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Colony Insurance Co. v. First Specialty Insurance Corp.

Supreme Court of Mississippi, En Banc

January 31, 2019




          KING, JUSTICE.

         ¶1. Under the provisions of Rule 20 of the Mississippi Rules of Appellate Procedure, the United States Court of Appeals for the Fifth Circuit has certified questions to this Court.[1] An incident at Omega Protein Corporation's (Omega) facility resulted in the death of an employee of Accu-Fab & Construction, Inc. (Accu-Fab). Although Colony Insurance Company (Colony) continually maintained that it did not insure Omega, Colony negotiated and paid a settlement claim under a reservation of rights on Omega's behalf. Because Colony took the position that it had no duty to defend Omega at all, the district court concluded that Mississippi's voluntary-payment doctrine precluded Colony's claims for equitable subrogation and implied indemnity.

         ¶2. Pursuant to this Court's precedent, an insurer is barred from seeking indemnity for a voluntary payment. Keys v. Rehab. Ctrs., Inc., 574 So.2d 579, 584 (Miss. 1990); see McDaniel Bros. Const. Co. v. Burk-Hallman Co., 175 So.2d 603, 605 (Miss. 1965) ("[A] voluntary payment can not be recovered back. . . ."). In order to recover, the indemnitee must prove that it both paid under compulsion and that it was legally liable to the person injured. Id. The Fifth Circuit certified the following questions to this Court:

1) Does an insurer act under "compulsion" if it takes the legal position that an entity purporting to be its insured is not covered by its policy, but nonetheless pays a settlement demand in good faith to avoid potentially greater liability that could arise from a future coverage determination?
2) Does an insurer satisfy the "legal duty" standard if it makes a settlement payment on behalf of a purported insured whose defense it has assumed in good faith, but whose coverage under the policy has not been definitively resolved, even if the insurer maintains that the purported insured is not actually insured under the policy?

Colony Ins. Co. v. First Specialty Ins. Corp., 726 Fed.Appx. 992, 995-96 (5th Cir. 2018)


         ¶3. On July 28, 2014, an explosion at Omega's facility in Moss Point, Mississippi, killed an employee of Accu-Fab, Jerry Lee Taylor II. At the time of the incident, Omega was the named policyholder of two third-party insurance policies. ACE American Insurance Company (AAIC) provided a $1, 000, 000 primary commercial general liability policy to Omega, subject to a $250, 000 deductible. First Specialty Insurance Corporation also provided a $10, 000, 000 excess liability policy, which provided limits in excess of the underlying AAIC policy. In addition, Accu-Fab was the named policyholder of a third-party insurance policy issued by Colony. Colony issued to Accu-Fab a primary liability policy with a $1, 000, 000 liability limit. The Colony Policy contained an "Additional Insured" provision, which designated "[a]ll persons or organizations as required by written contract with the Named Insured" as being insureds under the Colony Policy as well, subject to certain limitations and exclusions.

         ¶4. The Fifth Circuit summarized the subsequent events as follows:

On March 4, 2015, Omega informed Colony that it expected to receive "claims for personal injury and/or wrongful death" arising out of the July 2014 explosion. Asserting that it qualified as an "additional insured" under the Colony Policy, Omega demanded that Accu-Fab and Colony "defend and fully indemnify [it] from any [such] claims."
On March 13, 2015, Colony notified Omega that it was conducting an investigation into the explosion "under a full and complete reservation of rights . . . including the right to disclaim coverage in whole or in part should it consider such denial warranted." Colony contended that the Colony Policy's "Total Pollution Exclusion may apply to preclude coverage in this matter" and expressed doubt that Omega qualified as an "additional insured."
On April 17, 2015, Colony filed a complaint for declaratory judgment in the Circuit Court of Jackson County, Mississippi. The complaint, which named Accu-Fab and Omega as defendants, sought a court order "declaring that the [Colony Policy] does not provide any coverage for any and all damages or injuries sustained as a result of the [July 2014] explosion."
On September 2, 2015, Taylor's estate and survivors filed a wrongful death action against Omega in federal district court.[2] Colony subsequently agreed to fund Omega's defense, subject to a "full and complete" reservation of rights, "including the right to seek recovery of all defense costs it incurs on behalf of Omega should a court determine that Colony does not in fact owe a defense to [Omega]." In a letter dated December 9, 2015, Colony informed Omega's attorney that:
Colony's position is that it does not believe the policy of insurance it issued to Accu-Fab provides any coverage whatsoever for the unfortunate incident which occurred at the Omega Protein facility on July 28, 2014. Nevertheless, at your request Colony has agreed to fund the defense of Omega Protein, and is pursuing a declaratory judgment action in order to have the court determine whether its coverage position is or is not correct. Colony is providing a good-faith defense to Omega through the services of your law firm and yourself. If the court ultimately determines that the policy issued by Colony to Accu-Fab does not require that it fund Omega's defense, Omega will have been unjustly enriched to the extent Colony paid its defense costs when it had no obligation to do so.
Colony also wrote that, "[w]ith regard to Taylor's settlement demand, Colony will of course consider any reasonable demand sent to it," but "any demands for settlement made on behalf of the estate and survivors of Mr. Taylor will be reviewed in light of the insurance coverage issue which is currently ...

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