Cunard Line Limited Co. v. Datrex Corp.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

09-656

CUNARD LINE LIMITED CO.

VERSUS

DATREX, INC., ET AL

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APPEAL FROM THE
THIRTY-THIRD JUDICIAL DISTRICT COURT
PARISH OF ALLEN, NO. 2002-140
HONORABLE PATRICIA C. COLE, JUDGE

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J. DAVID PAINTER
JUDGE

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Court composed of Elizabeth A. Pickett, J. David Painter, and James T. Genovese,
Judges.

AFFIRMED.

James E. Moore, Jr.
One American Place, Ste. 900
Baton Rouge, LA 70825
Counsel for Third Party Defendants-Appellants:
Twin City Fire Insurance Company and The Hartford

Davis B. Allgood
Christopher D. Martin
8555 United Plaza Blvd., 5th Fl.
Bldg. IV
Baton Rouge, LA 70809
Counsel for Defendant-Third Party Plaintiff-Appellee:
Datrex, Inc.

PAINTER, Judge.

Third-Party Defendants, Twin City Fire Insurance Company and The Hartford

(the insurers), appeal the judgment of the trial court which found that they had a duty

to defend their insured, Datrex, Inc. (Datrex), against a claim by Cunard Line Limited

Co. (Cunard) and assessing defense costs, attorney’s fees and penalties.

FACTS

The underlying facts of the case are not in dispute.

Cunard bought a Low Level Lighting System from Datrex which was received

and installed in 1997. In March 2002, Cunard sued Datrex alleging that the system

did not perform up to Coast Guard standards. Datrex presented the insurers with the

petition and a demand for coverage in April 2002. The insurers denied coverage.

Datrex filed a third party demand against the insurers. In October 2003, the trial court

entered a partial summary judgment finding that the insurers had a duty to defend

Datrex against Cunard’s suit. Cunard’s claims against Datrex were dismissed in

December 2004 on an exception of prescription. A motion for summary judgment

filed by the insurers concerning the defense costs was heard and denied on the same

date. In October 2006, the insurers issued a check to Datrex for $76,019.36, for

defense costs.

In March 2009, the trial court issued a final judgment finding the insurers liable

for the cost of defending the suit, penalties, and attorney’s fees. The insurers appeal.

DISCUSSION

Duty to Defend

The insurers assert several assignments of error with regard to the trial court’s

finding that they owed a duty to defend.

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The law regarding an insurer’s duty to defend is well settled.

The insurer’s duty to defend suits brought against its insured is
determined by the allegations of the plaintiff’s petition, with the insurer
being obligated to furnish a defense unless the petition unambiguously
excludes coverage. Meloy v. Conoco, Inc., 504 So.2d 833, 838
(La.1987); American Home Assurance Co. v. Czarniecki, 255 La. 251,
230 So.2d 253 (1969); Leon Lowe & Sons, Inc. v. Great American
Surplus Lines Ins. Co., 572 So.2d 206 (La.App. 1st Cir.1990); Benoit
v. Fuselier, 195 So.2d 679 (La.App. 3d Cir.1967). Accordingly, the
insurer’s obligation to defend suits against its insured is generally
broader than its obligation to provide coverage for damage claims.
Czarniecki, supra 230 So.2d at 259. Thus, if, assuming all of the
allegations of the petition to be true, there would be both coverage under
the policy and liability of the insured to the plaintiff, the insurer must
defend the insured regardless of the outcome of the suit. Id. An
insured’s duty to defend arises whenever the pleadings against the
insured disclose even a possibility of liability under the policy. Meloy,
supra.

Steptore v. Masco Constr. Co., 93-2064, pp. 8-9 (La. 8/18/94), 643 So.2d 1213, 1218.

The insurers assert that their policy clearly excludes coverage of the claims

made by Cunard. They point to the following policy provisions:

2. Exclusions

This policy does not apply to:

....

j. (6) That particular part of any property that must be restored,
repaired, or replaced because “your work” was incorrectly performed
on it.

....

Paragraph (6) of this exclusion does not apply to “property damage”
included in the “products-completed operations hazard.”

k. Damage to Your Product

“Property damage” to “Your product” arising out of it or
any part of it.

l. Damage to Your Work

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“Property damage” to “your work” arising out of it or any
part of it and included in the “products-completed
operations hazard.”

This exclusion does not apply if the damaged work of the work
out of which the damage arises was performed on your behalf
by a sub-contractor.

m. Loss of Use of Property Not Physically Injured

Loss of use of tangible property which has not been
physically injured or destroyed, resulting from:

(1) A delay in or lack of performance by you or
on your behalf of any contract or agreement;

(2) The failure of “your product” or “your work”
to meet the level of performance, quality,
fitness or durability warranted or represented
by you or on your behalf.

