Lexington Insurance Company v. M.W. Kellogg Constructors, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

05-581

LEXINGTON INSURANCE COMPANY

VERSUS

M. W. KELLOGG CONSTRUCTORS, INC., ET AL.

************

APPEAL FROM THE
FOURTEENTH JUDICIAL DISTRICT COURT,
PARISH OF CALCASIEU, NO. 1996-904,
HONORABLE D. KENT SAVOIE, DISTRICT JUDGE

************

MICHAEL G. SULLIVAN
JUDGE

************

Court composed of Sylvia R. Cooks, Michael G. Sullivan, and James T. Genovese,
Judges.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

Donald A. Hoffman
Mary Ann Wegman
Hoffmann Seydel, LLC
701 Poydras Street, Suite 3770
New Orleans, Louisiana 70139
(504) 587-0900
Counsel for Plaintiff:
Lexington Insurance Company

Kirk A. Bergeron
Attorney at Law
343 E. Woodgate Court
Baton Rouge, Louisiana 70808
(225) 769-0784
Counsel for Plaintiffs/Appellants:
Reliance Insurance Company
Insurance Company of North America

Robert J. Williams
L. Donald Foreman
L. Donald Foreman, L.L.C.
4830 Lake Street
Lake Charles, Louisiana 70605
(337) 562-1116
Counsel for Plaintiffs/Appellants:
Insurance Company of North America
Reliance Insurance Company

John B. Scofield
Robert E. Landry
Phillip DeVilbiss
Scofield, Gerard, Veron, Singletary & Pohorelsky
Post Office Box 3028
Lake Charles, Louisiana 70602
(337) 433-9436
Counsel for Defendants/Appellees:
Westlake Petrochemicals, LP
WPE Corporation

Ronald Restrepo
Stephen H. Lee
Doyle, Restrepo, Harvin & Robbins, L.L.P.
600 Travis Street, Suite 4700
Houston, Texas 77002
(713) 228-5100
Counsel for Defendants/Appellees:
Westlake Petrochemicals, LP
WPE Corporation

Robert E. Barkley, Jr.
Barkley & Thompson
1515 Poydras Street, Suite 2350
New Orleans, Louisiana 70112
(504) 595-3350
Counsel for Defendant:
Westinghouse Electric Company

David R. Frohn
Frohn & Thibodeaux
Post Office Box 2090
Lake Charles, Louisiana 70602-2090
(337) 433-5523
Counsel for Defendant:
Toshiba International Corporation

Christopher M. Trahan
Raggio, Cappel, Chozen & Berniard
Post Office Box 820
Lake Charles, Louisiana 70602
(337) 436-9499
Counsel for Defendant:
Dashiell Corporation

SULLIVAN, Judge.

Reliance Insurance Company in Liquidation (Reliance) appeals the dismissal

of its non-cooperation claim against its insureds, Westlake Petrochemicals, LP and

WPE Corporation (Westlake), on an exception of res judicata. Westlake has also

appealed, seeking reversal of an evidentiary ruling by the trial court. For the

following reasons, we affirm in part, reverse in part, and remand.

Procedural History

On February 24, 1995, an electrical motor failed at Westlake’s ethylene plant

in Calcasieu Parish, Louisiana, causing extensive physical damage and an interruption

of production. This incident resulted in at least three lawsuits, the instant suit filed

in Calcasieu Parish and two suits filed in the State of Texas. A release executed by

Reliance and Westlake in the second of the two Texas suits is the subject of the

present exception of res judicata.

Within one year of the electrical failure, three of Westlake’s

insurers—Reliance, Lexington Insurance Company (Lexington), and Insurance

Company of North America (INA)—made payments to Westlake totaling

$4,500,000.00.1 On February 23, 1996, Lexington filed the present subrogation claim

against several parties alleged to be at fault in the incident.2 On October 21, 1996,

Reliance and INA were added as plaintiffs.

