Benton Specialties, Inc.,et Al. v. Cajun Well Service, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

09-506

BENTON SPECIALTIES, INC., ET AL.

VERSUS

CAJUN WELL SERVICE, INC., ET AL.

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

APPEAL FROM THE
SIXTEENTH JUDICIAL DISTRICT COURT
PARISH OF ST. MARTIN, NO. 68,530
HONORABLE LORI A. LANDRY, DISTRICT JUDGE

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

DAVID E. CHATELAIN*
JUDGE

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Court composed of Sylvia R. Cooks, Oswald A. Decuir, Jimmie C. Peters, Shannon
J. Gremillion, and David E. Chatelain, Judges.

Gremillion, J., dissents and assigns written reasons.

REVERSED IN PART, AFFIRMED IN PART, AND RENDERED.

Stan Gauthier, II
Nichole Laborde Romero
Attorneys at Law
1405 West Pinhook Road, Suite 105
Lafayette, Louisiana 70503
(337) 234-0099
Counsel for Defendant/Appellant:
Cajun Well Service, Inc.

*
Honorable David E. Chatelain participated in this decision by appointment of the Louisiana
Supreme Court as Judge Pro Tempore.

Susan Nations
Juneau Law firm
Post Office Drawer 51268
Lafayette, Louisiana 70505
(337) 269-0052
Counsel for Plaintiffs/Appellees:
Lexington Insurance Company
Benton Specialties, Inc.

Jonathan C. Augustine
The Augustine Firm, APLC
8322 One Calais Avenue
Baton Rouge, Louisiana 70809
(225) 715-7112
Counsel for Defendant/Appellee:
Petrosurance Casualty Company

CHATELAIN, Judge Pro Tempore.

This concursus proceeding involves the disbursement of funds recovered by

a workers’ compensation insurer via intervention in the third-party tort litigation of

its insured’s employee. The insured employer appeals the trial court’s award of the

concursus funds to the insurer and denial of its request for sanctions and award of

attorney fees against insurer’s counsel. For the following reasons, the judgment of

the trial court is reversed in part, affirmed in part, and rendered.

Facts and Procedural Background

In 1995, Cajun Well Service, Inc. (Cajun) contracted with Petrosurance

Casualty Company (Petrosurance) for workers’ compensation coverage. The term of

the policy issued by Petrosurance was November 25, 1995, through November 25,

1998, but with one year renewals. The policy included a retrospective premium

endorsement which provided for a one-year retrospective rating plan. A retrospective

rating plan provides for the calculation of the insured’s premium after the conclusion

of the policy period. One factor included in the final premium calculation is claims

paid by the insurer. If no claims are made, the insured’s premium is less than it would

have been for a standard policy.

On January 24, 1996, Cajun’s employee, Warren Malveaux, sustained a work

injury. Mr. Malveaux filed a third-party tort action to recover damages for his injury,

and Petrosurance intervened in the action to recover workers’ compensation benefits

it had paid with regard to Mr. Malveaux’s injury. In January 2004, Mr. Malveaux and

Petrosurance agreed to settle their claims against the tortfeasor and its insurer.

Petrosurance had paid $118,0001 in medical and indemnity benefits to Mr. Malveaux;

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For ease of reading and calculations, dollar amounts referenced in our discussion have been
rounded up or down to the nearest dollar, as this methodology was utilized by Petrosurance in its

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it accepted $59,000 (the funds) in settlement of its claim. Cajun claimed it was

entitled to the funds, and the tortfeasor and its insurer instituted a concursus

proceeding, naming Cajun and Petrosurance as defendants and depositing the funds

into the registry of the court.

In 2005, Petrosurance filed a motion for summary judgment, seeking a

judgment awarding it the funds. The basis of its claim was a subrogation clause

contained in the policy. The trial court granted judgment as requested, and Cajun

appealed. This court reversed the trial court’s judgment, holding:

This is a case of first impression for this court. There are no cases
that address the issue of retrospective premiums[,] and no clear language
in the contract that addresses whether the insurance company is entitled
to receive more in reimbursement than actually paid out of pocket.
Cajun argues that Petrosurance was acting merely as an administrator in
the payment of some of the benefits. This is a material issue of fact
which precludes summary judgment. We reverse the judgment of the
trial court and remand this matter for trial on the merits so that a clear
determination may be made of the nature of the payments by Cajun to
Petrosurance and so that a determination may be made as to whether
Cajun is entitled to any reimbursement.

