Baltazar Ortiz v. Meadwestvaco Corporation

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

18-869

BALTAZAR ORTIZ

VERSUS

MEADWESTVACO CORPORATION, ET AL.

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APPEAL FROM THE
THIRTY-SIXTH JUDICIAL DISTRICT COURT
PARISH OF BEAUREGARD, NO. C-2009-0278
HONORABLE C. KERRY ANDERSON, DISTRICT JUDGE

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ULYSSES GENE THIBODEAUX
CHIEF JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, John D. Saunders, and
Phyllis M. Keaty, Judges.

AFFIRMED.

Charles J. Foret
Jason R. Garrot
Briney Foret Corry, LLP
P. O. Drawer 51367
Lafayette, LA 70505-1367
Telephone: (337) 237-4070
COUNSEL FOR:
Defendant/Appellee - JV Industrial Companies, Ltd

David Ramsey Lestage
Lestage & Andrews, LLC
113 North Washington
DeRidder, LA 70634
Telephone: (337) 460-7987
COUNSEL FOR:
Defendants/Appellees - National Union Fire Ins. Company of Pittsburgh,
PA and AIG Specialty Insurance Company

Robert Irwin Siegel
Gieger, LaBorde & Laperouse
701 Poydras Street – Suite 4800
New Orleans, LA 70139-4800
Telephone: (504) 561-0400
COUNSEL FOR:
Defendant/Appellee - AIG Specialty Insurance Company

Glen E. Mercer
Kourtney Twenhafel
Sally, Hite, Mercer & Resor, LLC
365 Canal Street – Suite 1710
New Orleans, LA 70125
Telephone: (504) 566-8800
COUNSEL FOR:
Defendant/Appellee - Steadfast Insurance Company

Alistair M. Ward
Gieger, LaBorde & Laperouse
701 Poydras Street – Suite 4800
New Orleans, LA 70139-4800
Telephone: (504) 561-0400
COUNSEL FOR:
Defendants/Appellees - Chartis Specialty Insurance Company and AIG
Specialty Insurance Company

Noel Edward Warren
Jackson & Campbell
1120 20th Street, N.W.
Washington, DC 20036
Telephone: (202) 457-1600
COUNSEL FOR:
Defendant/Appellee - National Union Fire Ins. Company of Pittsburgh,
PA

David M. Bienvenu, Jr.
John Allain Viator
Lexi T. Holinga
Melissa Jade Shaffer
Bienvenu, Bonnecaze, Foco, Viator & Holinga, APLC
4210 Bluebonnet Boulevard
Baton Rouge, LA 70809
Telephone: (225) 388-5600
COUNSEL FOR:
Defendant/Appellant – MeadWestvaco Corporation

Richard W. Bryan
Noel E. Warren
Jackson & Campbell
1120 20th St, NW, #300 South
Washington, DC 20036-3437
Telephone: (202) 457-1600
COUNSEL FOR:
Defendant/Appellee - National Union Fire Ins. Companyof Pittsburgh,
PA

Alton C. Todd
312 Friendswood Drive
Friendswood, TX 77546
Telephone: (281) 992-8633
COUNSEL FOR:
Plaintiff/Appellee - Baltazar Ortiz

THIBODEAUX, Chief Judge.

Employees of JV Industrial Companies, Ltd. (JVI) filed suit against

MeadWestvaco Corporation (MWV) for personal injuries arising from their alleged

exposure to a high concentration of H2S gas and other dangerous chemicals while

working in a MWV refinery.1 After settling these personal injury claims, MWV

filed third-party demands against JVI and its insurers, Steadfast Insurance Company

(Steadfast) and AIG Specialty Insurance Company (ASIC), 2 seeking contractual

indemnity and insurance coverage for the claims asserted against and settled by

MWV. The parties then filed several motions for summary judgment.

The trial court granted summary judgment in favor of JVI, Steadfast,

and ASIC, finding no contractual indemnity or insurance coverage, and dismissed

MWV’s claims against JVI and its insurers. In a supplemental judgment, the trial

court granted MWV’s motion for a new trial, but nevertheless still found MWV was

not entitled to indemnity or to coverage under either insurance policy on various

grounds and again dismissed, with prejudice, MWV’s claims against JVI and its

insurers.

