Court Opinion

ID: 6647
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:19:41+00
Date Added: 2024-06-11T13:30:17.956290
License: Public Domain

United States Court of Appeals,

                            Fifth Circuit.

                             No. 93-5563.

       JOSLYN MANUFACTURING COMPANY, Plaintiff-Appellant,

                                   v.

      LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellee.

                            Sept. 2, 1994.

Appeal from the United States District Court for the Western
District of Louisiana.

Before REYNALDO G. GARZA, SMITH and PARKER, Circuit Judges.

     REYNALDO G. GARZA, Circuit Judge:

     Joslyn Manufacturing Company ("Joslyn") filed this action for

declaratory judgment seeking to enforce an insurance policy with

Liberty Mutual Insurance Company ("Liberty").          The policy would

obligate Liberty to defend and indemnify Joslyn against Louisiana

Department   of   Environmental   Quality   ("DEQ")   Compliance   Orders

directing Joslyn to investigate and remediate environmental damage

at Joslyn's former wood treatment plant in Bossier City, Louisiana.

Joslyn seeks reimbursement for its past defense costs, indemnity of

its past clean-up costs, and a declaration that Liberty must pay

Joslyn's future defense and clean-up costs.           For the following

reasons, we affirm the district court.

                                  FACTS

     Joslyn purchased the Lincoln Creosoting Plant in Bossier City

on July 24, 1950, where it treated wood with creosote.      It operated

the facility until 1969 when it sold the plant to Koppers, Inc. on

December 1, 1969.    Joslyn has been a Liberty Mutual insured since

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1945.    From 1962 through 1969 the creosote plant was an insured

location under Joslyn's policies with Liberty.            Neither party can

locate any of the pre-1962 liability policies between Joslyn and

Liberty.

       In 1985, the DEQ began studying the old Lincoln Creosoting

Plant site.      On October 14, 1985, a report was issued to the DEQ

that found the soil at the site, as well as an extremely high

probability of the groundwater, to be contaminated. On December 6,

1985, the DEQ sent Joslyn an information request concerning the

site, and Joslyn responded on February 7, 1986.          On August 2, 1986,

the DEQ issued a compliance order finding that Joslyn and twelve

other parties were subject to liability for clean-up and remedial

costs, and ordered the parties to submit an approved clean-up plan

for the site.      This order was stayed because of requests for a

hearing.    The August 2, 1986 DEQ Compliance Order was amended on

December 17, 1987.

       Joslyn first advised Liberty of the DEQ's actions on May 19,

1987, and on June 23, 1987.        Liberty denied coverage by letter of

March 30, 1989.     This suit seeking declaratory judgment ensued.

       On July 8, 1993, United States District Judge Tom Stagg issued

a Memorandum Ruling, 836 F. Supp. 1273.           In it the court found that

Liberty had no duty to indemnify Joslyn because Joslyn failed to

comply with the "immediate notice" condition precedent by waiting

nine    months   before   giving   notice   of    an   August   2,   1986   DEQ

Compliance Order asking Joslyn to submit a letter to the DEQ

stating whether it would voluntarily investigate and remediate the

                                      2
contamination at the property. The court further held that Liberty

had no duty to defend Joslyn because the Compliance Order directing

Joslyn to investigate and clean up the property was not a "suit."

Finally, the court struck the affidavit of Philip Gehrke, Joslyn's

Risk Manager from 1947 to 1983, regarding the missing insurance

policies for 1950 to 1962.   Joslyn has timely appealed.

                             DISCUSSION

         This case is subject to a de novo review by this court.

Fritiofson v. Alexander, 772 F.2d 1225, 1239 (5th Cir.1985).   The

pertinent portions of the insurance contract provided:

     As respects the insurance afforded by the other terms of this
     policy the company shall:

     (a) defend any suit against the insured alleging such injury,
          sickness, disease or destruction and seeking damages on
          account thereof, even if such suit is groundless, false
          or fraudulent.

The "Conditions" section of the Liberty policies stated:

     NOTICE OF CLAIM OR SUIT If claim is made or suit is brought
     against the insured, the insured shall immediately forward to
     the company every demand, notice summons or other process
     received by him or his representative.

     ACTION AGAINST COMPANY     No action shall lie against the
     company unless, as a condition precedent thereto, the insured
     shall have fully complied with all the terms of this policy,
     nor until the amount of the insured's obligation to pay shall
     have been finally determined either by judgment against the
     insured after actual trial or by written agreement of the
     insured, the claimant and the company.1

     Appellant Joslyn argues that the trial court erred in ruling

     1
      This language is from a 1962 policy issued to Joslyn.
Liberty Mutual has stated that the language used in the 1962
policy is similar to the language in the 1963-1969 policies,
unless specifically noted. See Liberty Mutual's post-trial brief
at p. 6, fn. 2. Joslyn has not contested this statement.

