United States: A Federal Judge In Sinkhole Litigation Applies Louisiana Law To One Excess Insurance Policy

Case:   Lisa Leblanc, et al v. Texas Brine Co., LLC, et al.
U.S. District Court for the Eastern District of Louisiana
No. 12:12-2059 & Consolidated Cases (E.D. La. November 23, 2015)

This litigation involves a consolidated $80 million class action to recover damages resulting from the development of a sinkhole on property allegedly belonging to and or under the Defendants, Texas Brine Co., LLC and Occidental Chemical Corporation in Assumption Parish, Louisiana. The sinkhole was allegedly caused by Texas Brine's operations, and in response to Plaintiffs' claims, Texas Brine sued numerous insurers that issued liability policies to the company over the past 20 years. In the demands, Texas Brine seeks defense and indemnity, and with respect to one excess carrier, Liberty Insurance Underwriters (Liberty), Texas Brine also seeks damages, penalties and attorneys fees under La. R.S. Section 22:1973, one of Louisiana's bad faith statutes. The putative class of Plaintiffs also filed claims against Texas Brine's insurers under the Louisiana Direct Action Statute, La. R.S. 22:1269.

Texas Brine moved for summary judgment against all of the insurers (23 different carriers and 113 policies), urging application of Louisiana law to the policies. The insurers objected to the blanket approach to the choice of law issues, noting among other things, the motion by Texas Brine was not policy specific and that it was premature. Texas Brine contended the same factors that apply to one policy should apply to all policies, and thus sought an omnibus ruling from the court.

The Court disagreed and found, if any given policy has an express choice of law provision, the provision may be conclusive of the choice of law question for claims made under that policy, if the provision is valid.

The Court then addressed a separate Motion for Partial Summary Judgment on choice of law Texas Brine had filed against Liberty. The Court first pointed out the Liberty Policy did not contain a choice of law provision. Liberty noted an actual conflict in Louisiana and Texas law when interpreting the scope of the pollution exclusion in its policy and requested the court reject Texas Brine's suggestion that Louisiana law apply and affirmatively rule Texas law applies to the claims brought by Texas Brine against Liberty. The court, noting the policy undisputedly had contacts with both Louisiana and Texas, applied the choice of law analysis under Louisiana law pursuant to Klaxon Co. V. Stentor Elect. Mfg. Co., 313 U.S. 487,496 (1941). Under Louisiana law, the choice of law analysis with respect to an insurance policy follows the general guidance of La. Civ. Code Art. 3515 and the guidance of article 3537, pertaining to conventional obligations, which provide that the law of the state whose policies would be most seriously impaired if its law were not applied to that issue is the appropriate law to apply.

Texas Brine argued Louisiana has a strong public policy in favor of protecting the interests of persons injured or damage in Louisiana, which extends to companies doing business in the state and who have been operating in Louisiana for extended periods of time, even though domiciled under the laws of another state. Texas Brine further argued that direct action plaintiffs have sued the insurers directly, which historically has tipped the scales in favor of the applicability of Louisiana law. Liberty, on the other hand, argued Texas has the greatest interest in regulating insurance polices issued to its citizens, here Texas Brine, and that this is nothing more than an contract dispute between a Texas citizen and its insurer.

In the end, the Court was persuaded that Louisiana was clearly the state whose policies would be most seriously impaired if its laws were not applied, at least with respect to the coverage dispute with Liberty. The court noted Texas Brine has conducted operations in Louisiana for many decades and has employed citizens of Louisiana and received the benefit of the laws of Louisiana. Stated another way, it has a substantial commercial presence in Louisiana. The court also found Liberty erroneously concluded that the coverage dispute was no different than a contractual dispute arising in a private business contract, noting every state not only regulates insurance policies for the protection of the insured, but also for the protection of injured third parties, who are not parties to the contract. Here the coverage dispute was found to have implications to parties other than Texas Brine and Liberty, and Louisiana clearly has an interest in the outcome.

The Court thus held Louisiana has the most significant relationship with the litigation arising out of the sinkhole and the most interest in having its law apply to the coverage dispute with Liberty, stating further, "Louisiana is undisputedly the state whose policies would be most seriously impaired it its law were not applied to the coverage dispute." The court denied Texas Brine's motion for summary judgment on its claim for penalties and attorney's fees under Louisiana law, noting it could not make a dispositive determination with respect to that issue without a more concrete presentation of the facts.

Of note, the Court indicated, although it had denied blanket application of Louisiana law to all policies, the ruling vis-à-vis Liberty will "serve as a guide to the other insurers" with respect to their policies.

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