Lynch Properties, Inc. v. Potomac Insurance Co.

• Decision Date: 19 May 1998
• Docket Number: No. 96-11465.,96-11465.
• Parties: LYNCH PROPERTIES, INC., Plaintiff-Appellant, v. POTOMAC INSURANCE COMPANY OF ILLINOIS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

140 F.3d 622

LYNCH PROPERTIES, INC., Plaintiff-Appellant, v. POTOMAC INSURANCE COMPANY OF ILLINOIS, Defendant-Appellee.

No. 96-11465.

United States Court of Appeals, Fifth Circuit.

May 19, 1998.

Charles L. Perry, Arter & Hadden, Dallas, TX, for Plaintiff-Appellant.

Russell Joseph Bowman, Scott, Bowman & Stella, Dallas, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, EMILIO M. GARZA and PARKER, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Lynch Properties, Inc. ("Lynch Properties") appeals the district court's grant of summary judgment for Potomac Insurance of Illinois ("Potomac"). The district court held that an employee dishonesty insurance policy issued by Potomac to Lynch Properties did not cover the misappropriation of money by a Lynch Properties employee from a customer's separate personal bank account. We affirm.

I

Potomac Insurance of Illinois ("Potomac") issued a master insurance policy to Lynch Properties, covering liability, property loss, and employee dishonesty. This action arose when Lynch Properties discovered that Eva Bartlett, a bookkeeper whom it employed had misappropriated money from the separate personal bank account of Martha Lynch ("Mrs. Lynch"). Mrs. Lynch, the mother of Harry Lynch, president of Lynch Properties, paid Lynch Properties an annual lump sum fee to manage her property and investments pursuant to an oral contract. Mrs. Lynch also paid Lynch Properties to perform bookkeeping services for her personal bank accounts. These bookkeeping services included writing checks to pay bills, reconciling bank account statements, and preparing financial statements. The personal bank accounts in question were held first at Cullen Frost Bank, and later at Comerica Bank, all in Mrs. Lynch's own name. The funds in the personal bank accounts did not derive from Lynch Properties investments or property, and no formal written agreement existed for Lynch Properties' handling of these funds.

Eva Bartlett kept the books for Mrs. Lynch's investment and personal bank accounts and handled requests for spending money by Mrs. Lynch. At least every week, Bartlett prepared a $600 check drawn on Mrs. Lynch's personal accounts, obtained an authorized signature on the check, went to the bank, cashed the check, and then gave the cash to a courier service for delivery to Mrs. Lynch. Only Mrs. Lynch, Harry Lynch, and Mrs. Lynch's other son, Bill Lynch, had the authority to sign checks drawn on these personal accounts. By periodically drawing up an extra $600 check, which she had Harry Lynch sign, and then cashing the check and pocketing the cash, Bartlett ultimately misappropriated approximately $19,000 from Mrs. Lynch's personal bank accounts.

When Lynch Properties discovered that funds were missing from the personal bank accounts, it reimbursed Mrs. Lynch and filed a claim under the employee dishonesty portion of the policy issued by Potomac. Potomac denied coverage after investigating the claim, and this suit followed. The district court granted Potomac's summary judgment motion, concluding that no material dispute of fact existed to show that Lynch had suffered a loss under the policy. Lynch Properties' timely appeal followed.

II

We review a district court's grant of summary judgment motion de novo. See New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir.1996). We also review district court determinations of state law de novo. See Salve Regina College v. Russell, 499 U.S. 225, 239, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). Summary judgment is appropriate where the record discloses "that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). The moving party bears the initial burden of identifying those portions of the pleadings and discovery in the record that it believes demonstrate the absence of a genuine issue of material fact, but is not required to negate elements of the nonmoving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the moving party meets this burden, the nonmoving party must set forth specific facts showing a genuine issue for trial and not rest upon the allegations or denials contained in its pleadings. See FED.R.CIV.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). Factual controversies are construed in the light most favorable to the nonmovant, but only if both parties have introduced evidence showing that an actual controversy exists. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc). "We do not, however, in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." Id.; Lujan v. National Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 3189, 111 L.Ed.2d 695 (1990).