Benton Specialties, Inc. v. Cajun Well Serv., Inc., 05-842, pp. 3-4 (La.App. 3 Cir.

2/1/06), 922 So.2d 687, 689.

On remand, Cajun hired an expert witness to provide the trial court with

information as to the policy and Cajun’s claim to the funds. Petrosurance sought to

exclude the expert’s testimony or, alternatively, to limit his testimony, arguing that

the analysis the expert presented in his report included a legal analysis of the policy,

which is within the purview of the court. The trial court denied Petrosurance’s

request to exclude Cajun’s expert’s testimony but limited the expert’s testimony.

premium calculations without objection by Cajun.

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After summary judgment was granted but before Cajun filed its suspensive

appeal, the clerk of court disbursed the funds to counsel for Petrosurance. On receipt

of the funds, counsel forwarded them to his client. Prior to trial, counsel for Cajun

learned that Petrosurance had received the funds and issued a writ of sequestration

to have the funds redeposited into the registry of the court. He then filed a motion for

sanctions against counsel for Petrosurance, Petrosurance, an attorney who had

assisted counsel by appearing at a deposition for him, and a law firm with which

counsel became associated after the funds had been disbursed. Cajun also requested

attorney fees for having to file a motion for sanctions to have the funds returned to

the clerk of court.

In response to Cajun’s rule for sanctions, Petrosurance filed a motion to

dismiss, a motion to strike, peremptory exceptions of no cause of action and

non-joinder of a party, and a dilatory exception of unauthorized use of a summary

proceeding. It also filed a rule to show cause why sanctions should not be levied

against Cajun’s counsel.

Trial on the merits and these ancillary matters was held February 25, 2008.

The trial court concluded that the subrogation provision of the policy entitled

Petrosurance to the funds and awarded judgment in its favor. In a separate judgment,

the trial court granted Petrosurance’s motion to dismiss Cajun’s request for sanctions

and attorney fees but ordered counsel for Petrosurance to pay all costs associated with

the writ of sequestration and Cajun’s motions. Cajun’s requests for relief and the

remainder of Petrosurance’s requests for relief were denied.

Cajun appealed both judgments. Petrosurance filed a motion to dismiss

Cajun’s appeal of the trial court’s judgment denying its rule for sanctions on the bases

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that it was an interlocutory judgment and that Cajun had not made a showing of

irreparable harm. Another panel of this court determined that because a final,

appealable judgment had been rendered on the merits, it was appropriate for the

interlocutory judgment to be subject to appellate review with the judgment on the

merits. Benton Specialties, Inc. v. Cajun Well Serv., Inc., 09-506 (La.App. 3 Cir.

6/10/09), 13 So.3d 257. Accordingly, we address all of Cajun’s assignments of error.

Cajun assigns error with the trial court’s limitation of its expert’s testimony,

award of judgment in favor of Petrosurance, and denial of its request for sanctions

and attorney fees.

Discussion

Cajun’s first two assignments of error pertain to Petrosurance’s policy and raise

an issue of interpretation; therefore, we begin our discussion with a review of the law

regarding contract interpretation. An insurance contract is a conventional obligation

that constitutes the law between the insured and insurer. Peterson v. Schimek,

98-1712 (La. 3/2/99), 729 So.2d 1024. Certain principles of construction guide the

interpretation of contracts, and insurance contracts are interpreted in the same manner

as other contracts. Id. Contracts must be read and construed as a whole. Id. “When

the words of an insurance contract are clear and explicit and lead to no absurd

consequences,” the policy must be enforced “as written,” and courts “may make no

further interpretation in search of the parties’ intent.” Id. at 1028.

