State of Louisiana, Military Department and Department of Public Safety, Office of State Police v. EXPLO Systems, Inc., Crum and Forster Specialty Ins. Co., and Seneca Specialty Ins. Co. (consolidated with) Employers Mutual Casualty Company A/S/O The Village of Dixie Inn, Louisiana v. EXPLO Systems, Inc. and Crum & Forster Specialty Insurance Company

Judgment rendered May 18, 2022.
Application for rehearing may be filed
within the delay allowed by Art. 2166,
La. C.C.P.

No. 54,015-CA
No. 54,016-CA
(Consolidated Cases)

COURT OF APPEAL
SECOND CIRCUIT
STATE OF LOUISIANA

*****

No. 54,015-CA No. 54,016-CA

STATE OF LOUISIANA, EMPLOYERS
MILITARY DEPARTMENT MUTUAL
AND DEPARTMENT OF CASUALTY
PUBLIC SAFETY, OFFICE COMPANY A/S/O
OF STATE POLICE THE VILLAGE OF
Plaintiffs-Appellees DIXIE INN, LOUISIANA
Plaintiffs-Appellees

versus versus

EXPLO SYSTEMS, INC., EXPLO SYSTEMS,
CRUM AND FORSTER INC., AND CRUM &
SPECIALTY INSURANCE FORSTER SPECIALTY
COMPANY AND SENECA INSURANCE
SPECIALTY INSURANCE COMPANY
COMPANY Defendants-Appellants
Defendants-Appellants

*****

Appealed from the
Twenty-Sixth Judicial District Court for the
Parish of Webster, Louisiana
Trial Court Nos. 73438 and 73443

Honorable Allen Parker Self, Jr., Judge

*****

WEEMS, SCHIMPF, HAINES, Counsel for Appellants,
SHEMWELL, & MOORE, APLC Crum & Forster

By: Carey T. Schimpf Specialty Insurance
Kenneth P. Haines Company and Seneca
Specialty Insurance
Company

THOMPSON, COE, COUSINS & IRONS, LLP Counsel for Appellants,
By: Christina Anne Culver Crum & Forster
Brian S. Martin Specialty Insurance
Kevin Risley Company and Seneca
Specialty Insurance
Company

PATRICK R. JACKSON, APLC Counsel for 1st Appellees,
By: Patrick R. Jackson State of Louisiana,
Military Department and
Department of Public
Safety, and Office of State
Police

PETTIETTE, ARMAND, DUNKELMAN, Counsel for 2nd Appellees,
WOODLEY, BYRD & CROMWELL, L.L.P. Employers Mutual
By: E. Henry Byrd, IV Casualty Company A/S/O
Joshua Phillip Monteleone The Village of Dixie Inn
Joseph Samuel Woodley

*****

Before MOORE, PITMAN, STONE, HUNTER, and
O’CALLAGHAN (Ad Hoc), JJ.

O’CALLAGHAN, J. (Ad Hoc), concurs in part and dissents in part for the
reasons assigned.

MOORE, C.J., concurs in part and dissents in part for the reasons assigned by
O’Callaghan, J. (Ad Hoc).

STONE, J.

The instant litigation arises out of an explosion at Camp Minden,

which the Louisiana Military Department (“LMD”) leased in part to Explo

Systems (“Explo”). The latter was insured by Crum & Forster Specialty Ins.

Co. (“Crum & Forster”) and Seneca Specialty Ins. Co. (“Seneca”), effective

at the time of the explosion and ensuing investigation and emergency

response. Currently before this court is the appeal of defendant-insurers

Crum & Forster and Seneca (collectively, “the insurers”) from the grant of a

partial motion for summary judgment in favor of the plaintiffs, the Louisiana

State Police (“LSP”) and the LMD, in the 26th Judicial District Court,

Honorable Parker Self presiding. Specifically, the trial court judgment

declared the policy exclusion on which the insurers relied in denying

coverage unenforceable. For the following reasons, we reverse.

FACTS

Prior to the issuance of the insurers’ policies in question, insurance

representatives conducted a site visit at Camp Minden. A report based on

that site visit was generated and provided to the underwriters who,

obviously, approved issuance of the respective policies.