This exclusion does not apply to loss of use of other
tangible property resulting from the sudden and accidental
physical injury to or destruction of:

(1) “Your product,” or

(2) “Your work;”

after such product or work has been put to its intended use.

The trial court, in oral reasons for judgment given in connection with its

October 1, 2003 ruling that the insurers had a duty to defend Datrex, correctly

summarized the provisions of the insurance policy and the allegations of Cunard’s

petition:

Louisiana Courts have recognized that general liability insurance
policies containing work product exclusion clauses do not insure any
obligation of the policy holder to repair or replace his own defective
work or product. In other words, liability policies are not performance
bonds. In this case, we’re dealing with the Commercial Liability Policy,
Section One which entitled Coverages states that we will pay on behalf
of the insured all sums that the insured shall become legally obligated
to pay as damages because of property damage to which this policy
applies. We’ll have the right needed to defend any claim or suit seeking

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those damages. I carefully looked at Section Two which contains the
exclusions. The Court carefully read Exclusion J, damage to properties
specifically Five and Six; Section K which is damage to your product;
Section L which is damage to your work; Section M specifically Two
and where the exclusion does not apply; Section N, withdrawal or recall
of the product, work or property. I also looked at definitions of
occurrence, product completed operations hazard, specifically C and sub
- Section C - Three under C Twenty-three which is property damage and
Twenty-eight which defines your work. It’s undisputed that the
insurance provided commercial liability coverage to Datrex during the
period in which Cunard is claiming injury. The insurance policies cover
property damage. The Court must first decide if there was property
damage to Cunard. Property damage is defined in the policy as physical
injury to tangible property including all resulting loss of use of that
property. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it or loss of use of tangible property that it is
not physically injured. All such loss of use shall be deemed to occur at
the time of the occurrence that caused it. Based upon the definition and
the allegations in the petition, the Court finds that if Cunard meets its
evidentiary burden there would be property damage. The next inquiry by
the Court is whether or not any of the exclusions apply to the property
damage allowed - alleged to have been suffered by Cunard. The Court
agrees with Datrex in that exclusion J Five does not apply. The Court
agrees that real property referred to in the exclusion is land and its
improvements[,] and Cunard is not claiming to claim any damage for
land or buildings as a result of the work or product of Datrex or it’s
subcontractors. Likewise, J Six doesn’t apply because it specifically
excepts liability from products completed operations hazard. Cunard
does allege ongoing damages[,] and even without that exclusion Cunard
is alleging other consequential and incidental damages caused not only
by defective work by also by defective product. And even though you
have interrogatories there they still have not been answered to specify
what those might be. Exclusion M Two, which I think is the meat of the
matter[,] as argued orally today doesn’t apply to the consequential or
incidental damages claimed by Cunard, some of which they say are
ongoing. The product was installed and in use according to Cunard’s
petition when Cunard began experiencing problems in the system.
Accordingly the product or work had been put to it’s intended use. Had
it not they couldn’t have said, oh we’ve got problems with it. After put
to its intended use the failure of the product must also be sudden and
accidental physical injury to or destruction of your product or your work
to avoid the M Two exclusion. In Webster’s II New College Dictionary
the general meaning of the word accident is an unexpected and
undesirable event or something that occurs unexpectedly or
unintentionally. The Court accepts this definition as the prevailing
meaning of the word. So based upon the petition, the Court believes that
the problems on the ships were unexpected and undesirable and did
cause a loss of use of the ships after the product was put to its intended