                                 3
that they forfeited their insurance coverage because they failed to

immediately notify Liberty of the August 2, 1986 DEQ Compliance

Order, as was required by the insurance contract.         Joslyn asserts

that the August 2, 1986 DEQ order was not a claim or suit which

triggers their     duty   to   provide   immediate   notice   to   Liberty.2

Appellant states that the DEQ Compliance Order asked it only to

submit a letter stating whether it would voluntarily address the

contamination.     Joslyn and the other respondents declined and

exercised their right to request a hearing.            On May 19, 1987,

Joslyn gave notice of the potential "future claim" when it was

unclear what the DEQ would do.      They then gave notice again on June

23, 1987, when it expected the DEQ to enter an amended Compliance

Order directing the work to begin.       When the DEQ served Joslyn with

the amended order on December 17, 1987, Joslyn promptly sent it to

Liberty on December 31, 1987.       Therefore, Joslyn contends that it

was only this amended letter that triggered their duty to notify

Liberty, of which Joslyn gave timely notice, and that the district

court erred in finding that the notice was late.         We disagree.

         The August 2, 1986 Compliance Order stated that Joslyn was

subject to liability for clean-up and remedial costs, and ordered

     2
      The district court notes the incongruent position advanced
in the early stages of the trial, where Joslyn admitted that the
August 2, 1986 order was a claim when attempting to engage
Liberty's duty to defend (as well as reimburse any expenses
already incurred). See Memorandum Ruling p. 7 fn. 2. Joslyn has
apparently restructured its argument to allege that the August 2,
1986 DEQ Order was not a claim or suit which would trigger the
duty to defend, and asserts that no claim or suit occurred until
the Amended Compliance Order of December 17, 1987, of which
Liberty was immediately notified.

                                     4
it to submit an approved clean-up plan for the site.   The August 2,

1986 Compliance order is substantially equivalent to the Amended

Compliance Order dated December 17, 1987, which Joslyn agrees is a

claim. This court concludes that this order was, at least, a claim

which triggers Joslyn's contractual obligation to provide Liberty

with immediate notice thereof as an express condition precedent to

coverage.    Joslyn waited nine months before providing Liberty with

the requisite notice, thereby committing a material breach of a

condition precedent to coverage under the policy.   We next address

the consequences of this late notice on the rights and liabilities

of the parties to the contract.

     Joslyn suggests that, even if they were late in providing

Liberty with notice, Louisiana law interprets this clause to

require "reasonable" notice to allow the insurer to adequately

prepare a defense.     Joslyn claims that they were reasonable in

their conduct.    Furthermore, Joslyn asserts that Liberty suffered

no prejudice from any delay, and therefore should not be relieved

from extending coverage to Joslyn.    Appellant claims that Liberty

had a full opportunity to participate in Joslyn's defense and to

protect itself, but chose to do nothing and let Joslyn bear the

costs of the defense.3

         In holding that prejudice was not a factor to consider in

policies where notice was a condition precedent to coverage, the

     3
      Moreover, Joslyn points out, Liberty never claimed
prejudice in its reasons for claim denial, and should be barred
under waiver principles from raising this defense on appeal.
Liberty Mutual did not waive this defense, as it properly raised
it in its answer.

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district court relied on three relatively recent Fifth Circuit

opinions:    Peavey Co. v. Zurich Insurance Company, 971 F.2d 1168

(5th Cir.1992);     Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570

(5th Cir.1990);    and MGIC Indemn. Corp. v. Central Bank of Monroe,

La., 838 F.2d 1382 (5th Cir.1988).         "The rule in Louisiana is that

where the requirement of timely notice is not an express condition

precedent, the insurer must demonstrate that it was sufficiently

prejudiced by the insured's late notice."            Peavey, 971 F.2d at

1173.      But where prompt notice of a covered occurrence is a

"condition precedent" to recovery under an insurance policy, and

the insured fails to give such notice, the claim is no longer

covered by the policy, regardless of whether the insurer can

demonstrate prejudice.      MGIC, 838 F.2d at 1385-87.       In the present

case, timely notice was an express condition precedent to coverage.

In MGIC, we held that the words "condition precedent" mean exactly

what they say, and failure to comply with the provision precludes

coverage.    Id. at 1385.

        Notably, this court's decision in MGIC neglected to discuss

a Louisiana Supreme Court opinion disposing of a substantially

similar issue.    The Louisiana Supreme Court has rejected the view

that a non-prejudicial delay in notice breaches a "condition

precedent" on similar facts to those presented here. In Jackson v.

State Farm Mut. Auto. Ins. Co., 211 La. 19, 29 So. 2d 177 (1946),

the court reversed an intermediate appellate court decision which

relieved    an   insurer    of   its   obligations   under   a   "condition

precedent" analysis even though the insurer received notice soon

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enough to defend the claim.         The Louisiana Supreme Court held that

all the facts and circumstances must be considered in "balancing

the equities" in late notice cases, including "what prejudice to

the insurance company's defense has been caused by the delay...."

Id., 29 So.2d at 179.

