Articles Posted in Contractor Problems

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The state of Louisiana, like many other states, has very specific requirements that the judicial branch uses to help interpret contracts when the parties are in dispute. Generally, the court likes to stay out of contracts because the right to contract without interference from the government is something that the American society greatly cherishes. The ability to contract is a basic fundamental right that is guaranteed by the Fourteenth Amendment. The court will usually only interfere if there is a dispute or if the contract was in some way illegal. Therefore, it is very important to have a contract that is well written and that all parties understand completely.

If the court has to step in to work with a contract, then it will follow a few select guidelines. The ultimate goal of the court is to determine the common intent of the parties and enforce the contract in that way. In order to determine the intent, the court will look to the contract itself. In contracts that include terms of art or very technical requirements, the court will look to the common use of the word within that trade. For example, some trades include quantity information that is always larger than actually stated; think of a “baker’s dozen.” Even though twelve is technically considered a dozen, a contract between bakers may actually mean thirteen. This notion disregards the fact that in any other contract that is not between bakers, a dozen would equal twelve.

The court will also consider the contract in its entirety, not just a few sections or a single disputed term. It will determine what outcome is practical for both parties and technical terms will be given their technical meaning. In addition, if a word has more than one meaning, then the court will defer to the meaning that will carry out the goal of the contract. Consider a simple example. If a grocery store contracts to receive bananas and they receive plastic bananas instead of real bananas, the court will likely conclude that the other party providing the plastic bananas was at fault because the definition of a banana is commonly a consumable food, especially if it is going to be sold at a grocery store. The contract did not say that the grocery store wanted edible bananas, but the court will assume this information because the outcome becomes ridiculous without this assumption.

The court will generally try to stay within the language of the contract when attempting to resolve disputes. When the contract is clear and doesn’t lead to ridiculous consequences, then external evidence provided by the parties to show an alternative intent cannot be considered. The contract’s wording is therefore very important. However, if the contract is not clear or is ridiculous, then the court can consider some outside evidence in order to determine the common intent of the parties. In our banana example, if the grocery store has always ordered real bananas from this seller and has never requested plastic bananas from this seller, then that information could be considered in the court’s analysis.

The court has a means to determine whether the meaning of the contract is clear or not. Obviously if a term or issue is missing from the contract entirely, then the court will most likely deem the issue to be unclear or ambiguous. In addition, the court will also reason that an issue is ambiguous when “the language used in the contract is uncertain or is fairly susceptible to more than one interpretation.” If this is the case, then the outside evidence can be used to determine what the intent of both parties actually is.

A well written contract will convey the intention of both parties and will define all of its questionable terms so that there is no contention in the future. Sometimes, one party does not think a term in unclear when it actually is, so a conflict will arise. Competent attorneys are needed to create a well written contract and deal with conflict.

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Insurance can be a tricky subject for the average consumer. There is a lot of paperwork, confusing terms, and many people do not understand what their insurance actually covers. However, the easiest way to combat the confusion is to take the time to read through your insurance policy. Oftentimes, the answers to all of your questions can be found buried deep within your policy. You just have to know where to look.

It is important to note that insurance companies will strictly follow and enforce the written policy, so it is vital that you are familiar with your plan. You should get a complete copy of the plan and keep it in your records in case you need it in the future. Pay particular attention to the four major sections. The four sections include declarations, conditions, insuring agreements, and exclusions.

The declarations section states who is being insured, what is covered, policy limits, and the effective dates of coverage. The correct name of the insurance company will also be found in this section. The timing of the coverage is very important. If the policy says that it is in effect January 1, then it does not apply if you have an accident a few hours sooner. For example, one man was rushed the hospital with a medical emergency, but was denied coverage by his insurance company because his hospital visit was merely five hours before his plan activated.

The next piece of the policy is the conditions section. This part includes all of the things that you must do in order to be insured. There may also be a conditions section for each coverage part (such as liability, collision, etc.). These conditions are important because they may also limit what the insurance company will cover and your ability to file a claim. A common condition, for example, is if you are going to file suit then you must file within a certain amount of time. Definitions for some of the terms of the policy may also be found in this section if they do not have their own section within the policy.

The third part of the policy is the insuring agreements section. This section states specifically what the policy will actually cover. Insuring agreements is also the most important section of your policy, so read this part carefully!

Lastly, the final section is the exclusions section. The exclusion section takes away or limits some of the insuring agreements coverage. It is vital that you read both of these sections together because you may think something should be covered based on the insuring agreements section, but actually, it is not covered because of the exclusions section.

