Insured- and insurers-appellants appeal from an order entered on January 29, 2007, and summary judgments entered on October 27, 2008, and February 19, 2009, in the United States District Court for the Southern District of New York (Haight, J.), the court having, inter alia, (1) dismissed all causes of action brought against insurer-appellee, after concluding that the insurer appellee was not responsible under a liability policy for damages allegedly caused by a breakaway barge that was moored to the insured's facility during Hurricane Katrina; (2) granted the insured the fees and expenses of two of the three law firms it retained, based on a finding that the insurer appellant's policy permitted insured to take reasonable protective measures to minimize exposure to liability arising from the breakaway barge; and (3) denied insured's motion to transfer and its application for attorneys' fees incurred in connection with motions before the district court.
Affirmed in part, vacated in part, and remanded.
The opinion of the court was delivered by: Miner, Circuit Judge
Argued: November 16, 2009
Before: MINER and STRAUB, Circuit Judges.*fn2
Insured defendant-counter-plaintiff-appellant-cross-appellee Lafarge North America, Inc. ("Lafarge"), intervenor and primary-insurer plaintiff-counter-defendant-appellee-cross-appellant New York Marine and General Insurance Company ("NYMAGIC" or the "primary insurer"), and excess-insurers plaintiffs-counter-defendants-appellants-cross-appellees Northern Assurance Company of America ("NACA") and American Home Assurance Company ("AHAC" or, collectively with NYMAGIC, in its additional capacity as excess insurer, and NACA, the "excess insurers"), appeal from an order entered on January 29, 2007, and summary judgments entered on October 27, 2008, and February 19, 2009, in the United States District Court for the Southern District of New York (Haight, J.). The District Court, inter alia, (1) dismissed all causes of action brought against insurer plaintiff-counter-defendant-appellee American Steamship Owners Mutual Protection and Indemnity Association, Inc. (the "American Club" or the "Club"); (2) granted Lafarge the fees and expenses of two of the three law firms it retained without the knowledge or consent of the primary insurer; (3) denied Lafarge's motion for attorneys' fees incurred in defending against the insurers' motions for summary judgment; and (4) denied Lafarge's motion to transfer the American Club action to the United States District Court for the Eastern District of Louisiana. For the reasons that follow, we affirm in part and vacate in part the District Court's judgments.
On August 29, 2005, Hurricane Katrina made landfall in New Orleans, Louisiana. The levee protecting the Lower Ninth Ward of New Orleans failed during the hurricane, causing the Mississippi River to flood the area. Widespread devastation and death ensued. In the course of the disaster, Barge ING 4727, which was one of hundreds of barges and vessels to break away from their moorings during the storm, came to rest against a house on the land side of the levee.
On September 9, 2005, the Wall Street Journal published an article entitled "Still Unknown: Did a Barge Breach the Levee?" In that article, the Army Corps of Engineers was quoted as stating "that one possible cause of this breach is that [Barge ING 4727] smashed through [the levee]." The article identified Ingram Barge Company ("Ingram") as Barge ING 4727's owner, and Lafarge as the operator responsible for the terminal to which Barge ING 4727 was moored when the hurricane struck. Ingram was quoted as stating that "it would have been the terminal's responsibility to secure [Barge ING 4727] in advance of the storm." Lafarge, which was contacted the day before by the reporter preparing the article, stated only that it was "not yet able to provide additional information regarding the terminal or its related transportation operations." It thus was brought to public attention that Barge ING 4727 may not have been merely a casualty of Hurricane Katrina but in fact may have caused the flooding of the Lower Ninth Ward. Further, the article implied that Lafarge may have failed to properly moor Barge ING 4727 during the storm and that Lafarge was therefore responsible for the devastation to the Lower Ninth Ward.
Lafarge, one of the largest suppliers of construction materials in the United States and Canada, was well aware that the exposure to potential liability created by Barge ING 4727 threatened the existence of the company. Thus, upon receiving the initial inquiry from the Wall Street Journal reporter on September 8, 2005, and thereby first becoming aware of a potential causal connection between Barge ING 4727 and the breached levee, Lafarge retained Goodwin Procter LLP ("Goodwin Procter"), which Lafarge described as "a top law firm with a national reputation [that] had represented [Lafarge] in class action/mass tort and other complex litigation [in the past]." Lafarge also retained Holland & Knight LLP ("H&K"), which, according to Lafarge, had a "prominent maritime investigation and litigation practice." The next day, on September 9, 2005, after being advised by Goodwin Procter about the need for local counsel, Lafarge retained the New Orleans law firm Chaffe McCall LLP ("Chaffe"), which also had a sizable maritime practice. The law firms immediately began their work: "Goodwin [Procter] had primary responsibility for oversight, communication, and all legal issues dealing with potential mass tort liability; H&K had the lead on maritime issues and investigation[;] and Chaffe provided necessary local support." Although Goodwin Procter and Chaffe would continue to remain on the case, H&K was discharged in early 2006 after the firm completed its reports on the initial investigation "into the circumstances of the breakaway [B]arge ING 4727 and the failure of the . . . levee structures."
