Michael Consedine v. Personnel Management, Inc.
539 F. App'x 565
5th Cir.2013Background
- PMI (Louisiana employee-leasing company) purchased two high-deductible workers’ compensation policies from Reliance (Pennsylvania insurer) for 1998–99 and 1999–2000; premiums were adjustable based on actual payroll.
- Policies featured $100,000 per-claim deductibles; separate Insurance Program Agreements (IPAs), CIP binders, and a Claims Service Agreement (CSA) with Crawford described claims‑handling procedures and reporting (monthly loss runs); IPAs were unsigned but used by the parties.
- Reliance (through Crawford) paid and adjusted employee claims during the coverage periods; Reliance later audited payrolls and sought $349,140.63 in additional adjusted premiums. Reliance also sought ~$602,435 in deductible reimbursements for claims it paid that fell under the deductible.
- PMI alleged Reliance materially breached its claims‑adjustment obligations by (inter alia) changing the third‑party administrator, failing to provide monthly loss reports and communications, and effectively funding losses rather than billing PMI monthly—conduct that PMI says excused its duty to reimburse deductibles.
- District court (bench trial) awarded Reliance the adjusted premiums but found Reliance breached claims‑adjustment obligations and denied recovery of deductible amounts. Appeal followed; Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Reliance) | Defendant's Argument (PMI) | Held |
|---|---|---|---|
| Were the insurance policies validly delivered under La. law so Reliance may recover adjusted premiums? | Delivery occurred via broker/agent; premiums were paid; policies were issued, so delivery statute satisfied. | Delivery incomplete or defective; ancillary documents (IPAs) not delivered so no enforceable program. | Court: No clear error — policies were constructively delivered to agent; Reliance entitled to adjusted premiums. |
| Were the CIP binders/IPAs/CSA enforceable as creating claims‑adjustment obligations? | CIP/IPA/CSA, and parties’ conduct, established Reliance’s obligations to furnish claims services and reporting; Reliance previously acknowledged such obligations at trial. | binders/IPAs were not part of the issued policies and (per §22:870) binders expire on policy issuance; unsigned IPAs cannot create new contractual duties. | Court: Reliance’s §22:870 argument was forfeited on appeal; trial evidence and parties’ conduct supported treating those program documents as part of the insurance program and imposing obligations. |
| Did Reliance materially breach claims‑adjustment obligations (communication, monthly loss reports, change of administrator, funding practice)? | Reliance maintained it met obligations and that PMI was billed properly; payments and adjustments were reasonable. | Reliance unilaterally altered the program, failed to provide loss runs/communication, and funded losses without monthly billing — a material breach that excused PMI’s reimbursement duty. | Court: No clear error in district court’s factual findings of breach; PMI relieved from reimbursing deductible losses. |
| Did breach (if any) excuse PMI from paying adjusted premiums as well as deductible reimbursements? | If Reliance breached, it should not recover deductibles; adjusted premiums remain separately owed under the insurance contract. | Breach was so fundamental that PMI should be excused from all obligations including adjusted premiums. | Court: Affirmed district court’s implicit two‑agreement view — premiums and claim‑administration obligations treated separately; breach excused only deductible reimbursement, not premium adjustments. |
Key Cases Cited
- French v. Allstate Indem. Co., 637 F.3d 571 (5th Cir.) (standard of review for bench-trial findings)
- Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir.) (bench-trial review principles)
- Pruitt v. Great S. Life Ins. Co., 12 So.2d 261 (La. 1943) (delivery test for insurance policies)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (choice‑of‑law for contract interpretation)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (federal courts apply forum state substantive law)
- Am. Elec. Power Co. Inc. v. Affiliated FM Ins. Co., 556 F.3d 282 (5th Cir.) (choice‑of‑law rules for insurance contracts)
- Succession of Fannaly v. Lafayette Ins. Co., 805 So.2d 1134 (La.) (insurance contracts interpreted to effect parties’ reasonable expectations)
- Olympic Ins. Co. v. H.D. Harrison, Inc., 463 F.2d 1049 (5th Cir.) (doctrine that substantial breach by one party may excuse the other’s performance)