Opinion
CIVIL ACTION NO. 02-2142, SECTION "A" (1)
March 18, 2003
ORDER AND REASONS
Before the Court is a Motion for Summary Judgment (Rec. Doc. 12) filed by the Defendants, Palomar International Corporation ("Palomar") and David Locker ("Locker"). American Restaurant, Inc. ("ARI") opposes the motion. The motion, set for hearing on February 26, 2003, is before the Court on the briefs without oral argument. For the reasons that follow, the motion is DENIED.
BACKGROUND
Locker, an insurance agent employed by Palomar, procured for ARI a commercial policy issued by Reliance Insurance Company of Illinois. Reliance was a surplus lines insurer and as such was not covered by the Louisiana Insurance Guaranty Association in the event of insolvency. On January 23, 2000, ARI suffered property damage due to a hail storm, and made a claim for reimbursement and/or payment of all repair expenses and costs. ARI was advised that its insurance coverage was no longer viable because of Reliance's insolvency, and that the Louisiana Insurance Guaranty Fund would not cover the loss.ARI then brought this lawsuit against Palomar and Locker alleging that Locker never informed ARI that Reliance was a surplus lines insurer excepted from coverage by the Louisiana Insurance Guaranty Fund. ARI claims that had it known that Reliance was a surplus lines insurer, it would not have bought the policy.
DEFENDANTS' MOTION
Palomar and Locker ("Defendants') contend that ARI had actual notice based upon an endorsement on the the front page of the renewal policy that Reliance was a surplus lines insurer. Defendants further contend that they had no affirmative duty to investigate the financial soundness of a non-admitted carrier. Defendants argue that there is no basis to impose liability against them under Louisiana law as they breached no duty to
In opposition, ARI contends there are genuine issues of material fact that warrant a trial on the merits. ARI contends that Palomar and Locker failed to comply with the notice requirement of Louisiana Revised Statute 22:1258, which pertains to surplines lines policies. ARI further contends that whether the Defendants had actual knowledge of the financial soundness of Reliance is unknown, and is therefore, a material question of fact that requires trial. Finally, ARI argues that it is a material question of fact as to whether the Defendants knew if Reliance met the surplus and capital requirements of Louisiana Revised Statute 22:1262(B)(1)(a)
DISCUSSION
1. Summary Judgment Standards
In determining whether a party is entitled to summary judgment, the court views the evidence in the light most favorable to the non-moving party. Littlefield v. Forney Indep. School Dist., 268 F.3d 275, 282 (5th Cir. 2001) (citing Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir. 1998); Tolson v. Avondale Indus., Inc., 141 F.3d 604, 608 (5th Cir. 1998)). Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Id. (citingCelotex Corp. v. Catrett, 477 U.S. 317, 106 5. Ct. 2548, 91 L.Ed.2d 265 (1986)). The moving party bears the burden, as an initial matter, of showing the district court that there is an absence of evidence to support the nonmoving party's case. Id. (citing Celotex, 477 U.S. at 325, 106 S.Ct. at 2548). If the moving party fails to meet this initial burden, the motion must be denied regardless of the nonmoving party's response. Id.
2. Louisiana Insurance Code Provisions
"Most insurance purchased by Louisiana insureds is purchased from insurers which are `admitted' in Louisiana as "authorized' insurers."Popich Bros. Water Transport, Inc. v. Gulf Coast Marine, Inc., 705 So.2d 1267, 1268 (La.App. 4th Cir. 1998). However, when coverage cannot be obtained from an admitted, authorized insurer, "surplus line" coverage can be obtained from a non-admitted, unauthorized insurer. Id. at 1268-69 (citing La. R.S. 22:1257; August v. British Int'l Ins. Co., 201 So.2d 194, 198 (La.App. 4th Cir. 1967)). These "unauthorized" insurers are not subject to the extensive Louisiana regulatory scheme that would otherwise govern an "authorized" insurer. See Popich Bros., 705 So.2d at 1268. Such coverage can only be procured through a licensed "surplus line broker." See La. R.S. 22:1257. Surplus lines insurance and surplus lines brokers are subject to specific statutory provisions.Popich Bros., 705 So.2d at 1269. Two such statutory provisions are at issue in this case, La. R.S. 22:1258 and 22:1262.
Louisiana Revised Statute 22:1258, entitled Endorsement of Contract, provides:
Every insurance contract procured and delivered as a surplus line coverage pursuant to this Part shall have stamped upon it and be signed by the surplus lines broker who procured it, in bold type and the face of which shall not be less than ten-point type, the following:
NOTICE
This insurance policy is delivered as a surplus line coverage under the Insurance Code of the State of Louisiana.
In the event of insolvency of the company issuing this contract, the policyholder or claimant is not covered by the Louisiana Insurance Guaranty Association which guarantees only specific policies issued by an insurance company authorized to do business in Louisiana.
This surplus lines policy has been procured by the following licensed Louisiana surplus lines broker:
Signature of Licensed Louisiana Surplus Lines Broker or Authorized Representative
Printed Name of Licensed Louisiana Surplus Lines Broker
La. R.S. 22:1258 (West Supp. 2003).