Under our de novo review of the record, we find JVI, Steadfast, and

ASIC are entitled to judgment as a matter of law on the issues of contractual

1
The eight plaintiffs are Baltazar Ortiz, Shelton Doyle, Daniel Hendry, Shanna Navarre,
James Scott, Brian Snyder, Stephen Snyder, and William Iles. These plaintiffs also named as
defendants: (1) SW&B Construction Company, LLC and/or KBR Holdings, LLC and/or KBR,
Inc., “the general contractor that installed the device on the stack that would lose its vacuum
causing the emission of noxious H2S [sic] fumes”; and (2) Total Safety U.S., Inc., the company
“contracted to monitor the chemical emissions coming from the stack[.]” Only five of these
plaintiffs were Louisiana residents.
2
ASIC was formerly known as Chartis Specialty Insurance Company, which was formerly
known as American International Specialty Lines Insurance Company. For simplicity, we will
refer to the company as ASIC throughout this opinion.

indemnity and insurance coverage. Accordingly, we affirm the judgment of the trial

court.

I.

ISSUES

MWV raises the following issues for this court’s review:

(1) Is summary judgment erroneous because the
District Court committed legal error in narrowly
interpreting and applying MWV’s indemnification
inconsistent with the clear intent of the parties and
without any adjudication of MWV’s fault for the
indemnified and insured JVIC employee claims?

(2) Is summary judgment erroneous because the
District Court found MWV’s settlement with the
JVIC plaintiffs was for MWV’s own fault and
barred coverage under the provision in the Steadfast
policy that excludes coverage for injury resulting
“solely from negligence of the additional insured”?

(3) Is summary judgment legally erroneous because the
District Court ignored disputed facts on whether the
insured claim constitutes “pollution” and by
applying Texas insurance law, as opposed to
Louisiana law, to the pollution exclusion contained
in the Steadfast policy[?]

(4) Is summary judgment erroneous because the
District Court’s interpretation of “Insured” in the
ASIC policy is contrary to law and ignores an
ambiguity in the definition of “Insured” that is
required to be construed against ASIC?

(5) Is summary judgment erroneous because Steadfast
and ASIC waived their “conditional” defenses
under Louisiana insurance law by denying MWV’s
status as an insured and by not submitting any
evidence showing the required prejudice to enforce

2

coverage defenses based on notice, consent to settle
and other conditions precedent?

II.

FACTS AND PROCEDURAL HISTORY

MWV operates a tall oil refinery and chemical manufacturing facility

in DeRidder, Louisiana, where pine tree oil is fractionated into fatty acids and rosins,

which are used as feedstocks for specialty chemicals. As part of a multi-million

dollar Refinery Expansion Project, JVI was selected to perform weld overlay work

in some of the refinery columns. In August 2007, MWV and JVI entered into a

Construction Agreement (agreement) for the welding work to be performed by JVI

at the refinery. From January 1, 2008 to January 1, 2009, JVI was insured by

Steadfast pursuant to a Commercial General Liability Coverage policy bearing

Policy Number BOG 9299883-07, and by ASIC pursuant to a Contractor’s Pollution

Liability Policy bearing Policy Number CPO 9984907. Under both policies, JVI

was the Named Insured.

On March 13, 2009, Baltazar Ortiz, a JVI employee, filed suit against

MWV, among other defendants, alleging that on or about April 27, 2008, Mr. Ortiz

was exposed to a high concentration of H2S gas and other dangerous chemicals

during the course of JVI’s work at the refinery. Seven other JVI employees, Shelton

Doyle, Daniel Hendry, Shanna Navarre, James Scott, Brian Snyder, Stephen Snyder,

and William Iles, filed similar suits against MWV and its insurers, likewise alleging

exposure to a high concentration of H2S gas and other noxious and dangerous

chemicals during the course of JVI’s work at the refinery, on or about April 27, 2008,

June 11, 2008, or June 22, 2008. These plaintiffs did not bring claims against JVI

3

or any of its insurers as JVI enjoys workers’ compensation immunity. By July 6,

2012, MWV had settled all of the claims brought by the eight JVI employees.