Explo was in the business of, among other things, “demilitarizing” the

military’s excess munitions (explosives). The United States Army’s Joint

Munitions Command (“JMC”) held a public bid auction soliciting private

enterprises to bid on a contract to demilitarize munitions containing M6

propellant charges. In competing for the contract, Explo represented to the

JMC that it had unused capacity to (properly) store 70 million pounds of

explosives; however, it was revealed – after the Camp Minden explosion –

that capacity did not exist. In March of 2010, the JMC awarded that contract

to Explo. In exchange for demilitarizing the explosives, the United States

Government paid Explo millions of dollars. In connection with this

arrangement, the JMC required Explo to contractually agree to abide by all

applicable laws and regulations and to submit documentation of its

dispositions of the explosives, including the quantity disposed and the

identity of the recipient of the explosives (if any).1 The purpose of this

documentation was to enable the JMC to track the movement of the

explosives and Explo’s inventory levels. Explo quickly reached maximum

lawful storage capacity for the demilitarized M6 propellant, but never

informed the JMC. Instead, Explo submitted fraudulent disposition receipts

to hide the storage capacity problem from the JMC.

Explo’s demilitarization operation was subject to strict regulation and

monitoring. This involved several agencies, including the Defense Contract

Management Agency, the LMD, the Louisiana Department of

Environmental Quality, and the federal Environmental Protection Agency.

The regulations included a maximum limit on the total net amount of

explosives Explo was allowed to have in its respective permitted explosives

storage magazines at Camp Minden. The regulations also specified the type

and location of structures Explo was to use to store the explosives

(hereinafter referred to as “storage magazines”) and the minimum distances

between storage magazines. The Louisiana National Guard made periodic

inspections at Camp Minden meant, in part, to assess Explo’s compliance

1
These documents are referred to as “End User Certificates,” often abbreviated as
EUCs.
2

with the applicable laws and regulations, including inventory limits and

compliance with storage protocol.

Explo violated the law and its contract with the JMC by receiving and

holding more M6 propellant at Camp Minden at one time than it could

properly store.2 The JMC paid Explo based on the amount of M6 propellant

Explo demilitarized (i.e., not based on how much was fully disposed). Explo

could demilitarize more explosives than it could properly store or dispose.

Thus, inventory limits—had they been obeyed—would have restricted

Explo’s monetary earnings. As previously mentioned, once the facility

reached its maximum lawful capacity, Explo submitted to the JMC

disposition receipts (called “EUCs”) which, in the aggregate, overstated the

amount of Explo’s outgoing deliveries of demilitarized M6 propellant by

several million pounds. This deception induced the JMC to continue

delivering the explosives despite the excess over the lawful storage capacity.

It also enabled Explo to avoid regulatory enforcement. Additionally, Explo

knew when the inspectors were coming and would hide the excess

explosives off-site in the woods nearby until completion of the inspection.

Also, the doors of the permitted storage magazines were required to bear

placards indicating the contents of the building. Explo would flip the

placards so the blank rear side was showing to create the impression that

there was nothing inside when, in fact, the magazines were at or beyond

maximum capacity. Explo also obstructed the inspections by piling up

objects so as to block the inspector’s access to certain areas in a seemingly

innocuous manner.

2
Several Explo officials pled guilty to conspiracy to defraud the United States and to
making false statements to federal officers in relation to the demilitarization contract and
operation.
3

As alluded to above, Explo actually sent some demilitarized M6

propellant to various third parties, including Boren Mining Co. In February

of 2012, approximately eight months prior to the Camp Minden explosion,

Boren returned multiple truckloads of M6 propellant, which Explo left

stored in the 18-wheeler trailers in which they arrived up to (and beyond) the

October 15, 2012 explosion.

The October 15, 2012 explosion was actually two separate explosions,

one being the contents of magazine 2464 (i.e., over 124,000 pounds of

smokeless powder) and the other being the contents of the nearby 18-

wheeler trailer. It is unclear which detonated first, but surveillance video

showed that the latter explosion was bigger than the first. Also, it is clear

that the first detonation caused the second detonation because of its

proximity.

