United States for the Use and Benefit of Bernard Lumbercompany, Inc., Plaintiff-appellant, v. Lanier-gervais Corporation, Defendant,the Louisiana Insurance Guaranty Association, Defendant-appellee, 896 F.2d 162 (5th Cir. 1990)

Reversing the District Court's denial of relief in this suit by Bernard Lumber Co. (Bernard), a supplier to Lanier-Gervais Corporation (Lanier) the contractor against its Miller Act Surety Integrity Insurance Company (Integrity) through its statutory guarantor Louisiana Insurance Guaranty Association (LIGA) turns on the following events:

Event Date Description No.  1. October 24, 1986 Last delivery to contractor Lanier by Bernard 2. March 24, 1987 Integrity declared insolvent by Superior Court of New Jersey, appointed liquidator and injunction against suits 3. March 25, 1987 Amended court order discontinuing defenses by Integrity 4. July 10, 1987 Bernard files claims with liquidator 5. October 24, 1987 One-year limitation period, Miller Act expires 6. November 6, 1987 Liquidator's notice of allowance of Bernard's claim $13,574.85 7. January 67, Sixty-day objection period expires with no objection 1988 to allowance of Bernard's claim 8. April 13, 1988 Miller Act suit filed against LIGA 9. February 1, 1988 LIGA's motion for summary judgment 10. February 17, Bernard's counter motion for summary judgment 1988 11. April 26, 1988 Summary judgment granted to LIGA 12. May 1, 1988 Final judgment for LIGA.

Limitation Sets In

Obviously, as LIGA continuously emphasizes, the failure of Bernard to commence suit against Integrity by October 24, 1987 (Ev. 5) within one year of Ev. 1 raised the Miller Act one year statute of limitation, 40 U.S.C. § 270b(b), which is controlled by Federal law. United States for the Use and Benefit of (f.u.b.) Harvey Gulf International Marine, Inc. v. Maryland Casualty Co., 573 F.2d 245, 247 (5th Cir. 1978).

No longer in any dispute in the Fifth Circuit is the fact that this mis-named "jurisdictional" defense is subject to equitable tolling. United States f.u.b. Texas Bitulithic Co. v. Fidelity and Deposit Company of Maryland, 813 F.2d 697, 699 (5th Cir. 1987).² 

Accepting this principle, as we must, the question still remains whether the inherently equitable factors of equitable estoppel are equitably presented by the circumstances of this case. (See, e.g. Ev. 2, 3, 4, 6).

Insolvency Sets In

The most significant events are those on March 24-25 (Ev. 2, 3) when the Superior Court of New Jersey, the domiciliary state of Integrity, declared it insolvent (R. 053). The Decree also ordered the appointment of the Liquidator, ((3) 055), ordered claims to be filed in the liquidation proceeding, enjoined the filing and prosecution of suits against Integrity ((8) (14) 058-9, (232, 068)), and ordered Integrity to cease the defense of all claims against it. (2. R. 074).

While currently enjoined from instituting any suits against Integrity, Bernard filed its claim with the Liquidator July 10, 1987 (Ev. 4) on the official form prescribed by the Liquidator (R. 0268, 0190). On November 6, 1988, now 13 days beyond the Miller Act limitation date (Ev. 5), the Liquidator gave notice of the allowance of the claim in the amount of $13,574.85 (R. 0283, 0191). The notice of allowance stating that it was issued in accordance with the Order of March 24, 1987 (Ev. 2) and the Order of July 2, 1987 prescribing procedures for allowance of proof of claims, was as follows:

KENNETH D. MERIN, Commissioner

of Insurance of the State of

New Jersey: Plaintiff.

vs.

INTEGRITY INSURANCE COMPANY,

a Stock Insurance Company of

New Jersey, et al.: Defendants.

