Reliance v. Louisiana Land

• Court: Court of Appeals for the Fifth Circuit
• Decided: April 4, 1997
• Docket: 96-30303
• Status: Published

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 96-30303

RELIANCE INSURANCE COMPANY, Plaintiff Third Party Defendant - Appellee - Appellant,

versus

THE LOUISIANA LAND AND EXPLORATION COMPANY, Defendant Third Party Plaintiff - Cross Claimant - Appellant - Appellee,

CBS ENGINEERING, INC., Defendant - Cross Defendant - Appellee,

GULF ISLAND FABRICATION, Third Party Defendant - Third Party Plaintiff - Appellant - Appellee,

LLOYD’S LONDON, Third Party Defendant - Appellee,

THE UNITED NATIONAL INSURANCE COMPANY, Third Party Defendant - Appellee.

LOUISIANA LAND AND EXPLORATION COMPANY, Plaintiff - Appellant,

GULF ISLAND FABRICATION, INC., Defendant - Appellee,

LLOYD’S UNDERWRITERS AT LONDON, Defendant - Appellee.

Appeals from the United States District Court For the Eastern District of Louisiana

April 4, 1997

Before HIGGINBOTHAM, SMITH, and BARKSDALE, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge:

In the wake of an accident during the load-out of part of an

offshore oil platform, the parties in this case find themselves

litigating the question of who should bear the burden of the loss.

We conclude that the district court resolved the cases properly,

which means that none of the efforts to re-allocate expenses can

survive summary judgment.

I.

Louisiana Land & Exploration Co. entered into two contracts in

connection with its efforts to drill for oil off of the gulf coast.

In February of 1991, LL&E contracted with Gulf Island Fabrication

for the construction, load-out, and tie-down of an offshore

facility. Gulf Island was to construct the “jacket” — the legs of

the offshore platform — at its yard in Houma, Louisiana. LL&E

would hold title to the jacket at all times. The contract

specified that the risk of loss fell upon Gulf Island “until the

Marine Surveyor has certified the acceptability of the Stowage of

the Cargo upon the barge(s) supplied by the Installation

Contractor.” The contract required both that Gulf Island defend

and indemnify LL&E against any claims arising out of damage caused

by Gulf Island or any of its agents and also that Gulf Island

maintain various insurance policies while performing work for LL&E.

Gulf Island obtained a general liability insurance policy from

Lloyd’s. Gulf Island also maintained an insurance policy for

builders’ risk with Reliance Insurance Company, the original

plaintiff in this case.

2 LL&E’s second contract was with CBS Engineering, which agreed

to provide “structural design, facilities design and project

management” services in connection with Gulf Island’s fabrication

of the jacket. Essentially, LL&E hired CBS to oversee Gulf

Island’s progress on the project and to provide professional

engineering services. The contract with CBS contained a

comparative fault provision for damage to the property of either

party. It also required CBS to defend and indemnify LL&E in case

CBS’s negligence caused any damage to or claims against LL&E. When

the parties executed the contract, they crossed out and initialed

a provision that would have required CBS to indemnify LL&E for

CBS’s negligence in performing professional services. In

compliance with the contract, CBS obtained general liability

insurance from United National Insurance Company (“UNIC”) and named

LL&E as an additional insured. The UNIC policy, however, did not

insure against professional negligence.

The parties planned to load the jacket onto a barge with a

width of 100 feet in order to transport it for installation in the

gulf. But the widest barge available was only 72 feet wide. Gulf

Island proposed a plan to modify the barge to accommodate the

jacket. Gulf Island’s strategy was to build load-out beams across

the barge so that the legs of the jacket would have someplace to

rest. This would have been relatively safe, but it was also very

expensive, and LL&E and CBS rejected the plan. CBS developed an

alternative plan, which LL&E and Gulf Island agreed to implement.

This plan involved reinforcing interior components of the jacket so

3 that they could bear the weight of the jacket without help from the

jacket’s legs. During load-out, however, the jacket collapsed and

rolled off of the barge. Both the jacket and the barge were

damaged.

In an August 26, 1991, letter from its vice president of

operations, Gulf Island acknowledged its responsibility under the

risk-of-loss provision to repair the jacket. Gulf Island performed

these repairs and eventually loaded out the jacket successfully.