A case in the Eastern District of Louisiana gives a good example of the importance of reading through your policy and knowing your plan well. An individual was in a car accident with a company vehicle. At the time of the accident, the individual who ran the company was insured under his own name in the amount of $300,000. Four months after the accident, the insurance was extended to $1 million and the policy changed to the company name. The victim of the accident then sued claiming that the insurance company had fraudulently led the victim to believe that the insurance coverage was only $300,000, not $1 million.

Unfortunately, the victim did not read the policy very well. The court ruled that the policy clearly stated the amount that it covered and who it covered. There was actually no fraud involved. It was just a matter of reading the policy. The timing of the accident was also important. At the time of the accident, the coverage was for $300,000, not $1 million, so the accident was only covered for up to $300,000.

Insurance coverage is very complicated and it is too important to be misunderstood. Coverage could be the determining factor in whether you have to pay a big bill on your own or with help from your insurance company.

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Construction worksite accidents are common occurrences in New Orleans and Louisiana. When a lawsuit is filed seeking compensation for these workplace injuries, issues often arise concerning the multiple companies involved in the construction project and their insurance companies. Chief amongst these concerns are the duty to defend and indemnification.

The duty to defend refers to an insurance company’s obligation to defend an insured against claims made under a liability insurance policy. Though this may sound straight forward, in the construction context this theory can become complex. For example, if a construction company or contractor takes out insurance, the project’s other general and subcontractors may or may not be covered under that same policy depending on the wording of the insurance policy. In many cases, general and subcontractors will be covered as an additional insured under the insurance contract. If thi is the case, then the facts of the underlying claim must sufficiently allege liability in order for the duty to defend to engage.

These issues were closely examined recently by the Court of Appeals for the Fifth Circuit when a man injured at a construction site filed a lawsuit against the general contractor, but not his employer that was the subcontractor. The general contractor sought to have the subcontractor’s insurance company defend them as an additional insured under the subcontractor’s policy. After analyzing the policy, the court found that the general contractor was an additional insured under the subcontractor’s policy, but nevertheless held that the insurance company had no duty to defend the general contractor. The reasoning behind this finding was that neither the injured employee nor his employer, the subcontractor, where alleged in the complaint to have been responsible for the injury. Since the contractor could only seek the insurance company’s duty to defend through negligence on behalf of those directly insured, namely the subcontractor or the general employee, then that duty to d efend was not induced.

The second issue in these complex insurance cases is indemnification. If a company is covered under an insurance policy, then if that company is forced to pay liability damages in a lawsuit, the insurance company will essentially reimburse the company for those damages. However, legal costs associated with defending the claim fall under the duty to defend, not indemnification.

Since the duty to defend and the duty to indemnify are separate, it is possible that an insurance company will not have to defend an additional insured but must still indemnify that company. This is what happened in the construction injury case mentioned above. The district court found that the employee was at least one percent responsible for his injury, causing the insurance to be invoked. The Court of Appeals upheld this finding as the insurance company did not challenge that ruling, but rather challenged the finding that the contractor was an additional insured.

Anytime a business or individual takes on construction work, it is important to know whether insurance coverage is provided and, if so, by whom. This will ensure that any injuries, physical, emotional or financial, will be compensated. A failure in determining insurance coverage can lead to a long, drawn out claims process that can leave an individual or business emotionally and financially drained.

Insurance claims are a necessity in order to protect businesses’ and workers’ interests. Yet, disputes over insurance coverage can be lengthy and convoluted. These complexities require the expertise of an experienced, competent attorney.

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A summary judgment is rendered when a trial court decides that there are no genuine issues of material fact that need to be determined. “Manifestly erroneous” is the high standard under which summary judgments are reversed on appeal. Summary judgments are cheaper and less time consuming than full blown trials; they are a means toward the end of judicial expediency, a goal that becomes increasingly important to our judicial system over time. Despite the importance of this procedural device, many cases do not call for summary judgment. Sometimes trial courts grant full or partial summary judgments in error and are reversed. That is what occurred in the case of Jagneux v. Frohn, which you can read here.

The defendants in this case convinced the trial court that no issues of fact existed that required litigating. Their legal journey was not over though due to the plaintiff’s appeal. The court of appeals applied the standard promulgated by the Louisiana Supreme Court. This Louisiana Supreme Court’s standard initially places the burden of proof on the party that is moving for a summary judgment. The moving party must prove that one or more elements of the adverse party’s claim or defense lacks any factual support on the record so far. The opposing party is then granted an opportunity to prove that there have been facts alleged that support that party’s position. At the time of summary judgment the record is sparse so a granting of summary judgment represents a finding by the court that no facts supporting a particular party’s, in this case the plaintiff’s, position.

