Negligence Claims

An Examination of Interlocutory Appeals and Collateral Order Doctrine

Published on: October 15, 2013 | By Berniard Law Firm

In April 2010, an offshore drilling rig, the Deepwater Horizon, exploded and sank into the Gulf of Mexico. Eleven workers died and crude oil from the well spilled into the Gulf for months after the accident. The result was a mass of litigation involving multiple defendants. In order to deal with the extensive facts and individuals involved in this case, like many other cases, the parties can appeal just one issue of the case if the lower court denies or grants a judgment on that particular issue.

Normally, a decision must be a final one in order to be appealed. That generally means that the case has concluded and the lower court has rendered a judgment. That way, the appeals court considers all of the facts involved, but can still allow the lower court to do most of the fact analysis. However, there are some occasions where an appeal on just one issue is allowed. This is known as an interlocutory appeal, and it falls under the collateral order doctrine. The collateral order doctrine assumes that some decisions are “final in effect although they do not dispose of the litigation.”

In order to use the collateral order doctrine, the lower court must have 1) conclusively determined the disputed question, 2) resolved an important issue that is completely separate from the final decision in the case, and 3) the issue must also be effectively unreviewable on appeal in a final judgment. “Effectively unreviewable” means that the court of appeals will have no way to review the decision of the lower court once the lower court makes a decision on this particular issue. Generally, if the decision could be appealed in some other way than the interlocutory appeal, then the court will not use the interlocutory appeal.

In the oil spill case, parties assumed that one worker in particular held a great deal of information because he was the BP Well Site Leader on duty aboard the rig at the time of the accident. However, the Site Leader had an undisclosed medical condition that prohibited him from testifying or answering written questions. The Site Leader explained his medical condition to the judge on two separate occasions, but did not disclose the information to the parties.

Since the parties believed that he was such a valuable witness, they really wanted to obtain information from him. As such, another judge ordered an independent doctor to examine him and ordered the Site Leader to produce his medical records to the independent doctor. The Site Leader protested because he was concerned about sharing his personal information. This order is a discovery decision, and discovery decisions are appealable after the final decision of the court based on the use of inadmissible evidence.

One of the Site Leader’s major arguments, however, was that releasing his personal medical information would cause a great deal of harm to him personally, and there is no method on appeal to reverse that type of harm. Nonetheless, the court determined that district courts can “burden litigants in ways that are only imperfectly reparable by appellate reversal of the final district court judgment.” Therefore, even though there may be harm that cannot be reversed for the Site Leader, the court will still allow the medical information to come in because the final verdict could change on appeal if the information is removed later. To use another example, the court explains that even if the information is privileged, that does not make it appropriate for an interlocutory appeal.

The court only briefly considered the rights of the Site Leader and his concern about protecting his personal information. In that discussion, they explain that they weighed the costs of sharing his information with the benefits of having his testimony at trial and determined that the benefits outweighed the costs.

As result, the court determined that it could not use the collateral order doctrine and that the interlocutory appeal was inappropriate. Therefore, the court dismissed the appeal and allowed the bulk of the case to continue in the lower court.

Civil procedure issues can be a delicate balance between protecting the case and protecting the individuals involved in the case.

Louisiana’s Act 312 and its Impact on the Environment and Oil Exploration

Published on: October 11, 2013 | By Berniard Law Firm

La. R.S. 30:29 (“Act 312”) was in enacted in 2006 and became effective in June of that year. Act 312 provides a procedure for the remediation of oil field sites as well as oil exploration and production sites. Generally, remediation is “the action of remedying something, in particular of reversing or stopping environmental change.” Before the Louisiana legislature enacted Act 312, most remediation requirements were through private party contracts; therefore, Act 312 did not change the normal trial procedures established by the Louisiana Code of Civil Procedure.

The Louisiana Supreme Court recently discussed Act 312 at length, explaining what it did change, in a case involving the Vermilion Parish School Board. The Court explained that Act 312 was enacted because of serious concerns with the state of the land and ground water after an area was used for oil exploration and production. Parties would use the land and ground water under a mineral lease for several years, and leave the property in terrible shape by the time that they were done. Mineral leases allow the parties to contract for only the minerals or the potential oil that is located on that property. The party with the mineral lease, then, does not rent the entire property, but just the ability to find minerals or oil within or upon that property.