       In requiring the parties to live by the express terms of the

contract they freely entered, the MGIC court distinguished those

cases which have required a showing of prejudice to balance the

equities where the policy holders were consumers unlikely to be

conversant with all the fine print of their policies.                     MGIC, 838
F.2d at 1387.       This court then reasoned that "strict adherence to

the terms of the notice provision would result too harshly against

unsophisticated       consumers    and    so   have   required      the   insurance

companies,     in    order   to   bar    recovery     under   the   policies,    to

demonstrate that prejudice had resulted from the lack of notice."

Id.    The equitable rationale does not apply so strongly where both

parties are sophisticated businesses, which are expected to be

conversant with the terms of their contracts.                 Id.

       Our factual scenario requires us to distinguish Jackson and

follow the precedent laid down in MGIC.               Unlike the instant case,

the insured in Jackson had reasonable grounds to believe that no

claim would be made until the demand was made upon him.                    Jackson,
29 So. 2d   at    177,   179.    Additionally,       the    insured     was   only

eighty-two days tardy in providing the necessary notice, id. at

177, as opposed to Joslyn's nine month delay.                  And finally, the

court in Jackson was painstakingly trying to protect the average

                                          7
citizen who purchases a public liability policy without becoming

familiar with its detailed provisions, but simply puts it away

against the day when a claim may be made against him.   Id. at 178.

Moreover, the claim in Jackson was brought by an injured third

party against the insurance company.    This court adopted the same

prejudice inquiry for claims brought pursuant to the Louisiana

Direct Action Statute.      See Auster, 891 F.2d at 578 (holding

non-prejudicial delay in notice could not bar recovery by third

party claimant under statute).     Such is not the case before us.

Joslyn is not a third party claimant, but a sophisticated business

entity.   Consequently, these equitable exceptions do not weigh in

their favor.

     In MGIC this court held that the insurer is not compelled to

prove prejudice where timely notice is a condition precedent to

coverage for a sophisticated business entity:

     Much of the debate between [the parties] at both the trial and
     appellate level concerns whether this language negates MGIC's
     obligation to demonstrate prejudice resulting from lack of
     notice. We hold that the language stating that compliance
     with this provision is a condition precedent to recovery under
     the policy means exactly what it says, and that if Central
     failed to comply with this provision by not giving MGIC timely
     notice of the claim made, then the claim will not be covered
     under the policy, regardless of whether MGIC can demonstrate
     prejudice.

MGIC, 838 F.2d at 1386.   It is well established under Louisiana law

that:

     The courts may not make a contract for the parties. Their
     functions and duties consist simply in interpreting and
     enforcing the agreement as actually made. It is self-evident
     that a failure to restrict the rights of an injured person to
     the terms and conditions of the insurance contract would
     expose the insurer to liability far and beyond the scope of
     the contract.

                                  8
     ... To allow recovery in the absence of compliance of these
     provisions of the contract would be unreasonable and
     inequitable, and would establish a dangerous precedent,
     inviting obvious instances of abuse.

Id. (citing Hallman v. Marquette Cas. Co., 149 So. 2d 131, 135-36

(La.Ct.App.1963)).      Under   these      facts,   a    nine   month   delay

constitutes   a   material   breach   of    the   condition     precedent   of

immediate notice.    MGIC instructs us that prejudice need not enter

the calculation.

     Appellant asks us to limit MGIC to the facts of that case,

where the notice came after trial had already concluded causing

obvious prejudice to the insurance company.             However, this court

enunciated its broad holding in MGIC even after recognizing the

opportunity to limit the decision to the narrow facts before it.

"... Hallman is strong support for the proposition that MGIC was

prejudiced as a matter of law when Central failed to notify it of

the suit until after final judgment.          We need not decide the case

before us on that basis, however, since we hold that the express

contractual provision requiring notice as a condition precedent

should be given its full effect."         MGIC, 838 F.2d at 1386 n. 2.      We

are bound by our precedent in MGIC.

     Appellant alleges error committed in the lower court by

holding that the DEQ Compliance Order was not a "suit" which

Liberty was obligated to defend under its policies.                 Further,

appellant claims that by excluding portions of the affidavit of

Joslyn's former Risk Manager and in concluding that Joslyn failed

to meet its burden in proving the terms and conditions of the

missing liability policies covering Joslyn from 1952 to 1962, the

                                      9
district court committed reversible error.    However, we need not

reach these subsequent issues since Joslyn did not fully comply

with the express terms of the conditions precedent in the contract.

                            CONCLUSION

     In this case we find that a claim was made, at the latest,

when Joslyn received the August 2, 1986 DEQ Compliance Order.

Timely notice was then due Liberty.   Thus, when Joslyn waited nine

months to notify Liberty, it violated the condition precedent of

timely notice, and therefore its untimely claim is not within the

policy's coverage.   We will not disregard the express language of

the insurance contract, and ignore the condition precedent notice

requirement to effectively rewrite the contract to expand coverage

for Joslyn. The appellant's motion to certify this question to the

Louisiana Supreme Court is DENIED, and the judgment of the district

court is

     AFFIRMED.

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