1
Plaintiffs’ initial and first supplemental petitions identify those insurance payments as
follows: Lexington, $2,500,000.00; Reliance, $1,500,000.00; and INA, $500,000.00. Subsequent
supplemental petitions increased those amounts as to Reliance and INA, presumably reflecting
additional payments Westlake received after settlement of the federal litigation in Texas.
2
Those parties whose fault allegedly contributed to the 1995 motor failure were identified as
The M. W. Kellogg Company (Kellogg) and KCI Constructors, Inc. (KCI), the designers and
builders of Westlake’s ethylene plant; Toshiba International Corporation, the manufacturer of the
300 hp motor that failed; Westinghouse Electric Corporation, the manufacturer of the motor’s starter;
Dashiell Corporation, the company that tested the plant’s electrical systems before its start-up; and
Bufete Industrial Disenos y Proyectos, S.A. Kellogg and KCI were dismissed on an unrelated
exception of res judicata, as more fully explained in this opinion.

Meanwhile, nine days before Lexington filed the present subrogation action,

on February 14, 1996, one of the defendants herein, The M. W. Kellogg Company

(Kellogg), filed suit in Texas state court, seeking a declaration that a 1993 agreement

it reached with Westlake settling a dispute regarding the construction of the plant

barred any subrogation claims of Westlake’s insurers against Kellogg arising out of

the 1995 motor failure. Kellogg prevailed in the Texas suit, and that judgment, which

was affirmed at Lexington Insurance Co. v. The W. M. Kellogg Co., 976 S.W.2d 807

(Tex.App.—Houston [1st Dist.] 1998), formed the basis of the dismissal from the

present litigation of Kellogg and another defendant, KCI Constructors, Inc.

Also during the pendency of the present subrogation suit, on May 8, 1998,

Westlake sued Reliance, INA, and other entities associated with INA in federal

district court in Texas, contending that its insurers failed to fully cover its losses

caused by the electrical motor failure. Approximately one year later, on June 11,

1999, the parties reached a settlement in that suit, resulting in an additional payment

to Westlake of $9,850,000.00. That release, more fully described below, is the

subject of Westlake’s present exception of res judicata.

On September 17, 2004, over five years after the settlement in the Texas

federal suit, Reliance added Westlake as a defendant in the present action. Reliance

alleged that Westlake, in bad faith, breached its legal duty to cooperate in Reliance’s

investigation into the cause of Westlake’s loss, as required under its insurance policy

and under the various subrogation agreements executed. Specifically, Reliance

alleged that Westlake failed to comply with Reliance’s requests for documents and

for interviews with key employees, failed to comply with a subpoena and other

discovery matters, provided other defendants in the subrogation claim with

2

documents that it refused to produce to Reliance, and refused to execute documents

acknowledging its receipt of all payments. Reliance sought dissolution of its

insurance policy and a money judgment to include the full sum it paid to Westlake in

connection with the loss, the costs of adjustment and litigation, including attorney and

consultant fees, and legal interest on all payments and expenses.

Westlake responded with an exception of res judicata, arguing that the 1999

settlement agreement in the Texas suit barred Reliance’s present claim.3 In support

of its exception, Westlake introduced correspondence between the parties dating from

1996-1998 showing that most of the conduct that formed the basis of Reliance’s claim

occurred before the 1999 settlement, and in particular, a letter dated June 9, 1998, in

which counsel for Reliance threatened to place Westlake “on notice of default under

. . . the insurance policies in question” unless Westlake fully complied with its duty

to cooperate in Reliance’s investigation of the cause of the insured loss. Westlake

also cited the language of a mutual release in the settlement agreement, which

provided:

The Carriers [Reliance and INA] hereby irrevocably and
unconditionally release, acquit and forever discharge Westlake and all
of its present or former officers, directors, employees, shareholders,
representatives, attorneys, successors and assigns of and from any and
all claims, demands, liabilities and causes of action of every kind and
character, both known and unknown, which the Carriers have or might
have ever had with respect to the events and claims made the basis of
Cause No. H-98-1418 [the docket number of the federal suit in Texas].

(Emphasis added.)