Before Act 312, parties could still sue if one party left the land in terrible shape. Occasionally, however, it does not make sense economically to force a party to fix the land they damaged. Instead, the renting party would have to give the “landlord” the difference between the value of the land when they received it and the value of the land when it was returned after the lease, under a tort law theory. However, the person who owned the land, the “landlord,” was not required to use the funds to fix damage done to the land. As a result, property that had serious environmental problems often went without remediation because the landlord was not required to fix it. This creates health and safety concerns for the general public.

Environmental Damage Appeal Focuses on Mineral Lease, Oil

Published on: October 6, 2013 | By Berniard Law Firm

In January, the Louisiana Supreme Court considered an appeal from the Vermilion Parish School Board. The appeal centered on environmental damage to land that was subject to a mineral lease. The mineral lease allowed those leasing the land to look for and remove any mineral, including oil, that they found on the land. However, once they did this, they left the land in a state that was environmentally hazardous.

Louisiana has special procedures for dealing with restoring land so that we do not harm the environment, specifically when removing oil. The remediation of the land, this restoring process, was one of the major issues in the Vermilion Parish case. The defendants included Union Oil Company of California, Union Exploration Partners, Carrollton Resources, LLC, Chevron USA, Inc., and Chevron Midcontinent, L.P.

The Court faced two major issues in this case. The first was whether the parties could receive damages in excess of the amount it would take to restore the property, thereby correcting the environmental damage. The Court determined that the language of the legislation (La. R.S. 30:29) was clear and that the parties could receive a larger amount.

Under Louisiana law, when a case arises where a party is required to correct an environmental wrong, the funds are deposited into the court’s registry. The court will then disperse the funds to repair the land. This is a relatively new development because this act was put into effect in 2006. The legislature was concerned that parties who received funds to help correct the damage done to their land would not use it for that purpose if they were not so required. Leaving property that is damaged could create serious issues for the health, safety, and welfare of the surrounding population.

The legislation focuses on the role of the fact finder in determining whether there was environmental damage, and how much that environmental damage will cost to fix. As such, the court determined that the case should continue so that the fact finder could make those determinations.

The second issue was whether Chevron should be dismissed from the case. According to the facts, Union Oil had the mineral lease first, but Chevron subsequently acquired Union Oil and all of their assets, including the lease. As such, Chevron became responsible for any environmental damage that Union Oil may have caused. Chevron admitted responsibility initially, but then denied that they should be legally responsible later.

Chevron explained that while Chevron Corp. owns both Chevron USA and Union Oil Company of California, the two sections do not overlap. That is, Union Oil had $18 billion in assets, and should they be found liable for environmental damage, the amount that they will pay will come from their assets and not Chevron’s. Chevron explained that those assets were never transferred out of Union Oil, so Union Oil remained somewhat independent even after Chevron acquired them.

Therefore, Chevron argued that Chevron USA should be removed from the case so that those assets are not adversely affected. Nonetheless, Frank Soler, the senior liaison in the subsidiary governance unit of the corporate governance department for Chevron Corp. admitted that Union Oil does not have any employees and there may be service agreements between the two sections for day-to-day activities.

The Plaintiffs in the case were only allowed to discover a very limited amount of information from Chevron regarding this case. The court restricted the information until they determined whether or not Chevron should remain in the case a defendant. As such, many facts remained unknown regarding the relationship between Chevron and Union Oil. Therefore, the court determined that Plaintiffs should be allowed to gather more information and the case should continue.

Both of these issues failed the summary judgment test. The test is whether there is an absence of material facts in the case. If there is such an absence, then the court will only determine the questions of law and one side will receive a summary judgment. In this case, however, the court determined that there may be facts in dispute because they did not have enough information; therefore, the case continued.

