Court Opinion

ID: 50547
Source: CourtListenerOpinion
Date Created: 2010-04-26 00:53:25+00
Date Added: 2024-06-11T17:18:52.055280
License: Public Domain

United States Court of Appeals
                                                                   Fifth Circuit
                IN THE UNITED STATES COURT OF APPEALS           FILED
                       FOR THE FIFTH CIRCUIT                  May 30, 2007
                       _____________________
                                                         Charles R. Fulbruge III
                            No. 06-60446
                       _____________________                     Clerk

LIBERTY MUTUAL FIRE INSURANCE COMPANY,

                                                  Plaintiff-Appellee
     v.

FIREMAN’S FUND INSURANCE COMPANY,
                                    Intervenor Defendant-Appellant

                      ----------------------
           Appeal from the United States District Court
             for the Southern District of Mississippi
                          (3:01-CV-860)
                      ----------------------
Before HIGGINBOTHAM, WIENER, and CLEMENT, Circuit Judges.

WIENER, Circuit Judge*:

     During the pendency of an underlying state court lawsuit,

Defendant-Appellant Fireman’s Fund Insurance Company (“Fireman’s

Fund”), an excess insurer, settled the lawsuit on behalf of its

insured.   Thereafter, Fireman’s Fund sought to recover partial

reimbursement   from   Plaintiff-Appellant     Liberty   Mutual           Fire

Insurance Company (“Liberty Mutual”), a primary insurer, in a

separate federal declaratory judgment action.     The district court

dismissed Fireman’s Fund’s reimbursement claim, concluding that

     *
       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this opinion should not be published and is not precedent except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.
it   was    barred       by     Mississippi’s         voluntary    payment     doctrine.

Perceiving no reversible error, we affirm.

                               I.   FACTS AND PROCEEDINGS

      In    a    2001     Mississippi          state    court     lawsuit    (“the       Doe

lawsuit”), Tina Doe alleged that, while she was a tenant in the

Signature       Square    Apartment       Complex       (“the     Complex”),      she    was

assaulted and raped by an employee of the Complex.                             Just days

before the alleged incident, Virtu Signature Square Associates,

L.L.C. (“Virtu”) had purchased the Complex.

      In her complaint, Doe asserted claims against two categories

of defendants: (1) Virtu, as owner of the Complex at the time of

the incident, and Linda Denham, as Virtu’s office manager at the

time of the incident, and (2) the immediately preceding owner of

the Complex,       its        allegedly   related       entities,    and    one     of   its

employees —— Jorad-Jackson I Limited Partnership d/b/a Signature

Square Apartments, Del Development Corporation, SGI Nevada, Inc.

and Pete Brown (collectively, “the Del Defendants”).

      At the time of the incident, Virtu was a named insured under

a primary commercial general liability policy issued by Liberty

Mutual     Insurance          to    Property       Owners   Purchasing      Group    (“the

Liberty Mutual Policy”).               The policy limit of the Liberty Mutual

Policy was $1 million.

      Pursuant to the terms of that policy, Liberty Mutual agreed

                                               2
to defend Virtu and Denham against the claims asserted in the Doe

lawsuit, subject to a reservation of rights, and thus retained

and paid for defense counsel.                  Liberty Mutual also filed the

present   action        in   the    district      court,    seeking     a     judicial

declaration      that    the     Liberty   Mutual    Policy       did   not   provide

coverage for the claims asserted against Virtu and Denham in the

Doe lawsuit.

     In   December       2002,     Doe   amended    her    state   court      lawsuit,

adding    additional         defendants.        These      additional       defendants

included Greystar Management Services, L.P. (“Greystar”), which

was the management company for the Complex at the time of the

incident, and two other allegedly related entities.

     Greystar was an additional insured under the Liberty Mutual

Policy.     As    such,      Liberty     Mutual    agreed    to    defend     Greystar

against the claims in the Doe lawsuit and thus retained and paid

for defense counsel.             Liberty Mutual did not deny coverage or

seek a judicial determination that the Liberty Mutual Policy did

not provide coverage to Greystar for the claims asserted in the

Doe lawsuit, and thus did not proceed under a reservation of

rights.