 Re: Insured: LANIERGERVAIS CORP. To: BERNARD Claimant BERNARD LUMBER LUMBER CO. COMPANY C/O ARNOLD Policy # J. ICB020046 SCHIELDS, JR. P.O. BOX IIC Claim 13726 00000116040 NEW ORLEANS, Date of Loss LA. 70185 Guaranty Assn. SEE BELOW

PLEASE TAKE NOTICE that the Deputy Liquidator

of Integrity Insurance Company in

Liquidation, acting pursuant to N.J.S.A.

17:30C1 et seq., the Order of Liquidation

entered in the above matter on March 24,

1987, and the Order Establishing Procedure

For Allowance Or Disallowance of Proofs of

Claim entered July 8, 1987, hereby advises of

his recommendation to the Superior Court of

New Jersey regarding the allowance or

disallowance of the following Proof of Claim:

Liquidator Claim # 7969 Amount Claimed

$13,574.85. CLAIM IS ALLOWED, SUBJECT TO

TERMS AND CONDITIONS OF BOND AND TO THE

FOLLOWING: (a) Bond coverage, payee and

amount of claim to be determined by Guaranty

Association, if amount exceeds Guaranty

Association limit, excess to be determined by

Deputy Liquidator.³ 

LOUISIANA INSURANCE GUARANTY ASS'N. Michael Miron 4150 SOUTH SHERWOOD FOREST Deputy Liquidator (P.O. BOX 15989) Integrity Insurance Co. BATON ROUGE, LA. 708955989 in Liquida- tion MR. GIL GRUEBELLE, CHAIRMAN P.O. Box 1158 (504) 2935900 Paramus, New Jersey 07652

DATED: 11/06/87

The Order explicitly prescribed a 60-day period in which to object and that on failure to timely object "the allowance ... shall constitute the final determination and judgment of the Superior Court of New Jersey with regard to the above Proof of Claim and you [the claimant] shall be barred thereafter from objecting to the allowance ... of such Proof of Claim."

Insolvency Brings in Louisiana Insurance Guaranty Association (LIGA)

LIGA is now a frequent litigant⁴  in the Fifth Circuit. (La.Rev.Stat. 22:1375 et seq.). Indeed, for its origin, statutory purpose, organization, liabilities and responsibilities, it would be an affectation to add to our very recent monumental opinion in Sifers v. General Marine Catering Co. v. First State Ins. Co. and [LIGA], 892 F.2d 386 (5th Cir. 1990), covering 11 separate cases from the Eastern and Western Districts of Louisiana. As we there stated:

As a condition of doing business in Louisiana, insurance carriers receiving the statutory benefit of being reinsured were forced to finance LIGA through assessments. In the event that a member-carrier became insolvent, it was envisioned that LIGA would assume all the benefits and obligations of the direct insurance policies underwritten by the defunct carrier.

Id. at 388. This 1970 statute "mimicked a uniform state model." Id. at 388.

Several provisions of LIGA do bear some emphasis. First, there is the statutory declaration that it shall be liberally construed to effect the purpose of La.R.S. Sec. 22:1376⁵  which provides:

The purpose of this Part is to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer....

Section 22:1382(1) provides that the association shall:

(a) Be obligated to the extent of the covered claims existing prior to the determination of the insurers' insolvency, ... but such obligation shall include only that amount of each covered claim, ... which is in excess of [$100] and is less than [$150,000].... In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises.

Amended Acts 1985, No. 780, Sec. 1; Acts 1987, No. 172, Sec. 1.

Of great significance is subparagraph (b) which provides that LIGA shall:

(b) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent.

As does the insolvent insurer, its statutory successor, LIGA has affirmative obligations to investigate claims, adjust them, settle and pay covered claims to the extent of the association's obligation.⁶ 

With respect to LIGA's "to the extent of the covered claims" (see Sec. 22:1382(1) (a)) the term "covered claim" is broadly defined as an unpaid claim which arises out of and is within the coverage of the policy issued by the insolvent insurer.⁷ 

Of course, Integrity fully meets the definition of an insolvent insurer.⁸ 

It is uncontradicted in this record that a Miller Act payment bond bearing No. ICB 020046, naming Lanier-Gervais as principal and the United States Navy as obligee was issued in connection with Contract No. N62467-84-C-0310 for the Squadron Operations Building, U.S. Naval Air Station (see Exhibit Cr. 00430) and there is no dispute that Integrity, the surety, was adjudged insolvent by the Superior Court of New Jersey, where Integrity has its statutory domicile, on March 24, 25, 1987. (Ev. 2, 3).