Customer’s Tire Shop Injury Results in Duty of Care Analysis

Published on: October 3, 2013 | By Berniard Law Firm

In Louisiana, a merchant’s duty to keep the premises safe for its customers is narrowly defined by the law. La. R.S. 9:2800.6 specifically deals with merchants and requires the injured party to prove:

(1) The condition presented an unreasonable risk of harm to the claimant and that risk of harm was reasonably foreseeable.

(2) The merchant either created or had actual or constructive notice of the condition which caused the damage, prior to the occurrence.

Uninsured / Underinsured Accident Case Explores UM Coverage Concepts

Published on: October 1, 2013 | By Berniard Law Firm

Angela Terrell was driving her employer’s van when she was injured in a vehicle collision on U.S. Highway 190 in Pointe Coupee Parish on Mach 5th of 2010. Ms. Terrell filed a lawsuit against the other driver and his insurance provider for damages and later amended her lawsuit to also include her employer’s van’s insurance provider, ACE, to force ACE to cover any of her damages that were in excess of the other driver’s insurance policy. In Terrell v. Fontenot the Louisiana Court of Appeals ruled that ACE did not need to cover any excess damages because the van’s policy holder properly rejected the uninsured/underinsured provision of the insurance agreement.

Insurance providers typically offer their customers uninsured or underinsured insurance coverage, also called UM coverage. If an insurance provider provides UM coverage to its client the insurance provider may need to pay for any damages the customer sustained in a vehicle accident if the other driver was both at fault and uninsured or underinsured. UM coverage in an individual’s insurance policy can work as a safeguard against the individual having to pay for his own damages out-of-pocket if an uninsured or underinsured driver causes an accident with the individual.

Louisiana does not require a driver to have UM coverage, but a handful of states do. Because Louisiana does have a strong public policy favoring UM coverage, UM coverage is implied in automobile insurance policies, even if UM coverage is not explicitly listed in the insurance contract. The only time in Louisiana that UM coverage will not be read into an automobile insurance policy is when the customer has clearly and unambiguously rejected the coverage. The insurance provider has the burden of proof to prove that the rejection was sufficiently clear.

The court in Duncan v. U.S.A.A. Ins. Co. established the criteria for properly rejecting UM coverage: (1) initialing the rejection of UM coverage; (2) filling in the amount of coverage selected for each person and accident if the a limit lower than the policy limit is chosen; (3) printing the name of the insured or legal representative; (4) signing the corresponding signature; (5) filling in the policy number; and (6) filling in the date.

Ms. Terrell later amended her suit to also include the van’s insurance provider, ACE, so that if the other driver was later found to be at fault and did not have sufficient cash or insurance to pay all of her damages then ACE, through its UM coverage, would become liable for any remaining damages. The crux of the case, therefore, is whether the van’s ACE insurance policy includes UM coverage.

The court sided with ACE insurance in holding that the van’s insurance policy did not include UM coverage because the owner of the van properly rejected ACE’s UM coverage option. The owner of the van that Ms. Terrell was driving was a corporation— Professional Transportation, Inc. (PTI), a company that leased the vehicle from another owner.

The owner of the van, PTI, is a corporation and is unable to act on its own behalf. Instead PTI acts on its own behalf as all corporations do: by authorizing individuals to act on behalf of the corporation. That’s exactly what happened here. The owner of PTI verbally authorized one of its employees to obtain insurance and sign insurance forms. The court agreed with ACE that because that employee clearly and unambiguously rejected the van’s UM coverage ACE is not responsible for any UM insurance.

Ms. Terrell argued that although PTI’s employee rejected the UM coverage according to the above criteria for proper rejection, the rejection was invalid because PTI never properly authorized the employee to obtain insurance on its behalf. The court sided against Ms. Terrell because Louisiana’s Revised Statute 22:1295 makes clear that the insured or his legal representative can reject UM coverage. Here PTI’s employee was PTI’s legal representative, and Ms. Terrell was unable to convince the court that PTI had to do more than verbally authorize its employee to act on its behalf.

Because the owner of the van properly rejected the UM coverage, Ms. Terrell faces an uphill challenge if the Defendant is uninsured or underinsured and unable to pay all of her damages.

