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Colony Insurance Co. v. First Specialty Insurance Corp.

United States District Court, S.D. Mississippi, Southern Division

February 3, 2017

COLONY INSURANCE COMPANY PLAINTIFF
v.
FIRST SPECIALTY INSURANCE CORPORATION DEFENDANT

          MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF DEFENDANT AND DENYING AS MOOT MOTION TO STRIKE

          LOUIS GUIROLA, JR. CHIEF U.S. DISTRICT JUDGE.

         BEFORE THE COURT are the [8, 16] Cross Motions For Summary Judgment filed by Defendant First Specialty Insurance Corporation and Plaintiff Colony Insurance Company, respectively, and the [25] Motion to Strike Portions of the Affidavit of Larry I. Gramovot filed by Defendant First Speciality. The parties agree that Mississippi law applies to this diversity action. Having considered the submissions of the parties, the oral arguments of counsel, and the relevant law, the Court is of the opinion that Colony's equitable subrogration claim is subject to Mississippi's voluntary payment doctrine, and, further, that Colony cannot sustain an implied indemnity claim against First Speciality under Mississippi law. Accordingly, the Court will grant summary judgment in favor of First Speciality. Because the Court did not consider the Gramovot affidavit in ruling on the pending Motions, the Court will deny the Motion to Strike as moot.

         Background

         The parties have conceded that the underlying facts necessary to decide the cross motions are not genuinely disputed. Although the parties have set out those facts in great detail in their briefing, the Court will include a short discussion of the facts here. This action arose out of an industrial explosion that occurred at the Omega Protein plant in Moss Point, Mississippi, tragically killing Jerry Lee Taylor, II, and seriously injuring three others. The workers were employees of Accu-Fab, which is insured by Plaintiff Colony. Defendant First Speciality is the excess insurer for Omega.

         Taylor's estate brought a separate wrongful death claim against Omega. According to Colony, Omega was insured by Ace American Insurance Company (AAIC) up to $1, 000, 000, and First Speciality was Omega's excess carrier in the amount of $10, 000, 000. Omega subsequently made a demand against Accu-Fab's insurer, Plaintiff Colony. Omega claimed that it was an “additional insured” under Accu-Fab's policy with Colony. Omega “tendered the defense of the Taylor Action to Colony, and Colony provided and funded a defense to Omega” under a reservation of rights. (See Compl. 3 (¶12), ECF No. 1).

         Early in the litigation, the Taylor plaintiff made a policy limits settlement demand on Colony, which Colony ultimately agreed to pay. AAIC also settled for its policy limits. Colony states that “[p]rior to settlement, [it] made a demand on” First Specialty, contending that coverage was precluded under the Colony policy, and that “First Specialty, as Omega Protein's excess liability insurer, was . . . obligated to defend and indemnify Omega Protein for those amounts in excess of the $1, 000, 000 policy limits provided by the Underlying AAIC policy.” (See Compl. 5 (¶18), ECF No. 1). Colony claims that First Speciality declined to do so “and refused to contribute to the settlement of the Taylor Action.” (See Id. (¶19)).

Colony specifically contends that the Underlying AAIC Policy provided coverage to Omega Protein, and the First Specialty Policy provided excess coverage for the claims asserted against Omega Protein in the Taylor Action. Since the policy limit of the Underlying AAIC policy was insufficient to satisfy the claims against Omega Protein, First Specialty's duty to defend and indemnify its insured was triggered under the First Speciality Policy.

(Id. at 6 (¶22)). Colony further contends that “Omega Protein did not qualify as an additional insured under the Colony policy, and therefore the Colony policy provided no coverage whatsoever for Omega Protein.” (Id. (¶23)).[1] As a result, Colony instituted this action against First Specialty seeking equitable subrogation and/or indemnity from First Specialty for the $1, 000, 000 settlement and defense costs expended in Taylor.

         Discussion

         First Speciality has moved for summary judgment, arguing, inter alia, that Mississippi's voluntary payment doctrine precludes Colony's claims for equitable subrogation and implied indemnity. Colony has also filed a cross motion, arguing that the Court should hold that it is entitled to subrogation and/or indemnity as a matter of law. The Court discusses each of Colony's claims in turn below.

         Voluntary Payment Doctrine/ Equitable Subrogation

         Discussing Mississippi law, the Fifth Circuit recently explained that “[a] voluntary payment is a payment made without compulsion, fraud, mistake of fact, or agreement to repay a demand which the payor does not owe, and which is not enforceable against him.” S. Ins. Co. v. Affiliated FM Ins. Co., 830 F.3d 337, 347 (5th Cir. 2016) (citation and quotation marks omitted). “Such a payment, once made, cannot be recouped.” Id. “Courts analyzing the doctrine have concluded payments were involuntary in a variety of circumstances.” Id. (collecting cases). Relevant to this action, where an insurer acts “pursuant to its duty to pay, it cannot be considered a volunteer.” See Id. In other words, “a contractually-obligated payment between insurer and insured” is not voluntary. See id.

         The Mississippi Supreme Court most recently discussed voluntary payments in Indemnity Insurance Co. of North America v. Guidant Mutual Insurance Co., 99 So.3d 142 (2012).[2] It stated that “[a]n insurer has a duty to protect the interests of its insured, ‘which includes the duty to settle claims within the policy limits on objectively reasonable terms.'” See Id. at 151 (citation omitted). It continued that “[i]n addition to the requirement that an insurer protect the interests of its insured, this Court recognizes that the law and public policy favor the settlement of disputes.” See Id. It concluded that an insurer has “a legal duty to consider the insured's best interest and to ...


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