When a contract can be construed from the four corners of the document,

contract interpretation is a question of law. Sims v. Mulhearn Funeral Home, Inc.,

07-54 (La. 5/22/07), 956 So.2d 583. Appellate review of a question of law is limited

to determining whether the trial court’s determination is legally correct or incorrect.

4

CLK Co., L.L.C. v. CXY Energy, Inc., 07-834 (La.App. 3 Cir. 12/19/07), 972 So.2d

1280, writs denied, 08-140, 08-207 (La. 3/14/08), 977 So.2d 932, 937.

The trial court’s determinations that Petrosurance is entitled to the funds and

that Cajun’s expert’s testimony should be limited are based on the following

provision of the policy:

Recovery from Others

We have your rights, and the rights of persons entitled to the
benefits of this insurance, to recover our payments from anyone liable
for the injury. You will do everything necessary to protect those rights
for us and to help us enforce them.

The trial court concluded that the subrogation provision was clear and explicit

and that Petrosurance had the right to enforce it as written. We agree. However, the

trial court considered this provision in isolation and to the exclusion of other policy

provisions and the evidence. For these reasons, we address Cajun’s assignments of

error in light of the entire policy and the evidence.

Entitlement to the Funds

Cajun asserts that it is entitled to receive all the funds because the amounts it

paid to Petrosurance were used to pay Mr. Malveaux’s claims. Petrosurance relies

on the policy’s subrogation provision quoted above to defend the trial court’s award

of the funds to it.

Cajun contends that Petrosurance acted as a third-party administrator because

Petrosurance used Cajun’s money to pay Mr. Malveaux’s claims and asserts that it is

subrogated to the funds. Its argument is based on Insurance Co. of North America

v. Binnings Construction Co., Inc., 288 So.2d 359 (La.App. 4 Cir. 1974),

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La.Civ.Code art. 1826,2 its expert’s testimony, and the $77,000 it paid to Petrosurance

for indemnity benefits and medical expenses Petrosurance paid on Mr. Malveaux’s

claims.

Binnings did not hold that under a retrospective rating plan, the insurer is a

third party administrator. Rather, the court in Binnings observed that because

“insureds must . . . pay the insurer as increased premium for [payments] the insurer

has made; . . . it may be said that, within those premium limits, the insurer [pays]

claims not with its own money but with insureds’ money.” Id. at 360-61 (emphasis

added). Additionally, subrogation may be legal or conventional. La.Civ.Code art.

1825. Here, it is conventional and governed by Petrosurance’s policy, which is the

law between the parties. Consequently, we must determine if any provision other

than the subrogation provision affects who recovers the funds.

Petrosurance’s defense of the trial court’s judgment is based on the policy’s

subrogation provision and its calculation of a “final” premium before the funds were

recovered. Kristine Williams, Petrosurance’s representative, testified regarding the

policy and the parties’ claims to the funds. She testified that Petrosurance audited

Cajun’s payroll in January 1997 and that she used the audit to make a “final”

premium calculation in 2000. According to the “final” premium calculation, Cajun

2
Louisiana Civil Code Article 1826 provides:

A. When subrogation results from a person’s performance of the obligation
of another, that obligation subsists in favor of the person who performed it who may
avail himself of the action and security of the original obligee against the obligor, but
is extinguished for the original obligee.

B. An original obligee who has been paid only in part may exercise his right
for the balance of the debt in preference to the new obligee. This right shall not be
waived or altered if the original obligation arose from injuries sustained or loss
occasioned by the original obligee as a result of the negligence or intentional conduct
of the original obligor.

6

was due a refund because the premiums it paid exceeded the “final” premium she had

calculated. Ms. Williams testified that the refund due Cajun had been mailed to it.

During direct examination, Ms. Williams relied on the following policy provision for

her claim that the 2000 premium calculation was “final”:

After a calculation of retrospective premium, you and we may agree that
it is the final calculation. No other calculation will be made unless there
is clerical error in the final calculation.

