     Case: 10-30892     Document: 00511543760         Page: 1     Date Filed: 07/19/2011




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                           July 19, 2011

                                       No. 10-30892                        Lyle W. Cayce
                                                                                Clerk

FEDERAL INSURANCE COMPANY

                                                  Plaintiff - Appellant
v.

NEW HAMPSHIRE INSURANCE COMPANY; AIG DOMESTIC CLAIMS,
INCORPORATED, formerly known as AIG Technical Services, Incorporated

                                                  Defendants - Appellees



                   Appeal from the United States District Court
                       for the Middle District of Louisiana
                             USDC No. 3:03-CV-385


Before WIENER, BENAVIDES, and STEWART, Circuit Judges.
PER CURIAM:*
        Wayne Robins was injured during an explosion at a chemical plant and
filed suit in state court against multiple defendants, including Thomas & Betts
Corporation (T&B). After his case was consolidated with other related cases,
Robins agreed to cooperate with a plaintiff-company, AXA Global Risks (AXA),
for the duration of the trial, in exchange for $900,000. In a subsequent effort to
settle his bodily injury claim against T&B, Robins entered into a preliminary


        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
  Case: 10-30892    Document: 00511543760     Page: 2   Date Filed: 07/19/2011



                                 No. 10-30892

agreement with T&B that would entitle Robins to payment of $5 million plus
indemnification by T&B, “not to exceed 1.2 million dollars,” for any eventual
liability that Robins might have to AXA for breach of contract. T&B’s primary
insurance company, New Hampshire Insurance Company, agreed to pay $5
million of the settlement, but not the breach of contract damages. T&B’s
secondary excess insurance company, Federal Insurance Company (Federal),
paid $990,000. A year later, Federal filed a subrogation suit against New
Hampshire and AIG Domestic Claims, Inc. (collectively New Hampshire), which
served as the claims administrator on behalf of New Hampshire.              New
Hampshire filed a motion for summary judgment, which the district court
granted. We REVERSE and REMAND.
                                       I.
      On July 5, 1999, an explosion occurred at the Kaiser Aluminum
Corporation’s (Kaiser) aluminum processing plant in Gramercy, Louisiana.
Several persons, including Robins, were injured. Subsequently, Robins filed suit
in Louisiana state court against multiple defendants, including T&B. Robins
alleged that T&B manufactured a product that contributed to the explosion. It
is undisputed that New Hampshire was T&B’s first-layer insurer for the
relevant time period that T&B’s policy with New Hampshire (hereinafter the
New Hampshire policy or the Policy) provided coverage from January 1, 1999 to
January 1, 2000. The Policy required New Hampshire to pay those sums that
T&B “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.” It is
also undisputed that Federal was T&B’s second-layer excess insurer for the
same period.
      In late 2000, Robins’s lawsuit was consolidated with other lawsuits filed
as a result of the explosion. Among the consolidated lawsuits was a suit by AXA
and other property insurers which paid significant business-interruption and

                                       2
  Case: 10-30892    Document: 00511543760     Page: 3   Date Filed: 07/19/2011



                                 No. 10-30892

property-damage losses to Kaiser as a result of the explosion. Later, AXA
contracted to lend Robins $900,000 in exchange for Robins’s cooperation as a
joint plaintiff in the consolidated suit against T&B.      The agreement also
provided that, if Robins settled with another party without AXA’s consent, he
would be required to pay back the loan plus a $300,000 penalty.
      On October 7, 2001, the day before the consolidated trial was set to begin,
Robins entered into a preliminary settlement agreement with T&B (hereinafter
Preliminary Agreement).     Relevant here, Paragraph 1 of the Preliminary
Agreement states:
            Thomas & Betts corporation and Its Insurers agree to
            pay Wayne Robins, et al Five Million Dollars
            ($5,000,000.00) as a result of that lawsuit entitled In
            Re: Gramercy Plant Explosion at Kaiser, and Master
            Docket Number 25,975, 23rd Judicial District Court, St.
            James Parish, Louisiana and Wayne Robins, Carolyn
            Robins, Shamita Robins, Damita Robins, Docket
            Number 26,671, 23rd Judicial District Court,
            Louisiana.
Paragraph 5 of the Preliminary Agreement states:
            Thomas & 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.
On October 24, 2001, New Hampshire informed Robins that it “did not agree to
provide the hold harmless and indemnification provisions cited in paragraph five
of the agreement.” Thus, the company refused to pay any sums related to
Paragraph 5.     The following day, Robins filed a motion to enforce the
Preliminary Agreement. Soon after, AXA filed a similar motion.
      On December 6, 2001, T&B sent a letter to Robins explaining its intention
to deposit $5 million into the state court’s registry, pending resolution of the