The appellate court reversed the trial court’s decision in this case because it found that the issue of whether Mrs. Kling, a defendant in this case, was the driver of the white SUV at the time that it, at least partially, caused the accident at issue in this case. Because there was conflicting evidence about where Mrs. Kling was and whether or not she was actually in control of the car at the time of the accident, summary judgment was not the right choice in this case. The trial court is not to weigh the merits of the case when addressing summary judgment. Summary judgment is only appropriate in cases where no potentially meritorious case is presented by one of the parties.

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On behalf of the Berniard Law Firm, we hope that all of our friends and followers have had a relaxing and restful holiday. Posting will resume on Tuesday

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The Berniard Law Firm would like to wish everyone a Happy Holiday.

Regular posting will resume in 2012! Have a happy, and SAFE, holiday season!

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Uninsured/Underinsured Motorist (UM) coverage is designed to protect a policyholder against injury or loss inflicted by another driver who has inadequate insurance or no insurance coverage at all. Louisiana statute provides that “an insurer owes to his insured a duty of good faith and fair dealing,” which includes fairly and promptly settling claims with the insured. La. R.S. 22:1220. An insurer who breaches this duty is liable for damages that result from the breach. In order to establish a cause of action for penalties and or attorney fees, a plaintiff must show that (1) the insurer received sufficient proof the of loss; (2) the insurer failed to tender payment within 30 days; and (3) the insurer’s failure to pay is “arbitrary, capricious, or without probable cause.” La. R.S. 22:658. Louisiana courts have held that “arbitrary, capricious, or without probable cause” is “synonymous with ‘vexatious,’” and that a “vexatious refusal to pay” means it is “unjustified, without reasonable or probable cause or excuse.” The courts impose penalties on an insurer when the facts of the situation “negate probable cause for nonpayment,” but tend to avoid them when an insurer can point to “a reasonable basis to defend the claim and acts in good-faith reliance on that defense.” Pointedly, it is well settled that “bad faith should not be inferred from an insurer’s failure to pay within the statutory time limits when … reasonable doubt exists.” Instead, penalties are appropriate when the insurer refuses to tender a reasonable payment in an amount over which “reasonable minds could not differ.”

Louisiana’s Third Circuit Court of Appeal recently applied this jurisprudence in the case of Mitte v. Progressive Security Insurance Co.. On April 20, 2004, Dyna Mitte was severely injured when her vehicle was hit by an underinsured driver in Lafayette Parish. Mitte had UM coverage through Progressive and filed a claim after receiving only $32,000 from the other driver’s insurance company. Progressive made pre-trial tenders to Mitte that amounted to $393,624. Mitte then filed suit seeking penalties and attorney fees on the basis of those tenders that she alleged were “inadequate and untimely.” A jury found that the tenders made by Progressive were not adequate and awarded Mitte $1.6 million. However, the jury declined to award her penalties and attorney fees. Mitte appealed, arguing that the jury erred in failing to find that Progressive was arbitrary or capricious.

Mitte’s assignment of error was based in part on her argument that because the jury awarded a large sum compared to the tenders made by Progressive, Progressive was necessarily arbitrary or capricious. The court rejected this argument, stating that Progressive was not required to “meet some percentage of the total claim awarded [Mitte] to avoid penalties and attorney fees.” Rather, Progressive “needed to tender only a figure over which reasonable minds could not differ.” Further, the record included several factual disputes described by Progressive’s adjuster at trial. For instance, there was uncertainty over whether Mitte made a claim for lost earning capacity and also as to whether a gastric bypass surgery was related to the auto accident. Thus, although the jury ultimately concluded that Progressive undervalued Mitte’s general damages “by a fairly large extent,” there was a reasonable factual basis for the jury’s finding that Progressive was neither arbitrary nor capricious. Because the court could not find that the jury’s determination was manifestly erroneous, it affirmed the trial court’s judgment.

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When one is successful on a claim against an insurance company the payment of the claim is expected to be prompt. Any delay in payment could result in the court imposing a penalty against the insurance company. In most, if not all, cases this penalty takes the form of court costs and attorney’s fees. But if an insurance company challenges a policy claim in court, and then loses, does that time when payment was refused constitute delay? The answer to this question is ‘it depends.’