     Liberty Mutual assigned two claims professionals to work the

Doe lawsuit.       Jamie Moray handled and monitored the defense of

Virtu, Denham, and Greystar in the Doe lawsuit; Antonio Glenn

                                           3
handled all issues of coverage under the Liberty Mutual Policy.

     At the time of the incident, Greystar was also insured under

an   excess/umbrella        policy     issued      by     Fireman’s     Fund     (“the

Fireman’s Fund Policy”).          The policy limit of the Fireman’s Fund

Policy was $25 million.

     In   July    2003,     after    the       conclusion    of    an   unsuccessful

mediation, Fireman’s Fund was notified of the Doe lawsuit, which

was set to be tried approximately three to four weeks later.                        On

receiving notice, Fireman’s Fund assigned James Shaw to handle

the claims asserted against Greystar in the Doe lawsuit.

     Shaw believed that Greystar’s potential exposure in the Doe

lawsuit exceeded      the    $1     million      policy    limit   of   the    Liberty

Mutual Policy.      Moray believed that the facts and circumstances

did not demonstrate a significant potential liability on the part

of Virtu, Denham, or Greystar.

     After numerous communications between Moray and Shaw, Moray

advised Shaw that $200,000.00 was the maximum amount that Liberty

Mutual would pay to settle the claims against Greystar.                          Moray

also advised Shaw that he was not the adjuster responsible for or

involved in the handling of any coverage issues under the Liberty

Mutual Policy and that these issues were being handled by Glenn.

During    one    telephone    conversation,         Shaw     advised     Moray    that

Fireman’s Fund might, after settling the Doe lawsuit, file suit

                                           4
against Liberty Mutual.

     Following these discussions, Shaw sent Moray an email which

stated, in part:

     [Fireman’s Fund] is not convinced that [the Liberty
     Mutual Policy] does not apply. As such, we are forced
     to negotiate settlement in [the Doe lawsuit] with
     minimal contribution from [Liberty Mutual]. Please be
     advised that we are doing so under a full reservation
     of rights under the policies, and that we specifically
     reserve the right to resolve the coverage issues after
     the fact.

After sending this email, Shaw, together with his Fireman’s Fund

counterparts handling the Doe lawsuit under the policy issued to

the Del Defendants, assumed complete control of the settlement

negotiations    in    the   Doe    lawsuit.      Shaw   and     his   counterparts

agreed to pay Doe $3 million to settle all claims she asserted in

the Doe lawsuit and agreed among themselves to allocate this

settlement equally between the Del Defendants and Greystar ——

actually between their respective insurers —— each paying $1.5

million.

     Of Greystar’s allocated $1.5 million, Liberty Mutual paid

$200,000.00, which was consistent with its prior representations

to Fireman’s Fund.      Fireman’s Fund paid $1.3 million, the balance

of the settlement.

     In    February    2005,      Fireman’s    Fund,    which    had   previously

intervened     in    Liberty      Mutual’s    federal   declaratory       judgment

                                         5
action, filed a motion for summary judgment, contending that the

Liberty Mutual Policy provided coverage to Greystar and, as such,

Fireman’s       Fund    was    entitled      to    recover     $800,000.00      (the   $1

million Liberty Mutual Policy limit minus the $200,000.00 already

paid by Liberty Mutual) of the $1.3 million that Fireman’s Fund

had paid in settling the claims against Greystar.                          On the same

day,       Liberty    Mutual      filed    its    own   cross-motion      for   summary

judgment,       contending          that    Mississippi’s           voluntary   payment

doctrine precluded any recovery from Liberty Mutual by Fireman’s

Fund.

       In     February      2006,    the    district        court    granted,   without

reasons, Liberty Mutual’s summary judgment motion and entered

final judgment in Liberty Mutual’s favor.                     Fireman’s Fund timely

filed a notice of appeal.

