strong presumption that the prevailing party will be awarded its

costs.24 While the court has wide discretion to award or deny

costs,25 it must provide reasons if it denies costs.26    Because the

district court here did not provide reasons, we vacate that portion

of the judgment ordering each party to bear its own costs and

remand for either an award of costs to the prevailing parties or an

explanation of reasons for the denial of such an award.

                                   V.

       For the foregoing reasons, we AFFIRM summary judgment, VACATE

the denial of attorney fees and costs, and REMAND for further

proceedings consistent with Part IV of this opinion.

AFFIRMED in part, VACATED in part, and REMANDED.

  23
       Fed. R. Civ. P. 54(d)(1).
  24
    Sheets v. Yahama Motors Corp., USA, 891 F.2d 533, 539 (5th Cir.
1990).
  25
    Hall v. State Farm Fire & Cas. Co., 937 F.2d 210, 216 (5th Cir.
1991).
  26
       Sheets, 891 F.2d at 539.

                                   13