Court Finds Waiver of Uninsured/Underinsured Motorist Coverage

Published on: September 21, 2013 | By Berniard Law Firm

Although the law requires that all motorists obtain liability coverage, when pressed with financial difficulty and confronted with rising insurance premiums, some individuals voluntarily accept the risk of large fines and choose to forego liability insurance. Despite all attempts at exercising reasonable care, a fraction of these drivers inevitably end up causing accidents. And when they do, the lack of resources that led them to risk driving without insurance becomes the problem of the other driver who cannot recover for personal injury or property damage resulting from the accident.

This scenario led many states, Louisiana among them, to enact laws designed to encourage motorists to obtain Uninsured/Underinsured Motorist Coverage. The State of Louisiana is among the most aggressive in encouraging uninsured motorist coverage. Louisiana law requires that all policies contain underinsured/uninsured motorist coverage sufficient to pay damages for bodily injuries resulting from an accident. This is known as Uninsured/Underinsured Motorist Bodily Injury Coverage (“UMBI”). In addition to the required UMBI coverage, insurers offer Uninsured/Underinsured Motorist Property Damage Coverage (“UMPD”).

Under Louisiana law, therefore, all policies implicitly contain UMBI coverage unless the insured specifically “rejects” such coverage pursuant to a state-prescribed form. Even in states permitting the insurer to draft the UMBI waiver form, courts have developed a policy of construing these documents strictly against the drafter, in order to promote the public policy of obtaining such coverage.

Insurance Dispute With Steel Company Exposes Liability Apportionment, Terms

Published on: September 12, 2013 | By Berniard Law Firm

In a recent case, the Fifth Circuit Court of Appeals reviewed the lower court’s application of the “law-of-the-case” and “waiver” doctrines. Both of these doctrines are important rules that express the ultimate power of an appellate court in reviewing issues of law. Generally, an issue of law is a question regarding the application of law to a case. Therefore, in pursuing any civil suit, it is imperative to understand the implications and ramifications of an appellate court’s power to change the ruling in your case.

In Bayou Steel Corp. v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, the Fifth Circuit Court reviewed an insurance dispute that concerned the apportionment of liability for a severe leg injury that was suffered by a worker who was unloading steel bundles. In a complicated fact scenario, Ryan Campbell was injured, in 2002, while unloading steel bundles owned by Bayou Steel Corp. on a barge that was owned by Memco Barge Lines, Inc. Shortly before this incident occurred, Bayou Steel Corp. had contracted with Memco to transport the steel from LaPlace, Louisiana, to Chicago, Illinois. At the time of his injury, Ryan Campbell was working for Kindra Marine Terminal, a stevedoring company that was assigned to unload the steel bundles in Chicago. After the suit involving Ryan Campbell was settled, Bayou Steel Corp. brought suit seeking a declaration of coverage and reimbursement from National Union Fire Insurance.

After a series of appeals, the district court used the law-of-the-case doctrine to determine that Kindra was not a sub-contractor of Bayou Steel. Therefore, Campbell’s injuries fell within the language of the insurance policy that Bayou Steel held. Thus, the lower court entered summary judgment for National Union Fire Insurance Company of Pittsburgh, Pennsylvania.

According to the law-of-the-case doctrine, “when a court decides upon a rule of law, that decision should continue to govern the same issue in subsequent stages in the same case.” Thus, an issue of law “decided on appeal may not be reexamined by the district court on remand or by the appellate court on a subsequent appeal.” Accordingly, the Fifth Circuit agreed with the district court that that fact that Campbell did not fall within the exclusion in the policy held by Bayou Steel was part of the law of the case and subsequently held that this issue had been resolved on an earlier appeal.

The waiver doctrine “holds that an issue that could have been raised on appeal but is forfeited and may not be revisited by the district court on remand.” Id. Like the law-of-the-case doctrine, the waiver doctrine “serves judicial economy by forcing parties to raise issues whose resolution might spare the court and parties later rounds of remands and appeals.” However, the waiver doctrine “arises as a consequence of a party’s inaction, [and] not as a consequence of a decision on [the part of the Court of Appeals].” Thus, the Court of Appeals agreed that Bayou had waived their argument about the language of the policy by failing to raise it on remand after the first appeal or during the second appeal … “[b]ecause they failed to raise it during that period, the issue could not [have been] revisited by the district court on remand.”