On September 26, 2012, MWV then filed a third-party demand against

JVI and Steadfast, seeking reimbursement and indemnity for the amounts MWV

incurred in defending and settling the lawsuits, pursuant to Section 23 of the

agreement, which provided, with emphasis added by this court:

To the fullest extent permitted by law, the
Contractor shall indemnify, reimburse and hold
harmless the Owner and Owner’s agents, officers,
directors and employees from and against all claims,
damages, suits, liabilities, costs, charges, demands, losses
and other expenses (including, but not limited to,
attorney’s fees) attributable to bodily injury, sickness,
disease or death or to injury to or destruction of tangible
property, including the loss of use resulting therefrom,
arising out of or resulting in whole or in part from: (a)
Contractor’s performance of or failure to perform
Contractor’s obligations under the Contract; (b) the
inaccuracy of any representation or warranty of
Contractor contained in the Contract; or (c) any
negligent act or omission of the Contractor, any
Contractor’s subcontractor or their respective employees,
agents or other representatives or anyone else directly or
indirectly employed by any of them or otherwise acting
under any of their supervision or control, regardless of
whether or not it is caused in part by a party indemnified
hereunder. This obligation is in addition to any other right
or obligation of indemnity to which the parties
indemnified hereby may be entitled. In the event a loss
or claim arises out of or is caused by the joint or
concurrent negligence of both Company/Owner and
Contractor, each party shall be responsible for its
proportionate share of liability as determined by a court
of competent jurisdiction. Notwithstanding any other
term to the contrary herein, neither party shall have
liability to the other nor to their parents, partners,
subsidiaries, divisions and affiliates for any indirect or
consequential damages including but not limited to down
time, loss of capital, loss of product, loss of profit, or loss
of use and such disclaimer shall be effective whether such
claim is brought in contract, warranty, or tort, including
negligence and strict liability or otherwise, except in the

4

event and to the extent such damage is caused by the
willful misconduct or gross negligence of a party.

In the event and to the extent that a claim is made
by an employee of Contractor against an indemnitee
hereunder, the intent of this Section 23 regarding
Contractor’s negligent act or omission is that Contractor
shall, and it hereby agrees to, indemnify Owner, and
Owner’s agents, officers, directors and employees to the
same extent as if the claim were made by a non-employee
of Contractor. Accordingly, in addition to the above
provisions, and in order to render the parties’ intent and
this indemnity agreement fully enforceable, Contractor, in
any indemnification claim hereunder, hereby expressly
and without reservation waives any defense and immunity
it may have under any applicable Workers’ Compensation
Laws or any other statute or judicial decision, disallowing
or limiting such indemnification and consents to a cause
of action for indemnity.

Then on November 26, 2013, MWV filed a third-party demand against

ASIC, likewise seeking to recover, as an insured party, expenses MWV incurred

defending the suits. In response, the third-party defendants denied that MWV was

entitled to indemnity under the agreement for its own voluntarily-assumed liability.

The insurers further raised defenses to coverage under the terms and exclusions of

their policies. 3 JVI also filed cross-claims against its insurers, asserting, in the

alternative, that it was entitled to insurance coverage for any liability it may owe to

MWV.

The parties filed multiple motions for summary judgment on various

issues associated with the insurance policies and the agreement.4 On July 9, 2014,

3
After filing its third-party demands, MWV sent “proof of loss” letters to Steadfast and
ASIC and then amended its petition, seeking penalties and attorney’s fees pursuant to La.R.S.
22:1973 and/or La.R.S. 22:1892 for Steadfast’s and ASIC’s alleged bad faith in failing to respond
to MWV’s “satisfactory proof of loss,” which MWV alleged complied with all the requirements
for notice due “under the terms of the insurance polic[ies] at issue.”
4
Steadfast sought summary judgment and dismissal of both MWV’s and JVI’s claims on
several grounds, including the following: (1) pollution exclusion; (2) lack of bad faith; (3) insured
contract provisions; (4) notice and consent to settle provisions; and (5) pre-tender costs, number

5

the trial court heard the pending motions and issued its judgment on November 19,

2014, granting the third-party defendants’ motions for summary judgment on the

issues of indemnification and whether the agreement was an “insured contract”

under the insurance policies. In its written reasons, the trial court concluded that JVI

did not owe MWV indemnity or reimbursement under the agreement. The trial court

further found that the agreement was not an “insured contract” as that term was

defined in the insurance policies because JVI did not contractually assume MWV’s

tort liability. All claims of MWV against JVI and its insurers were dismissed, with

prejudice.