                                       3
   Case: 10-30892   Document: 00511543760      Page: 4   Date Filed: 07/19/2011



                                  No. 10-30892

terms of the settlement, if the matter was not resolved by the next day. Robins
sent a letter responding to T&B on the same day, stating that, if the funds were
not paid to Robins by December 7, 2001, Robins would file suit against T&B.
T&B deposited the $5 million into the state court’s registry on December 6, 2001.
On December 11, 2001, AXA sent Robins a demand for the $1.2 million, resulting
from Robins’s breach of contract. Robins faxed this document to Federal to
advise the company of the status of AXA’s demand. On December 10, 2001,
Robins amended his motion to enforce settlement to include additional damages.
      It is not clear from the record whether the settlement agreement between
Robins and T&B was ever finalized—if and when the settlement was paid to
Robins, how much Robins was paid, or which insurance company or companies
paid those amounts. However, at some point, Federal paid $990,000 to Robins
on T&B’s behalf.
      In April 2003, Federal filed suit against New Hampshire in Louisiana
state court, seeking subrogation.     The case was removed to federal court,
pursuant to federal diversity jurisdiction. In its complaint, Federal claimed that
New Hampshire should have paid the $990,000 to Robins because the amount
was part of the settlement of Robins’s bodily injury claim. Thus, it was within
the limits of the New Hampshire policy. The case was administratively closed
in August 2003, pending resolution of the underlying consolidated state law suit,
but it was reopened five years later in November 2008.
      After the case was reopened, the parties submitted a joint proposed
scheduling order that included discovery, which the district court granted.
However, before discovery could begin, New Hampshire filed a motion for
summary judgment, arguing that the $990,000 was not a covered claim of bodily
injury under the New Hampshire policy. Therefore, New Hampshire argued, it
was not obligated to subrogate Federal. The district court summarily affirmed
the magistrate judge’s report and recommendation, granting New Hampshire’s

                                        4
   Case: 10-30892   Document: 00511543760      Page: 5    Date Filed: 07/19/2011



                                  No. 10-30892

motion and holding that Federal failed to prove that it paid any amount
rightfully owed to T&B by New Hampshire. Federal appealed.
                                       II.
                                        A.
      “When sitting in diversity, this Court applies the substantive law of the
state.” Bradley v. Allstate Ins. Co., 620 F.3d 509, 516 n.2 (5th Cir. 2010). The
parties do not dispute that this case is governed by Louisiana law. This court
reviews a district court’s application of state law and grant of summary
judgment de novo. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th
Cir. 2010). Summary judgment is appropriate “if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” FED. R. CIV. P. 56(a). In reviewing summary
judgment, “[w]e construe all facts and inferences in the light most favorable to
the nonmoving party . . . .” Dillon v. Rogers, 596 F.3d 260, 266 (5th Cir. 2010)
(citation and internal quotation marks omitted).
                                        B.
      Although not mentioned in its filings to the district court or to this court,
Federal’s subrogation claim is a third-party performance and legal subrogation
claim, arising under articles 1855 and 1829 of the Louisiana Civil Code. Article
1855 provides:
            Performance may be rendered by a third person, even
            against the will of the obligee, unless the obligor or the
            obligee has an interest in performance only by the
            obligor.

