Court of Appeal of Louisiana,

Fifth Circuit.

Danny LATHERS, Jr.

v.

U-HAUL COMPANY OF LOUISIANA and Republic Western Insurance Company.

May 11, 2004.

JAMES L. CANNELLA, Judge.

The Plaintiff, Danny Lathers, Jr., appeals from a summary judgment in favor of the Defendants, U-Haul Co. of Louisiana (U-Haul) and Republic Western Insurance Company (Republic). We affirm.

In late 1999 or early 2000, the Plaintiff contracted with the Oakwood U-Haul Center in Gretna, Louisiana to store his belongings in a self-storage unit on a month to month basis. He had just separated from his girlfriend and moved out of their apartment. He also obtained an insurance policy through Republic, insuring the contents of the unit.

Shortly after the Plaintiff rented the unit, he became delinquent in his payments. Pursuant to the Louisiana Self-Storage Act, La.R.S. 4756 et seq, U-Haul acquired a lien on the movables within the unit and replaced the Plaintiff’s lock with one of its own. The Plaintiff thereafter paid the back rent. The Defendant removed its lock and the Plaintiff put another lock on the door. Several weeks later, the Plaintiff entered his unit to remove some items using his key. He did not notice anything out of the ordinary and he locked the door when he left. The Plaintiff claims that when he returned on April 7, 2000, the door was still locked, but there was a tag on his lock stating that the lock was improperly locked. After using his key to enter the unit, he discovered $14,000 worth of items missing. He informed the manager and reported the incident to the police. The Plaintiff also made a claim with the Defendants for the loss, which was denied.

On March 30, 2001, the Plaintiff sued the Defendants, claiming U-Haul was negligent and liable for the losses. On January 27, 2001, the Defendants filed a Motion for Summary Judgment, denying liability on the basis of the U-Haul contract and an exclusion contained in the Republic policy. The trial judge held a hearing on September 3, 2003. On September 12, 2003, he rendered a judgment granting the motion.

On appeal, the Plaintiff contends that the trial judge erred in granting the motion for summary judgment because there are material issues of fact in dispute and the policy exclusion should not apply under these facts.

The Plaintiff first contends that there are material issues of fact in dispute as to whether U-Haul had knowledge that they have a significant security problem at that location. He produced evidence of thefts and burglaries at that U-Haul location both before and after the theft of his belongings. Second, he contends that the policy provision requiring evidence of forced entry in order for the claim to be covered should not apply, because U-Haul negligently placed a tag on the lock publicizing the fact that the unit was not properly locked.

The relationship between the Plaintiff and U-Haul is governed by the Self- Service Storage Facility Act, La.R.S. 4756, et seq. and is that of lessor and lessee. [FN1] The parties to a self-storage contract can freely modify the terms of the rental agreement through written or oral agreement. See: La.R.S. 9:4760; Brown v. Garic, 508 So.2d 123, 124 (La.App. 4th Cir.1987); Cavet v. Taylor, 559 So.2d 910, 911 (La.App. 4th Cir., 1990). In Brown, the court stated that the purpose of the Act is to allow a storage operator to offer space which is available to the customer without restriction, giving the customer full privacy, the right to store anything, and providing unlimited access to the unit. Brown, 508 So.2d at 124. Based on that purpose, the courts in Cavet and Brown held that a storage facility is not an insurer of the contents of the rental property. Brown, 508 So.2d at 124; Cavet, 559 So.2d at 911. In Cavet,

The plaintiff purchased a lock from the defendant and placed her goods in the rented unit. During one of several checks she made on her goods, plaintiff discovered several pieces of missing furniture. There was no sign of forcible entry. A police report was filed. Plaintiff then purchased another lock from a third party and placed it on the storage unit. Returning to the unit approximately two weeks later, plaintiff once again entered the unit to find more of her furniture missing. Again a police report was filed, and there was no sign of forcible entry. At the suggestion of the police officer, the plaintiff replaced the key operated padlocks with a rotary style combination lock…. There were no further thefts.

Cavet, 559 So.2d at 910. The plaintiff there argued that the lessor of the storage unit was liable because it offered a resident manager and an alarm system. The court disagreed, holding that the storage owner-operator was not liable for the theft of the plaintiff’s property because it was not an insurer of lessee’s personal property. Cavet, 559 So.2d at 911.

