STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT
09-506
BENTON SPECIALTIES, INC., ET AL.
VERSUS
CAJUN WELL SERVICE, INC., ET AL.
************
APPEAL FROM THE SIXTEENTH JUDICIAL DISTRICT COURT PARISH OF ST. MARTIN, NO. 68,530 HONORABLE LORI A. LANDRY, DISTRICT JUDGE
DAVID E. CHATELAIN* JUDGE
Court composed of Sylvia R. Cooks, Oswald A. Decuir, Jimmie C. Peters, Shannon J. Gremillion, and David E. Chatelain, Judges.
Gremillion, J., dissents and assigns written reasons.
REVERSED IN PART, AFFIRMED IN PART, AND RENDERED.
Stan Gauthier, II Nichole Laborde Romero Attorneys at Law 1405 West Pinhook Road, Suite 105 Lafayette, Louisiana 70503 (337) 234-0099 Counsel for Defendant/Appellant: Cajun Well Service, Inc.
* Honorable David E. Chatelain participated in this decision by appointment of the Louisiana Supreme Court as Judge Pro Tempore. Susan Nations Juneau Law firm Post Office Drawer 51268 Lafayette, Louisiana 70505 (337) 269-0052 Counsel for Plaintiffs/Appellees: Lexington Insurance Company Benton Specialties, Inc.
Jonathan C. Augustine The Augustine Firm, APLC 8322 One Calais Avenue Baton Rouge, Louisiana 70809 (225) 715-7112 Counsel for Defendant/Appellee: Petrosurance Casualty Company CHATELAIN, Judge Pro Tempore.
This concursus proceeding involves the disbursement of funds recovered by
a workers’ compensation insurer via intervention in the third-party tort litigation of
its insured’s employee. The insured employer appeals the trial court’s award of the
concursus funds to the insurer and denial of its request for sanctions and award of
attorney fees against insurer’s counsel. For the following reasons, the judgment of
the trial court is reversed in part, affirmed in part, and rendered.
Facts and Procedural Background
In 1995, Cajun Well Service, Inc. (Cajun) contracted with Petrosurance
Casualty Company (Petrosurance) for workers’ compensation coverage. The term of
the policy issued by Petrosurance was November 25, 1995, through November 25,
1998, but with one year renewals. The policy included a retrospective premium
endorsement which provided for a one-year retrospective rating plan. A retrospective
rating plan provides for the calculation of the insured’s premium after the conclusion
of the policy period. One factor included in the final premium calculation is claims
paid by the insurer. If no claims are made, the insured’s premium is less than it would
have been for a standard policy.
On January 24, 1996, Cajun’s employee, Warren Malveaux, sustained a work
injury. Mr. Malveaux filed a third-party tort action to recover damages for his injury,
and Petrosurance intervened in the action to recover workers’ compensation benefits
it had paid with regard to Mr. Malveaux’s injury. In January 2004, Mr. Malveaux and
Petrosurance agreed to settle their claims against the tortfeasor and its insurer.
Petrosurance had paid $118,0001 in medical and indemnity benefits to Mr. Malveaux;
1 For ease of reading and calculations, dollar amounts referenced in our discussion have been rounded up or down to the nearest dollar, as this methodology was utilized by Petrosurance in its
1 it accepted $59,000 (the funds) in settlement of its claim. Cajun claimed it was
entitled to the funds, and the tortfeasor and its insurer instituted a concursus
proceeding, naming Cajun and Petrosurance as defendants and depositing the funds
into the registry of the court.
In 2005, Petrosurance filed a motion for summary judgment, seeking a
judgment awarding it the funds. The basis of its claim was a subrogation clause
contained in the policy. The trial court granted judgment as requested, and Cajun
appealed. This court reversed the trial court’s judgment, holding:
This is a case of first impression for this court. There are no cases that address the issue of retrospective premiums[,] and no clear language in the contract that addresses whether the insurance company is entitled to receive more in reimbursement than actually paid out of pocket. Cajun argues that Petrosurance was acting merely as an administrator in the payment of some of the benefits. This is a material issue of fact which precludes summary judgment. We reverse the judgment of the trial court and remand this matter for trial on the merits so that a clear determination may be made of the nature of the payments by Cajun to Petrosurance and so that a determination may be made as to whether Cajun is entitled to any reimbursement.
