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determined that this opinion should not be
published and is not precedent except under the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

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Fletcher. After complications arose as a part
of the delivery process, an attorney
representing Morgan and the Fletcher family
requested hospital records relevant to
Whaley’s delivery of Morgan, and soon
thereafter requested that Whaley put his
insurance carrier on notice of a claim by the
Fletchers. Fletcher informed St. Paul of the
request for information and informed both
insurers of the demand letter.
State Volunteer suggested to Whaley that
he take up the matter with St. Paul. St. Paul,
not aware of the State Volunteer contract or
the contact between Whaley and State
Volunteer, undertook a defense of Whaley and
ultimately settled the claims.
After the settlement checks had been
issued, but before consummation of the
settlement, St. Paul discovered the existence of
Whaley’s policy of insurance with State
Volunteer. St. Paul promptly contacted State
Volunteer and requested contribution from
State Volunteer of one-half of the settlement
amount and the cost of defense.
State Volunteer declined. It argued, and
Whaley agreed in affidavit testimony to the
district court, that it had been informed of the
pending Fletcher litigation when it negotiated
coverage with Whaley, but had specifically and
explicitly agreed with Whaley to exclude the
Fletcher incident from its coverage. Neither
Whaley nor State Volunteer, however, could
provide the court with a contract or an
addendum thereto that memorialized this
agreement.1
The district court held that St. Paul had
been subrogated to the rights of Whaley by the
doctrine of equitable subrogation, that this put
St. Paul in the position of a party to the
liability insurance contract between Whaley
and State Volunteer, and that under
Mississippi contract law, State Volunteer
should be held liable for half of the paid
Fletcher claim.
II.
St. Paul’s contract with Whaley included a
subrogation clause stating that
[a]ny person protected under this policy
may be able to recover all or part of a
loss from someone other than us.
Because of this, each protected person
must do all that’s possible after a loss to
preserve any right of recovery available.
If we make a payment under this policy
that right of recovery will belong to us.
If we recover more than we’re paid, the
excess will belong to the person who
had the loss. But we’ll deduct our
recovery expenses first.
Under less complex circumstances, this
clause, by itself, would have provided St. Paul
contractual subrogation to the position of
Whaley as against State Volunteer. State
Volunteer’s contract with Whaley, though,
contains an anti-assignment clause, declaring
that “[a]ssignment of interest under this policy
shall not bind the Company until its consent is
endorsed hereon.” The district court
considered the possibility, without explicitly
deciding the issue, that State Volunteer’s anti-
assignment clause invalidated St. Paul's
subrogation clause.
We assume arguendo that the anti-
assignment clause does defeat contractual
subrogation. We then, like the district court,
look to the possibility of equitable
subrogation.
The equitable doctrine of subrogation
applies whenever any person, other than
a mere volunteer, pays a debt or demand
which in equity and good conscience
should have been paid by another, or
where one finds it necessary for his own
protection to pay the debt for which
another is liable.
1 State Volunteer notes in its brief that its
“policy is not part of the Record on Appeal, but
counsel will be taking steps to provide a[] policy to
assist the Court in its determination.” It did not.
We can only assume, therefore, that the
“specimen” policy included in the appellate record
replicates the written contract which bound Whaley
and State Volunteer.

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

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who is substituted succeeds to the rights
of the ot her in relation to the debt or
claim, and its rights, remedies, or
securities.
First National, 441 So. 2d at 1319 (internal
quotation marks omitted).
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
Volunteer contract until the eleventh hour of
negotiationSSafter it had already written a
check to Fletcher. Under these circumstances,
we cannot see that the district court abused its
discretion in denying State Volunteer the
solace of these equitable defenses.
AFFIRMED.

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