In its decision, the Fifth Circuit ruled that the lower court had properly applied the law-of-the-case and waiver doctrines and that summary judgment in favor of National Union Fire Insurance Company of Pittsburgh, Pennsylvania, was appropriate.

All of these matters are inherently complicated and show that knowledge of the exact law is necessary to reach a successful outcome. While questions and issues of law must be decided by the court, your legal representative should be aware of the foregoing doctrines and should be able to adequately present your case.

Fall Accident Leads to Failing Res Ipsa Loquitor Suit in Ouchaita

Published on: September 10, 2013 | By Berniard Law Firm

An insurance company found itself on the defending side of a civil claim but not for the reason one might expect. Larry Modicue, a Louisiana man weighing 404 pounds, filed a claim against State Farm Casualty & Fire Insurance and its representative Rose Kennedy when the chair Ms. Kennedy offered him collapsed under his weight. The Fourth Judicial District Court granted the defendants’ motions for summary judgment and the Court of Appeal for the Second Circuit affirmed.

Mr. Modicue alleged that the incident in which his chair collapsed was an example of res ipsa loquitor. This common law phenomenon is found when a court deems that a particular incident or accident is the type that does not occur without negligence on behalf of some actor. Res ipsa loquitor means “the thing speaks for itself” in Latin and is a way for a plaintiff to prove the duty and breach prongs of a negligence case. As a review, a prima facie negligence case requires four essential elements: duty, breach, causation and harm. A plaintiff must prove each of these elements in order for a case to proceed to the trier of fact, whether judge or jury.

The appellate court reviewed the granting of a summary judgment de novo meaning that the appellate court could consider all things that the trial court could have considered in rendering its decision. The appellate court reviewed Louisiana C.C. art. 2317.1 in determining the outcome of this case. This statute places liability on the owner or custodian of a thing when that person knew or should have known through the exercise of reasonable care that a particular condition existed when it is determined that the condition caused damage to a plaintiff and the custodian or owner could have remedied the condition with reasonable care. Liability attaches if that care was not exercised. This statute is a reflection of traditional negligence principles. If a party has exclusive control over an object it is responsible for conditions in that object that cause harm to others. It is interesting to note that this statute goes on to specifically note that nothing in it should be construed to prevent a court from applying res ipsa loquitor. The appellate court found that Ms. Kennedy had no reason to know that this particular chair would give out under Mr. Modicue’s weight since it had held him without incident on a previous occasion.

The Court of Appeal went on to dismiss the plaintiff’s allegation that res ipsa loquitor applied to this situation. The court noted that Harper v. Advantage Gaming, 880 So. 2d 948 clarifies the situations in which res ipsa loquitor applies. That case required a court to find unusual circumstances such that, in the absence of other evidence, there was an inference of negligence on the part of the defendant. In conjunction with this the defendant must have had exclusive control over the object that caused the injury. These circumstances must lead to the finding that the only reasonable conclusion is that the defendant breached a duty to the plaintiff and that this was the cause of the plaintiff’s injuries.

The court in this case found that due to Mr. Modicue’s weight, there was more than one potential explanation for the chair’s failure. The court went on to explain that Mr. Modicue had not provided enough evidence to get the issue of the defendants’ negligence to the jury. As such, the defendants were entitled to a summary judgment as a matter of law. Mr. Modicue’s reliance on res ipsa loquitor caused his negligence claim to fail. Had he offered evidence of all four elements of negligence, it is possible that he would have succeeded, though it is unclear if this evidence existed.

Boat Injury Case Highlights Watercraft and Coverage Exclusions (Pt 2)

Published on: September 7, 2013 | By Berniard Law Firm

In 2008, three men were passengers on a chartered fishing boat that collided with a utility boat. The fishing boat’s insurance company was St. Paul Fire and the utility boat’s insurance company was Steadfast. Harvest Oil owned the utility boat. Normally, the insurance companies would fight about who was at fault and may eventually make it to court. However, this case was more complicated because the men in the fishing boat did not own the boat, and the owner of the utility boat filed for bankruptcy shortly after the passengers drug them into the lawsuit as a third party. The issue of waiver of a coverage defense while the insured is in a bankruptcy proceeding is one that has not been considered in Louisiana previously.