                                     II.    ANALYSIS

A.     Standard of Review

       We review grants of summary judgment de novo, applying the

same       standard    as   the     district      court.1      Summary    judgment     is

appropriate when there is no genuine issue of material fact and

the moving party is entitled to judgment as a matter of law.2

       1
           Abarca v. Metro. Transit Auth., 404 F.3d 938, 940 (5th Cir.
2005).
       2
       Dallas Fire Fighters Ass’n v. City of Dallas, 150 F.3d 438,
440 (5th Cir. 1998).

                                             6
The parties agree that Mississippi law applies in this diversity

action.3

B.     Applicable Law

       The voluntary payment doctrine is a common law construct

that has been consistently followed in Mississippi.4                     Under this

maxim,

       “[A] voluntary payment can not be recovered back, and a
       voluntary payment within the meaning of this rule is a
       payment made without compulsion, fraud, mistake of
       fact, or agreement to repay a demand which the payor
       does not owe, and which is not enforceable against him,
       instead of invoking the remedy or defense which the law
       affords against such demand.”5

In contrast, an “involuntary payment” is one “‘not proceeding

from       choice.’”6    Thus,   payments      made   by   virtue    of    a   legal

obligation, by accident, by mistake, or under compulsion are not

considered voluntary and thus are not barred from recovery under

the voluntary payment doctrine.7              In addition, a mutual agreement

between       insurance     companies     to     litigate    their        respective

liabilities       between    themselves       after   settling      an    underlying

       3
           Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
       4
       Genesis Ins. Co. v. Wausau Ins. Co., 343 F.3d 733, 736 (5th
Cir. 2003).
       5
      Id. (quoting McDaniel Bros. Constr. Co. v. Burk-Hallman Co.,
175 So. 2d 603, 605 (Miss. 1965)).
       6
           Id. at 738.
       7
           Id.

                                          7
lawsuit    will   preclude     application     of    the    voluntary       payment

doctrine.8

C.   Merits

     1.      Voluntary Payment

     The first issue on appeal is Fireman’s Fund contention that

its settlement payment was not voluntary, because it had a legal

obligation to settle the Doe lawsuit on behalf of Greystar.                         In

support of its position, Fireman’s Fund relies on State Farm

Mutual    Automobile     Insurance    Co.    v.     Allstate      Insurance     Co.9

Fireman’s Fund’s reliance on State Farm is misplaced, however.

     State Farm stands for the legal proposition that a primary

insurer    is   under   a   legal   obligation      to   defend    and     settle    a

lawsuit in the best interests of its insured; and thus, if a co-

primary insurer fails to participate in a successful settlement

negotiation, the voluntary payment doctrine does not preclude an

action    for   contribution.        Under    the    Fireman’s      Fund    Policy,

though, Fireman’s Fund is not a primary insurer charged with the

duty to defend.         Rather, Fireman’s Fund is an excess/umbrella

insurer under     no    obligation    to    defend   or    settle    any    lawsuit

against Greystar.        Fireman’s Fund’s sole obligation was to pay

any amount, up to the limit of its policy, that exceeded the

     8
         Id. at 736.
     9
         255 So. 2d 667, 669 (Miss. 1971).

                                       8
limits of any primary insurance policy.              Thus, Fireman’s Fund has

inappropriately      attempted       to   agglomerate       to   itself   as    an

excess/umbrella insurer the primary insurer’s duty to defend and

thereby avoid the consequences of the voluntary payment doctrine.

     In addition, Fireman’s Fund relies on Canal Insurance Co. v.

First General Insurance Co.10 as imposing on it another legal

obligation to settle the claims against Greystar.                 This reliance

is also misplaced.