In the instant case, ARI argues that the Notice contained on its policy does not conform to the requirements of section 1258. Specifically, the Noitce is stamped upside down and on top of pre-printed form language, and is basically illegible. Defendants' Exhibit B. Further, the endorsement does not contain either of the signature blocks specifically required by the version of the statute in effect at the time the policy was last renewed.
In 1999, the Louisiana Legislature made changes to most of the statutes governing surplus lines insurers. Section 1258 was amended to its current form with an effective date of August 15, 1999, — well before the ARI policy renewal date of November 30, 1999. The prior version of section 1258 did not have a signature requirement but was otherwise nearly identical to the current version of the statute.
Unarguably, the endorsement in this case does not comply with the literal requirements of the Louisiana Insurance Code — requirements that easily could have been met. Surely, the legislature's purpose in amending section 1258 in 1999 to impose even stricter notice requirements was to help ensure that Louisiana insureds fully understand the risks they face when procuring surplus lines coverage. ARI's contention in this suit is that it had no knowledge that Reliance was a surplus lines insurer and of the risks associated with procuring such coverage. ARI contends that had it known this information, it would not have purchased a policy with Reliance. Given that Defendants' Notice was "technically" deficient, and that Defendants have offered no evidence in support of their motion to contradict ARI's contentions, the Court concludes that Defendants have failed to demonstrate that they are entitled to judgment as a matter of law. Consequently, Defendants are not entitled to summary judgment, and ARI can attempt to convince the jury at trial that the deficient Notice was a proximate cause of its damages.
The second statute implicated in this case is La. R.S. 22:1262. Louisiana Revised Statute 22:1262 provides in pertinent part:
A. A surplus line broker shall not knowingly place surplus line insurance with insurers unsound financially.
* * *
B. The surplus lines broker shall not so insure with any insurer unless the insurer has met the requirements of R.S. 22:1262.1, unless otherwise provided by law, has established satisfactory evidence of good repute and financial integrity, and has done the following:
(1) If it is a foreign insurer:
(a) Has capital and surplus of not less than fifteen million dollars exclusive of either surplus debentures or subordinated notes if a stock insurer, or surplus of not less than fifteen million dollars exclusive of either surplus debentures or subordinated notes if any other type insurer . . .
La. R.S. 22:1262 (West Supp. 2003) (emphasis added).
ARI argues that there are genuine issues of material fact as to whether Defendants complied with section 1262 parts A B. Defendants offered no affidavits, depositions, etc. to meet their initial burden of showing that there are no disputed facts with respect to their compliance with part A, i.e., whether Defendants knowingly placed coverage with an unsound insurer. Because Defendants failed to meet their initial burden on this point the Court need not address the adequacy of ARI's attempts to oppose summary judgment on this point.
ARI offered no evidence in opposition but merely argued in a conclusory fashion that an issue of material fact exists as to Defendants' knowlege of Reliance's unsound financial condition.
However, ARI should note that the Court disagrees with its contention that it was Defendants' duty to ensure that Reliance was in compliance with the funding requirements of section 1962. Section 1262 must be read in pari materia with La. R.S. 22:1262.1 which precludes a surplus lines broker from placing surplus lines coverage with an insurer who is not on the list of approved unauthorized insurers as complied and maintained by the commissioner off insurance. La. R.S. 22:1262.1(A) (West Supp. 2003). One of the requirements an insurer must meet to obtain and maintain placement on the list of unauthorized insurers is compliance with the provisions of section 1262. Id. § 1262.1(B). If the list of insurers who satisfy section 1262 is compiled and maintained by the commissioner of insurance, then clearly the commissioner's office, rather than the individual broker, is charged with making sure that the foreign insurer is in compliance with section 1262.
In the instant case it is undisputed that the commissioner of insurance had placed Reliance on the list of approved unauthorized insurers when Defendants issued the ARI policy. Therefore, in the absence of actual knowledge of Reliance's problems, Defendants had no further duty of affirmatively investigate Reliance's financial soundness. Thus ARI's only hope in proving a violation of section 1262 is to prove that Defendants knowingly placed coverage with an unsound insurer. See La. R.S. 1262(A).
This conclusion comports with the Fourth Circuit's holding inPopich Brothers Water Transport, Inc. v. Gulf Coast Marine, Inc., 705 So.2d 1267, 1270 (La.App. 4th Cir. 1998) In Popich, the Fourth Circuit held that a surplus lines broker has no duty to investigate non-admitted insurers but rather must only ascertain whether the insurer is on the commissioner's approved list.
In an order entered February 21, 2003, the Court noted that the state court petition and notice of removal were insufficient for determining whether the jurisdictional amount was met. Plaintiff then submitted an estimate which demonstrates that the cost to repair the hail damaged roof is about $120,000.00.
Accordingly;
IT IS ORDERED that the Motion for Summary Judgment (Rec. Doc. 12) filed by defendants Palomar International Corporation and David Locker should be and is hereby DENIED.