Harvest filed for bankruptcy in 2009 and the passengers in the accident filed in its bankruptcy proceeding as a creditor for “an amount to be determined.” Where an insured filed for bankruptcy, it was very smart of the injured party to file as a creditor because that helps protect their interest if the insurance company refuses to pay Harvest’s liability coverage.

When an individual or company files for bankruptcy, federal law provides an automatic stay on any other litigation proceedings. That means that all other litigation involving the debtor must be paused until the bankruptcy proceeding is closed. Therefore, Harvest dropped out of the insurance lawsuit, and the passengers had to sue the insurance company alone.

As a result, when Steadfast asserted the watercraft exclusion, that meant that the passengers could no longer sue the insurance company and had to sue the insured himself. Since the insured was in bankruptcy proceedings, there was not only a delay in the litigation because of the stay, but there was also a very real chance that the injured parties may not get any money.

When an individual goes into a bankruptcy proceeding, they have to pay off their creditors in a certain order. First, the secured creditors will receive payment. A secured creditor has something that they use as collateral for the loan or credit that they extended to the debtor. For example, if you have an automotive loan, your car is likely your collateral or security. If you file bankruptcy and cannot pay for your car loan, then, with a few exceptions, they will likely come take your car. When a creditor is unsecured, however, they cannot take anything and must share with all of your other unsecured creditors. That likely means that they will not get paid the entire debt that they are owed, and will usually only receive a small portion of their money back.

A judgment is an unsecured debt, and because the passengers filed so late, they are likely at the back end of the line of creditors in the bankruptcy proceeding. Louisiana law allows those with liability coverage to sue the insurer directly when the insured has been removed for bankruptcy proceedings under the Louisiana Direct Action statute. So, if the insurance company would have covered the accident, then the insurance company would have paid them directly instead of going through the insured. This is because liability coverage in Louisiana is not the property of the insured; it is the property of whoever the injured party was. Other types of insurance coverage, such as collision, for example, would still be the property of the insured and would be included in the bankruptcy proceedings. Where the insurance coverage would be a property of the estate, then the stay that applies to the insured would also apply to the insurer. However, that is not the case here because the liability coverage is not property of the insured.

Once the court decided the reservation of rights and waiver issues, then it questioned how those decisions were affect the bankruptcy proceeding. The court considered claim and issue preclusion. Preclusion in civil cases is a lot like the rule against double jeopardy in criminal cases; the idea is that you cannot keep taking someone back to court for the same offenses over and over again.

Claim preclusion does not allow the same parties or parities that are in privity, or connected in some way, to try the same claim or cause of action after a court of competent jurisdiction has rendered a final verdict. If the claim was litigated to completion, then it cannot be litigated again. It is sometimes difficult to determine if parties are in privity, however. Usually these relationships are based on a connection so strong that liability of one would normally be the liability of another such as in employee and employer relationships. An insurance company sued under the Louisiana Direct Action statute could be an example, but only if the insured’s and the insurer’s interests are aligned. In this case, because the insurer is asserting a coverage defense, then their interests are not aligned and they are not in privity. Therefore, claim preclusion does not affect the bankruptcy suit.

Issue preclusion is virtually the same as claim preclusion except that it applies to only one issue in the lawsuit instead of the entire case. The issue still needs to be completely decided by a court of competent jurisdiction, however. It also requires that the parties be the same, but there is no privity exception. Since the parties will not be the same in the bankruptcy proceeding, issue preclusion has no effect on the bankruptcy proceeding either.

The law overlaps occasionally and can result in some confusing and interesting results. You need an experienced attorney to help you navigate the legal waters.