Ms. Williams admitted on cross-examination, however, that she did not see a

document in Cajun’s file which indicated the 2000 accounting was “final,” and,

although she testified immediately thereafter that the overpayment refund order was

labeled “final,” she admitted she had not seen that documentation during the trial.

Ms. Williams also testified that, “there comes a point in time when the policy (not

audible) froze out” and that because the funds were recovered years after her “final”

calculation, they were not included therein. Counsel for Cajun continued pressing

Ms. Williams about accounting for the funds in the premium calculation, and she

admitted that if the funds had been recovered before the “final” accounting had been

done “it would have been an issue.”

Cajun’s expert, Dr. William L. Ferguson, did not dispute any of Ms. Williams’

testimony regarding the policy provisions, the premiums, or her calculations. He did

testify, however, that he had not found evidence establishing Petrosurance had paid

the premium refund due Cajun. He further testified that the policy had no set time to

close, that it would not be closed until the parties agreed, and that he never saw a

document evidencing that the policy was closed. Dr. Ferguson also testified that

when a recovery is made under a retrospective premium policy it benefits the insured

first and the insurer cannot keep any of the recovery until the insured is made whole.

7

Ms. Peggy Thibodeaux, Cajun’s bookkeeper, also testified at trial; however,

her testimony could not be transcribed due to a problem with the recording equipment

in the courtroom. The trial court summarized her testimony and stated in its Reasons

for Judgment that Ms. Thibodeaux testified she did not recall receiving the premium

refund and that she did not testify about the terms of the policy. The trial court’s

summary of Ms. Thibodeaux’s testimony is not disputed by the parties, and we accept

it as being accurate.

Ms. Williams admitted that recovery of the funds would have affected the

calculation of Cajun’s premium but claimed it came too late because there had been

a final calculation of the premium as provided in the policy. The policy provides in

pertinent part:

We will calculate the retrospective premium using all loss information
we have as of a date six months after the rating plan period ends and
annually thereafter. . . .

....

After a calculation of retrospective premium, you and we may agree that
it is the final calculation. No other calculation will be made unless there
is clerical error in the final calculation.

These provisions provide for a premium calculation six months after the policy

ended and annually thereafter, unless the parties agree otherwise. The only audit

performed after the policy ended was in January 1997, approximately six weeks after

the policy plan ended in November 1996. Ms. Williams testified that she performed

the “final” calculation required by the policy in 2000, which resulted in Cajun being

due a refund. However, she acknowledged that no document in evidence contains a

calculation labeled “final.” Further, she did not testify that Cajun agreed her 2000

premium calculation was “final” or that Petrosurance had proof Cajun received the

8

refund it was owed. Ms. Thibodeaux testified, contrary to Ms. Williams, that she did

not recall receiving a refund from Petrosurance, and there is no evidence of such a

refund in the record or that Cajun agreed the 2000 premium calculation was final.

Ms. Williams also claimed that the premium calculation she performed in 2000

was the final calculation because the funds were recovered many years after the

policy terminated and the policy “froze out” before that time, indicating the premium

calculation was finalized by the passage of time. No provision in the policy provides

for this.

For these reasons, we find that the trial court’s judgment awarding the funds

to Petrosurance was legally incorrect and reverse it. Accordingly, we must now

determine who is entitled to the funds.

Pursuant to the policy, the amount of Cajun’s premium depends on five

elements: 1) standard premium; 2) basic premium; 3) incurred losses; 4) converted

losses; and 5) taxes. Pertinent to the resolution of the issue presented herein is

incurred losses which is defined as: “all amounts we pay or estimate we will pay for

losses, interest on judgements, expenses to recover against third parties, and

employers liability loss adjustment expenses.” Ms. Williams and Dr. Ferguson both

testified that recovery of incurred losses through subrogation reduces the amount of

incurred losses included in the premium calculation.