On December 1, 2014, MWV filed a motion for new trial, arguing that

dismissal of all its claims was erroneous because the judgment adjudicated claims

that were either not decided by the trial court or were not before the court on pending

motions for summary judgment. Finding its November 19, 2014 judgment was

overly broad in dismissing all of MWV’s claims with prejudice, the trial court

amended its ruling with a supplemental judgment, signed on March 29, 2018, in

which the court granted: (1) MWV’s motions for new trial and for partial summary

judgment regarding its status as an additional insured under the Steadfast policy; (2)

Steadfast’s motions for summary judgment on its policy’s (a) pollution exclusion

and (b) notice and consent to settle provisions; and (3) ASIC’s motion for summary

judgment regarding MWV’s breach of conditions precedent to coverage. The trial

of occurrences, and limits of available insurance. ASIC sought summary judgment and dismissal
of both MWV’s and JVI’s claims on several grounds, including the following: (1) exclusion of
coverage for injuries sustained by employee of named insured; (2) contractual liability exclusion;
(3) lack of bad faith; and (4) breach of conditions precedent. MWV sought partial summary
judgment (1) on the ground that the insurers waived all conditional defenses by denying coverage,
and (2) as to its status as an “additional insured’ under the Steadfast policy. JVI sought summary
judgment on the ground that it owed no indemnity obligation to MWV for MWV’s own liability,
but in the alternative, JVI also filed cross-motions for summary judgment against Steadfast and
ASIC on the issues of coverage.

6

court also denied MWV’s motion for partial summary judgment regarding the

insurers’ waiver of all conditional defenses, declared all other pending motions

moot, and again dismissed, with prejudice, MWV’s claims against JVI, Steadfast,

and ASIC.

In its reasons for judgment, the trial court found that the indemnity

section was still unenforceable as JVI did not assume MWV’s tort liability pursuant

to the language of the agreement and MWV was seeking coverage and indemnity

for its own fault. Though JVI did breach the agreement by not adding MWV as a

“Named Insured” under its Steadfast policy, the trial court reasoned that MWV

suffered no harm because the Steadfast policy, issued and contracted in Texas

pursuant to its insurance law, had a pollution exclusion enforceable under Texas law,

which was applicable given that (1) Louisiana’s interest evaporated after the five

Louisiana plaintiffs were dismissed in the underlying suit, and (2) Texas’s interest

in regulating its insurance industry outweighed Louisiana’s interest.

Regardless, the trial court found MWV did not comply with the

Steadfast policy’s notice provisions, which entitled Steadfast to notice of claims

“immediately” and “as soon as practicable,” or the policy’s unambiguous no-

payment-without-consent provision. Moreover, even though MWV was an

additional insured under the Steadfast policy, the trial court reasoned that, because

neither Steadfast nor JVI were involved in the underlying litigation or participated

in the settlement with the plaintiffs, allowing MWV to seek indemnity after

unilaterally choosing to settle would result in an absurd consequence.

The trial court also concluded that MWV was not an insured under the

ASIC policy which, under its unambiguous language, only covered losses resulting

from the liability of its insured, JVI, whereas MWV was seeking to recover for the

7

settlement of its own liability. Nevertheless, the trial court reasoned that, even if

MWV was insured under the ASIC pollution policy, MWV’s breach of said policy’s

conditions precedent, i.e., “immediate notice” and consent to settle, precluded any

coverage.

Finally, the trial court found no merit in MWV’s argument that the

insurers waived their notice and consent to settle defenses by denying coverage

based on policy exclusions, reasoning that MWV’s own argument presupposes that

the insurer denied coverage and then the insured settled. By the time MWV notified

the insurers, however, both Steadfast and ASIC already had vested late notice and

consent defenses and, therefore, did not waive their rights to assert these defenses

by denying coverage based on their policies’ exclusions. As there was no way to

know what the insurers may have done in the underlying litigation, the trial court

also found MWV’s argument as to the lack of a showing of prejudice on the part of

the insurers meritless. Because MWV made the intentional choice not to put JVI or

its insurers on notice of the plaintiffs’ claims until after settlement, the trial court

concluded that, even if Louisiana law would require a showing of prejudice to

enforce these conditions precedent with these sophisticated insureds, prejudice was

established.

III.

STANDARD OF REVIEW

An appellate court reviews a motion for summary judgment de novo,

using the identical criteria that govern the trial court’s consideration of whether

summary judgment is appropriate. Samaha v. Rau, 07-1726 (La. 2/26/08), 977 So.2d

880. Therefore, just like the trial court, we are tasked with determining whether “the

8

motion, memorandum, and supporting documents show that there is no genuine

issue as to material fact and that the mover is entitled to judgment as a matter of

law.” La.Code Civ.P. art. 966(A)(3).

