St Paul Fire v. St Vol Mtl Ins Co

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT _______________

m 99-60563 Summary Calendar _______________

ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellee,

VERSUS

STATE VOLUNTEER MUTUAL INSURANCE COMPANY, Defendant-Appellant.

_________________________

Appeal from the United States District Court for the Northern District of Mississippi (2:97-CV-47) _________________________

April 5, 2000

Before SMITH, BARKSDALE, and an insured who had been, at the relevant time, PARKER, Circuit Judges. putatively covered by both companies. State Volunteer claims that the district court lacked JERRY E. SMITH, Circuit Judge:* jurisdiction and erred in its application of Mississippi's parol evidence rule and doctrine State Volunteer Mutual Insurance of equitable subrogation. Finding no Company (“State Volunteer”) appeals a reversible error, we affirm. summary judgment directing it to share liability with St. Paul Fire & Marine Insurance I. Company (“St. Paul”) for a claim made against Lance Whaley is an obstetrician and gynecologist who contracted with St. Paul for the purchase of medical malpractice insurance. * He contracted with State Volunteer for Pursuant to 5TH CIR. R. 47.5, the court has liability insurance, effective January 1, determined that this opinion should not be retroactive to 1986. published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. Whaley delivered an infant named Morgan 47.5.4.

Fletcher. After complications arose as a part St. Paul in the position of a party to the of the delivery process, an attorney liability insurance contract between Whaley representing Morgan and the Fletcher family and State Volunteer, and that under requested hospital records relevant to Mississippi contract law, State Volunteer Whaley’s delivery of Morgan, and soon should be held liable for half of the paid thereafter requested that Whaley put his Fletcher claim. insurance carrier on notice of a claim by the Fletchers. Fletcher informed St. Paul of the II. request for information and informed both St. Paul’s contract with Whaley included a insurers of the demand letter. subrogation clause stating that

State Volunteer suggested to Whaley that [a]ny person protected under this policy he take up the matter with St. Paul. St. Paul, may be able to recover all or part of a not aware of the State Volunteer contract or loss from someone other than us. the contact between Whaley and State Because of this, each protected person Volunteer, undertook a defense of Whaley and must do all that’s possible after a loss to ultimately settled the claims. preserve any right of recovery available. If we make a payment under this policy After the settlement checks had been that right of recovery will belong to us. issued, but before consummation of the If we recover more than we’re paid, the settlement, St. Paul discovered the existence of excess will belong to the person who Whaley’s policy of insurance with State had the loss. But we’ll deduct our Volunteer. St. Paul promptly contacted State recovery expenses first. Volunteer and requested contribution from State Volunteer of one-half of the settlement Under less complex circumstances, this amount and the cost of defense. clause, by itself, would have provided St. Paul contractual subrogation to the position of State Volunteer declined. It argued, and Whaley as against State Volunteer. State Whaley agreed in affidavit testimony to the Volunteer’s contract with Whaley, though, district court, that it had been informed of the contains an anti-assignment clause, declaring pending Fletcher litigation when it negotiated that “[a]ssignment of interest under this policy coverage with Whaley, but had specifically and shall not bind the Company until its consent is explicitly agreed with Whaley to exclude the endorsed hereon.” The district court Fletcher incident from its coverage. Neither considered the possibility, without explicitly Whaley nor State Volunteer, however, could deciding the issue, that State Volunteer’s anti- provide the court with a contract or an assignment clause invalidated St. Paul's addendum thereto that memorialized this subrogation clause. agreement.1 We assume arguendo that the anti- The district court held that St. Paul had assignment clause does defeat contractual been subrogated to the rights of Whaley by the subrogation. We then, like the district court, doctrine of equitable subrogation, that this put look to the possibility of equitable subrogation.

1 The equitable doctrine of subrogation State Volunteer notes in its brief that its applies whenever any person, other than “policy is not part of the Record on Appeal, but counsel will be taking steps to provide a[] policy to a mere volunteer, pays a debt or demand assist the Court in its determination.” It did not. which in equity and good conscience We can only assume, therefore, that the should have been paid by another, or “specimen” policy included in the appellate record where one finds it necessary for his own replicates the written contract which bound Whaley protection to pay the debt for which and State Volunteer. another is liable.