Petrosurance did not prove that a final reconciliation had been done and

accepted by Cajun; therefore, we will calculate Cajun’s final premium to account for

the funds. Ms. Williams testified how the final calculation of Cajun’s premium

would be performed to account for the funds. According to the policy and

Ms. Williams’ testimony the formula for calculating Cajun’s premium is:

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Basic premium (payroll x basic premium factor (.30))

+ Converted losses (incurred losses x loss conversion factor (1.108))

x Tax factor (1.067)

Using this formula, we calculate Cajun’s final premium as follows:

$ 56,579 ($188,5963 x .30)

+ 82,939 ($133,855 - 59,000 = (incurred losses) x 1.108)
$139,518

x 1.067

$148,866

Cajun paid premiums totaling $190,295, which exceeds the premium it owes

by $41,429, and it is entitled to this portion of the funds. Petrosurance is entitled to

$17,571, the difference between $59,000 and $41,429.

Expert Witness Testimony

Cajun asks this court to reverse the trial court’s determination that its expert

witness could not give his opinion as to how the policy should be interpreted, i.e.,

who is entitled to the funds. It proffered a copy of Dr. Ferguson’s report to facilitate

our review of this issue.

The trial court is allowed much discretion in determining whether to allow a

witness to testify as an expert under La.Code Evid. art. 702, and its judgment will

remain undisturbed unless that discretion was abused. Cheairs v. State ex rel Dep’t

of Transp. & Dev., 03-680 (La. 12/2/03), 861 So.2d 536. The trial court did not err

3
Ms. Williams calculated the premium as 30% of Cajun’s payroll. The policy provides that
the basic premium is 30% of the standard premium. Review of the January 1997 audit reveals that
the payroll and standard premium are the same, as the original standard premium of $168,407 was
revised to $188,596, as a result of the audit.

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in holding that it is the court’s province to interpret a contract, and we find no error

with the trial court’s ruling in this regard.

Pursuant to the trial court’s ruling, Dr. Ferguson testified regarding industry

standards, practices, and customs and that any subrogation recovery goes to the

benefit of the insured, but he was not allowed to testify how recovery of the funds

affected the calculation of Cajun’s premium. We have reviewed Dr. Ferguson’s

report. The information and opinions contained therein are comparable to the

testimony of Petrosurance’s representative. Dr. Ferguson opined that Cajun’s

premium was reduced by recovery of the funds and outlined the process for

calculating the premium. His premium calculation followed the process explained

by Ms. Williams, i.e., it included incurred expenses as defined by the policy and a

credit to Cajun in the amount of the funds. Therefore, we find that the trial court

erred in refusing to allow Dr. Ferguson to testify regarding the effect the funds had

on Cajun’s premium.

We note, however, that Dr. Ferguson used $133,359 for incurred losses in his

calculation, but Ms. Williams testified that the incurred losses were $133,855.

According to Dr. Ferguson’s report, the $133,359 figure included in his calculation

was obtained from two documents attached to Petrosurance’s memorandum in

support of its motion for summary judgment. We have reviewed the documents

attached to Petrosurance’s memorandum; they appear to be the same documents

Petrosurance introduced at trial. The documents include an itemization of payments

made for Mr. Malveaux’s claim and copies of cancelled checks representing those

payments. The documents support Ms. Williams’ testimony that incurred losses were

$133,855. Accordingly, we used that figure in our calculation above.

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Sanctions

Cajun urges that the trial court erred in denying its request that sanctions be

imposed against counsel for Petrosurance and that he be ordered to pay attorney fees

Cajun incurred to have the funds redeposited with the clerk of court. The trial court

explained in its Reasons for Judgment that it determined sanctions were not

appropriate because it found counsel for Petrosurance had “no intention to defraud

this Court or opposing party” and attributed his actions to “overzealousness, as

opposed to an intentional defrauding of the Court or opposing counsel.” However,

the trial court did order counsel for Petrosurance “to pay the cost of filing and hearing

of the Rule for Sanctions, as it was based on his error.” Cajun’s request for attorney

fees was refused because, as the trial court aptly observed, while Cajun’s counsel was

within his right to file the motion for sanctions, he did not take “the least costly

course of action” of requesting a return of the funds before filing a motion.

