Court Opinion

ID: 4264216
Source: CourtListenerOpinion
Date Created: 2018-04-16 18:00:20.19594+00
Date Added: 2024-06-11T14:30:22.053613
License: Public Domain

Case: 17-60094      Document: 00514430415         Page: 1    Date Filed: 04/16/2018

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

                                      No. 17-60094                           FILED
                                                                         April 16, 2018
                                                                        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.
JAMES E. GRAVES, JR., Circuit Judge:*
       Colony Insurance Company appeals from the district court’s judgment in
favor of First Specialty Insurance Corporation. Because this case presents
determinative questions of Mississippi law for which there is no applicable
precedent, we CERTIFY those questions to the Supreme Court of Mississippi.
       CERTIFICATION FROM THE UNITED STATES COURT OF
       APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME

       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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: 00514430415      Page: 2     Date Filed: 04/16/2018

                                 No. 17-60094
      COURT OF MISSISSIPPI, PURSUANT TO RULE 20 OF THE
      MISSISSIPPI RULES OF APPELLATE PROCEDURE.

      TO THE SUPREME COURT OF MISSISSIPPI AND THE
      HONORABLE JUSTICES THEREOF:

                          I. STYLE OF THE CASE
      The style of the case in which this certification is made is Colony
Insurance Company v. First Specialty Insurance Corporation, No. 17-60094, in
the United States Court of Appeals for the Fifth Circuit. The case is on appeal
from the United States District Court for the Southern District of Mississippi.
Federal jurisdiction is based on diversity of citizenship.
                        II. STATEMENT OF FACTS
      On July 28, 2014, Jerry Lee Taylor II, an employee of Accu-Fab &
Construction, Inc., was killed in an explosion at Omega Protein Corporation’s
facility in Moss Point, Mississippi. ROA.110, 292.
      When the explosion occurred, two third-party liability insurance policies
identifying Omega as a named insured were in effect. One of those policies,
issued by Ace American Insurance Company (AAIC), provided Omega with
$1 million in primary coverage. ROA.110. The other policy, issued by First
Specialty Insurance Corporation, provided Omega with $10 million of coverage
excess to that provided by the AAIC Policy. ROA.110, 237–71.
      A third-party liability insurance policy issued by Colony Insurance
Company was also in effect. The Colony Policy named Accu-Fab as the insured
and provided $1 million in coverage. ROA.110, 170–236. The Colony Policy
contained an “Additional Insured” endorsement, which designated “[a]ll
persons or organizations as required by written contract with the Named
Insured” as being insureds under the Colony Policy as well, subject to certain
limitations and exclusions. ROA.218.

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                                  No. 17-60094
       On March 4, 2015, Omega informed Colony that it expected to receive
“claims for personal injury and/or wrongful death” arising out of the July 2014
explosion. Asserting that it qualified as an “additional insured” under the
Colony Policy, Omega demanded that Accu-Fab and Colony “defend and fully
indemnify [it] from any [such] claims.” ROA.292–93.
       On March 13, 2015, Colony notified Omega that it was conducting an
investigation into the explosion “under a full and complete reservation of
rights . . . including the right to disclaim coverage in whole or in part should it
consider such denial warranted.” Colony contended that the Colony Policy’s
“Total Pollution Exclusion may apply to preclude coverage in this matter” and
expressed doubt that Omega qualified as an “additional insured.” ROA.414–
15.
       On April 17, 2015, Colony filed a complaint for declaratory judgment in
the Circuit Court of Jackson County, Mississippi. The complaint, which named
Accu-Fab and Omega as defendants, sought a court order “declaring that the
[Colony Policy] does not provide any coverage for any and all damages or
injuries sustained as a result of the [July 2014] explosion.” ROA.788–92.
       On September 2, 2015, Taylor’s estate and survivors filed a wrongful
death action against Omega in federal district court. Colony subsequently
agreed to fund Omega’s defense, subject to a “full and complete” reservation of
rights, “including the right to seek recovery of all defense costs it incurs on
behalf of Omega should a court determine that Colony does not in fact owe a
defense to [Omega].” ROA.416–17. In a letter dated December 9, 2015, Colony
informed Omega’s attorney that:
       Colony’s position is that it does not believe the policy of insurance
       it issued to Accu-Fab provides any coverage whatsoever for the
       unfortunate incident which occurred at the Omega Protein facility
       on July 28, 2014. Nevertheless, at your request Colony has agreed
       to fund the defense of Omega Protein, and is pursuing a