Reliance fulfilled its obligations under the builders’ risk policy

and reimbursed Gulf Island in the amount of $275,425.22.

Then Reliance, as Gulf Island’s subrogee, sued LL&E and CBS to

recover the costs of the jacket repairs, which Reliance claims were

due to the fault of LL&E and CBS. LL&E filed a cross-claim against

CBS and third-party claims against UNIC, Gulf Island, and Lloyd’s.1

Gulf Island eventually filed its own third-party claim against

Reliance.

On September 30, 1993, the district court dismissed Reliance’s

claim against CBS on a summary judgment motion. On October 4, it

dismissed Reliance’s claim against LL&E. Both dismissals were

predicated on the insufficiency of evidence presented by Reliance’s

expert, Dennis Sherman. Mr. Sherman offered muddled deposition

testimony, and the court had denied Reliance’s request to

supplement his report in order to clarify the testimony. Two days

later, the court dismissed LL&E’s claim against CBS. The court

1 LL&E also filed a separate suit against Gulf Island and Lloyd’s. The district court consolidated that suit with the litigation initiated by Reliance.

4 further held that the indemnity provision in the contract between

LL&E and Gulf Island would not be triggered unless Gulf Island was

at fault in causing damage to the jacket.

After Reliance’s claims were dismissed, Gulf Island filed its

third-party demand against Reliance in order to recover the costs

of defending against LL&E and to claim a right to reimbursement for

any damages Gulf Island might suffer in LL&E’s third-party claim

against Gulf Island. In November of 1995, LL&E settled its claim

against Gulf Island for LL&E’s defense costs and attorneys’ fees

throughout this litigation. The district court dismissed Gulf

Island’s third-party complaint on February 14, 1996.

Three parties have appealed. Reliance appeals the summary

judgments granted in favor of LL&E and CBS. LL&E appeals the

summary judgments granted in favor of CBS, UNIC, Gulf Island, and

Lloyd’s. And Gulf Island appeals the summary judgment granted in

favor of Reliance. We take up each of these disputes in turn.

II.

A.

Reliance filed its expert report on time, and Mr. Sherman gave

his deposition during the 30 days between the deadline for

Reliance’s expert report and the deadline for LL&E’s and CBS’s

expert reports. Mr. Sherman’s report did not address CBS’s load-

out plan. Instead, it analyzed the quality of the original design

of the jacket. At the deposition, Mr. Sherman seemed to deny that

his analysis contributed to an understanding of what caused the

jacket to fail during the load-out. When asked whether he was

5 “asked to form an opinion as to the cause of this casualty,” he

said: “No. Not really. I was not looking into how or why it was

caused.” He admitted that he “never went to the point of failure

analysis to determine if [the jacket] is under designed enough to

be failing, or to expect it to fail.” Instead, he limited himself

to asking whether the jacket was designed so that it could handle

the load-out plan as designed by CBS and as executed by Gulf

Island. As LL&E and CBS prepared for trial, they operated on the

theory that Mr. Sherman had no opinion as to whether deficiencies

in CBS’s work contributed to the load-out accident.2

2 The attorney representing CBS and UNIC tried to pin Mr. Sherman down on this point. Mr. Sherman: [T]he report states where members are under designed. It doesn’t state whether the structure would fail at being under designed to that point. In other words, a member may not be designed per codes, but still may not fail. It’s hard to say whether it would fail or not. . . . Mr. Redwine: I gather from that answer that you have not formed an opinion as to whether your perceived under design had anything to do with this casualty. . . . A: . . . I can’t state that the under design was the definite reason for the casualty. Q: Can you state whether the under design was any part of the casualty? A: No, I can’t state that with certitude, no. Q: I may seem to be repeating myself, and asking the same question a different way. I want to be sure I understand exactly what is going on here. I want to be sure that you have a chance to answer completely. . . . As I understand it from your answers, and correct me immediately if at anytime I am wrong, you were asked only to determine whether the design of this structure was proper for the load-out procedure that was proposed by Gulf Island Fabrication, or that was proposed by — A: Yes, I was asked if the proposed load plan as of the CBS drawings and the load-out plan actually used by Gulf Island, which were not identical, whether they were — whether they were — the

6 Based on the report and the deposition, LL&E and CBS decided

that it did not need to counter Mr. Sherman’s testimony with an

engineering expert of its own. Ten days after the defendants’

deadline for submitting expert reports had passed, Reliance sought

the court’s permission to supplement Mr. Sherman’s report. Mr.