IV.

LAW AND DISCUSSION

The issues in this matter all revolve around the interpretation of the

agreement between MWV and JVI as well as the insurance policies issued to JVI by

Steadfast and ASIC, respectively. As contracts, our interpretation of these

documents is governed, therefore, by the general rules of contractual construction.

According to these rules, our primary responsibility is to determine the

parties’ intent. La.Civ.Code art. 2045. We begin our analysis with the words of the

contract, construing the words and phrases using their plain, ordinary, and “generally

prevailing meaning,” and ascribing technical terms with their “technical meaning.”

La.Civ.Code art. 2047. “Each provision in a contract must be interpreted in light of

the other provisions so that each is given the meaning suggested by the contract as a

whole.” La.Civ.Code art. 2050. “When the words of a contract are clear and explicit

and lead to no absurd consequences, no further interpretation may be made in search

of the parties’ intent.” La.Civ.Code art. 2046. Accordingly, such contracts must be

enforced as written.

Nevertheless, if, after applying the general rules of
contractual interpretation to an insurance contract, an
ambiguity remains, the ambiguous contractual provision is
generally construed against the insurer and in favor of
coverage. Under this rule of strict construction, equivocal
provisions seeking to narrow an insurer’s obligation are
strictly construed against the insurer. This strict
construction principle applies, however, only if the
ambiguous policy provision is susceptible to two or more
reasonable interpretations; for the rule of strict

9

construction to apply, the insurance policy must be not
only susceptible to two or more interpretations, but each
of the alternative interpretations must be reasonable.

Sims v. Mulhearn Funeral Home, Inc., 07-54, p. 9 (La. 5/22/07), 956 So.2d 583,

589-90 (citations omitted).

Because the questions of interpretation and ambiguity at issue herein

are legal in nature, they can be resolved on summary judgment. Id. Therefore, we

turn now to an examination of the contractual provisions that we find are dispositive

in this matter.

Indemnification

The basis of the present litigation is the indemnification MWV alleges

it is owed from JVI and its insurers pursuant to the indemnity provision contained in

Section 23 of the agreement. Though our interpretation is governed by the general

construction rules recited above, courts strictly construe contracts “whereby the

indemnitee is indemnified against the consequences of his own negligence . . . , and

such a contract will not be construed to indemnify an indemnitee against losses

resulting to him through his own negligent acts unless such an intention is expressed

in unequivocal terms.” Perkins v. Rubicon, Inc., 563 So.2d 258, 259 (La.1990).

Like the trial court, we do not find that the indemnity section of the agreement here

unequivocally states that JVI will indemnify or assume responsibility for injuries

caused by MWV.

Admittedly, the first sentence does state that JVI “shall indemnify,

reimburse and hold harmless” MWV “from and against all [tort] claims . . . arising

out of or resulting in whole or in part from: (a) [JVI’s] performance of or failure to

perform [JVI] obligations under the Contract; (b) the inaccuracy of any

10

representation or warranty of [JVI] contained in the Contract; or (c) any negligent

act or omission of [JVI] . . . , regardless of whether or not it is caused in part by

[MWV].” By its explicit terms, the first sentence requires JVI to indemnify MWV

for any claims arising from JVI’s negligence, even if MWV is partially at fault.

The third sentence, however, then negates any previous assumption of

liability in providing that “[i]n the event a loss or claim arises out of or is caused by

the joint or concurrent negligence of both [MWV] and [JVI], each party shall be

responsible for its proportionate share of liability as determined by a court of

competent jurisdiction.” Under these terms, MWV would only be entitled to

indemnification for claims arising out of JVI’s share of liability. While this third

sentence directly contradicts the first, it must, nevertheless, still be read in

conjunction therewith, thus creating an equivocation as to the parties’ intent

regarding the extent of the indemnity obligation assumed. Strictly reading the first

sentence in conjunction with the third, we cannot, therefore, find that the parties

expressed, in unequivocal terms, an intent for JVI to indemnify MWV for MWV’s

own negligent acts or voluntarily assumed liability.

