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.