In Louisiana Bag Co. v. Audubon Indemnity Co., the court held that if an insurer errs in interpreting its own insurance contract, then the insurance company will be held liable for the delay in payment resulting from the trial. This delay justifies the incurrence of penalties for attorney’s fees. If, however, the policy dispute revolves around facts rather than contract interpretation, then the “timely payment” provision is stayed during the trial. This was the situation of Maxley v. Universal Casualty Co. where Maxley’s car insurance policy through Casualty covered loss from both theft and fire. When Maxley’s car was stolen and set on fire, he filed for his claim. However, Maxley had left his car unlocked with the key in it. The policy through Casualty had an exception that nullified any claim if there was no evidence of forcible entry. The issue went to court with Casualty claiming it owed nothing under the policy because the theft was not through a forcible entry, and Maxley contesting payment was due under the fire provision of the policy rather than the theft. Maxley, in essence, argued that the exclusion provision for no evidence of forced entry was irrelevant because his car would have been recovered if it had not been for the fire.

The court found for Maxley, who then sought attorney’s fees for Casualty’s failure to make timely payment. The Third Court of Appeal upheld the denial of Maxley’s claim, stating that Maxley’s reliance on Louisiana Bag was misplaced. While Louisiana Bag relied on policy interpretation, Maxley’s case relied on a true disputation of the facts. It would be senseless to require the insurance company to pay the claim only to the have the claim payment rescinded if the facts were found in favor of the insurance company. This finding upholds efficiency in the industry as it is easier to withhold payment until truly due than it is to always make payment, then try to recoup it if made erroneously.

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When litigation involves multiple parties, all of which are big national or international organizations, there is a higher likelihood that something is going to end up in the litigation process. The unfortunate nature of insurance coverage is that companies will try to find little nuances to try to argue their case, or will add little nuances to make any future case more difficult for opposing parties. One party to a contractual agreement may cite to these nuances to find a loophole to escape from any potential liability and, subsequently, leave someone who believed they had full coverage with nothing. Despite these loophole efforts, a court can still look at the realities of the circumstances and come to real life conclusions to the exclusion of the argument of either party. This is true in the case of Federal Insurance Company v. New Hampshire Insurance Company, when the court ultimately looked at the reality of a contractual agreement and decided that no matter what the terms of the contract were, the whole contract was in regard to a personal injury case.

Our previous blog post discussed this case but a brief summary is as follows:
The case began when Wayne Robinson was unfortunately hurt by an explosion at a chemical plant. The explosion occurred because there were certain chemicals used by the plant that reacted with each other to cause the explosion. One of the defendants in Mr. Robinson’s case was Thomas and Betts Corporation (hereinafter T&B). T&B allegedly manufactured a product that contributed to the explosion that caused Mr. Robinson’s injuries. T&B had liability insurance from both New Hampshire Insurance Co., which was the primary insurance provider, and Federal Insurance Co., which was the secondary, or excess insurance provider. Ultimately, Mr. Robinson settled with T&B.

The interest of discussing policy nuances hinges upon the terms of the agreement were between T&B and Mr. Robinson. In that agreement, T&B would give Mr. Robinson $5 million for bodily injuries and an additional $1.2 million for a potential breach of contract claim another plaintiff may have had against Mr. Robinson. In fact, by settling with T&B, Mr. Robinson was breaching his agreement with the plaintiff company. After Mr. Robinson reached his agreement with T&B the other plaintiff sued Mr. Robinson for breach of contract. This breach of contract was supposed to be covered by his settlement agreement with T&B. However, soon after the settlement, Mr. Robinson received a letter from New Hampshire Co., T&B’s primary insurer, that it was going to cover his $5 million settlement, but would not cover his $1.2 million settlement because it was for a breach of contract and therefore, outside the scope of its policy covering T&B.

As a separate issue, the court discussed whether the New Hampshire policy covered contractual agreements. However, it came to the conclusion that the use of the phrase “legally obligated to pay” rendered the policy to cover tortious actions. However, the court went on to explain that the entire settlement between T&B and Mr. Robinson did in fact relate to and cover the bodily injury claim. The settlement could only cover the bodily injury claim because the only action for which T&B was liable to Mr. Robinson was the bodily injury. Therefore, the settlement could not be for any breach of contract claim.

The $1.2 million settlement was a by-product of T&B inducing Mr. Robinson to settle his bodily injury claim against T&B. The court held that even though this separate amount is categorized as reimbursement for a breach of contract claim, it is still within the bodily injury claim because the settlement was made in consideration for the bodily injury claim. Therefore, because the bodily injury claim was covered by the New Hampshire policy, New Hampshire was liable for the entire settlement. Mr. Robinson received money from Federal, T&B’s secondary insurer, therefore Federal stepped into T&B’s shoes in its claim for reimbursement from New Hampshire. Therefore, New Hampshire owed Federal the money it paid to Mr. Robinson.