There is a contradiction in the summary judgment evidence regarding

whether the 18-wheeler trailer that exploded contained smokeless powder or

M6 propellant. On one hand, a report generated by the LSP investigator who

responded to the explosion on the following day indicated: (1) the trailer

contained smokeless powder, and it spontaneously detonated first due to

“decomposition”; and (2) the initial detonation caused the smokeless powder

in magazine 2464 to also detonate.

On the other hand, testimony of Brett Spiers, a federal agent who was

involved in the investigation, indicated that it was actually M6 propellant

(returned from Boren Mining Co. in February 2012) in the 18-wheeler trailer

that detonated. He admitted he is not an explosives expert, but still believes

that magazine 2464 exploded first and the 18-wheeler trailer exploded

because it was too close to the magazine. Spiers also testified that the
4

smokeless powder in magazine 2464 was stored properly. Lionel Koons, the

Explo official in charge of storage and movement of explosives at Explo’s

Camp Minden site, testified at his federal sentencing hearing that he knew

the M6 propellant that exploded in the trailer was stored improperly.

The ensuing investigation also discovered that Explo had a total of 18

million pounds of explosives at Camp Minden after the explosion, including

over 15.6 million pounds of demilitarized M6 propellant. Explo stored the

excess explosives (i.e., above lawful storage capacity) in improper

containers, such as cardboard boxes and bags lying on the ground outdoors,

and left explosives sitting in 18-wheeler trailers for several months at a time.

It also loaded the excess into buildings not licensed for storing explosives.

Nearby residential areas were evacuated upon this discovery, and the

governor declared a state of emergency. The LSP sent a team to Camp

Minden to secure the improperly stored explosives, move them from unsafe

storage to safe storage, and, ultimately dispose of them. This process took

years.

Several Explo officials (managers, executives, owners, and

employees) pled guilty to crimes in connection with Explo’s operations and

with its fraudulent inducement of the JMC to grant the demilitarization

contract and to continue delivering explosives after Explo inventory had

reached maximum proper storage capacity. Three Explo officials, including

inventory and traffic control manager Lionel Koons,3 pled guilty to

“Careless …[storage]… of explosives” in violation of La. R.S. 40:1472.18,

which, in relevant part, states:

3
Lionel Koons directed the storage and movement of the explosives at Explo’s
Camp Minden site.
5

No person shall store…explosives …as defined by R.S.
40:1472.2, in a careless or imprudent manner without
regard for the hazards or circumstances in which the
explosives…are being stored

In turn, La. R.S.40:1472.2, in relevant part, provides:

“Explosives” means any chemical compound, mixture, or
device, the primary or common purpose of which is to
function by explosion. The term includes but is not limited
to dynamite and other high explosives and black powder in
quantities in excess of five pounds

Several Explo officials pled guilty to federal crimes as well,

including: (1) conspiracy to defraud the United States, the object of which

was to receive money from the government to which Explo was not entitled;

and (2) the making of false statements to the government regarding Explo’s

operations and storage capacity. The federal guilty pleas included

stipulations to detailed factual predicates.

PROCEDURAL HISTORY

The LMD and the LSP filed suit against Explo and its insurers. The

LSP seeks to recover the costs of their investigation triggered by the

explosion and for the response to the emergency created by Explo’s vast

improper storage of the explosives that did not accidentally detonate. The

LMD seeks damages stemming from the explosion on its property, as well as

for the pollution caused by the explosion and by the illegal possession and

storage of explosives that did not detonate.

Relying on exclusions in their respective policies for damage caused

by the insured’s criminal, fraudulent, or dishonest conduct, the insurers

denied coverage of the plaintiffs’ claims. In response, the plaintiffs added

claims for bad faith against the insurers pursuant to La. R.S. 22:1973.

6

At this point, we explain the circumstances underpinning the trial

court’s issuance of a discovery sanction against the insurers. In the course of

this litigation, the plaintiffs allegedly made discovery requests which

required the defendants to disclose the pre-issuance site visit report;

however, the record does not contain an order compelling discovery prior to

the imposition of the discovery sanction.

The first discovery-related motion contained in the record is a motion

to establish spoliation and sanctions, which was filed on behalf of the

plaintiffs on September 29, 2017. Shortly thereafter, the defendants tendered

the site visit report, thus mooting the motion for spoliation and sanctions.