In their petitions, the plaintiffs sought damages solely for MWV’s

negligence. MWV settled those claims and then sought indemnity from JVI for its

settlement and defense costs of over three million dollars. But under our law of

comparative fault, MWV could only be liable to the plaintiffs for damages caused

by its own negligence as La.Civ.Code art. 2323(A) provides:

In any action for damages where a person suffers
injury, death, or loss, the degree or percentage of fault of
all persons causing or contributing to the injury, death, or
loss shall be determined, regardless of whether the person
is a party to the action or a nonparty, and regardless of the
person’s insolvency, ability to pay, immunity by statute,
including but not limited to the provisions of R.S. 23:1032,

11

or that the other person’s identity is not known or
reasonably ascertainable.

It follows, therefore, that when MWV settled with the plaintiffs, MWV only

compensated the plaintiffs for damages resulting from MWV’s own negligence.

Boykin v. PPG Indus., Inc., 08-117 (La.App. 3 Cir. 6/18/08), 987 So.2d 838.

Thus, we find that JVI was under no obligation to indemnify MWV for

the plaintiffs’ tort claims against MWV. As a strict construction of the

indemnification provision does not support MWV’s claims for reimbursement of the

costs it incurred in the settlement and defense of the lawsuits brought against it, we

find JVI is entitled to judgment as a matter of law on the issue of indemnification.

Unlike the trial court, however, we find no need to address whether our

interpretation of the indemnity provision would likewise preclude recovery under

the insured contract provisions of the insurance policies because, even assuming,

without so holding, that MWV could be entitled to coverage under either policy, we

find that its admitted breach of the conditions precedent therein is dispositive of the

remaining issues of coverage.

Conditions Precedent

Both the Steadfast and ASIC policies imposed duties upon an insured

in the event of an occurrence, offense, claim, or suit. They also provided that a

breach of these duties could preclude coverage at the insured’s cost.

The Steadfast policy mandated that an insured “must see to it that we[,

Steadfast,] are notified as soon as practicable of an ‘occurrence’ or an offense which

may result in a claim.” Moreover, if a claim was brought against “any insured,” that

insured had to “[i]mmediately record” the details and “[n]otify [Steadfast] as soon

as practicable.” The insured was also obligated to “see to it that [Steadfast] receive

12

written notice of the claim or ‘suit’ as soon as practicable[,]” as well as

“[i]mmediately send” copies of any relevant documents and “[c]ooperate with

[Steadfast] in the investigation or settlement of the claim or defense against the

‘suit’.” The policy further stated that “[n]o insured will, except at the insured’s own

cost, voluntarily make a payment, assume any obligation, or incur any expense, . . .

without [Steadfast’s] consent.”

“As a condition precedent to the right of coverage provided by” the

ASIC policy, an insured had to “give [ASIC] immediate notice of receipt of the

Claim by the Insured.” The policy likewise mandated that the insured “cooperate

with [ASIC] to the fullest extent possible” and forward relevant information to ASIC

“as soon as practicable after receipt[.]” Under the policy, “[n]o Insured shall admit

liability . . . or, except at such Insured’s own cost, voluntarily make any payment,

assume any obligation, or incur any expense without [ASIC’s] prior written

consent.”

Pursuant to these provisions, any insured seeking coverage under either

policy was required to provide the insurer with immediate notice of any claim against

the insured and could not voluntarily make any payment on a claim without the

insurer’s prior written consent.

The undisputed facts herein establish that eight employees of JVI filed

suit against MWV beginning in March 2009, alleging bodily injury sustained during

their work at the MWV refinery in April and June of 2008. By May 2008, MWV

had received the certificates of insurance evidencing JVI’s policies with Steadfast

and ASIC. Nevertheless, MWV, as an admitted tactical strategy, proceeded to

litigate and settle all of the claims by July 2012, without providing any notice to JVI,

Steadfast, or ASIC. Steadfast only learned of the claims against MWV when MWV

13

filed its third-party petition against JVI and Steadfast, on September 26, 2012, over

three years after the filing of Mr. Ortiz’s suit and two months after the settlement of

all the plaintiffs’ claims. ASIC did not learn of the claims until MWV filed its third-

party demand against ASIC, on November 26, 2013, over four years after the filing

of the first suit and over fourteen months after the settlements. Clearly, MWV did

not comply with the conditions precedent recited above.