Meanwhile, on September 9, 2005, Lafarge had notified its primary insurer, NYMAGIC, about Barge ING 4727 and the possibility of claims against Lafarge.*fn3 At that time, Lafarge advised NYMAGIC only that it had retained H&K. In a facsimile transmission dated September 13, 2005, NYMAGIC responded that it had "set up a file and [would] await further details or other developments." NYMAGIC also noted in the transmission that "we have good counsel in New Orleans, Messrs. Sutterfield and Webb [("Sutterfield")], who we would like to involve should there be any significant claim against [Lafarge] in this matter." It was not until September 20, 2005, that Lafarge notified NYMAGIC that it had retained Goodwin Procter and Chaffe, in addition to H&K. Lafarge never obtained NYMAGIC's prior consent to the appointment of any of these law firms. In a response dated September 22, 2005, NYMAGIC advised Lafarge that "we cannot commit to paying for public relations or lobbying efforts" and that "[f]or defense, we wish to assign one of the Louisiana firms on our 'Panel Counsel' list." The response included the names of six New Orleans law firms, including Sutterfield, specializing in maritime litigation.
Lafarge, however, did not respond to NYMAGIC's offered list of counsel, and it became clear that Lafarge "would not consent to any of the six law firms proposed by NYMAGIC and . . . that they intended to continue to employ Goodwin Proct[e]r, Chaffe . . . and [H&K]." In an e-mail dated September 28, 2005, NYMAGIC advised Lafarge that "[we] can agree to the costs of the experts and surveyors but [we] cannot agree to pay for the three sets of attorneys on the case, none approved by us." In a separate e-mail dated the same day, NYMAGIC also informed Lafarge that "[w]e have decided to appoint Sutterfield & Webb as defense counsel in Louisiana."
Lafarge then instructed Goodwin Procter to "cooperate with Sutterfield and to bring Dan Webb, of that firm, up to speed."
On November 3, 2005, the first action against Lafarge was filed in the United States District Court for the Eastern District of Louisiana. See In re Katrina Canal Breaches Consol. Litig., No. 05-4182, 2008 WL 4401970, at *8 (E.D. La. 2008). The action then was predictably enlarged and rapidly mutated into litigation of substantial magnitude and complexity:
No fewer than four separate class action complaints have been filed against Lafarge, some with putative classes as large as 40,000 members, seeking damages as high as $100 billion. No fewer than 900 docket entries were made in the Katrina Barge Litigation when it was pending before Chief Judge Berrigan, and no fewer than 16,000 docket entries have been made in the consolidated Katrina Litigation pending before Judge Duval. At least 28 other parties, including insurers as direct action defendants, are or have been co-defendants of Lafarge in the Katrina Barge Litigation.
N.Y. Marine and Gen. Ins. Co. v. Lafarge N. Am., Inc., 598 F. Supp. 2d 473, 495 (S.D.N.Y. 2009) (internal quotation marks and alteration omitted). Although the merits of Lafarge's liability (the "barge litigation") will be adjudicated in the Louisiana District Court, Lafarge's insurers commenced three separate actions giving rise to this appeal in the United States District Court for the Southern District of New York. Id. at 476--78. In those actions, the insurers sought declaratory judgments with respect to issues of coverage under the primary and excess policies. Id.
Pursuant to NYMAGIC's primary policy, NYMAGIC paid "the approved legal fees and expenses of Sutterfield & Webb and Lafarge's expert fees and costs." These expenses exhausted the primary policy's limit of $5 million. Under the excess policy issued by the three excess insurers - NYMAGIC, AHAC, and NACA - NYMAGIC paid and continues to pay 40% of the legal fees and expenses billed by Sutterfield and the expenses billed by Lafarge's experts in connection with the barge litigation. The remaining 60% of the fees and expenses are said to be covered under the excess policy by AHAC and NACA, but these two insurers have refused to pay so far. Id. at 490 & n.12. The excess policy issued jointly by the three excess insurers covers Lafarge for liability and expenses up to $45 million and under certain circumstances, $50 million. Neither NYMAGIC, AHAC, nor NACA has approved or paid any of the legal fees and expenses of Goodwin Procter, H&K, and Chaffe. The total legal fees and expenses of these three firms amount to over $10 million as of November 11, 2008. Id. at 490.
In addition to being insured under NYMAGIC's primary policy and the excess policy issued by the three excess insurers, Lafarge also is a member of the American Club, a non-profit mutual insurance association, which provides a "protection and indemnity" policy (the "American Club Policy") for its members. The American Club Policy "cover[s] shipowners and charterers against third-party liabilities arising from the ownership or operation of insured vessels." Thus, in accordance with this general purpose, a list of specific vessels to be insured is identified by Lafarge and incorporated into its Certificate of Entry, a document proving Lafarge's membership with the American Club.