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use. The word accident is also found in the definition of occurrence. The
Court finds that the property damage caused by the defective work
and/or defective products is an occurrence or accident which triggers
coverage under the terms of the insurance policies. Additionally, Cunard
alleges consequential and incidental damages. If these damages include
physical injury to the ships and the repair and/or replacement of the LLL
systems then the exclusion found in paragraph M Two would not be
applicable to them. The policies also contain the works products
exclusion, that’s in K and L. The policy does not cover defective work
or defective products. However, the policy does include separate
coverage for products, completed operations hazard with aggregate
limits of two million dollars. Aside from this definition in Section 5 of
the policy, there’s little reference to the coverage in the exclusion
section except under paragraphs J Six and L, damage to work. The
exclusion contained in paragraph L excludes property damage to
(inaudible) work if it arises out of your work and is included in the
products completed operations hazard section. However, the clause goes
on to say that the exclusion does not apply to damage work or the work
out of which the damage arises performed on your behalf by a
subcontractor. Based on the affidavits in this case all the work as well
as the manufacture of the products that was performed by subcontractors
for Datrex. Furthermore, if there was damage to the ship itself resulting
from the repair of the defective product or work even though the damage
to the product might be excluded under the work product exclusion the
damage to the ship would not since it is not part of the product. Other
than it’s definition and paragraphs J six and L, there’s no unambiguous
provision addressing what the products operation completed operations
coverage as found in the declarations page encompasses. So the Court
finds that Datrex has met its burden in showing that taken as a whole the
policy does not unambiguously exclude coverage in light of the
allegations contained in the pleadings. So the undisputed facts there
exists reasonable interpretations of the policy under which coverage for
Cunard’s claims may be found so the Motion for Partial Summary
Judgment by Twin City and Hartford is denied. Now turning to the
Motion to defend it’s suit brought against the insured the duty to defend
is determined by the allegations contained in plaintiff’s petition. The
insurer is obligated to provide a defense unless the petition is
unambiguously excluded - excludes coverage. The insurer contractually
agreed to provide a legal defense for liability claims against the insured
within the scope of the policy. In the case at hand the Court finds
coverage. Consequently, insurers have a duty to provide a defense.

After reviewing the petition and the policy, we agree that the policy does not

unambiguously exclude coverage for the damages alleged in the petition.

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Accordingly, we find no error in the trial court’s conclusion that the insurers owed

Datrex a defense.

The insurers further assert that after the original demand by Cunard against

Datrex was dismissed, its motion for summary judgment heard the same day,

December 1, 2004, should have been granted, retroactively relieving them of the duty

to defend. The insurers’ duty to defend had already been established in October

2003. Additionally:

“The only evidence that can be considered in a duty to defend claim is
the petition and the policy.” Richard v. Metro Bingo of Lafayette, Inc.,
05-293, p. 8 (La.App. 3 Cir. 3/29/06), 926 So.2d 83, 88 (citing American
Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969)).

Tabor v. Anco Insulations, Inc., 08-694, p. 5 (La.App. 3 Cir. 12/10/08), 999 So.2d

258, 262, writs denied, 09-82 and 09-145 (La. 4/3/09), 6 So.3d 769, 770. The

insurers seek a result which would relieve them of the duty to defend depending on

the outcome of the case. However, it is well settled that: “the insurer must defend the

insured regardless of the outcome of the suit.” Id. at 262-63. Accordingly, the

insurers’ motion for summary judgment heard December 1, 2004, was properly

denied.

Amount of Defense Costs

The insurer’s dispute the amount of the award of defense costs, asserting that

the bills were unreasonable, duplicative, and that much of the expense could have

been avoided by an earlier assertion of the exception of prescription which ultimately

resulted in dismissal of Cunard’s claim against Datrex. The insurers further argue

that the trial court erred in denying them discovery of matters which could have

shown that the fees were unreasonable/unwarranted.

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The insurers sought to discover matters concerning specific items on the bill,

apparently in an attempt to show that the charges were unreasonable and that Datrex’s

attorneys had the knowledge to terminate the matter on the grounds of prescription

at a much earlier date than was done. Datrex moved for a protective order arguing

that the material sought was work product and/or subject to the attorney-client

privilege. The trial court granted the motion for a protective order. The insurers

argued that, since the matter was terminated when the hearing was held, February 6,

2008, the work-product privilege was no longer a bar to discovery. However, they

have not pursued this argument on appeal.

Further, they fail to cite any jurisprudence or statutory law which would allow

them to discover another party’s work product, and we have found no such authority.

Accordingly, we find no merit in this assignment of error.

As to the amount of the costs of defense, this court has found:

An appellate court cannot overturn or reverse a trial court’s
setting of attorney fees unless the appellate court finds that the trial
court abused the discretion afforded by the RPC, the Louisiana
Constitution, and Louisiana jurisprudence. See RPC 1.5; Leenerts
Farms, Inc., 421 So.2d 216, and Chittenden, 788 So.2d 1140. “The
amount of reasonable attorney fees to be allowed is at the discretion of
the trial court. Teche Bank and Trust Co. v. Willis, 93-732 (La.App. 3
Cir. 2/2/94); 631 So.2d 644.” Albert K. Newlin, Inc. v. Morris,
00-1564, pp. 6-7 (La.App. 3 Cir. 2/28/01), 782 So.2d 1116, 1120, writ
denied, 01-875 (La.5/25/01), 793 So.2d 164.