3
Westlake also filed an exception of prescription, which the trial court considered to be moot
after it granted Westlake’s exception of res judicata. Due to the absence of any trial court ruling on
prescription, we decline to address that issue here, finding it should more appropriately be decided
on remand.

3

In opposition, Reliance argued that the 1999 settlement agreement, by its

express terms, covered only those claims asserted in the federal litigation, and neither

the petition nor subsequent pleadings in that case raised the issue of Westlake’s

failure to cooperate. Reliance further argued that its present claim arises out of

Westlake’s conduct in this subrogation suit, which involves different issues and

different evidence than that in the federal litigation. Reliance also contended that

Westlake committed an ongoing breach of its duty to cooperate, which extended

through October of 2004, when Westlake finally produced certain documents that it

either had withheld or had previously denied existed. In particular, Reliance pointed

out that in January of 1996 it had requested “[a]ll documentation of testing of the

electrical switch gear in question.” According to Reliance, however, Westlake did

not produce a crucial electrical coordination study conducted in 1995 until October

of 2004, despite Westlake’s assurances in June of 1998 that all relevant documents

had been produced and that many requested documents did not exist.

After a hearing on December 9, 2004, the trial court granted Westlake’s

exception of res judicata, relying primarily on the correspondence of June 9, 1998 as

evidence that Reliance’s non-cooperation claim arose prior to the 1999 settlement

and, therefore, was governed by that agreement.4 Reliance has appealed, and

Westlake has answered the appeal, contending that the trial court erred in admitting

into evidence certain documents pertaining to mediation proceedings in the Texas

suit.

4
After the trial court’s ruling on this exception, Lexington, who was not a party in the federal
Texas suit and the corresponding release, filed a similar non-cooperation claim against Westlake.

4

Opinion

The 1999 settlement agreement provides that it “shall be construed and

interpreted in accordance with the laws of the State of Texas.” According to

La.Civ.Code art. 3540 (emphasis added), “[a]ll other issues of conventional

obligations are governed by the law expressly chosen or clearly relied upon by the

parties, except to the extent that law contravenes the public policy of the state whose

law would otherwise be applicable under Article 3537.” In the present case, neither

party contends that application of Texas law will contravene the public policy of

another state; indeed, each party vigorously argues that Texas law supports its

position.

In Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex.1991)

(citations omitted) (emphasis added), the Texas Supreme Court stated:

In order to effectively release a claim in Texas, the releasing
instrument must “mention” the claim to be released. Even if the claims
exist when the release is executed, any claims not clearly within the
subject matter of the release are not discharged. Furthermore, general
categorical release clauses are narrowly construed.

In Memorial Medical Center of East Texas v. Keszler, 943 S.W.2d 433, 435

(Tex.1997), the Texas Supreme Court somewhat tempered this language by

recognizing that, while a claim must be “mentioned,” it need not be “specifically

enumerated” to be released. Additionally, the Texas Supreme Court has stated that

the parties are not required to “anticipate and identify each potential cause of action

relating to the release’s subject matter.” Keck, Mahin & Cate v. Nat. Union Fire Ins.

Co. of Pittsburgh, Pa., 20 S.W.3d 692, 698 (Tex.2000) (emphasis added).

Both Reliance and Westlake cite Keszler, 943 S.W.2d 433, in support of their

respective positions. In Keszler, after a physician sued the hospital that revoked his

5

privileges in a “corrective action,” the parties reached a compromise whereby the

hospital paid the physician $225,000.00. After that settlement, the physician sued the

hospital for his alleged exposure to a toxic sterilizing agent during his employment

there. The court then had to decide whether the release in the lawsuit about the

corrective action sufficiently “mentioned” the toxic exposure claim so as to bar that

claim. In settling the corrective action claim, the parties executed two documents

whose terms were not coextensive. A “Settlement Agreement” stated that Dr. Keszler

intended to release any and all claims, demands, and causes of action, whether known

or unknown, “arising out of and in connection with the corrective action” taken by

the hospital. Id. at 434 (emphasis added). A separate document entitled “Release,”

however, not only mentioned any claims arising out of the corrective action, but also

stated that it applied to:

any other matter relating to [Keszler’s] relationship with [Memorial],
including but not limited to his relationship as a member of the staff or
as a physician having clinical privileges, it being the intent of [Keszler]
to release all claims of any kind or character which he might have
against [Memorial] . . . .