Sherman’s supplemental report would “specifically address his

opinion regarding the cause of the failure of the load out method

provided by defendants in plain English, as opposed to being

contained in mathematical calculations as it was in the original

report.” Reliance assured the court that Mr. Sherman would be

available for further depositions and that supplementing the report

would not delay trial.

LL&E and CBS vigorously opposed Reliance’s motion to

supplement the report. They pointed out that the discovery cut-off

date was only three weeks away and that the supplement might cause

structure itself was adequately designed for either of those conditions. Q: And that was the limit of what you were asked to do. A: Right. Q: You were not asked, I gather, to form any opinion as to the propriety of either the CBS load-out plan or the load-out procedure that Gulf Island Fabrication actually used. A: No. I was only asked in regard to the design. Not to the actual loading out. . . . Q: I think you previously told me all you were asked to do and all you have done is to analyze the structural integrity of that platform to see if it was designed properly for the proposed load-out on to a seventy-two foot barge. A: Yes. Q: Is that the limit of what you did? A: Yes. . . .

7 them to need an engineering expert of their own. With pre-trial

conference only two months away, delays were likely. LL&E and CBS

also argued that the court should not allow a modification of the

discovery schedule because Reliance failed to request

supplementation at the earliest possible date.

Whatever the import of Mr. Sherman’s testimony, the district

court did not abuse its discretion when it denied Reliance’s

request to supplement its expert report. Fed. R. Civ. P. 16(b)

allows a scheduling modification only for good cause. We consider

four factors in determining whether the district court abused its

discretion in holding that Reliance did not show good cause: “(1)

the explanation for the failure to [submit a complete report on

time]; (2) the importance of the testimony; (3) potential prejudice

in allowing the testimony; and (4) the availability of a

continuance to cure such prejudice.” Geiserman v. MacDonald, 893

F.2d 787, 791 (5th Cir. 1990). As in Geiserman, the first and

third of these factors weigh against deviation from the schedule.

Reliance asked for an opportunity to avoid the deadline for its

expert report merely because the deposition of its expert witness

did not go well. It has offered no justification for its delay in

attempting to cure Mr. Sherman’s deposition and report.

Furthermore, the court concluded that “[t]o allow plaintiff to add

more material now and create essentially a new report would

prejudice the defendants, who would then have to get an expert to

address these last-minute conclusions, and thus disrupt the trial

date in this case.”

8 District judges have the power to control their dockets by

refusing to give ineffective litigants a second chance to develop

their case. See Turnage v. General Electric Co., 953 F.2d 206,

208-09 (5th Cir. 1992). Here two of the four Geiserman factors

counsel against allowing a deviation from the trial court’s

scheduling order. We are not persuaded that the court abused its

discretion under Rule 16(b).

B.

Reliance’s claim against CBS is grounded in professional

negligence. Reliance concedes that Mr. Sherman did not speak to

the question of whether CBS’s proposed modification breached the

standard of care among professional engineers. It contends,

however, that expert testimony concerning a professional’s duty of

care and breach of that duty is not necessary “[w]hen the matter in

question is one that can typically be understood without assistance

from an expert.” M.J. Womack, Inc. v. State House of

Representatives, 509 So. 2d 62, 66 (La. Ct. App.), writs denied,

513 So. 2d 1208; 513 So. 2d 1211 (La. 1987). In essence, Reliance

advocates a version of res ipsa loquitur in the malpractice

context: CBS modified the jacket and the jacket failed at a load

point modified by CBS. This is enough circumstantial evidence,

according to Reliance, for a jury to find that CBS was negligent.

Even if we assume — contrary to the deposition testimony —

that Mr. Sherman’s expert report supports the claim that CBS’s

modifications caused the jacket to fail, Reliance has submitted no

evidence from which a jury could conclude that CBS acted

9 negligently. Mr. Sherman stated that Gulf Island did not follow

CBS’s plan exactly when it attempted to load the jacket onto the

barge. These facts are equally consistent with the speculation

that Gulf Island acted negligently when it conducted the load-out

or that the jacket’s materials were substandard. Mr. Sherman’s

report included 90 pages of technical calculations. An unassisted

court cannot be expected to evaluate the reasonableness of a

professional judgment that involves so much sophistication.