This case comes before us through diversity jurisdiction, and we accordingly apply Texas law as we believe the Texas Supreme Court would. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78-79, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). The Texas Supreme Court has stated that the rules of interpretation and construction generally applicable to contracts are equally applicable to insurance contracts. See National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995). Effectuating the true intent of the parties as expressed in the insurance policy is the primary concern of the court. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). We construe the policy to give effect to each term in the contract and to avoid rendering any term a nullity. See Ideal Mut. Ins. Co. v. Last Days Evangelical Ass'n, 783 F.2d 1234, 1238 (5th Cir.1986). However, "[n]o one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions." Forbau, 876 S.W.2d at 132-33. We also attempt to interpret uniformly the provisions of the policy where, as here, the provisions at issue are similar across jurisdictional borders. See National Union Fire Ins. Co., 907 S.W.2d at 522. Thus, when no Texas court has interpreted a particular provision, we look to the courts of other states for guidance as to how the Texas Supreme Court might interpret an issue. See Dickson v. State Farm Lloyds, 944 S.W.2d 666, 668 (Tex.App. 1997, n.w.h.) (interpreting insurance policy provision no Texas court had previously addressed by looking to the courts of other states).

If the provisions of the insurance contract can be given a "definite or certain legal meaning," then the insurance policy is not ambiguous. See National Union Fire Ins., 907 S.W.2d at 520. Disagreement over the meaning or interpretation of a term is not sufficient to make a provision ambiguous or to create a question of fact. See D.E.W., Inc. v. Local 93, Laborers' Int'l Union, 957 F.2d 196, 199 (5th Cir.1992). However, if an ambiguity exists in a provision of a policy, that provision is interpreted in favor of the insured. See Toops v. Gulf Coast Marine Inc., 72 F.3d 483, 486 (5th Cir.1996).

III

In the part of the policy that covers property loss due to employee dishonesty, Potomac promises to pay Lynch Properties for the loss of Covered Property resulting directly from a Covered Cause of Loss. "Covered property" is defined as money, securities, and property other than money and securities. The "covered cause of loss" is defined as employee dishonesty. However, another provision, the "Interest Covered" provision, limits property loss coverage to property (a) "[t]hat you own or hold," or (b) "[f]or which you are legally liable," with "you" being the named insured, Lynch Properties.

The district court found that the employee dishonesty policy was not ambiguous and that the "Interest Covered" provision excepted this particular loss from coverage under the policy because Lynch Properties neither owned, held, nor was legally liable for the funds. It found the connection between Lynch Properties and the funds in Mrs. Lynch's personal accounts to be tenuous, specifically finding that these funds were private, in Mrs. Lynch's name, and completely separate from the funds that Lynch Properties maintained in its own accounts. Moreover, it found that no written agreement for management of the separate personal bank accounts existed, and that Mrs. Lynch's arrangement with Lynch Properties was based on family ties. As a result, the court concluded that "the capacity in which Lynch handled Ms. Lynch's funds falls short of that involved in the cases Lynch cites to demonstrate that the `hold' or `legally liable' provisions trigger coverage in this case." We agree.

A

We first examine whether Lynch Properties "held" the funds that Bartlett misappropriated from Mrs. Lynch's separate personal bank accounts. Lynch Properties presents numerous cases that it claims stand for the principle that employee dishonesty policies cover the loss of third-party property possessed or held by the insured by an employee. The policy language or manner in which the property was possessed or held in each cited case differs, however, from that in this case. See Fidelity & Deposit Co. v. USAFORM Hail Pool, Inc., 523 F.2d 744, 753-54 (5th Cir.1975) (involving funds held in a trust account); Elmer Fox & Co. v. Commercial Union Ins. Co., 274 F.Supp. 235, 239-40 (D.Colo.1967) (interpreting an employee dishonesty policy that covered property "held by the Insured in any capacity"); Alberts v. American Cas. Co., 88 Cal.App.2d 891, 200 P.2d 37, 39-41 (1948) (interpreting a contract that covered any case in which insured might be liable as "bailee, trustee or agent, and whether or not the plaintiffs are legally liable for the loss thereof"); American Employers' Ins. Co. v. Johnson, 47 S.W.2d 463, 464, 466 (Tex.Civ.App.1932, writ dism'd w.o.j.) (interpreting policy that covered any ...