Although Ingram owned Barge ING 4727 - and therefore the barge was not listed as an insured vessel under Lafarge's Certificate of Entry - Lafarge's membership in the American Club included the following special term and condition: "If Lafarge . . . acquires an insurable interest in any vessel . . . through purchase, charter, lease or otherwise, [the American Club Policy will] automatically cover such . . . vessel effective from the date and time [Lafarge] acquires an insurable interest in such . . . vessel." (emphasis added). As explained in more detail below, one of the principal issues at contention in this appeal is whether the term "otherwise" in the American Club Policy includes Barge ING 4727, which Lafarge acquired some interest in pursuant to a Transportation Agreement between Lafarge and the barge's owner, Ingram.
The three separate actions filed in the United States District Court for the Southern District of New York were as follows: First, NYMAGIC sought judgments against Lafarge declaring that (1) NYMAGIC's primary policy did not cover the legal fees earned by Lafarge's counsel, i.e., Goodwin Procter, H&K, and Chaffe, which firms were retained without NYMAGIC's knowledge and consent; (2) NYMAGIC - which asserts that it retained the right under its primary policy to direct the defense of any action against Lafarge - had fulfilled its obligations under the policy; and (3) NYMAGIC is obligated to pay only reasonable fees and expenses relating directly to the defense of the claims against Lafarge. Second, the American Club sought a judgment against Lafarge declaring that the American Club Policy did not cover Barge ING 4727 and that, therefore, the American Club was not obligated to cover any of Lafarge's expenses or liabilities arising from the barge litigation. And third, AHAC and NACA sought judgments against Lafarge and the American Club declaring that (1) the American Club Policy covered Barge ING 4727; (2) AHAC and NACA, as excess insurers, were not obligated to pay until NYMAGIC's primary policy and the American Club Policy were first exhausted;*fn4 and (3) because NYMAGIC's primary policy did not cover Lafarge's legal fees earned by Goodwin Procter, H&K, and Chaffe, AHAC and NACA also were not liable to reimburse Lafarge for payments to those law firms. Id. at 476--77.
Lafarge moved to transfer the American Club action to the Louisiana District Court; however, that motion was denied on January 29, 2007. See Am. Steamship Owners Mut. Prot. and Indem. Ass'n, Inc. v. Lafarge N. Am., Inc., 474 F. Supp. 2d 474, 482--91 (S.D.N.Y. 2007). Subsequently, NYMAGIC, in its capacity as an excess insurer, was granted leave to intervene as a party plaintiff so that it could assert claims mirroring those in AHAC and NACA's action for declaratory judgment against the American Club and Lafarge. As the District Court observed, "[this] is not surprising, since all three insurers, having subscribed to the Excess Policy, are in the same boat and intent upon bailing it out." Lafarge N. Am., Inc., 598 F. Supp. 2d at 478. Each party then filed motions and cross-motions for summary judgment and, alternatively, in the case of the American Club, a motion to dismiss all claims asserted against it.
C. The District Court's Decisions on Summary Judgment
On October 27, 2008, the District Court granted the American Club's motion for summary judgment against Lafarge, declaring that the American Club has no obligation to provide coverage for the claims asserted against Lafarge in connection with the barge litigation. Reviewing the terms of the Transportation Agreement, which established the conditions of Lafarge's use of Ingram's barges, the District Court concluded that the American Club Policy's provision providing for automatic coverage of insurable interests in any vessel acquired by Lafarge "through purchase, charter, lease or otherwise" did not apply to Ingram's Barge ING 4727. See Am. Steamship Owners Mut. Prot. and Indem. Ass'n, Inc. v. Lafarge N. Am., Inc., No. 06 Civ. 3123, 2008 WL 4449353, at *8--*9 (S.D.N.Y. Sept. 29, 2008). According to the District Court:
Lafarge tells Ingram it needs a cement cargo to be transported from Joppa to New Orleans on a particular date. Ingram selects from its fleet of barges one to perform the work: it could be the ING4727, or 4726, or 4728, or any other Ingram barge. Lafarge neither knows [n]or cares. All it knows is that if all goes well, an Ingram barge will arrive at Lafarge's New Orleans facility to discharge a cement cargo.
Id. at *9. The court concluded that this arrangement between Lafarge and Ingram did not constitute an acquisition by Lafarge - "through purchase, charter, lease or otherwise" - of an insurable interest in Barge ING 4727.
On February 19, 2009, the District Court (1) granted the American Club's motion for summary judgment and dismissed AHAC, NACA, and NYMAGIC's claims against the American Club, the court having concluded that the American Club Policy, as explained in its October 27, 2008 summary judgment, did not cover Barge ING 4727; (2) granted Lafarge's motion for summary judgment against the excess insurers and declared that they were obligated to cover Lafarge, the court having concluded that the excess insurance policy was triggered because Lafarge properly maintained the American Club Policy and because Lafarge was not a self-insurer; and (3) granted, in part, Lafarge's motion for summary judgment against both the primary and excess insurers and declared that they were obligated to cover the legal fees earned by Goodwin Procter and H&K but not Chaffe. See generally Lafarge N. Am., Inc., 598 F. Supp. 2d at 481--97. The court also denied all claims for ...