Gold, Weems, Bruser, Sues & Rundell v. Granger, 06-859, pp. 6-7 (La.App. 3 Cir.

12/29/06), 947 So.2d 835, 841, writ denied, 07-421 (La. 4/27/07), 955 So.2d 687.

With regard to the attorney’s fees, the trial court, after finding that the insurers

had a duty defend, stated:

Since the insurers denied Datrex that defense a conflict was created and
it was necessary for Datrex to employ it’s own independent counsel. The
insurers are liable for attorney fees incurred by Datrex in the defense of

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the suit. However, Datrex is not given carte blanche. The insurers are
only liable for reasonable costs of defense. If there is a conflict as to
what those costs - which costs are reasonable, the Court will make it’s
determination on an issue by issue basis after contradictory hearing.
Billings to the insurers should be itemized as far as possible. So
Datrex[’s] Motion for Summary Judgment is granted and Datrex is
entitled to control its own defense through counsel of its choice and
receive reimbursement from Twin City and Hartford for the reasonable
costs of defending the lawsuit including reasonable attorney fees.

The insurers attempted to have a cap set on the hourly fee charged by the

attorneys defending Datrex. The trial court refused to do so but stated that it would

be willing to hold contradictory hearings to review the bills submitted to consider

whether particular items charged on the bill were excessive. However, the insurers

did not ask for a hearing on the amount of the bills as they were submitted but

continued to ask, via motion for summary judgment, for a cap on the hourly rate.

After reviewing the record herein in its entirety, we find no abuse of discretion

in the trial court’s determination that the amounts charged for defense of the claim

against Datrex were reasonable or in the amount of the defense costs for which the

insurers were cast in judgment.

Interest on Defense Costs

The insurers further assert that the trial court erred in awarding interest from

date of demand on the award of defense costs. The insurers argue that these are

attorney’s fees and, as such, interest must run from date of judgment. However, the

award of defense costs is in the nature of damages. Lestelle v. Asbestos Claims

Mgmt. Corp., 07-1010 (La.App. 4 Cir. 10/22/08), 998 So.2d 149, writ denied, 08-

2775 (La. 1/30/09), 999 So.2d 764; Wainwright v. Moreno’s, Inc., 602 So.2d 734,

(La.App. 3 Cir. 1992). As a result, the trial court correctly awarded interest from date

of demand.

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Penalties and Attorney’s Fees

Finally, the insurers assert that the trial court erred in finding that they

arbitrarily and capriciously failed to pay the costs of Datrex’s defense and in

awarding penalties and attorney’s fees on that basis.

The trial court made the following findings with regard to the insurers’ failure

to pay defense costs after being ordered to do so:

On March 6, 2003, Datrex amended its third party demand to pray for
penalties and attorney’s fees and costs associated with arbitrarily and
capriciously refusing to provide a defense against the Cunard suit. The
insurers’ answer to the amended claim included this statement,
“Respondents do not admit that Datrex is legally entitled to a defense
under the circumstances of this case.” They did state in that answer that
they had timely offered to underwrite Datrex’s defense by counsel of its
own choosing subject to limitations of hourly rate and firm
representations. That was in their answer. On May 2, 2002, as the
correspondence verifies, and Mr. Allgood pointed out, from the insurers
to Datrex’s attorneys, the insurers denied coverage, defense and
indemnification under their policies. On June 26, 2003, the insurers filed
a motion for partial summary judgment wanting to be dismissed with
prejudice on the basis of no coverage. After filing their motion, Mr.
Moore, in correspondence to Mr. Allgood, indicated that he had
recommended to the insurers that they provide an “unconditional
defense pending a determination by the Court of its obligations.”
However, the Court does not find that they did so. On September 9,
2003, Datrex filed a motion for partial summary judgment on the duty
to defend. The Court on October 1, denied the insurers’ motion but
granted Datrex’s motion stating not only did the insurers have a duty to
defend but that Datrex was in control of its defense and could hire
independent counsel because of the inherent conflict of denial of
coverage under the insurance policy yet still having that duty to defend.
At this point, all of the fact finding and law concerning duty to defend
and penalties for failure to do so should have been collected and
researched by Datrex. An invoice of billing was sent to insurers on
November 21, 2003[,] by Datrex, with a demand for unconditional
payment within thirty day under 22:658 of the amounts not in dispute.
No payment of any kind was made. A second amendment to the third
party demand was filed on August 30, 2007[,] again alleging that
insurers were arbitrary and capricious in failing to pay defense costs. A
second formal request for payment of attorney fees with updated
invoices was sent by Datrex to insurers on September 8, 2006. Finally
on October 18, 2006, three years following the Court’s October 1, 2003
ruling, the insurers sent a check to Datrex in the amount of $79,019.36.