            Performance rendered by a third person effects
            subrogation only when so provided by law or
            agreement.
Article 1829 provides in relevant part that “[s]ubrogation takes place by
operation of law . . . in favor of an obligor who pays a debt he owes with others


                                        5
   Case: 10-30892    Document: 00511543760      Page: 6    Date Filed: 07/19/2011



                                  No. 10-30892

or for others and who has recourse against those others as a result of the
payment . . . .” LA. CIV. CODE art. 1829(3). To this end, “[s]ubrogation is a legal
fiction whereby payment by a third person . . . extinguishes an obligation of the
original creditor. The third person then steps into the shoes of the original
creditor, acquiring the right to assert the actions and rights of the original
creditor.” State Farm Mut. Auto. Ins. Co. v. Berthelot, 732 So. 2d 1230, 1233 (La.
1999) (citations omitted). In other words, Federal cannot recover the $990,000
it paid on T&B’s behalf unless that amount was covered by the New Hampshire
policy. Therefore, determining whether Federal is entitled to subrogation turns
on: (1) the limits of the New Hampshire policy and (2) whether Federal’s
payment fits within the limits of the Policy.
                                         1.
      As previously mentioned, the New Hampshire policy requires New
Hampshire to pay those sums that T&B “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.” The district court held that the phrase
“legally obligated to pay” limits the New Hampshire policy to tort liability. We
agree.      “Legally obligated to pay” is not defined in the Policy. Therefore,
under Louisiana law, we must give the phrase its “generally prevailing
meaning.” LA. CIV. CODE art. 2047. Because no Louisiana court has interpreted
the meaning of “legally obligated to pay,” we must make an Erie-guess about
how the Louisiana courts would interpret the phrase. See State Farm Fire and
Cas. Co. v. Fullerton, 118 F.3d 374, 378 (5th Cir. 1997). To this end, it is well
settled that the use of the phrase “legally obligated to pay” in an insurance policy
limits coverage to damages arising out of tortious acts and does not cover
contractual obligations. See Data Specialties, Inc. v. Trans. Ins. Co., 125 F.3d
909, 911–12 (5th Cir. 1997) (examining Texas law and citing numerous federal
and state court decisions that interpret “legally obligated to pay as damages” to

                                         6
   Case: 10-30892    Document: 00511543760       Page: 7   Date Filed: 07/19/2011



                                    No. 10-30892

limit policy coverage to tort liability); see also 7A LEE R. RUSS & THOMAS F.
SEGALLA, COUCH ON INSURANCE §103:14 (3d ed. 2008) (“While the phrase ‘legal
liability’ includes liability assumed by contract, the phrases ‘liability imposed by
law,’ and ‘legally obligated to pay as damages’ do not.”). Thus, the district court
correctly held that the phrase “legally obligated to pay” in the New Hampshire
policy limits the Policy’s coverage to damages arising out of tort liability and
does not cover contract damages. We next examine whether Federal’s payment
fits within the limits of the New Hampshire policy.
                                           2.
      An “insurer should have to reimburse the insured only to the extent that
the settlement compromised claims that were covered by the policy.” ALLAN D.
WINDT, 2 INSURANCE CLAIMS          AND   DISPUTES § 6:31 (5th ed. 2009) (footnote
omitted); see generally Gulf Fleet Marine Operations, Inc. v. Wartsila Power, Inc.,
797 F.2d 257 (5th Cir. 1986). Here, the only claim at issue is the bodily injury
claim Robins brought against T&B. When T&B entered into the settlement
agreement with Robins, the settlement was created solely to extinguish the
bodily injury claim. Although a portion of the settlement agreement was
characterized as amounts to indemnify Robins for his breach of contract with
AXA, Robins did not have a breach of contract claim against T&B. Therefore,
any sum of money paid to Robins by T&B was to compensate Robins for his
bodily injury claim. In other words, the labeling of each component of the
settlement does not change the reason for the agreement—settlement of the
bodily injury claim. Consequently, the amount described in Paragraph 5 is not
attributable to a breach of contract claim that is outside the limits of the New
Hampshire policy. The payment was made in consideration for settlement of the
bodily injury claim. Neither party disputes that the bodily injury claim is
covered by the New Hampshire policy. Thus, the entire settlement amount was
within the limits of the Policy.

                                           7
  Case: 10-30892    Document: 00511543760     Page: 8   Date Filed: 07/19/2011



                                 No. 10-30892

                                      III.
      We conclude that, because T&B’s payment to Robins was wholly within the
limits of the New Hampshire policy, Federal was not responsible for paying any
amounts attributable to the settlement agreement and is entitled to subrogation.
Accordingly, we REVERSE the district court’s summary judgment and
REMAND this case for further proceedings consistent with this opinion.




                                       8
