Hollybrook Cottonseed Processing, L.L.C. v. American Guarantee & Liability Insurance, 772 F.3d 1031

Background

Hollybrook bought cotton-processing equipment from Carver; the equipment repeatedly failed, causing plant-wide downtime and downstream losses.
Hollybrook sued Carver (breach/redhibition) and insurers; settled with Carver and primary insurer and proceeded against excess insurer American Guarantee & Liability (American).
At an 11-day trial, defense counsel elicited testimony revealing a settlement demand of $750,000 in violation of a motion in limine; jury returned a $1,750,000 verdict for Hollybrook the next day.
District court found counsel’s misconduct intentional, granted Hollybrook’s motion for a new trial as to damages only; second trial before a different judge produced a $6+ million verdict (lost profits, equipment price, and other compensatory damages).
District court had earlier held as a matter of law that American’s policy provided coverage; after the second trial it reaffirmed coverage but denied recovery of Hollybrook’s attorney’s fees as policy-covered damages.
Fifth Circuit affirmed the new-trial ruling and the coverage of plant-wide losses (not work product), but reversed as to attorney’s fees, holding they are damages under Louisiana redhibition and potentially covered by the policy (subject to apportionment for excluded items).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether trial court abused discretion in granting a new trial after improper settlement testimony	Misconduct prejudiced jury; new trial necessary	Brief testimony was harmless and did not sway jury	Affirmed: no abuse of discretion; court lacked fair assurance jury ignored improper evidence
Whether American’s CGL “work product” exclusion bars coverage for jury damages (lost profits and other plant losses)	Loss of use of entire plant is "other property" damage and covered	All damages flowed from Carver’s defective equipment and are excluded as insured’s work product	Affirmed: exclusion bars repair/replacement of insured’s product but not plant-wide consequential losses; coverage for those losses stands
Whether attorney’s fees awarded in redhibition are "damages" covered by the policy	Attorney’s fees are an element of damages under La. Civ. Code art. 2545 and thus covered as sums insured is obligated to pay	Fees are a separate penalty/remedy and not covered; alternatively excluded by work-product exclusion	Reversed: fees are part of redhibition damages and fall within the policy’s insuring agreement; remanded to apportion any fees attributable to excluded items
Whether any portion of attorney’s fees is excluded by the work-product exclusion	Fees relate to consequential damages from product defect and thus covered; only fees tied to excluded equipment price may be excluded	Fees may be attributable to excluded defective-product recovery and thus excluded	Remanded: district court to determine what portion, if any, of fees are attributable to excluded damages

Key Cases Cited

Carr v. Wal-Mart Stores, Inc., 312 F.3d 667 (5th Cir. 2002) (standard of review for new-trial motions)
Smith v. Transworld Drilling Co., 773 F.2d 610 (5th Cir. 1985) (affirming new trial where issues complex or trial tainted)
O’Rear v. Fruehauf Corp., 554 F.2d 1304 (5th Cir. 1977) (harmless-error test for prejudicial trial admissions)
Kotteakos v. United States, 328 U.S. 750 (U.S. 1946) (framework for assessing influence of error on jury)
Martco Ltd. P’ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. 2009) (distinguishing damage to insured’s product from consequential loss to other property)
Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401 (5th Cir. 1982) (work-product exclusion bars repair/replacement costs but not broader entity losses)
Supreme Servs. & Specialty Co. v. Sonny Greer, Inc., 958 So. 2d 634 (La. 2007) (purpose of work-product exclusion under Louisiana law)
Reynolds v. Select Props., Ltd., 634 So. 2d 1180 (La. 1994) (ambiguities in insurance policy construed against insurer)