     In First General, Canal, an insurer, had no duty to defend

the claims against its insured in an underlying lawsuit, but

nonetheless provided a defense, under a reservation of rights,

after     First   General,   another      insurer,       wrongfully   refused   to

provide one.11       After providing the defense, Canal sought to

recover its defense costs from First General, which argued in

opposition that Canal’s defense payments were voluntary and thus

unrecoverable.12

     In reversing the district court’s ruling in favor of Canal,

we   determined     that     Canal    was     not    a    volunteer.13     After

acknowledging that Canal had no policy obligation to provide a

     10
          889 F.2d 604 (5th Cir. 1989).
     11
          Id. at 611-12.
     12
          Id.
     13
          Id.

                                          9
defense to its insured, which seemingly would have rendered Canal

a volunteer, we nevertheless held that, because of a mandatory

state-law insurance endorsement that effectively made Canal its

insured’s        surety    as    to    any   judgments      rendered     against    the

insured, Canal (1) reasonably could have feared that a court

might construe this endorsement as requiring Canal to provide its

insured a defense, and (2) had a manifest interest in controlling

the underlying litigation to minimize the size of any judgments

after First General had denied coverage and refused to provide a

defense.14         Based solely on these two circumstances, both of

which      arose    from    an    endorsement       mandated    by     state-law,     we

concluded that Canal could not be characterized as a volunteer.15

      Here, there exists nothing akin to the mandatory state-law

endorsement        in   First    General     that    (1)   might     have   reasonably

caused Fireman’s Fund to fear that a court could conclude that it

had   a    duty    to   defend,       or   (2)    imbued   Fireman’s    Fund   with   a

manifest interest in controlling the litigation.                        Furthermore,

even if there had been a similar endorsement, Liberty Mutual

never denied coverage as to Greystar and had agreed from the

outset to provide Greystar with a defense, thereby nullifying any

interest that Fireman’s Fund might have had in controlling the

      14
           Id.
      15
           Id.

                                             10
litigation.          We are satisfied that Fireman’s Fund had no legal

obligation to make a settlement payment on Greystar’s behalf and

thus    cannot       avoid     the     application         of    the     voluntary         payment

doctrine by means of an “involuntary” payment defense.

       2.       Mutual Agreement to Litigate Post-Payment

       The second issue on appeal is Fireman’s Fund’s contention

that summary judgment was improperly granted, as —— it asserts ——

there    exists         a    genuine     fact      issue     whether          a    mutual,       pre-

settlement agreement to litigate coverage issues post-settlement

existed between it and Liberty Mutual.                           According to Fireman’s

Fund, sufficient evidence of such a mutual agreement exists to

create      a   genuine       issue     of    material      fact        and       thus    make   the

district         court’s        grant        of        summary     judgment              erroneous.

Specifically,         Fireman’s        Fund       points    to    (1)    Shaw’s          deposition

testimony, (2) the August 2001 email from Shaw to Moray, (3)

Moray’s file notes, and (4) a September 2001 letter from Liberty

Mutual to Wausau, as support for its contention that a factual

conflict        exists       whether    the       parties    agreed       to       litigate      the

coverage issue subsequently.

                a.      Deposition Testimony

       Initially, Fireman’s Fund contends that Shaw’s deposition

testimony evidences that the two insurers did mutually agree to

litigate        their       respective       liabilities         subsequently.              In   his

                                                  11
August 17, 2004 deposition, Shaw testified, in part:

     Q:   Anything   else   you   can   recall    about    your
          conversations with Mr. Moray?

     A:   Yes.

     Q:   What else?

     A:   When we came to settling the case, Liberty
          Mutual’s contribution was $200,000.     I did not
          believe that that represented Liberty’s exposure,
          and I told him directly that we were going to sue
          them for it and that I was going to send him a
          reservation of rights letter, and he said, “You do
          what you have to do.”

          And I told him that I felt Liberty was trying to
          manipulate this from a position of noncoverage and
          I was offended that they could take that position
          and I was further offended, after we had had those
          discussions, that there could now be raised the
          element that we might have made a volunteer
          payment there, which was at no time discussed
          because the disagreements on coverage were pretty
          stark.