Even in cases where a contract defines things in a certain manner or when the law defines different terms, the realities of a contract are the ultimate facts that define a contract. Although, the New Hampshire policy only covered tortious actions and even though the settlement between Mr. Robinson and T&B defined two different amounts, one for bodily injury and the other for a breach of contract, the reality was that both amounts were in consideration for the bodily injury claim and therefore the reality was that New Hampshire owed the entire amount as per its policy with T&B.

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The terms in a contractual agreement between parties can have the effect of changing entire meanings of contracts. This is especially true in more complex litigation and more complex business agreements. If a business agreement requires the participation of multiple partners or parties, an ambiguously defined contract can have the effect of increasing the amount of litigation which will occur every time there is a legal dispute between any or all of the parties. The clear practical effect of writing clear-cut and well defined contracts is that, in the long run, there will be less of a chance that any dispute will require a long, drawn-out litigation process which has the effect of draining the wallets of all the parties involved.

This is most important where one or more of the parties is a single individual with limited resources, and in some situations, is represented by smaller firms that have much less financial resources compared to bigger business entities with more resources and financing at their disposal. As a legal practice, any person that becomes part of a contractual agreement should clearly define any type of ambiguous terminology in an effort to save the agreement from getting the definitional application of common law or practice. Never is this more necessary than when an individual is pushed up against an insurance agency that holds their financial future in their hands. The importance of defining a contract can be clearly seen in the case of Federal Insurance Company v. New Hampshire Insurance Co.

Both Federal and New Hampshire insurance companies became involved in litigation because they both insured Thomas and Betts Corporation (hereinafter T&B). T&B made a product which contributed to an explosion at an aluminum processing plant in Gramercy, Louisiana, leaving employee Wayne Robinson with injuries. Ultimately, Mr. Robinson sued T&B, which had liability insurance from both Federal and New Hampshire. Thus, when the suit began, Federal and New Hampshire’s policies kicked into effect. New Hampshire was the “first insurer” for T&B. Federal, on the other hand, was T&B’s second layer excess insurer. On the eve of the trial, Mr. Robinson came to an agreement with T&B which had the effect of potentially extinguishing the law suit. T&B was going to pay Mr. Robinson $5 million dollars in damages for his unfortunate bodily injuries, and an additional $1.2 million in consideration for a potential breach of contract claim by another plaintiff company against Mr. Robinson. Subsequent to this settlement, New Hampshire notified Mr. Robinson that it was going to pay him the $5 million, but that it would not pay him the $1.2 million promised by T&B. When Mr. Robinson then received a letter from the plaintiff company, he sent the notice to Federal to show the demand made of him. Federal ended up giving Mr. Robinson $990,000 for the potential breach of contract claim against Mr. Robinson. The pertinent part of the agreement between T&B and Mr. Robinson is as follows:

“Thomas and Betts and Its Insurers agree to hold harmless, indemnify and defend Wayne Robins, et al, The Fields law Firm and Cleo Fields for any amount owed to AXA, Kaisers Subrogated Property Reinsurers, Caleb Didriksen and the Didriksen Law Firm, not to exceed 1.2 million dollars.”

Eventually, Federal sought the $990,000 from New Hampshire arguing that the amount should have been given to Mr. Robinson as part of T&B’s policy with New Hampshire. New Hampshire argued that this amount was not within T&B’s policy with it. The pertinent part of T&B’s policy with New Hampshire was that New Hampshire, “becomes legally obligated to pay by reason of liability imposed by law or assumed by [T&B] under an Insured Contract because of Bodily Injury.” This seems simple enough, however there was no definition of “legally obligated to pay.” In the world of contracts, the contracting parties have the ability to define things in any manner they see fit. These definitions should, however, be included in the contract itself in the index of terms. When a contract does not define any of the material terms, the terms should be filled in by the court. In this case, the court decided that since the phrase was not defined, it should be filled in with what was commonly used in Louisiana. It Louisiana, it was well settled that the use of the phrase was for damages arising out of tortious actions and not from a contractual obligation. Therefore, on the face of the assertion, Federal would be out of luck because it sought money from New Hampshire for money it gave Mr. Robinson due to a breach of contract. Even though the court sided with Federal for other reasons, Federal would have been dealt a strict blow because it did not read the policy between T&B and New Hampshire clearly enough to see that the term was not defined.

Therefore, before taking any action any party should clearly read any existing agreement between relevant parties and should make sure any contract it signs has clearly defined terms that will not lead to unnecessary litigation which will only serve to drain resources.

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