As the bonds covered both property located in Louisiana as well as the claimant, a concern domiciled in Louisiana, LIGA, who was officially aware of Integrity's insolvency and the liquidation proceeding in the New Jersey Courts,⁹  automatically became liable for whatever liabilities Integrity would have had had it not become insolvent.

Bernard's original Federal complaint, para. 14, states that LIGA was given notice by certified mail (Return Receipt Requested) on September 15, 1987, (Receipt dated September 21, 1987) of its claim (R. 00266). Of great significance, this was within the statute of limitations period, yet the record reflects LIGA did nothing.

This brought on at least the duty under La.R.S. Sec. 22:1382(1) (d) seriously and in good faith to " [i]nvestigate claims brought against the association and adjust, compromise, settle and pay covered claims to the extent of the association's obligation...." But the record is silent as to what, if anything, LIGA did. To the contrary, the record reflects, as the fact-finder might well conclude, that LIGA persisted in an outright denial of the whole claim with little or no investigation during the time the claim was fully alive for Miller Act purposes as to many significant factors. These would include whether there was any basis for prospective liability under Integrity's bond, whether there were any defenses to the claim, the amount or value of the claim or the like, the failure of which might trigger liability for attorney's fees under La.R.S. Sec. 22:658¹⁰  and possible sanctions, (see Thomas v. Capital Security Services, Inc., 836 F.2d 866 (5th Cir. 1988)), against the party, counsel, or both, for violation of F.R.Civ.P. Rule 11 which imposes severe duties on Counsel who sign a Federal pleading:¹¹ 

Every pleading, motion, and other paper of a party ... shall be signed by at least one attorney of record.... The signature of an attorney or party constitutes a certificate by the signer ... that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact ... and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.... If a pleading, motion or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction ... including a reasonable attorney's fee.

Equitable Estoppel Overcomes Limitations, Insolvency and

LIGA's Defense

With equitable estoppel firmly established both in this circuit and elsewhere, LIGA's principal objection comes down to this: Equitable estoppel, although recognized, is confined to the sort of misleading, deceitful statements or conduct illustrated in cases urged by LIGA: United States for the Use and Benefit of Texas Bitulithic Co. v. Fidelity and Deposit of Maryland, 813 F.2d 697 (5th Cir. 1987); United States for the Use and Benefit of Atlas Erection Co., Inc. v. Continental Casualty Co., 357 F. Supp. 795 (E.D. La. 1973); United States for the Use and Benefit of E.E. Black, Ltd. v. Price-McNemar Construction Co., 320 F.2d 663 (9th Cir. 1963); United States v. Ellis Construction Co., 78 F.R.D. 317 (E.D. Tenn. 1978); United States for the Use and Benefit of Bagnal Building Supply Co. v. United States Fidelity and Guaranty Co., 411 F. Supp. 1333 (D.S.C. 1976); and United States for the Use of Howard L. Nelson v. Reliance Insurance Co., 436 F.2d 1366 (10th Cir. 1971).

We firmly disagree. Any such approach would ignore the very title of the doctrine: Equitable estoppel. That term comprehends that whenever the Chancellor would be led to conclude that in good conscience the result is unjust, unfair or unacceptable, the "magic wand of equity" has the power and duty to ignore, disregard or overrule the obstacle. United States v. Maryland Casualty Co., 235 F.2d 50, 53 (5th Cir. 1956); see also, Southern Railway Co. v. United States, 306 F.2d 119, 127 (5th Cir. 1962); Fidelity & Casualty Co. of New York v. C/B MR. KIM, 345 F.2d 45, 52 (5th Cir. 1965); United Bonding Ins. Co. v. General Cable Corp., 381 F.2d 753, 755 (5th Cir. 1967); Travelers Indemnity Co. v. Peacock Constr. Co., 423 F.2d 1153, 1159 (5th Cir. 1970); Florida Bahamas Lines, Ltd. v. The Steel Barge "Star 800" of Nassau, 433 F.2d 1243, 1250 (5th Cir. 1970).