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                                 No. 17-60094
      declaratory judgment action in order to have the court determine
      whether its coverage position is or is not correct. Colony is
      providing a good-faith defense to Omega through the services of
      your law firm and yourself. If the court ultimately determines that
      the policy issued by Colony to Accu-Fab does not require that it
      fund Omega’s defense, Omega will have been unjustly enriched to
      the extent Colony paid its defense costs when it had no obligation
      to do so.

ROA.361. Colony also wrote that, “[w]ith regard to Taylor’s settlement
demand, Colony will of course consider any reasonable demand sent to it,” but
“any demands for settlement made on behalf of the estate and survivors of Mr.
Taylor will be reviewed in light of the insurance coverage issue which is
currently the subject of Colony’s declaratory judgment action.” ROA.361–62.
      A settlement conference in the Taylor lawsuit was set for January 14,
2016. On January 12, 2016, First Specialty sent a letter to Colony stating that
“the settlement conference presents an excellent but limited opportunity to
settle this claim for $2 million or less” and requesting that Colony “be prepared
to tender its $1 million primary limits on January 14 to achieve a settlement.”
ROA.793. First Specialty asserted that AAIC “is prepared to tender its
$750,000 limits to achieve a settlement” and that “Omega has tendered its
$250,000 deductible under the [AAIC] policy.” ROA.794, 796. The letter
concluded:
      The Taylor claim will certainly not settle for $1 million. As noted,
      failure to take advantage of the opportunity on January 14 to settle
      the Taylor claim for $2 million or less may not come again and may
      result in substantial unnecessary losses for Omega and its excess
      insurers, potentially including [First Specialty]. Accordingly,
      [First Specialty] respectfully requests Colony to be prepared to
      tender its limits to settle the Taylor claim during the January 14
      settlement conference.

ROA.796.