A trial court’s decision to grant or deny sanctions or attorney fees against an

attorney will not be reversed unless it is manifestly erroneous. Miller v. Miller,

35,358 (La.App. 2 Cir. 12/5/01), 803 So.2d 292. We have reviewed the record and

find the trial court’s denial of Cajun’s request for sanctions and attorney fees was not

manifestly erroneous.

Conclusion

The judgment of the trial court assigning the $59,000 deposited in the registry

of the court plus interest to Petrosurance Casualty Company is reversed. The $59,000

deposited in the registry of the court is to be disbursed as follows: $41,429 plus

interest to Cajun Well Service, Inc. and $17,571 plus interest to Petrosurance

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Casualty Company. The other judgments of the trial court are affirmed. Costs are

assessed to Petrosurance Casualty Company.

REVERSED IN PART, AFFIRMED IN PART, AND RENDERED.

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COURT OF APPEAL

THIRD CIRCUIT

STATE OF LOUISIANA

09-506 Benton Specialties, Inc., et al. v. Cajun Well Service, Inc., et al.

GREMILLION, Judge, dissenting.

This concursus proceeding involves the dispute between an insurer and its

insured over entitlement to the money derived from a settlement negotiated by the

insurer with a third party tortfeasor of the intervention filed by the insurer in its

insured’s employee’s suit against the tortfeasor. The insured contested the insurer’s

subrogation and the tortfeasor deposited the proceeds into the registry of the court

and invoked the concursus.

Cajun’s policy was a retrospective premium policy, in which the insurer agreed

to charge a discounted premium, but reserved the right to charge additional premiums

during the policy term if claims were made. For instance, Cajun would have paid

premiums of $168,307 under a traditional policy, but only paid $113,158 under the

retrospective premium scheme. However, after Malveaux’s claim, Petrosurance

charged Cajun an additional $77,137 in retrospective premiums.

The majority concludes that the insured is entitled to $41,429 and the insurer

is entitled to $17,571. It achieves this result by recalculating the retrospective

premium. The recalculating of the premium is unwarranted, and does great violence

to the policy language.

The policy language here is clear and unambiguous. The premium the insured

owed was to be calculated using the loss information available as of six months after

the rating plan period ends and annually thereafter. The recovery of this settlement

in Malveaux’s case—which I again emphasize was achieved solely through the

efforts of the insurer—occurred well after the rating plan period and should not have

been used at all in calculating the premium.

The majority bypasses this provision by concluding that there was no “freeze

out” period in the policy and by pointing out as evidence that the premium calculation

was never “final” the fact that the insurer looked back over the plan and may have

given a refund to the insured four years after the fact. This is a classic example of no

good deed going unpunished. This, in my opinion, does not reopen the premium

calculation because no new information was used by the insurer in determining that

it owed a refund to the insured, whereas the recovery of the settlement by the insurer

clearly constitutes new information not available as of six months after the rate plan

period. The policy did indeed contain a “freeze out” provision: the premium was to

be based on the information available as of six months after the rating plan period.

The insurer prosecuted the intervention to recover the lien and settled the lien

at its expense by virtue of the subrogation provision. While recognizing the existence

of the subrogation provision, the opinion effectively writes it out of the policy.

I would also point out that during the period for which Cajun was charged the

retroactive premium, Petrosurance was exposed to the prospect of additional claims.

Although it was fortunate for all that no additional claims arose, the fact remains that

Petrosurance was forced to factor the potential for additional claims into its business

decisions. Had additional claims arisen, Petrosurance would have covered them; and

under its contract, no additional premiums could have been charged, as the policy

capped the retrospective premium at the amount Cajun was charged as a result of

Malveaux’s claim. Petrosurance would have been forced to honor this arrangement,

and Cajun would have had no reason to complain. Yet, under the one hypothetical

such an arrangement could have inured to the benefit of Petrosurance, the majority

does not require Cajun to honor its commitment. Cajun was not forced to purchase

a retrospective premium policy. It negotiated the terms of the policy with the

anticipation that it would result in substantial savings. This was a calculated business

decision. Its miscalculation should not result in a decision that completely abrogates

the language of the policy.

I respectfully dissent.