“Courts have generally reviewed compliance with insurance policy

provisions as a condition precedent to recovery.” Lee v. United Fire & Cas. Co.,

607 So.2d 685, 688 (La.App. 4 Cir. 1992). In Rosenthal v. Security Insurance Group

of New Haven, 205 So.2d 816 (La.App. 1 Cir. 1967), an insured voluntarily paid a

claim after his insurer denied liability and then sought recovery from the insurer for

the amount he paid to settle the claim. The Rosenthal court held, however, that the

insured was precluded from asserting a claim against the insurer because he had

breached the consent-to-settle language in the insurance policy. Rejecting the

insured’s argument that the consent-to-settle language was contrary to public policy,

the court explained:

It is obvious that the company is obligated to pay only
those amounts which the insured is legally liable to pay.
This liability must be determined either by a court or by
the claimant, the company, and the insured jointly. There
are no provisions of the policy under which the insured has
any right to make any determination as to his own liability.
His fear as to being the subject of a civil suit is groundless
since the company is obligated to defend any suit filed
against him, even though it be frivolous. We do not find
that the defendant was dilatory in handling this claim or
that, if it had been, such behavior would give plaintiff any
ground for reimbursement if he independently made
payment of a claim against him.

We agree with defendants that this is an action
under the policy, and that the terms of the policy must
control. There being no ambiguity therein, and nothing

14

contrary to public policy having been brought to our
attention, we find that any payment made by the insured
whose liability has not been judicially determined, without
the consent of his insurer, is not subject to be reimbursed
by the insurer.

Id. at 817-18.

In the present matter, MWV admittedly did not even provide notice of

the plaintiffs’ suits to the insurers until after it settled all the claims against it. Thus,

there is no dispute that the settlement was made without the insurer’s notice and

certainly not with their consent in breach of the clear and explicit language of the

insurance policies.

Nevertheless, MWV argues that the conditions precedent should not be

enforced as unambiguously written because the insurers allegedly waived such

defenses by denying coverage and neither insurer provided evidence of prejudice.

We, like the trial court, find both of these arguments meritless.

Louisiana courts have declined to enforce consent-to-settle and no-

action clauses in certain situations, such as when (1) the insurer “wrongfully refuses

to defend its insured,” Arceneaux v. Amstar Corp., 10-2329, p. 20 (La. 7/1/11), 66

So.3d 438, 452; or (2) the insurer “denies coverage where there is coverage, or

unjustifiably delays settlement, forcing the insured to settle separately.” Emile M.

Babst Co., Inc. v. Nichols Constr. Corp., 488 So.2d 699, 703 (La.App. 1 Cir. 1986).

But in all these situations, the insurer was given notice and then denied coverage

prior to settlement, which then freed the insured to settle without the insurer’s

approval. The facts of this case, though, are somewhat unique in that MWV made

the tactical decision to not notify either JVI or its insurers until after MWV settled

all the claims brought against it.

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In arguing that the insurers both waived any defenses arising from

MWV’s undisputed breach of the conditions precedent by denying coverage after

the settlements, MWV relies upon Thomas W. Hooley & Sons v. Zurich General

Accident and Liability Insurance Company, 235 La. 289, 103 So.2d 449 (1958).

However, we find MWV’s reliance on Hooley is misplaced.

In Hooley, 103 So.2d at 452-53, the supreme court held:

Although most of the cases involved not only (as
here) an unjustified denial of liability but also a specific
refusal to defend an action brought against the insured, the
reasoning therein as well as the equitable reasons therefor
support the conclusion that by the mere denial of the
insurer to its insured of any liability under the insurance
policy for the damages claimed by a third person, the
insurer forfeits its right to claim the benefits of the ‘no
action’ clause, and the insured policyholder even in the
absence of litigation may compromise the claim against
him without prejudicing his right to recover from the
insurer the amount of a reasonable and good faith
settlement made by him. Especially when as here liability
to the third person is unquestioned, and after a denial of
coverage by the insurer the policyholder minimizes the
loss and avoids the expenses of litigation by a reasonable
compromise, the insurer should be unable to claim that
reimbursement to its insured of damages clearly covered
by the insurance contract is barred by such compromise
which was to the ultimate benefit of the insurer.

Decades later, the supreme court in Arceneaux, 66 So.3d at 452, limited its holding

in Hooley, explaining:

While Hooley did find a waiver of a policy provision by
breach of the duty to defend, the provision was unrelated
to coverage and related only to a preliminary matter
dealing with the insurer’s defense obligation. The narrow
holding of Hooley cannot be extended to find waiver of
other insurance contract provisions, particularly those
related to coverage. Hooley simply stands for the
proposition that where an insurer wrongfully refuses to
defend its insured, the insured is free to settle the case
against it without the insurer’s approval.