Benton Specialties, Inc. v. Cajun Well Serv., Inc., 05-842, pp. 3-4 (La.App. 3 Cir.
2/1/06), 922 So.2d 687, 689.
On remand, Cajun hired an expert witness to provide the trial court with
information as to the policy and Cajun’s claim to the funds. Petrosurance sought to
exclude the expert’s testimony or, alternatively, to limit his testimony, arguing that
the analysis the expert presented in his report included a legal analysis of the policy,
which is within the purview of the court. The trial court denied Petrosurance’s
request to exclude Cajun’s expert’s testimony but limited the expert’s testimony.
premium calculations without objection by Cajun.
2 After summary judgment was granted but before Cajun filed its suspensive
appeal, the clerk of court disbursed the funds to counsel for Petrosurance. On receipt
of the funds, counsel forwarded them to his client. Prior to trial, counsel for Cajun
learned that Petrosurance had received the funds and issued a writ of sequestration
to have the funds redeposited into the registry of the court. He then filed a motion for
sanctions against counsel for Petrosurance, Petrosurance, an attorney who had
assisted counsel by appearing at a deposition for him, and a law firm with which
counsel became associated after the funds had been disbursed. Cajun also requested
attorney fees for having to file a motion for sanctions to have the funds returned to
the clerk of court.
In response to Cajun’s rule for sanctions, Petrosurance filed a motion to
dismiss, a motion to strike, peremptory exceptions of no cause of action and
non-joinder of a party, and a dilatory exception of unauthorized use of a summary
proceeding. It also filed a rule to show cause why sanctions should not be levied
against Cajun’s counsel.
Trial on the merits and these ancillary matters was held February 25, 2008.
The trial court concluded that the subrogation provision of the policy entitled
Petrosurance to the funds and awarded judgment in its favor. In a separate judgment,
the trial court granted Petrosurance’s motion to dismiss Cajun’s request for sanctions
and attorney fees but ordered counsel for Petrosurance to pay all costs associated with
the writ of sequestration and Cajun’s motions. Cajun’s requests for relief and the
remainder of Petrosurance’s requests for relief were denied.
Cajun appealed both judgments. Petrosurance filed a motion to dismiss
Cajun’s appeal of the trial court’s judgment denying its rule for sanctions on the bases
3 that it was an interlocutory judgment and that Cajun had not made a showing of
irreparable harm. Another panel of this court determined that because a final,
appealable judgment had been rendered on the merits, it was appropriate for the
interlocutory judgment to be subject to appellate review with the judgment on the
merits. Benton Specialties, Inc. v. Cajun Well Serv., Inc., 09-506 (La.App. 3 Cir.
6/10/09), 13 So.3d 257. Accordingly, we address all of Cajun’s assignments of error.
Cajun assigns error with the trial court’s limitation of its expert’s testimony,
award of judgment in favor of Petrosurance, and denial of its request for sanctions
and attorney fees.
Discussion
Cajun’s first two assignments of error pertain to Petrosurance’s policy and raise
an issue of interpretation; therefore, we begin our discussion with a review of the law
regarding contract interpretation. An insurance contract is a conventional obligation
that constitutes the law between the insured and insurer. Peterson v. Schimek,
98-1712 (La. 3/2/99), 729 So.2d 1024. Certain principles of construction guide the
interpretation of contracts, and insurance contracts are interpreted in the same manner
as other contracts. Id. Contracts must be read and construed as a whole. Id. “When
the words of an insurance contract are clear and explicit and lead to no absurd
consequences,” the policy must be enforced “as written,” and courts “may make no
further interpretation in search of the parties’ intent.” Id. at 1028.