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                                No. 17-60094
      At the settlement conference, Colony agreed to pay the Colony Policy’s
$1 million policy limit in return for Omega’s “full and complete release” from
the Taylor lawsuit. ROA.797. AAIC also settled for its policy limits. ROA.110.
Colony then dismissed its declaratory judgment action. ROA.115 n.3.
      In post-settlement correspondence, Colony asserted that the Colony
Policy did not cover Omega in connection with the Taylor lawsuit and
demanded that First Specialty reimburse “the full $1 million Colony
contributed to the Taylor settlement within 14 days.” ROA.797–99. When First
Specialty refused, Colony filed the present suit in the United States District
Court for the Southern District of Mississippi. Asserting claims for equitable
subrogation and implied indemnity under Mississippi law, Colony sought to
recover the amounts it expended on Omega’s behalf in defending and settling
the Taylor lawsuit. ROA.159–68.
      Colony and First Specialty filed cross-motions for summary judgment.
The district court granted First Specialty’s motion, denied Colony’s motion,
and entered a final judgment dismissing Colony’s suit with prejudice.
ROA.109–17. In concluding that First Specialty was entitled to summary
judgment on Colony’s equitable subrogation claim, the district court relied
entirely on Mississippi’s voluntary payment doctrine. Observing that Colony’s
position “is, and has always been, that it did not insure Omega,” and accepting
that position as true for summary judgment purposes, the district court
concluded that Colony acted as a “voluntary payor” and 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 under its
policy.” ROA.113–15. The district court granted summary judgment on
Colony’s implied indemnity claim “for a similar reason,” concluding that
Colony’s position that it did not insure Omega meant that it “was not obligated
to pay” any portion of the Taylor settlement. ROA.115. Colony appealed.
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                                  No. 17-60094
                            III. DISCUSSION
      Mississippi’s voluntary payment doctrine provides that “‘[a] voluntary
payment can not be recovered back.’” Genesis Ins. Co. v. Wausau Ins. Cos., 343
F.3d 733, 736 (5th Cir. 2003) (quoting McDaniel Bros. Constr. Co., Inc. v. Burk-
Hallman Co., 175 So. 2d 603, 605 (1965)). “Payments made under compulsion
are . . . not considered voluntary, and are thus not barred from recovery by the
volunteer doctrine.” Id. at 738. Similarly, “[p]ayments that are made by virtue
of legal obligation or by accident or mistake are inherently involuntary.” Id.
(citing 66 Am. Jur. § 112 (2001)).
      In the insurance context, the Mississippi Supreme Court has long held
that “payment by an insurer which properly undertakes a burden of settlement
or defense does not render it a volunteer, not entitled to recover.” State Farm
Mut. Auto. Ins. Co. v. Allstate Ins. Co., 255 So. 2d 667, 669 (Miss. 1971) (citation
and internal quotation marks omitted). More recently, the court has held that
the voluntary payment doctrine does not preclude an insurer from recovering
a settlement payment made on behalf of an insured, provided the insurer “can
prove it was legally liable to settle, and that the amount it paid . . . was
reasonable.” Guidant Mut. Ins. Co. v. Indem. Ins. Co. of N. Am., 13 So. 3d 1270,
1280 (Miss. 2009) (Guidant I). The court subsequently explained that “the
phrase ‘legally liable to settle’ mean[s] that [the insurer] must prove that it
had a legal duty to settle, or at least a legal duty to consider the insured’s best
interest and to make an honest evaluation of a settlement offer within the
policy limits.” Indem. Ins. Co. of N. Am. v. Guidant Mut. Ins. Co., 99 So. 3d 142,
151 (Miss. 2012) (Guidant II).
      As the district court observed, the insurer that sought recovery in
Guidant I and II apparently did not dispute that the individual on whose behalf
it settled was its insured. Here, by contrast, Colony has consistently
maintained that Omega is not its insured. First Specialty argues that this is a
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                                 No. 17-60094
crucial distinction: if Omega is not its insured, Colony did not act out of
compulsion or a legal duty owed to Omega when it decided to contribute to the
Taylor settlement.
      Colony, on the other hand, contends that it did not act as a volunteer
simply because it disputed Omega’s status under the Colony Policy. In
particular, Colony argues that, having assumed Omega’s defense of the Taylor
lawsuit in good faith, it became obligated to act in the best interests of Omega
as its purported insured, at least until the coverage issue was resolved. Before
the coverage question was resolved, Colony was presented with an offer to
settle the Taylor lawsuit within policy limits. Colony maintains that it acted
in Omega’s best interests (and its own) when it accepted that offer: proceeding
to trial would have risked an even larger judgment against Omega, for which
Colony may have been liable if it was ultimately determined that the Colony
Policy covered Omega.
      We have not located any decision of the Supreme Court of Mississippi
addressing whether the voluntary payment doctrine precludes recovery by an
insurer that contributes to a settlement on behalf of a purported insured whose
defense the insurer has undertaken but whom the insurer maintains is not
actually its insured. During oral argument, Colony and First Specialty agreed
that the Mississippi Supreme Court has not addressed this issue. Because this
determinative issue of state common law is “genuinely unsettled,” we conclude
that certification is appropriate. See Jefferson v. Lead Indus. Ass’n, Inc., 106
F.3d 1245, 1247 (5th Cir. 1997); MISS. R. APP. P. 20(a).
                     IV. QUESTIONS CERTIFIED
      Consistent with our respect for federalism and the authoritative role of
state supreme courts in issuing binding interpretations of state law, while
simultaneously respecting the parties’ choice of a federal forum by reserving
for this Court the final power of judgment, we hereby certify, on our own
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                                 No. 17-60094
motion, the following determinative questions of law to the Supreme Court of
Mississippi:
      Mississippi’s voluntary payment doctrine does not bar an insurer
      from recovering a settlement payment made under “compulsion”
      or as the result of a settlement-related “legal duty.”
      1. 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?
      2. Does an insurer satisfy the “legal duty” standard if it makes a
         settlement payment on behalf of a purported insured whose
         defense it has assumed in good faith, but whose coverage under
         the policy has not been definitively resolved, even if the insurer
         maintains that the purported insured is not actually insured
         under the policy?
      We disclaim any intention or desire that the Supreme Court of
Mississippi confine its reply to the precise form or scope of the questions
certified. The record in this case and copies of the parties’ briefs are
transmitted herewith. We retain cognizance of this appeal pending response
from the Supreme Court of Mississippi.

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