We hold, as a matter of law, that when, as here, a party is forbidden by an injunction of a competent court to initiate litigation, that is the very essence of circumstances calling for equitable relief. Nothing could be more in equitable, less equitable than to forfeit the legal rights of a party who is enjoined from bringing the legal action.

There is no doubt that the Superior Court of New Jersey, since it was the state of domicile of Integrity, was a court of competent jurisdiction and had the power to initiate the liquidation proceedings, and enter its orders, including the sweeping injunction.¹²  We reject, as unfounded, both the holding, expressions and implications of United States f.u.b. Pittman Mechanical Contractors, Inc. v. Irvine and Associates, Inc., 645 F. Supp. 845 (E.D. Va. 1986).¹³ 

LIGA gets no help from that part of the order of liquidation (R. 53) "that Guaranty Associations of the other states are obligated to the extent set forth in the applicable laws of their respective states."¹⁴  The liabilities urged by plaintiff are not, as this objection implies, asserted out of the blue. Rather, it depends immediately and precisely on the terms of the Louisiana Insurance Guaranty Association law. At the risk of oversimplification, the statute simply says: LIGA is, or is deemed to be, Integrity. It has whatever liabilities Integrity would have under the bond. It has whatever defenses Integrity would have. Our holding is that whatever liability Integrity would have were it not for insolvency is now imposed on LIGA. As a matter of judicial fact, Integrity has already been found liable by the allowance of the claim filed by plaintiff and allowed by the liquidator. (Ev. 6).

Since La.R.S. Sec. 22:1382(1) (b) declares that LIGA shall be "deemed the insurer to the extent of its obligation on the covered claims," suit brought in the name of LIGA was in legal effect a suit by the plaintiff against Integrity who clearly had a right to assert equitable estoppel.¹⁵  As to the claim against Integrity (and hence against LIGA) the plaintiff is excused from filing the suit against Integrity (LIGA) within the statutory one-year period. The suit stands as timely filed against Integrity.

What is Open on Remand

Since remand is necessary we point out those factors not open for further contest below:(1) Equitable estoppel is established and excuses plaintiff's failure to file within the limitation period.

(2) Integrity is insolvent and the liquidating court had jurisdiction to receive, consider and allow plaintiff's claim in the amount of $13,574.85.

(3) The allowance of the claim (para. 2) establishes that the claim is within the conditions of Integrity's bond and that it is a "covered claim" for which LIGA may be liable.

(4) The Integrity bond, as such, covers materials, if any, delivered or furnished to the bonded job.

This leaves open only that part of the para. (2) "subject to" in the allowance of claim (See, R. 0283, 0191) and the "amount of claim." If the facts support the delivery of the materials to the bonded job by plaintiff, there is no doubt that there is "bond coverage." Likewise, plaintiff is the only party making claim so there is no controversy as to "payee" to be determined by the fact-finder. Only open as a fact is the "amount" which will, of course, include whether, and to what extent, materials were furnished or delivered by plaintiff to the bonded job, the value thereof, and the balance in dollars due, if any, all of which on the present record is in dispute.

This highly restricted trial will enable both plaintiff and LIGA to achieve one of the principal Louisiana purposes "to avoid excessive delay in payment and to avoid financial loss to claimants ... because of the insolvency of an insurer." La.R.S. Sec. 22:1376. To the extent pleadings of either party need or require, amendment shall, as F.R.Civ.P. 15 calls for, be freely given.

The consequence is that the case must be reversed and remanded for further consistent action.

REVERSED AND REMANDED.