When a contract can be construed from the four corners of the document,
contract interpretation is a question of law. Sims v. Mulhearn Funeral Home, Inc.,
07-54 (La. 5/22/07), 956 So.2d 583. Appellate review of a question of law is limited
to determining whether the trial court’s determination is legally correct or incorrect.
4 CLK Co., L.L.C. v. CXY Energy, Inc., 07-834 (La.App. 3 Cir. 12/19/07), 972 So.2d
1280, writs denied, 08-140, 08-207 (La. 3/14/08), 977 So.2d 932, 937.
The trial court’s determinations that Petrosurance is entitled to the funds and
that Cajun’s expert’s testimony should be limited are based on the following
provision of the policy:
Recovery from Others
We have your rights, and the rights of persons entitled to the benefits of this insurance, to recover our payments from anyone liable for the injury. You will do everything necessary to protect those rights for us and to help us enforce them.
The trial court concluded that the subrogation provision was clear and explicit
and that Petrosurance had the right to enforce it as written. We agree. However, the
trial court considered this provision in isolation and to the exclusion of other policy
provisions and the evidence. For these reasons, we address Cajun’s assignments of
error in light of the entire policy and the evidence.
Entitlement to the Funds
Cajun asserts that it is entitled to receive all the funds because the amounts it
paid to Petrosurance were used to pay Mr. Malveaux’s claims. Petrosurance relies
on the policy’s subrogation provision quoted above to defend the trial court’s award
of the funds to it.
Cajun contends that Petrosurance acted as a third-party administrator because
Petrosurance used Cajun’s money to pay Mr. Malveaux’s claims and asserts that it is
subrogated to the funds. Its argument is based on Insurance Co. of North America
v. Binnings Construction Co., Inc., 288 So.2d 359 (La.App. 4 Cir. 1974),
5 La.Civ.Code art. 1826,2 its expert’s testimony, and the $77,000 it paid to Petrosurance
for indemnity benefits and medical expenses Petrosurance paid on Mr. Malveaux’s
claims.
Binnings did not hold that under a retrospective rating plan, the insurer is a
third party administrator. Rather, the court in Binnings observed that because
“insureds must . . . pay the insurer as increased premium for [payments] the insurer
has made; . . . it may be said that, within those premium limits, the insurer [pays]
claims not with its own money but with insureds’ money.” Id. at 360-61 (emphasis
added). Additionally, subrogation may be legal or conventional. La.Civ.Code art.
1825. Here, it is conventional and governed by Petrosurance’s policy, which is the
law between the parties. Consequently, we must determine if any provision other
than the subrogation provision affects who recovers the funds.
Petrosurance’s defense of the trial court’s judgment is based on the policy’s
subrogation provision and its calculation of a “final” premium before the funds were
recovered. Kristine Williams, Petrosurance’s representative, testified regarding the
policy and the parties’ claims to the funds. She testified that Petrosurance audited
Cajun’s payroll in January 1997 and that she used the audit to make a “final”
premium calculation in 2000. According to the “final” premium calculation, Cajun
2 Louisiana Civil Code Article 1826 provides:
A. When subrogation results from a person’s performance of the obligation of another, that obligation subsists in favor of the person who performed it who may avail himself of the action and security of the original obligee against the obligor, but is extinguished for the original obligee.
B. An original obligee who has been paid only in part may exercise his right for the balance of the debt in preference to the new obligee. This right shall not be waived or altered if the original obligation arose from injuries sustained or loss occasioned by the original obligee as a result of the negligence or intentional conduct of the original obligor.
6 was due a refund because the premiums it paid exceeded the “final” premium she had
calculated. Ms. Williams testified that the refund due Cajun had been mailed to it.
During direct examination, Ms. Williams relied on the following policy provision for
her claim that the 2000 premium calculation was “final”:
After a calculation of retrospective premium, you and we may agree that it is the final calculation. No other calculation will be made unless there is clerical error in the final calculation.
Ms. Williams admitted on cross-examination, however, that she did not see a
document in Cajun’s file which indicated the 2000 accounting was “final,” and,
although she testified immediately thereafter that the overpayment refund order was
labeled “final,” she admitted she had not seen that documentation during the trial.