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Here, the trial court determined “it must fashion a
remedy for redress of that breach which is commensurate
with the breach of the duty to defend.” However, that
remedy, waiver of all policy defenses, is not supported by
law. The result of the trial court’s holding is judicial
legislation, imposing a penalty on the insurer that is not
provided for by the legislature and is in fact on top of
penalties already provided by the legislature. The duty to
defend is provided in the insurance contract; therefore, its
breach is determined by ordinary contract law principles
and the insurer is liable for the insured’s reasonable
defense costs. William Shelby McKenzie and H. Alston
Johnson, III, Louisiana Civil Law Treatise: Insurance
Law and Practice, Vol. 15, § 215, p. 614 (3rd Ed.2006).
If the breach is found to be in bad faith, statutory penalties
are imposed under La. R.S. 22:658 (now La. R.S.
22:1892). The remedy created by the lower courts in this
case judicially imposes a result that would permit insureds
to reap a windfall of potentially enormous profits, far
beyond the natural consequences of the insurer’s bad faith
breach of the duty to defend, and far beyond the scope of
the insurer’s contractual undertaking.

As the trial court noted, the ruling in Hooley presupposes that the

insurer was notified and then denied coverage prior to settlement. The insurers

herein did not refuse to defend MWV, thereby forcing MWV to settle its claim

without their approval. Rather, the insurers denied the claim while simultaneously

asserting MWV’s breach of the notice and consent conditions as a defense to

coverage only after MWV had settled its claims without any notification to the

insurers. No action was taken by the insurers that would warrant a waiver of their

defenses arising from MWV’s intentional breach of its obligations under the notice

and consent provisions.

Regarding MWV’s prejudice argument, we cite with approval the

following reasoning adopted by the Fifth Circuit in Danrik Construction

Incorporated v. American Casualty Company of Reading Pennsylvania, 314

Fed.Appx. 720, 724 (5th Cir. 2009) (quoting Motiva Enters., LLC v. St. Paul Fire &

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Marine Ins. Co., 445 F.3d 381, 386-87 (5th Cir. 2006)), in holding that an insurer

suffered prejudice when its insured unilaterally settled a claim:

Assuming without deciding that an insurer must
show prejudice to avoid its obligations under the policy
when the insured breaches the consent-to-settle provision,
based on the summary judgment evidence in this case, we
are satisfied that National Union suffered prejudice as a
matter of law. An insurer’s right to participate in the
settlement process is an essential prerequisite to its
obligation to pay a settlement. When, as in this case, the
insurer is not consulted about the settlement, the
settlement is not tendered to it and the insurer has no
opportunity to participate in or consent to the ultimate
settlement decision, we conclude that the insurer is
prejudiced as a matter of law. Under these circumstances
the breach of the consent-to-settle provision in the policy
precludes this action.

In the present case, neither Steadfast nor ASIC was notified or

consulted about the underlying claims brought against MWV prior to the settlement.

None of JVI’s insurers were consulted about the settlement, which was not tendered

to either of them. And neither insurer was given an opportunity to participate in,

much less consent to, the ultimate settlement decision. Therefore, even if a showing

of prejudice would be required, we agree with the trial court that Steadfast and ASIC

were prejudiced, as a matter of law, by MWV’s failure to notify either insurer of the

plaintiffs’ claims against MWV until years after the underlying claims were filed

and months after the settlements were effected.

Accordingly, although courts have excused breaches of conditions

precedent in other situations, we find, under the undisputed facts herein, MWV’s

unilateral decision to settle the underlying claims without any notice to the insurers

precludes its ability to recover from either Steadfast or ASIC. As all other

assignments of error are rendered moot by this holding, we pretermit their discussion

and affirm the trial court’s judgment (1) granting summary judgment in favor of the

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third-party defendants on the issues of indemnity and insurance coverage, and (2)

dismissing, with prejudice, MWV’s claims against JVI, Steadfast, and ASIC.

V.

CONCLUSION

For the foregoing reasons, the judgment of the trial court is affirmed.

Costs of this appeal are assessed to the Defendant/Third-Party

Plaintiff/Appellant, MeadWestvaco.

AFFIRMED.

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