     Q:   But you and Mr.     Moray   discussed   a   voluntary
          payment issue?

     A:   No, that was never brought up.

     Q:   Never came up?

     A:   Well, I took his contribution to the settlement as
          a ratification, that it was reasonable and that
          what was being agreed to —— the settlement was
          acceptable and not outside the bounds of what
          should be paid in settlement for such a loss.

     Q:   At no time did you —— did Mr. Moray ever raise
          with you voluntary payment?

     A:   Not at all.

                               12
Q:      Never used that term with you?

A:      Not at all.

. . .

Q:      So when you left off with Mr. Moray, it was,
        “We’re going to get this case settled and then
        we’re going to sue you”?

A:      “We will do what we have to to seek recovery.”

Q:      Well, did you tell him that you were going to sue
        him or did you tell him that you were going to do
        what you had to do to seek recovery?

A:      I mentioned the word “sue.”         I mentioned
        “recovery.” I probably told him ten times what we
        were going to do.

Q:      Was there ever a verbal agreement between you and
        Mr. Moray to the effect that Liberty Mutual would
        contribute   $200,000;   Fireman’s   Fund   would
        contribute the balance; and that both parties
        would agree to resolve any coverage issues in a
        subsequent proceeding?

A:      Do you mean did I have his permission ——

Q:      Yes.

A:      —— to settle the claim or to sue Liberty Mutual?

Q:      To sue Liberty Mutual.

A:      I had his acknowledgment that we would do that if
        we had to.   He acknowledged that that would be
        appropriate.

Q:      He understood that that’s what you were going to
        do?

A:      That was —— yeah, one of the potential —— either
        arbitration or litigation or even negotiation
        later outside the realm of an arbitration, but

                             13
        that this would be brought to resolution at some
        point.

Q:      I mean, you made that clear to him that you were
        going to do that?

A:      Yes.   And there was never any disagreement from
        him on that part.

Q:      Did he expressly agree that that would be fine?

A:      Yes.

. . .

Q:      And is that the reservation of rights letter ——
        the reservation of rights you’re referring to?

A:      That is, yes.

Q:      And there’s nothing in this e-mail about Liberty
        Mutual agreeing to resolve the coverage issues
        after the fact?

A:      The discussion had been that we will, and I didn’t
        see the need to point out that, “You have agreed
        that we” —— I didn’t believe there was any need to
        gain Liberty Mutual’s agreement for us to sue them
        later since they had disclaimed coverage and we
        felt that they were not stepping up to the plate
        fully in a defense obligation; that for us to have
        the onus or the burden of obtaining their
        agreement would be ludicrous. That ——

Q:      That just wasn’t necessary in your mind?

A:      —— wasn’t necessary, no.

Q:      In your mind, you were doing everything you could
        to preserve Fireman’s Fund’s right to litigate
        later or arbitrate later against Liberty Mutual?

A:      We were reserving our rights.    We had told them
        that we would do so.

                             14
     Q:    And you’re telling them again?

     A:    And I’m telling them again, and now we’re sitting
           here talking about it.

     As can be seen from this deposition testimony, Shaw was

attempting      to    get    Liberty   Mutual   to     raise   its   settlement

contribution and, in this effort, he threatened the possibility

of a lawsuit.        Moray responded, in essence, that, regardless of a

potential lawsuit, Liberty Mutual was not going to raise its

contribution and Fireman’s Fund could go do whatever it wanted.

Although   there      was    some   mutual   assent,   it   was   not   directed

towards a subsequent coverage lawsuit between the two insurers.

Instead, both parties acknowledged that Liberty Mutual would not

raise its settlement contribution over $200,000.00 and Fireman’s

Fund could do whatever it wanted in response.                     This is not

sufficient to constitute mutual assent to subsequent coverage

litigation.

           b.        Email

     In the August 2001 email from Shaw to Moray, Shaw wrote, in

part:

     We are not convinced that Liberty International
     Underwriters’ Policy RG2-W31-004265-010 does not apply.
     As such, we are forced to negotiate settlement in this
     matter   with   minimal   contribution   from   Liberty
     International Underwriters. Please be advised that we
     are doing so under a full reservation of rights under
     the policies, and that we specifically reserve the
     right to resolve the coverage issues after the fact.