Id. (alteration in original). The court first held that the “Settlement Agreement” alone

was not controlling because that interpretation would nullify the “Release.” The

court then concluded that the toxic exposure claim was “mentioned” in the “Release”

because that claim arose out of the doctor’s relationship with the hospital,

notwithstanding that it was not specifically enumerated.

In the present case, the trial court’s reasons indicate that it focused almost

exclusively on correspondence tending to show that Reliance’s non-cooperation claim

arose before the settlement agreement was executed. However, as the above

6

jurisprudence illustrates, the court must also consider whether the claim is part of the

“subject matter” of the release.

In Paragraph 4 of the release at issue here, the parties make a general statement

that the purpose of the agreement is to settle and compromise disputed claims

“against the Carriers [Reliance and INA] as of the date of this instrument.”

(Emphasis added.) Paragraph 2 contains a mutual release in which the Carriers also

release Westlake from any claims that they have or might have ever had “with respect

to the events and claims made the basis of Cause No. H-98-1418.” (Emphasis added.)

It is clear that the release in the present case is not as broad as the one

construed in Keszler. Here, the parties have not chosen to release any and all claims

arising out of their relationship; rather, the release covers only those claims made the

basis of the federal litigation. As Reliance points out, the federal litigation concerned

Westlake’s claim that it had not been compensated to the full extent of its loss under

the terms of its policy, whereas the subrogation suit in state court concerns the cause

of that loss.

In the federal suit, Westlake made two basic claims against Reliance and INA:

that the insurers had not paid the full sum due under their policies for the loss in

question and that they violated certain Texas statutes regulating the payment of

claims under insurance policies. The settlement of that suit resulted in Reliance and

INA paying Westlake an additional $9,850,000.00. We find that any defense

Reliance and INA could have raised to the payment of this additional sum under their

policies—including the non-cooperation of their insured—was part of the “subject

matter” of the release. Thus, the trial court was correct, in part, that Reliance cannot

now seek to rescind that settlement based upon a defense that could have been raised

7

in the federal litigation. Reliance’s claim that it is entitled to dissolution of its policy

and a return of the settlement proceeds paid pursuant to that policy, as well as the fees

and costs incurred in federal court, is presently unfounded, as it was covered by the

prior release.

However, Westlake did have a duty under its policy, as Reliance’s subrogor,

to do nothing that would impair Reliance’s rights as subrogee. See also Fair Grounds

Corp. v. ADT Sec. Sys., 97-2375 (La.App. 4 Cir. 9/23/98), 719 So.2d 1110, writ

denied, 98-3098 (La. 2/5/99), 738 So.2d 6. This obligation concerns Reliance’s

claims against those parties that caused the accident, which claims were not at issue

in the federal suit. Accordingly, we cannot agree that Westlake’s conduct as

Reliance’s subrogor was part of the “subject matter” of the federal release, even if

some of that conduct occurred before the execution of the settlement agreement. (We

note that Reliance has alleged an ongoing breach of Westlake’s duties as a subrogor

that continued at least through 2004). Thus, Reliance may proceed with its non-

cooperation claim, but it may recover, and will have to prove, only those damages,

expenses, and fees directly attributable to Westlake’s impairment of its ability to

collect against those responsible for the loss.

Westlake has answered the appeal, asking that we overrule the trial court’s

admission of certain documents relating to the mediation proceedings in the federal

litigation. However, the trial court’s comments in its reasons for ruling indicate that

it did not consider those documents in its decision, and we find that, while relevant,

they are unnecessary to our ruling on appeal. Accordingly, we decline to address this

issue here.

8

Decree

For the above reasons, the judgment of the trial court is affirmed in part and

reversed in part, and the case is remanded for proceedings consistent with this

opinion. Costs of this appeal are assessed equally to Reliance and Westlake.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

9