In Brown, the issue was whether a contractual provision disclaiming its responsibility for losses or damage and stating that it was not the insurer of the storage space contents was unconscionable and unenforceable. The trial judge found that it was, but the Fourth Circuit reversed on the basis that, under La.R.S. 9:4756 et seq., the relationship of the parties is that of lessor-lessee, the facility is not considered a warehouse, and R.S. 9: 4757(4) authorizes the parties to enter into such agreements to regulate the use of the facility. The court further stated that, “If the operator were, in effect, the insurer of the contents, his liability would be unlimited and such a facility could not be operated economically or made available to the public at a realistic price.” Brown, 508 So.2d 124; See also, Cavet, 559 So.2d at 911.

This case is similar to Brown and Cavet. Here, the Plaintiff admits that he signed a contract with U-Haul. Although neither party was able to produce a copy of the agreement, the Defendants submitted an affidavit by its manager, Marty Martin, which stated that he had personal knowledge of the facts and policies and procedures of U-Haul, that he managed the property at the time of the incident overseeing the daily operations, including leasing the spaces, and that a copy of a contract attached to the affidavit was the same as the one signed by the Plaintiff. He further noted that the Plaintiff would not have been allowed to rent the space without signing the contract. The contract provides:

The property stored in the rental space is not is insured by owner-lessor against loss or damage. The occupant shall bear all risks of loss or damage to any and all personal property stored in the rental space. Any insurance protecting the personal property stored in the rental space against fire, theft or damage shall be provided by occupant.

Courts are bound to give legal effect to written contracts according to the true intent of the parties. La.C.C. art.2045. This intent is to be determined by the words of the contract when they are clear, explicit and lead to no absurd consequences. Abadie v. Markey, 97-684, p. 6 (La.App. 5th Cir., 3/11/98), 710 So.2d 327, 330. Furthermore, a lease forms the law between the parties and is to be enforced by the courts. Pendleton v. Shell Oil Company, 408 So.2d 1341, 1342 (La.1982); D & D Investments v. First Bank and Trust, 02-440, p. 9 (La.App. 5th Cir.10/29/02), 831 So.2d 488, 493.

We agree with the decisions in Brown and Cavet that U-Haul is not an insurer of the contents of the storage space. Therefore, the security risks at the facility are not relevant in this case. Furthermore, the Plaintiff signed a contract in which he agreed that U-Haul was not the insurer of his property and that he would be responsible for any losses. The agreement is not ambiguous and he is bound by its terms. Thus, we find that the trial judge did not err in granting the summary judgment as to U-Haul.

LIABILITY OF REPUBLIC

The Plaintiff obtained an insurance policy covering the contents of the storage unit. In Section 4., “Exclusions,” it states in part:

This policy does not insure:

* *

B. Against loss or damage caused by or resulting from theft but this exclusion does not apply to loss by burglary or holdup. “Burglary” means the act of stealing property by forcible and illegal entry into a securely locked storage space evidenced by visible signs made by tools, explosive, electricity or chemicals of such forcible entry upon the exterior of the storage space. The mere absence of a lock or padlock will not constitute visible signs of forced entry….

The policy clearly and unambiguously excludes theft losses that are not evidenced by “visible signs” of forced entry. In Delta Decks, Inc. v. U.S. Fire Ins. Co., 463 So.2d 653,655 (La.App. 4th Cir., 1985), the court stated that limiting liability to proof of visible evidence of forced entry is not against public policy, and further noted that in the absence of conflict with laws or public policy, insurers have the right to limit their liability and impose whatever conditions they please upon their obligations under the policy. We agree.

Here, the Plaintiff admits that there was no visible signs of forced entry and that he used his key to open the unit on April 7, 2000. He argues that the management of the facility was negligent in placing the tag on his lock, thereby notifying thieves that the unit was not properly locked. Regardless of the conduct of the U-Haul employees in tagging the lock, there was no evidence of forced entry of the unit. Therefore, under the policy, there is no coverage for the alleged theft under these circumstances. Thus, the trial judge did not err in granting the summary judgment in favor of Republic.

Accordingly, the judgment of the trial court is hereby affirmed. Costs of this appeal are to be paid by the Plaintiff.

AFFIRMED.

FN1. Under La.R.S. 4757(1), a self-storage facility is not considered a warehouse subjecting a warehouseman to the duty of care and liability for losses of goods, as set forth in the Louisiana Commercial Law, La.R.S. 10:7-204.

Uniteded States District Court,

E.D. Louisiana.

LIBERTY MUT. INS. CO.

v.

PENSKE TRUCK LEASING CORP., et al

May 19, 2004.

ORDER AND REASONS

BARBIER, J.