                                        15
Fireman’s    Fund    contends      that   this     email      constitutes      a    pre-

settlement, mutual agreement to reserve the right to litigate the

parties’ coverage issues subsequently.                 We disagree.

     In     his    email,    Shaw    purports          unilaterally      to   reserve

Fireman’s Fund’s right to litigate.                   This is not sufficient to

preclude application of the voluntary payment doctrine, which

requires that all interested parties mutually agree to litigate

subsequently.

            c.      File Notes

     In    his    file   notes     relating      to    the    Doe   lawsuit,       Moray

observed, in part: “Jim Morey —— 6/3/04 —— A review of the file

reveals that on 8/11/03, the case settled for $3,000,000.00 with

Liberty’s contribution being $200,000.                 Thereafter, the matter is

subject to coverage litigation.                This part of the file is being

handled    by     Tony   Glenn.”     Fireman’s         Fund    asserts    that      this

notation also supports its position that the parties did reserve

their rights to litigate subsequently.

     Fireman’s Fund’s position is unpersuasive.                     This file note

does not reference Shaw, Fireman’s Fund, or any agreement between

Liberty    Mutual    and    Fireman’s      Fund       with   respect   to     the    Doe

lawsuit.     In addition, this note was written approximately ten

months after the Doe lawsuit was settled and several months after

Fireman’s Fund filed its intervention complaint with the district

                                          16
court.    These notes are simply file documentation from a periodic

file review, not evidence of a ten-month-old mutual agreement to

litigate.

     d.     Letter

     The last item of evidence offered by Fireman’s Fund is a

September 2001 letter from Liberty Mutual to Fireman’s Fund.   The

letter states, in part:

          I have enclosed in connection with the reference
     matter Liberty Mutual Fire Insurance Company Check No.
     8018688 in the amount of $200,000 made payable to [Ms.
     Doe and her attorneys].

          Tender of this check by Liberty Mutual Fire
     Insurance Company is not intended as nor should it be
     construed as an admission by Liberty Mutual Fire
     Insurance Company or any related companies of any
     liability under Policy No. RG2-W31-004265-010 in
     connection with the matters at issue. Said tender is
     made subject to Liberty Mutual Fire Insurance Company’s
     full and complete reservation of rights under the
     above-reference policy and without prejudice to any of
     the claims and/or defenses currently asserted or which
     may be asserted by Liberty Mutual Fire Insurance
     Company in the lawsuit styled and numbered Liberty
     Mutual Fire Insurance Company v. Virtu Signature Square
     Associates, LLC, et al., in the United States District
     Court for the Southern District of Mississippi, Jackson
     Division, Civil Action No. 3:01CV860WS.

     Like the other items, this letter too fails to prove a

mutual agreement between Fireman’s Fund and Liberty Mutual.     It

does not mention Fireman’s Fund or any mutual agreement between

Fireman’s Fund and Liberty Mutual.     Neither does it purport to

reserve any of Liberty Mutual’s rights with respect to Fireman’s

                                 17
Fund.       Instead,     it    unilaterally         confirms    Liberty     Mutual’s

reservation    of    rights     under    the    Liberty       Mutual   Policy      with

respect to its insureds and reserves all existing claims and

defenses with respect to the pending lawsuit between Liberty

Mutual and Virtu and Denham.              It is therefore insufficient to

constitute     evidence        of    a    mutual      agreement        to   litigate

subsequently.

                                III.     CONCLUSION

     Based on the applicable law and our extensive review of the

parties’    briefs     and    the   record     on   appeal,    we   hold    that    the

district court did not err in ruling that Fireman’s Fund’s claims

were barred by the application of Mississippi’s voluntary payment

doctrine.

AFFIRMED.

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