Ms. Williams also testified that, “there comes a point in time when the policy (not
audible) froze out” and that because the funds were recovered years after her “final”
calculation, they were not included therein. Counsel for Cajun continued pressing
Ms. Williams about accounting for the funds in the premium calculation, and she
admitted that if the funds had been recovered before the “final” accounting had been
done “it would have been an issue.”
Cajun’s expert, Dr. William L. Ferguson, did not dispute any of Ms. Williams’
testimony regarding the policy provisions, the premiums, or her calculations. He did
testify, however, that he had not found evidence establishing Petrosurance had paid
the premium refund due Cajun. He further testified that the policy had no set time to
close, that it would not be closed until the parties agreed, and that he never saw a
document evidencing that the policy was closed. Dr. Ferguson also testified that
when a recovery is made under a retrospective premium policy it benefits the insured
first and the insurer cannot keep any of the recovery until the insured is made whole.
7 Ms. Peggy Thibodeaux, Cajun’s bookkeeper, also testified at trial; however,
her testimony could not be transcribed due to a problem with the recording equipment
in the courtroom. The trial court summarized her testimony and stated in its Reasons
for Judgment that Ms. Thibodeaux testified she did not recall receiving the premium
refund and that she did not testify about the terms of the policy. The trial court’s
summary of Ms. Thibodeaux’s testimony is not disputed by the parties, and we accept
it as being accurate.
Ms. Williams admitted that recovery of the funds would have affected the
calculation of Cajun’s premium but claimed it came too late because there had been
a final calculation of the premium as provided in the policy. The policy provides in
pertinent part:
We will calculate the retrospective premium using all loss information we have as of a date six months after the rating plan period ends and annually thereafter. . . .
....
After a calculation of retrospective premium, you and we may agree that it is the final calculation. No other calculation will be made unless there is clerical error in the final calculation.
These provisions provide for a premium calculation six months after the policy
ended and annually thereafter, unless the parties agree otherwise. The only audit
performed after the policy ended was in January 1997, approximately six weeks after
the policy plan ended in November 1996. Ms. Williams testified that she performed
the “final” calculation required by the policy in 2000, which resulted in Cajun being
due a refund. However, she acknowledged that no document in evidence contains a
calculation labeled “final.” Further, she did not testify that Cajun agreed her 2000
premium calculation was “final” or that Petrosurance had proof Cajun received the
8 refund it was owed. Ms. Thibodeaux testified, contrary to Ms. Williams, that she did
not recall receiving a refund from Petrosurance, and there is no evidence of such a
refund in the record or that Cajun agreed the 2000 premium calculation was final.
Ms. Williams also claimed that the premium calculation she performed in 2000
was the final calculation because the funds were recovered many years after the
policy terminated and the policy “froze out” before that time, indicating the premium
calculation was finalized by the passage of time. No provision in the policy provides
for this.
For these reasons, we find that the trial court’s judgment awarding the funds
to Petrosurance was legally incorrect and reverse it. Accordingly, we must now
determine who is entitled to the funds.
Pursuant to the policy, the amount of Cajun’s premium depends on five
elements: 1) standard premium; 2) basic premium; 3) incurred losses; 4) converted
losses; and 5) taxes. Pertinent to the resolution of the issue presented herein is
incurred losses which is defined as: “all amounts we pay or estimate we will pay for
losses, interest on judgements, expenses to recover against third parties, and
employers liability loss adjustment expenses.” Ms. Williams and Dr. Ferguson both
testified that recovery of incurred losses through subrogation reduces the amount of
incurred losses included in the premium calculation.
