Court Opinion

ID: 55780
Source: CourtListenerOpinion
Date Created: 2010-04-26 01:51:22+00
Date Added: 2024-06-11T09:39:29.660292
License: Public Domain

REVISED DECEMBER 5, 2007
                                                                United States Court of Appeals
                                                                         Fifth Circuit

        IN THE UNITED STATES COURT OF APPEALSE D
                                          FIL
                 FOR THE FIFTH CIRCUIT November 14, 2007
                                                              Charles R. Fulbruge III
                                                                      Clerk
                                  No. 03-10705

LIBERTY MUTUAL INSURANCE COMPANY

                                            Plaintiff-Counter-Defendant,
                                            Appellee-Cross-Appellant
v.

MID-CONTINENT INSURANCE COMPANY

                                            Defendant-Counter-Claimant,
                                            Appellant-Cross-Appellee

                Appeals from the United States District Court
                     for the Northern District of Texas

Before GARWOOD, JOLLY, and BARKSDALE, Circuit Judges.
PER CURIAM:
      In this suit between two liability insurers Liberty Mutual Insurance
Company (Liberty Mutual) seeks to recover from Mid-Continent Insurance
Company (Mid-Continent) a portion of the sums Liberty Mutual paid to settle
a third party claim against Kinsel Industries (Kinsel), a covered insured under
each of their respective $1 million comprehensive general liability (CGL) policies.
Each insurer assumed defense of Kinsel, and the case ultimately settled for $1.5
million, but Mid-Continent would pay only $150,000, so Liberty Mutual (which
                                    No. 03-10705

also had a $10 million excess policy covering Kinsel) paid the remaining
$1,350,000 and then brought this suit against Mid-Continent for $600,000,
which it contended Mid-Continent was obligated for as its remaining
proportionate part of the $1.5 million settlement. Following a bench trial, the
district court awarded Liberty Mutual $550,000. Liberty Mut. Ins. Co. v. Mid-
Continent Ins. Co., 266 F. Supp. 2d 533 (N.D. Tex. 2003). Mid-Continent has
appealed that judgment.1 We certified the following questions to the Supreme
Court of Texas, viz:
      1. Two insurers, providing the same insured applicable primary
      insurance liability coverage under policies with $1 million limits and
      standard provisions (one insurer also providing the insured coverage
      under a $10 million excess policy), cooperatively assume defense of
      the suit against their common insured, admitting coverage. The
      insurer also issuing the excess policy procures an offer to settle for
      the reasonable amount of $1.5 million and demands that the other
      insurer contribute its proportionate part of that settlement, but the
      other insurer, unreasonably valuing the case at no more than
      $300,000, contributes only $150,000, although it could contribute as
      much as $700,000 without exceeding its remaining available policy
      limits. As a result, the case settles (without an actual trial) for $1.5
      million funded $1.35 million by the insurer which also issued the
      excess policy and $150,000 by the other insurer.
            In that situation is any actionable duty owed (directly or by
      subrogation to the insured’s rights) to the insurer paying the $1.35
      million by the underpaying insurer to reimburse the former
      respecting its payment of more than its proportionate part of the
      settlement?

             2. If there is potentially such a duty, does it depend on the
      underpaying insurer having been negligent in its ultimate
      evaluation of the case as worth no more than $300,000, or does the
      duty depend on the underpaying insured’s evaluation having been
      sufficiently wrongful to justify an action for breach of the duty of

      1
        Liberty Mutual has cross-appealed only the district court’s failure to award it
prejudgment and postjudgment interest.

                                          2
                                       No. 03-10705

      good faith and fair dealing for denial of a first party claim, or is the
      existence of the duty measured by some other standard?

            3. If there is potentially such a duty, is it limited to a duty
      owed the overpaying insurer respecting the $350,000 it paid on the
      settlement under its excess policy?

Liberty Mut. Ins. Co. v. Mid-Continent Ins. Co., 405 F.3d 296, 310
(5th Cir. 2005).2
      The Texas Supreme Court, by its October 12, 2007 opinion, Mid-Continent
Insurance Company v. Liberty Mutual Insurance Company, ___ S.W.3d ___, 2007
WL 2965401 (No. 05-0261, Oct. 12, 2007), answered “the first question in the
negative” and therefore did “not reach the second and third questions.”
      In light of the opinion of the Texas Supreme Court, the judgment of the
district court is reversed and the case is remanded to the district court with
instructions to enter judgment that Liberty Mutual take nothing by its suit
against Mid-Continent and for any further appropriate proceedings not
inconsistent with our opinions herein and the opinion of the Texas Supreme
Court.
                  REVERSED and REMANDED with instructions.3

      2
          Modified in presently immaterial respects, 407 S.W.3d 683 (5th Cir. 2005).
      3
          Liberty Mutual’s cross-appeal is accordingly dismissed as moot.

                                              3