Boat Injury Case Highlights Watercraft and Coverage Exclusions (Pt 1)

Published on: September 5, 2013 | By Berniard Law Firm

In 2008, three men were passengers on a chartered fishing boat that collided with a utility boat. The fishing boat’s insurance company was St. Paul Fire and the utility boat’s insurance company was Steadfast. Harvest Oil owned the utility boat. Normally, the insurance companies would fight about who was at fault and may eventually make it to court. However, this case was more complicated because the men in the fishing boat did not own the boat, and the owner of the utility boat filed for bankruptcy shortly after the passengers drug them into the lawsuit as a third party. The issue of waiver of a coverage defense while the insured is in a bankruptcy proceeding is one that has not been considered in Louisiana previously.

Harvest received a letter from their insurance company shortly the parties filed suit. The letter explained that the insurance company was “reserving their rights,” but it was signed by Zurich American Insurance Company, Harvest’s automotive insurance provider. Zurich North America owned both Steadfast and Zurich American Insurance Company, and Harvest had insurance policies with both of these carriers. Despite the fact that Zurich American Insurance Company signed the letter, the Steadfast policy was mentioned by name and policy number in the letter. In fact, the letter quoted a portion of the Steadfast policy that excluded watercrafts such as the one that was involved in the accident in 2008. The letter explained that the insurance company would be investigating the case, but reserved all of its rights in action. Essentially, when an insurance company reserves its rights, it means that wants the option of asserting a defense that may not be in the insured interests.

When the passengers sued the insurance company their initial answer did not mention that Steadfast had a watercraft exclusion. When the passengers asked to review the relevant insurance policies, Steadfast gave them copies of their standard primary and umbrella policies. Three separate insurance claims agents thought that Harvest’s claim would be covered because they overlooked the watercraft exclusion. Finally, in 2011, an insurance adjustor finally noticed the exclusion. As a result, Steadfast changed their defenses and asserted that they would not cover Harvest’s claim because of the watercraft exclusion. Steadfast also, understandably, changed their attorneys shortly after this discovery.

The passengers argued that Steadfast could not assert this defense so late in the litigation. They argued that Steadfast waived their coverage defense by proceeding with the lawsuit, and even if they did not waive the defense, they did not assert that right to begin with. The court in this case explained that the insurance company needed to have reserved their right to use this defense at the beginning of the litigation, so they analyzed the initial letter that Harvest received at the beginning of the lawsuit.

The passengers argued that Steadfast did not reserve its rights through the letter because the letter was very confusing. It was signed by another insurance company and confused the insured. The insured thought that Zurich, their automotive insurance company, was asserting its rights; not that Steadfast was asserting its rights. In addition, the letter only referred to investigation and did not mention anything relating to a defense.

Generally, if the insurance company assumes a defense of the insured without first reserving its rights, that constitutes a waiver. However, the court found that Steadfast did reserve its rights in the letter sent to Harvest. The court points out that the letter specifically referred to the policy with Steadfast and quotes language from it. The fact that the insured did not read the letter carefully, the court concluded, should not inhibit Steadfast from reserving its rights. Since Louisiana does not require technical language to reserve its rights to a defense, the insurance company was not required to describe which rights in particular they were reserving.

However, the insurance company can still waive their rights even where they have reserved their rights. The court pointed out that under Louisiana law, an insurance company can waive any provision of an insurance contract, even if that waiver has the effect of extending coverage. Waiver requires misleading conduct on the part of the insurer and a prejudice to the insured.

Louisiana law requires that the insurance company induce their insured to belief that they were waiving their rights. In this case, although Steadfast mistakenly thought that Harvest was covered, they did not communicate that mistake to Harvest. Steadfast did not act with the intention of misleading their insured; they acted because of a mistake regarding coverage, so Steadfast did not deliberately mislead Harvest.

Waiver also requires that the insured be harmed because of the misleading conduct. Due to the bankruptcy proceedings, Harvest was not harmed by the delay and confusion because they were not actually a party in the case involving the passengers. The court explained that they could not have been harmed in a case where they were not a party.

As a result, the court concluded that Steadfast asserted and reserved their rights properly and did not waive their coverage defense. But, how does that affect the bankruptcy proceeding? Look for part two to find out.