Nonetheless, in January 2018, the trial court issued the discovery sanction

declaring that the jury would be instructed that the “defendants had

constructive knowledge of the operations of Explo based upon a site visit,

which occurred six months before the policy of insurance was issued by

defendants to Explo.” The trial court made that finding of constructive

knowledge sua sponte, purportedly using the procedural vehicle of a

discovery sanction under La. C.C.P. art. 1471.

The parties filed cross motions for summary judgment. In ruling

thereon, the trial court deemed it conclusively established that the defendant

insurers had constructive knowledge of Explo’s criminal, fraudulent, and/or

dishonest conduct in conducting its operations prior to issuing the policies.

The trial court granted summary judgment in favor of the plaintiffs on the

issue of enforceability of the exclusions, reasoning that the exclusions were

unenforceable because the insurers constructively knew about the criminal,

fraudulent, or dishonest conduct months before the issuance of the policies.

The trial court denied the insurers’ MSJ sub silentio and excluded the
7

affidavit of the insurers’ proffered expert regarding the claims handling

process as it relates to the bad faith claim.

The insurers appealed, in substance asserting three assignments of

error: (1) the trial court erred in holding that the insurers’ prior knowledge of

the insured’s criminal conduct rendered the criminal, fraudulent, or

dishonest conduct exclusions unenforceable; (2) the trial court erred in using

a sua sponte discovery sanction to make the determination, for purposes of

summary judgment, that the insurers knew of the insured’s criminal conduct;

and (3) the trial court erred in excluding the affidavit of the claims handling

expert that the insurers proffered regarding the bad faith claim.

Relevant provisions – Crum & Forster policy

Crum & Forster issued policy number EPK – 100814 to Explo for the

period from September 12, 2012, through September 12, 2013. It contained

three coverage parts: (1) Commercial General Liability Occurrence

Coverage; (2) Third Party Pollution Liability Coverage; and (3) Onsite

Cleanup Pollution Liability Coverage. Additionally, a Designated

Operations Coverage Endorsement attached to the policy provided that

coverages under all three parts of the policy apply only to “bodily injury” or

“property damage” arising out of: (1) thermal treatment and disassembly of

ammunition; and (2) recycling and separation of remaining scrap. The policy

also excluded coverage for any claim based upon or “arising out of any

criminal, fraudulent, or dishonest act, omission or offense committed by

[Explo].”

Relevant provisions – Seneca policy

Seneca issued Commercial Property Policy Number SSP 22 011 76

to Explo for the period from January 22, 2012, through January 22, 2013.
8

The Building and Personal Property Coverage Form in the Seneca policy

provided that the insurer “will pay for direct physical loss of or damage to

Covered Property at the premises described in the Declarations caused by

or resulting from any Covered Cause of Loss.” “Covered property,” under

the policy, included buildings, business personal property of the insured,

and personal property of others in the care, custody, or control of the

insured for which a limit of insurance is shown in the Declaration section.

The policy also contained an exclusion barring coverage for any loss

or damage caused by or resulting from “[d]ishonest or criminal act by you,

any of your partners, members, officers, managers, employees (including

leased employees), directors, trustees, authorized representatives or anyone to

whom you entrust the property for any purpose: (1) Acting alone or in

collusion with others; or (2) Whether or not occurring during the hours of

employment.”

DISCUSSION

Sua sponte discovery sanction

The defendants assert that the trial court erred in imposing a discovery

sanction that the jury would be instructed that the insurers had knowledge of

Explo’s operations prior to issuing the policies and in deeming that fact

conclusively established for purposes of summary judgment.