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During this three year period the insurers continued to file motions
concerning coverage and hourly fee caps for defense counsel, all of
which were denied. Even after the Court stated that it would not set an
hourly cap on fees, the insurers still questioned reasonableness of the
work performed and duplication of fees by the two firms representing
Datrex. The Court issued a protective order to Datrex of its work
product which may have in someway hamstrung insurers to some extent
in their determination of what portions of the invoice they believed were
not reasonable. However, even with that the Court finds that the tender
of $79,019.36 was both conditional and unreasonable under the
circumstances. And, in fact, on August 27, 2008, the Court awarded
attorney fees to Datrex for the defense costs against Cunard’s claims in
the amount of $219,580.74. The Court finds that the acts of the insurers
were arbitrary and capricious in that they failed to remit payment of
attorney fees without probable cause and therefore fall under the
provisions of 22:658. The Court has taken into consideration that this
statute as well as 22:1220, is punitive in nature and is to be strictly
construed. 22:658 has been found applicable by the courts for failures
of insurers to defend their insured and the Court finds it applicable here.
The insurers initially refused to provide a defense for Datrex and so
stated in their May 2, 2002 letter to Datrex. In July, 2002, insurers
changed their mind and offered a conditional agreement to provide a
defense with a reservation to contest coverage, which they had a right
to do. In September, 2002, Datrex was advised by insurers that they
could hire their own counsel but the insurers would only pay $160.00
per hour for said counsel. In March, 2003, insurers suggested paying an
agreeable amount of attorney fees to Datrex as long as Datrex agreed to
forego any past or future claim for penalties or attorney fees resulting
from bad faith. Even after the Court ruled on duty to defend in October,
2003, no unconditional tenders of payment were made by insurers to
Datrex ever. A conditional payment was made three years after the
ruling; yet it was only a small portion of the amount in the invoices and,
as the Court stated earlier, an unreasonable amount. The protracted
litigation concerning attorney fees for the defense of the main claim by
Cunard against Datrex has gone on way too long in the Court’s opinion
as a result of litigation and re-litigation of the same issues filed by the
insurers with no movement towards payment of the attorney fees by
insurers for over three years from the Court’s ruling on duty to defend,
and over four years from the filing of the lawsuit by Cunard and notice
by Datrex to the insurers.

The insurers do not dispute the trial court’s recitation of their actions, they

argue merely that those actions were reasonable under the circumstances. Further,

they argue that the court never found that they breached their duty to defend.

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However, it is clear from the above cited reasons that the trial court did find that they

had breached their duty to defend and were arbitrary and capricious in so doing.

Whether an action or failure to act is arbitrary and capricious is a question of

fact subject to the manifest error standard of review. See Broussard v. Total Tower

Services, Inc., 08-815 (La.App. 3 Cir. 12/10/08), 999 So.2d 324; Parrish v. Van-Tel

Communications, 07-454 (La.App. 3 Cir. 10/10/07), 967 So.2d 592. After reviewing

the record herein, we cannot say the trial court erred manifestly in finding the insurers

acted arbitrarily and capriciously in failing to pay Datrex’s costs of defending

Cunard’s claims.

Additional Attorney’s Fees on Appeal

It is well established that:

“An increase in attorney’s fees for services rendered on appeal is
usually awarded when the defendant appeals and obtains no relief on
appeal, and when the plaintiff requests it in accordance with proper
appellate procedure.” Riche v. Krestview Mobile Homes, Inc., 375 So.2d
133, 138 (La.App. 3 Cir.1979). (Emphasis added.) “Because attorney
fees were correctly awarded below, to not award increased attorney fees
for the additional work required for this appeal would be inconsistent
with that judgment.” Acadian Serv., Inc. v. Durand, 01-1554, p. 4
(La.App. 3 Cir. 4/3/02), 813 So.2d 1142, 1144.

Vander v. Safeway Ins. Co. of LA., 08-888, p. 11 (La. App. 3 Cir. 2/25/09), 5 So.3d

968, 975.

Accordingly, we will award additional attorney’s fees on appeal in the amount

of $10,000.00.

CONCLUSION

For these reasons, the judgment of the trial court is affirmed. The Third-Party

Defendants-Appellants are ordered to pay Datrex the amount of $10,000.00 in

additional attorney’s fees on appeal. Additionally, Third-party Defendants-

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Appellants, Twin City Fire Insurance Company and The Hartford, are assessed with

the costs of this appeal.

AFFIRMED.

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