Because Reliance has admitted that it must rely on a “common sense

standard of care,” Womack, 509 So. 2d at 66, it cannot prevail on

its engineering malpractice claim against CBS.

C.

Reliance’s claim against LL&E is grounded both in tort and in

contract. The district court correctly held that neither theory

has validity.

According to Reliance, LL&E is vicariously liable for the

negligence of CBS under Louisiana law either because the work was

intrinsically dangerous or because it exercised operational control

over CBS, its independent contractor. To support this position,

Reliance cites Massey v. Century Ready Mix Corp., 552 So. 2d 565,

573-76 (La. Ct. App. 1989), writ denied, 556 So. 2d 41 (La. 1990).

Under Massey, a principal is vicariously liable for the negligence

of an independent contractor if the work is inherently dangerous

and the principal authorizes the contractor to undertake the work

without precautions that would render the work safer. Cf. Grammar

v. Patterson Serv., Inc., 860 F.2d 639, 641 (5th Cir. 1988), cert.

10 denied, 491 U.S. 906, 109 S. Ct. 3190, 105 L. Ed. 2d 698 (1989)

(asserting that there are two separate exceptions under Louisiana

law to the general rule that principals are not vicariously liable

for the negligence of independent contractors).

Because we affirm the grant of summary judgment in favor of

CBS, we need not address Reliance’s arguments. Without negligence

on the part of CBS, Reliance’s tort theory against LL&E collapses.

Reliance’s contract theory against LL&E fares no better. The

contract between LL&E and Gulf Island called for a 100-foot-wide

barge. Reliance argues that LL&E breached this provision when it

failed to supply one. Gulf Island did not object to the smaller

barge. The district court held that Gulf Island’s consent meant

that there was no breach, and it further held that Reliance failed

to raise a question as to whether the smaller barge caused the

damage to the jacket. On appeal, Reliance does not mention

anything like the pre-existing duty rule. Instead, it asserts

simply that consensual modification requires more than indefinite,

ambiguous statements. According to Reliance’s own statement of

facts, however, Gulf Island’s consent was not indefinite or

ambiguous. In arguing that it “should not be penalized for such

detrimental reliance,” Reliance hints at the argument it really has

in mind: Gulf Island’s uninformed consent shouldn’t count.

As Gulf Island’s subrogee, Reliance cannot assert a contract

claim that Gulf Island could not assert. Guillot v. Hix, 838

S.W.2d 230, 232 (Tex. 1992) (“Because a subrogation action is

derivative, the defendant . . . may ordinarily assert any defense

11 he would have had in a suit by the subrogor.”).3 The summary

judgment evidence indicates that Gulf Island intended to modify the

contract when it consented to the use of the 72-foot-wide barge.

Under Texas law, its conduct effected a modification. See Hondo

Oil & Gas Co. v. Texas Crude Operator, Inc., 970 F.2d 1433, 1437-38

(5th Cir. 1992).4 Reliance has no contract claim against LL&E

because Gulf Island would have no contract claim against LL&E. The

district court did not err in granting summary judgment.

III.

LL&E and Gulf Island have settled their dispute over their

respective duties to pay for the cost of LL&E’s defense. Because

we affirm summary judgment in favor of LL&E and against Reliance,

the remaining issues among LL&E, Gulf Island, and Lloyd’s are moot.

The same is true of LL&E’s suit against CBS and UNIC. At oral

argument, counsel for LL&E stated that it was appealing the summary

judgment granted in favor of CBS and UNIC only in case Reliance’s

suit against LL&E should be revived. In light of our holding

above, we have no occasion to review the district court’s summary

judgment.