Before the Court is the Motion for Summary Judgment and to Dismiss filed by defendants Penske Truck Leasing Company, L.P. (“Penske”) and Zurich American Insurance Company (“Zurich”). Rec. Doc. 24. Plaintiff Liberty Mutual Insurance Company (“Liberty”) opposes the motion. The motion, set for hearing on April 28, 2004, is before the Court on briefs without oral argument. For the reasons which follow, the Court finds that the motion should be granted in part and denied in part.

FACTUAL BACKGROUND

The basic facts of this matter are not in dispute. Dyke Industries (“Dyke”) leased a vehicle from Rollins Leasing Corporation (“Rollins”), a company that later merged into defendant Penske. Under the terms of the lease through which Dyke had leased the vehicle, Dyke had agreed to provide liability insurance, in the amount of $1,000,000 per occurrence, for the vehicle. Rollins had also secured a policy from Zurich with liability limits of $100,000 per occurrence.

The vehicle was involved in a motor vehicle accident on February 15, 2000, while Dyke employee Corey James was driving it. The other vehicle involved in the accident was driven by Kelvin Webster. On October 10, 2000, Webster filed suit in New Orleans’ Civil District Court alleging that he suffered injuries as a result of the February 15, 2000 accident. [FN1] The suit alleged negligence on the part of Rollins, Dyke, and Corey James.

FN1. Kelvin R. Webster v. Corey James, et al, 2000-15484.

On October 26, 2000, Rollins, acting through its national counsel, John Levy, tendered its defense in the Webster suit in writing to Dyke and Liberty, Dyke’s insurer. Five days later, on October 31, 2000, Liberty informed Rollins’ counsel that it accepted the tender. On December 4, 2000, an Answer in the Webster suit was filed on behalf of Rollins, Dyke, and Liberty by the law firm of Borrello & Dubuclet, whose attorneys are employees of Liberty. Rollins merged with Penske on February 26, 2001. [FN2]

FN2. Accordingly, hereinafter, this entity is sometimes referred to as “Rollins/Penske.”

On February 20, 2002, 16 months after accepting the tender of Rollins’ defense, and nearly a year after Rollins’ merger with Penske, Liberty wrote a letter to Rollins asserting that Rollins was not owed coverage. This was the first effort by Liberty to reserve its right to deny coverage for any liability Rollins would ultimately bear in the Webster suit.

On January 27, 2003, Liberty settled the Webster claims against Rollins, Dyke, and Liberty. Liberty did not obtain an assignment of rights from Kelvin Webster, beyond the indemnification and/or “hold harmless” clauses in the settlement release documents; nor was there any determination or stipulation of fault on the part of any defendants in the Webster suit.

Liberty paid $250,000.00 to settle the Webster suit, as well as $26,003.46 in defense costs for both Rollins and Dyke.

ARGUMENTS OF THE PARTIES

In moving for summary judgment, Penske and Zurich argue that by waiting 16 months after unconditionally accepting the tender of Rollins/Penske’s defense to attempt to reserve its right to deny coverage under the policy, Liberty waived any right to a declaratory judgment against Rollins/Penske denying coverage. Defendants also contend that to the extent Liberty’s suit seeks a declaratory judgment that it is owed contribution and indemnification by Zurich, that claim is subject to dismissal for lack of subject matter jurisdiction because the value of any such claim does not meet the threshold amount in controversy requirement of $75,000.

In opposing the motion, Liberty argues that it is entitled to reimbursement from Rollins/Penske because Liberty’s settlement payment was made pursuant to the requirements of the Motor Carrier endorsement (“MCS-90”) contained in Rollins’ business automobile policy issued by Zurich. The MCS-90 endorsement is required of motor carriers by the Motor Carrier Act, which mandates that a motor carrier maintain insurance of $750,000 to pay any final judgment recovered from a motor carrier for personal injuries or death due to the negligent operation, maintenance, or use of a motor vehicle. 49 U.S.C. § § 13906(a)(1), 31139(b)(2); 49 C.F.R. § 1043.1(a) (2004). However, the MCS-90 also provides that an insured shall reimburse the insurer for

any payment made by the [insurance] company on account of any accident, claim or suit involving a breach of the terms of the policy and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in [the MCS-90] endorsement.

Rec. Doc. 42, Exh. B at Pen-0017.