Petrosurance did not prove that a final reconciliation had been done and
accepted by Cajun; therefore, we will calculate Cajun’s final premium to account for
the funds. Ms. Williams testified how the final calculation of Cajun’s premium
would be performed to account for the funds. According to the policy and
Ms. Williams’ testimony the formula for calculating Cajun’s premium is:
9 Basic premium (payroll x basic premium factor (.30))
+ Converted losses (incurred losses x loss conversion factor (1.108))
x Tax factor (1.067)
Using this formula, we calculate Cajun’s final premium as follows:
$ 56,579 ($188,5963 x .30)
+ 82,939 ($133,855 - 59,000 = (incurred losses) x 1.108) $139,518
x 1.067
$148,866
Cajun paid premiums totaling $190,295, which exceeds the premium it owes
by $41,429, and it is entitled to this portion of the funds. Petrosurance is entitled to
$17,571, the difference between $59,000 and $41,429.
Expert Witness Testimony
Cajun asks this court to reverse the trial court’s determination that its expert
witness could not give his opinion as to how the policy should be interpreted, i.e.,
who is entitled to the funds. It proffered a copy of Dr. Ferguson’s report to facilitate
our review of this issue.
The trial court is allowed much discretion in determining whether to allow a
witness to testify as an expert under La.Code Evid. art. 702, and its judgment will
remain undisturbed unless that discretion was abused. Cheairs v. State ex rel Dep’t
of Transp. & Dev., 03-680 (La. 12/2/03), 861 So.2d 536. The trial court did not err
3 Ms. Williams calculated the premium as 30% of Cajun’s payroll. The policy provides that the basic premium is 30% of the standard premium. Review of the January 1997 audit reveals that the payroll and standard premium are the same, as the original standard premium of $168,407 was revised to $188,596, as a result of the audit.
10 in holding that it is the court’s province to interpret a contract, and we find no error
with the trial court’s ruling in this regard.
Pursuant to the trial court’s ruling, Dr. Ferguson testified regarding industry
standards, practices, and customs and that any subrogation recovery goes to the
benefit of the insured, but he was not allowed to testify how recovery of the funds
affected the calculation of Cajun’s premium. We have reviewed Dr. Ferguson’s
report. The information and opinions contained therein are comparable to the
testimony of Petrosurance’s representative. Dr. Ferguson opined that Cajun’s
premium was reduced by recovery of the funds and outlined the process for
calculating the premium. His premium calculation followed the process explained
by Ms. Williams, i.e., it included incurred expenses as defined by the policy and a
credit to Cajun in the amount of the funds. Therefore, we find that the trial court
erred in refusing to allow Dr. Ferguson to testify regarding the effect the funds had
on Cajun’s premium.
We note, however, that Dr. Ferguson used $133,359 for incurred losses in his
calculation, but Ms. Williams testified that the incurred losses were $133,855.
According to Dr. Ferguson’s report, the $133,359 figure included in his calculation
was obtained from two documents attached to Petrosurance’s memorandum in
support of its motion for summary judgment. We have reviewed the documents
attached to Petrosurance’s memorandum; they appear to be the same documents
Petrosurance introduced at trial. The documents include an itemization of payments
made for Mr. Malveaux’s claim and copies of cancelled checks representing those
payments. The documents support Ms. Williams’ testimony that incurred losses were
$133,855. Accordingly, we used that figure in our calculation above.
11 Sanctions
Cajun urges that the trial court erred in denying its request that sanctions be
imposed against counsel for Petrosurance and that he be ordered to pay attorney fees
Cajun incurred to have the funds redeposited with the clerk of court. The trial court
explained in its Reasons for Judgment that it determined sanctions were not
appropriate because it found counsel for Petrosurance had “no intention to defraud
this Court or opposing party” and attributed his actions to “overzealousness, as
opposed to an intentional defrauding of the Court or opposing counsel.” However,
the trial court did order counsel for Petrosurance “to pay the cost of filing and hearing
of the Rule for Sanctions, as it was based on his error.” Cajun’s request for attorney
fees was refused because, as the trial court aptly observed, while Cajun’s counsel was
within his right to file the motion for sanctions, he did not take “the least costly
course of action” of requesting a return of the funds before filing a motion.