3 Gulf Island’s contract with LL&E included a choice-of-law clause that stated that Texas law would govern the contract. The rule would be the same under Louisiana law. See Stevens v. Mitchell, 102 So. 2d 237, 242 (La. 1958) (“[A]ll defenses that can be urged against the insured are likewise available against [the insurer].”). 4 Again, the same is true under Louisiana law. See, e.g., Bank of Louisiana v. Campbell, 329 So. 2d 235, 237 (La. Ct. App.) (“[A]cquiescence in changes in the delivery schedule constitutes a tacit acceptance of new terms.”), writ denied, 332 So. 2d 866 (La. 1976).

12 IV.

Gulf Island sued Reliance in order to recoup damages owed to

LL&E and the costs of defending the suit brought by LL&E. In

keeping with our holdings above, the only issue remaining is

whether Reliance must reimburse Gulf Island for the costs of its

settlement with LL&E and the costs of defending LL&E’s suit.

In part, Gulf Island argues that Reliance should not have

asserted claims against LL&E that Gulf Island itself could not have

asserted against LL&E. Because Gulf Island consented to the 72-

foot-wide barge and accepted responsibility for the accident, it

asserts that Reliance was not entitled to sue LL&E as Gulf Island’s

subrogee. See State v. USF&G, 577 So. 2d 1037 (La. Ct. App.), writ

denied, 581 So. 2d 684 (La. 1991); Travelers Ins. Co. v. Impastato,

607 So. 2d 722 (La. Ct. App. 1992) (both holding that a subrogee

may not maintain a suit when the subrogor has executed a contract

waiving its rights). But Gulf Island never waived its right to

seek reimbursement for the jacket damage in a tort suit by alleging

that LL&E acted negligently. In any event, this line of argument

supports the view that Reliance should not win its suit against

LL&E; it does not support the view that Reliance’s filing the suit

was a violation of its duties to Gulf Island for which Gulf Island

should be awarded damages.

Gulf Island also argues that Reliance failed to exercise good

faith because its suit caused financial harm to Gulf Island. But

the two cases it cites are not on point. Maryland Cas. Co. v.

Dixie Ins. Co., 622 So. 2d 698 (La. Ct. App.), writ denied, 629 So.

13 2d 1138 (La. 1993), involved nothing more than an insurer’s bad

faith in defending a policyholder. Its rhetoric about the insurer

as “the champion of its insured’s interests,” id. at 701, does not

establish the rule that a subrogated insurer is liable whenever it

causes harm to its insured. And Smith v. Manville Forest Products

Corp., 521 So. 2d 772 (La. Ct. App.), writ denied, 522 So. 2d 570

(La. 1988), dealt with a partially subrogated insurer that

recovered more from the defendant than it paid to its insured.

This case, by contrast, does not present an insurer securing a

windfall. Nor has Gulf Island presented us with Louisiana law that

shows that Reliance breached its generalized duty of good faith and

fair dealing under La. Rev. Stat. Ann. § 22:1220 (West 1995).5

Gulf Island has failed to describe any conduct on the part of

Reliance that was unfair to Gulf Island. Gulf Island granted

Reliance subrogation rights, and Reliance was entitled to sue LL&E

on theories of negligence and breach of contract. Reliance caused

LL&E’s suit against Gulf Island, but Gulf Island has not cited any

cases to support its claim that Reliance also breached some duty by

suing a defendant who in turn sued its insured. It is not our

place to inject into Louisiana law the rule that an insurer is

liable to an insured when the insurer asserts conventional

subrogation rights and inadvertently causes a third party to sue

5 Gulf Island directs our attention to Theriot v. Midland Risk Ins. Co., 683 So. 2d 681, 687 (La. 1996), for the proposition that § 1220A creates a generalized duty of good faith not limited to the five specific breaches listed in § 1220B. The Louisiana Supreme Court, however, has recently withdrawn Theriot from publication. We do not reach the question of the precise scope of an insurer’s duties under § 1220A.

14 the insured. Thus, the district court did not err in granting

summary judgment for Reliance and against Gulf Island.

V.

The district court was correct to hold that none of the suits

in this litigation involves a genuine issue of material fact.

Summary judgment in favor of LL&E and CBS and against Reliance is

AFFIRMED. Summary judgment in favor of CBS and UNIC and against

LL&E is AFFIRMED. Summary judgment in favor of Gulf Island and

Lloyd’s and against LL&E is AFFIRMED. And summary judgment in

favor of Reliance and against Gulf Island is AFFIRMED.