Relying on this language, Liberty submits that it is entitled to reimbursement because absent the MCS-90 endorsement, it was not obligated to pay under the policy in connection with the Webster claim. Liberty also contends that it did not waive its rights because Rollins/Penske impliedly assented to the qualified defense and reservation of rights when it did not object or take any action to defend itself following the issuance of the reservation of rights letter. Finally, Liberty submits that the amount in controversy sought from Zurich does exceed $75,000, but in any event, this Court should exercise supplemental jurisdiction over the claim no matter what its value.

DISCUSSION

1. Motion for Summary Judgment on Waiver

The Louisiana Supreme Court has aptly summarized the law concerning waiver of insurance defenses:

Waiver is generally understood to be the intentional relinquishment of a known right, power, or privilege. Waiver occurs when there is an existing right, a knowledge of its existence and an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished. A waiver may apply to any provision of an insurance contract, even though this may have the effect of bringing within coverage risks originally excluded or not covered.

It is well established that an insurer is charged with knowledge of the contents of its own policy. In addition, notice of facts which would cause a reasonable person to inquire further imposes a duty of investigation upon the insurer, and failure to investigate constitutes a waiver of all powers or privileges which a reasonable search would have uncovered.

Waiver principles are applied stringently to uphold the prohibition against conflicts of interest between the insurer and the insured which could potentially affect legal representation in order to reinforce the role of the lawyer as the loyal advocate of the client’s interest. Accordingly, when an insurer, with knowledge of facts indicating noncoverage under the insurance policy, assumes or continues the insured’s defense without obtaining a nonwaiver agreement to reserve its coverage defense, the insurer waives such policy defense.

Steptore v. Masco Const. Co., Inc., 643 So.2d 1213, 1216-17 (La.1994) (internal citations omitted).

The undisputed facts of this case are that Liberty unconditionally accepted Rollins/Penske’s tender of defense based on its claimed status as an insured, and provided the defense for 16 months before attempting to reserve its rights. It did this with full knowledge that Rollins’ tender of its defense was based on the contract with Dyke, Liberty’s named insured–a fact which might have affected coverage. During the 16-month period, a relationship of confidence developed between Liberty’s attorneys and Rollins/Penske. After the 16 months had run, Liberty directed its attempted reservation of rights to Rollins, an entity which it knew had been merged into Penske nearly a year before. On these facts, the Court finds that Liberty waived its right to deny coverage under the rule set forth in Steptore, because Liberty’s conduct was completely inconsistent with an intent by Liberty to deny coverage. Moreover, following Steptore, it is immaterial that recognizing a waiver in this instance may bring within coverage risks that were originally excluded. Id. at 1216 (citations omitted).

Finally, the foregoing discussion makes plain that the Motor Carrier endorsement issue advanced by Liberty is a red herring. Whether or not the inclusion of the MCS-90 endorsement in the Zurich policy motivated Liberty to make the settlement payment in the Webster case, that does not change the fact that Liberty assumed and continued Rollins/Penske’s defense without obtaining a nonwaiver agreement to reserve its coverage defense. In such a case, Steptore dictates that the insurer has waived its policy defense. It cannot now claim that because it has a valid coverage defense under the policy, it is entitled to reimbursement based on the MCS-90 endorsement. [FN3]Therefore, the Court finds that Liberty waived its right to raise a defense to coverage, and defendants are entitled to summary judgment denying the declaratory judgment of no coverage sought by Liberty.

FN3. As well, it should be noted that it is not established that the Motor Carrier Act is even applicable to this case.

2. Motion to Dismiss for Lack of Subject Matter Jurisdiction

Defendants also argue that this Court lacks subject matter jurisdiction over Liberty’s claim for indemnification against Zurich, because under its policy, Zurich cannot be required to pay more than one-eleventh of the total liability, which defendants calculate to be $25,091.22. In contrast, Liberty argues that Zurich’s exposure is for one half of the $276,000 spent on settlement and defense costs, and alternatively, that the Court has supplemental jurisdiction over the claims no matter what their value.

The Court pretermits the question of the value of the claim against Zurich, because it agrees with plaintiff’s counsel that it has supplemental jurisdiction over the claims. 28 U.S.C. § 1367. To dismiss plaintiff’s claim at this late juncture would be inappropriate. Newport Ltd. v. Sears Roebuck & Co., 941 F.2d 302, 307-08 (5th Cir.1991). Accordingly,

IT IS ORDERED that defendants’ Motion for Summary Judgment and to Dismiss (Rec.Doc. 24) should be and is hereby GRANTED in part and DENIED in part; and plaintiff’s claim for declaratory judgment on the issue of coverage is hereby DISMISSED with prejudice.