First Nat’l Bank v. Huff, 441 So. 2d 1317, the Fletchers toward the eventual settlement. 1319 (Miss. 1983). The district court, in its discretion, found equitable subrogation to With regard to the issue of parol evidence, apply in this instance. State Volunteer does successfully direct this court to an error by the district court. In We agree. In First National, a bank had Mississippi, t he parol evidence rule limits the erroneously canceled a deed of trust between introduction of extrinsic evidence to elucidate two of its customers. Eventually, following the real meaning of a contract only when the the debtor’s death, the debtor’s estate stopped parties to the dispute are also the parties to the paying on the deed in response to the fact that contract. the creditor had not filed with the estate. The bank was obliged to pay the creditor, but then The parol evidence rule provides that wished to collect that payment from the when the language of a contract is clear debtor. The courts of Mississippi allowed and unambiguous, parol testimony is collection under the equitable subrogation inadmissible to contradict the written doctrine. See id. at 1317-20. language. However, more importantly, this Court has also held that this Court The facts here are similar. St. Paul took has adopted the general rule that the responsibility for Whaley’s liability under the parol evidence rule applies only to insurance contract, finding out only at the end controversies between parties to the of the settlement process that State Volunteer agreement. In the case sub judice, the might also be responsible for the liability. “agreement” in question is the insurance Whaley had granted St. Paul the right to stand policy, and the insurance company is not in Whaley’s shoes in any circumstances in a party in this controversy. Therefore, which another party might be wholly or partly this Court holds that the evidence liable for payments made by St. Paul on received by the Court was properly Whaley’s behalf, and Whaley had promised to admitted and properly considered. “do all that’s possible after a loss to preserve any right of recovery.” Sullivan v. Estate of J.C. Eason (In re Eason), 558 So. 2d 830, 832 (Miss. 1990) (citing Hence, Whaley was in good faith bound to Smith v. Falke, 474 So. 2d 1044, 1046 (Miss. St. Paul to attempt to collect from State 1985)) (internal quotation marks omitted). Volunteer, and St. Paul should in equity have recovered half of its expenditure in the This passage illustrates the error of the Fletcher case. While the anti-assignment term district court’s assertion that parol evidence is may have defeated that right at law, the district not admissible when a non-party to the court did not abuse its discretion by contract wishes an interpretation of the determining that equity requires that St. Paul contract unless the contract is ambiguous. be placed in Whaley’s shoes in order to collect Rather, in Mississippi, the parol evidence rule from State Volunteer. functions only when the parties to a contract seek interpretation thereof, and then only when III. that contract is unambiguous on its face. State Volunteer states two primary arguments against this understanding. First, it The error is of no help to State Volunteer, contends that the district court erred in failing however. As we have said, St. Paul, by the to consider its proffered parol evidence that efforts of the doctrine of equitable the insurance contract between Whaley and subrogation, stands in Whaley’s shoes: State Volunteer had been intended to exclude any liability for the Fletcher event. Second, it Subrogation has been defined as the avers that St. Paul should be estopped from substitution of one person in place of collecting from State Volunteer because it did another, whether as a creditor or as a not allow State Volunteer to negotiate with possessor of any rightful claim so that he

who is substituted succeeds to the rights Volunteer contract until the eleventh hour of of the ot her in relation to the debt or negotiationSSafter it had already written a claim, and its rights, remedies, or check to Fletcher. Under these circumstances, securities. we cannot see that the district court abused its discretion in denying State Volunteer the First National, 441 So. 2d at 1319 (internal solace of these equitable defenses. quotation marks omitted). AFFIRMED. For purposes of this litigation, therefore, St. Paul is no stranger to the contract, but is the representative of one of the contracting parties. As a result, State Volunteer may not enter into the record parol evidence of the special intent of the parties (here, the intent not to cover the Fletcher event), because the contract unambiguously failed even to allude to such an exception. State Volunteer is therefore bound by the unambiguous terms of the contract.

This “stepping into the shoes of” Whaley also defeats State Volunteer’s argument that the district court lacked jurisdiction. State Volunteer argued that because there was no privity of contract between St. Paul and State Volunteer, St. Paul had no standing to bring an action against it. Because subrogation inserts St. Paul into the position of Whaley, however, proper contract jurisdiction exists.

State Volunteer also argues that it should be protected by the doctrine of waiver, estoppel or laches from application of equitable subrogation. The district court dealt with this argument expeditiously but sufficiently. We simply point out that (1) State Volunteer enjoyed early notification that the Fletcher affair was reaching the crisis stage, and responded by referring Whaley to St. Paul's without guaranteeing its own lack of liability or communicating that purported lack of liability to St. Paul at an early stage of the affair; (2) State Volunteer is charged with knowing that it had not manifested in any writing the understanding with Whaley that the Fletcher affair would not be covered by the Whaley/State Volunteer contract; (3) State Volunteer knew from Whaley’s call as crisis approached that at least Whaley did not fully comprehend that State Volunteer had accepted no responsibility for the Fletcher affair; and (4) St. Paul did not know of the Whaley/State