The trial court cited La. C.C.P. art. 1471 as authorizing it to impose

the foregoing sanctions. In relevant part, that article states:

A. If a party or an officer, director, or managing agent of
a party or a person designated under Article 1442 or
1448 to testify on behalf of a party fails to obey an
order to provide or permit discovery, including an
order made under Article 1464 or 1469, the court in
which the action is pending may make such orders
in regard to the failure as are just. (Emphasis added).
9

The record does not contain any “order to provide or permit

discovery” prior to the issuance of the discovery sanction. Likewise, it does

not contain any discovery request or motion to compel discovery prior to

issuance of the sanction. Based on the record, the trial court’s imposition of

the discovery sanction is wholly invalid under La. C.C.P. art. 1471(A)

because of the absence of any disobedience of an order compelling

discovery on the part of the insurers. In light of the clear and explicit

language of La. C.C.P. art. 1471, the trial court was completely without

authority to issue the discovery sanction.

For this reason alone, the trial court’s granting of the plaintiffs’ MSJ

must be reversed. This erroneous and abusive discovery sanction, whereby

the trial court deemed the insurers to know of illegal conduct on the part of

the insured, was the basis for the trial court’s ruling that the insurers

“waived” enforcement of the illegal conduct exclusions.

Waiver of exclusion

The insurers further argue that even if it is assumed arguendo that the

discovery sanction was proper, the doctrine of waiver (i.e., the intentional

relinquishment of a known right), nevertheless, would be inapplicable to the

illegal conduct exclusion. More specifically, they in effect argue that their

issuance of the policies with knowledge of excluded conduct legally could

not have constituted a “manifestation of an actual intention to relinquish the

right [to enforce the exclusion],” or “conduct so inconsistent with the intent

to enforce the [exclusion] as to induce a reasonable belief that it has been

relinquished.”4 For the reasons already discussed, we decline to decide

4
Quotations from Steptore v. Masco Const. Co., 93-2064 (La. 8/18/94), 643 So.
2d 1213.
10

whether the trial court, in rejecting that argument, was correct. This issue is

pretermitted.

Exclusion of affidavit of purported expert

We also pretermit the issue of whether the trial court erred in

excluding the affidavit of the insurers’ expert on the claims handling

process.

CONCLUSION

Based on the foregoing, the trial court’s summary judgment in favor

of the plaintiffs is REVERSED. The total cost of this appeal is $59,329.80.

One-half or $29,619.90 is taxed to the Louisiana State Police and the

remaining one-half or $29,619.90 is taxed to the Louisiana Military

Department.

11

O’CALLAGHAN, J. (Ad Hoc), concurs in part and dissents in part.

I respectfully concur in the portion of the majority’s opinion that

reverses the summary judgment in favor of the plaintiffs, the Military

Department and the Office of State Police. The trial court’s ruling on the

motion for sanctions, when placed in the proper perspective, simply does not

constitute positive summary judgment evidence that would show that the

defendants, Crum & Forster and Seneca, waived their illegal acts exclusions,

beyond a genuine issue of material fact. The trial court erred in granting

summary judgment.

I respectfully dissent from that portion of the majority opinion finding

that the original discovery sanction was improper. The sanction was

imposed for the defendants’ failure to turn the site report over to the

plaintiffs in a timely fashion. The majority opinion reasons that a breach of

court-ordered discovery is necessary before sanctions can be imposed. The

majority opinion incorrectly states that there was no discovery request prior

to the filing of the motion for sanctions and that there is no discovery request

in the record. The discovery requests were included as attachments to the

motion for sanctions. While there was no discovery order by the trial court,

that court acted within its discretion in imposing the original sanction for the

untimely production of the site report. In Cambrie Celeste LLC v. Starboard

Mgmt., LLC, 2016-1318 (La. App. 4 Cir. 11/6/17), 231 So. 3d 79, writ

denied, 17-2041 (La. 2/2/18), 235 So. 3d 1110, the fourth circuit reasoned:

La. C.C.P. art. 1471 sanctions are triggered when a party
refuses or fails to comply with a discovery order. Even in the
absence of such an order, La. C.C.P. art. 191 “authorizes trial
courts to impose sanctions for [failing to adhere to discovery
rules] since [such failure] clearly interferes with the court’s
ability to fairly administer justice.” Carter v. Hi Nabor Super
Mkt., LLC, 13-0529, p. 7-8 (La. App. 1 Cir. 12/30/14), 168 So.
1

3d 698, 704. Thus, “[a] trial court has the authority to impose
sanctions on a party for [. . .] discovery misconduct under both
its inherent power to manage its own affairs and the discovery
articles provided in the Louisiana Code of Civil Procedure.”
Id., 13-0529, p. 7, 168 So. 3d at 703. [Emphasis supplied.]