A trial court’s decision to grant or deny sanctions or attorney fees against an
attorney will not be reversed unless it is manifestly erroneous. Miller v. Miller,
35,358 (La.App. 2 Cir. 12/5/01), 803 So.2d 292. We have reviewed the record and
find the trial court’s denial of Cajun’s request for sanctions and attorney fees was not
manifestly erroneous.
Conclusion
The judgment of the trial court assigning the $59,000 deposited in the registry
of the court plus interest to Petrosurance Casualty Company is reversed. The $59,000
deposited in the registry of the court is to be disbursed as follows: $41,429 plus
interest to Cajun Well Service, Inc. and $17,571 plus interest to Petrosurance
12 Casualty Company. The other judgments of the trial court are affirmed. Costs are
assessed to Petrosurance Casualty Company.
13 COURT OF APPEAL
THIRD CIRCUIT
STATE OF LOUISIANA
09-506 Benton Specialties, Inc., et al. v. Cajun Well Service, Inc., et al.
GREMILLION, Judge, dissenting.
This concursus proceeding involves the dispute between an insurer and its
insured over entitlement to the money derived from a settlement negotiated by the
insurer with a third party tortfeasor of the intervention filed by the insurer in its
insured’s employee’s suit against the tortfeasor. The insured contested the insurer’s
subrogation and the tortfeasor deposited the proceeds into the registry of the court
and invoked the concursus.
Cajun’s policy was a retrospective premium policy, in which the insurer agreed
to charge a discounted premium, but reserved the right to charge additional premiums
during the policy term if claims were made. For instance, Cajun would have paid
premiums of $168,307 under a traditional policy, but only paid $113,158 under the
retrospective premium scheme. However, after Malveaux’s claim, Petrosurance
charged Cajun an additional $77,137 in retrospective premiums.
The majority concludes that the insured is entitled to $41,429 and the insurer
is entitled to $17,571. It achieves this result by recalculating the retrospective
premium. The recalculating of the premium is unwarranted, and does great violence
to the policy language.
The policy language here is clear and unambiguous. The premium the insured
owed was to be calculated using the loss information available as of six months after
the rating plan period ends and annually thereafter. The recovery of this settlement
in Malveaux’s case—which I again emphasize was achieved solely through the efforts of the insurer—occurred well after the rating plan period and should not have
been used at all in calculating the premium.
The majority bypasses this provision by concluding that there was no “freeze
out” period in the policy and by pointing out as evidence that the premium calculation
was never “final” the fact that the insurer looked back over the plan and may have
given a refund to the insured four years after the fact. This is a classic example of no
good deed going unpunished. This, in my opinion, does not reopen the premium
calculation because no new information was used by the insurer in determining that
it owed a refund to the insured, whereas the recovery of the settlement by the insurer
clearly constitutes new information not available as of six months after the rate plan
period. The policy did indeed contain a “freeze out” provision: the premium was to
be based on the information available as of six months after the rating plan period.
The insurer prosecuted the intervention to recover the lien and settled the lien
at its expense by virtue of the subrogation provision. While recognizing the existence
of the subrogation provision, the opinion effectively writes it out of the policy.
I would also point out that during the period for which Cajun was charged the
retroactive premium, Petrosurance was exposed to the prospect of additional claims.
Although it was fortunate for all that no additional claims arose, the fact remains that
Petrosurance was forced to factor the potential for additional claims into its business
decisions. Had additional claims arisen, Petrosurance would have covered them; and
under its contract, no additional premiums could have been charged, as the policy
capped the retrospective premium at the amount Cajun was charged as a result of
Malveaux’s claim. Petrosurance would have been forced to honor this arrangement,
and Cajun would have had no reason to complain. Yet, under the one hypothetical
such an arrangement could have inured to the benefit of Petrosurance, the majority does not require Cajun to honor its commitment. Cajun was not forced to purchase
a retrospective premium policy. It negotiated the terms of the policy with the
anticipation that it would result in substantial savings. This was a calculated business
decision. Its miscalculation should not result in a decision that completely abrogates
the language of the policy.
I respectfully dissent.