I therefore believe that the original sanction was authorized.

However, in my assessment, the trial court later incorrectly expanded the

sanction into a finding of fact that the defendants had knowledge of the

illegal and improper storage of explosives at the Explo site. This was

factually inaccurate and was not appropriate in the context of a motion for

summary judgment. The trial court erred in using the improper and

inaccurate finding of fact as the basis for granting partial summary judgment

in favor of the plaintiffs.

The result of reversing the summary judgment is that the matter goes

back to the district court for further proceedings. For this reason, I must also

respectfully dissent from the majority’s decision to pretermit the issue of the

expert witness, Robert I. Siegel. On further proceedings, such as a trial on

the merits, the parties should not have to relitigate this issue. I would

address this.

The defendants designated Siegel to opine on (1) the reasonableness

of their claims handling and their positions with respect to the damages

sought in the lawsuits, (2) the reasonableness of the plaintiffs’ respective

coverage positions under the policies at issue, and (3) the opinions set forth

in the written report he provided. The defendants argued that, based on two

decades of practical experience prosecuting and defending bad faith claims,

Siegel had “specialized knowledge” of the reasonableness of an insurer’s

claim-handling conduct which would help the jurors understand the evidence

pertaining to their handling of the instant claims. In their motion to exclude
2

his testimony, the plaintiffs argued that Siegel’s opinions were inadmissible

legal opinions on ultimate issues of insurance coverage and handling of

insurance claims, and he was not qualified to give expert testimony on

claims handling.

In its opinion/order of October 2, 2019, the court characterized the

defendants’ assertion that Siegel would not offer any legal opinions based on

coverage as “somewhat dubious.” The court found that the second page of

Siegel’s report expressed, in essence, legal opinions. As to the Daubert

standards, the court voiced reservations as to Siegel’s qualifications and

methodology.5 His qualifications were “specifically limited to the legal

expertise of insurance claims, not the handling or adjusting of claims that

would be appropriate for an experienced claims adjuster.” Also, no

specified methodology was offered. The court concluded that, despite his

insurance litigation experience, Siegel was not qualified as an attorney to

offer the proposed opinions.

The trial court is afforded great discretion regarding the decision to

allow expert testimony, and that decision will not be overturned on appeal

absent an abuse of that discretion. Blair v. Coney, 19-00795 (La. 4/3/20), __

So. 3d __, reh. denied (7/9/20), 298 So. 3d 168; Miller v. Rayville Mfg.,

53,573 (La. App. 2 Cir. 11/18/20), 307 So. 3d 1138; Parish of Jefferson v.

Housing Auth. of Jefferson Par., 17-272 (La. App. 5 Cir. 12/13/17), 234 So.

3d 207. Where an attorney is proffered to the trial court as an expert in a

particular area of law, various Louisiana Courts of Appeal have embraced

the rule that experts may not provide opinions regarding domestic (i.e.,

5
Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed.
2d 469 (1993).
3

Louisiana) law. Boone v. Boone, 39,544 (La. App. 2 Cir. 4/6/05), 899 So. 2d

823; Parish of Jefferson v. Housing Auth. of Jefferson Par., supra; Normand

v. Cox Commc’ns La., 14-563 (La. App. 5 Cir. 12/23/14), 167 So. 3d 156,

writ denied, 15-0158 (La. 4/10/15), 163 So. 3d 815; Crockerham v. La. Med.

Mut. Ins. Co., 17-1590 (La. App. 1 Cir. 6/21/18), 255 So. 3d 604. The

rationale for this rule is that the judge, being trained in the law, is the

ultimate arbiter of what the law is; to consider other legal opinions as to an

interpretation of the law would be, if not in actuality, at least in perception,

an abrogation of the judge’s responsibility. Parish of Jefferson v. Housing

Auth. of Jefferson, supra.

Based on my review of this extensive record, I would find no abuse of

the trial court’s discretion in excluding Siegel as an expert witness, and

affirm that portion of the judgment. I therefore concur in part and dissent in

part.

4