The EState Dean Bradley v. Royal Surplus Lines Ins. Co.

• Decision Date: 19 July 2011
• Docket Number: No. 10–60650.,10–60650.
• Citation: 647 F.3d 524
• Parties: The ESTATE OF Mable Dean BRADLEY, by and through Gloria SAMPLE, Administratrix of the Estate of Mable Dean Bradley, as Assignee of claims held by Grancare, Incorporated, Mariner Health Care, Incorporated, Boyd P. Gentry, George Morgan, M. Scott Athans, Robin C. Skelton and Eleta Jo Grimmett, Plaintiff–Appellant,v.ROYAL SURPLUS LINES INSURANCE COMPANY, INCORPORATED; Lumbermen's Mutual Casualty Company, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

647 F.3d 524

The ESTATE OF Mable Dean BRADLEY, by and through Gloria SAMPLE, Administratrix of the Estate of Mable Dean Bradley, as Assignee of claims held by Grancare, Incorporated, Mariner Health Care, Incorporated, Boyd P. Gentry, George Morgan, M. Scott Athans, Robin C. Skelton and Eleta Jo Grimmett, Plaintiff–Appellant,

v.ROYAL SURPLUS LINES INSURANCE COMPANY, INCORPORATED; Lumbermen's Mutual Casualty Company, Defendants–Appellees.

No. 10–60650.

United States Court of Appeals, Fifth Circuit.

July 19, 2011.

James Robert Freeman, Kathleen Clark Knight, Isaac Ramon Ruiz–Carus (argued), Wilkes & McHugh, P.A., Tampa, FL, for Plaintiff–Appellant.John Stuart Robinson, Jr., Richard Tracy Conrad, III, Wells, Marble & Hurst, P.L.L.C., Ridgeland, MS, Kathy Johnson Maus (argued), Butler Pappas, Tallahassee, FL, Ronald Steven Rawls, Louis Schulman, Butler, Pappas, Weihmuller, Katz, Craig, L.L.P., Tampa, FL, for Defendant–Appellee Royal Surplus Lines Insurance Co.Michael Cleary Bruck, Sr. Lit. Atty. (argued), Alyssa Mara Reiter, Williams, Montgomery & John, Chicago, IL, William Trey Jones, III, Christopher Anthony Shapley, Brunini, Grantham, Grower & Hewes, P.L.L.C., Jackson, MS, for Defendant–Appellee, Lumbermen's Mutual Casual Company.Appeal from the United States District Court for the Northern District of Mississippi.Before REAVLEY, GARZA and SOUTHWICK, Circuit Judges.EMILIO M. GARZA, Circuit Judge:

In this insurance coverage dispute, the Estate of Mable Dean Bradley (“the Estate”) appeals the district court's grant of summary judgment to the Defendants–Appellees Royal Surplus Lines Insurance Co. (“Royal”) and Lumbermens Mutual Casualty Co. (“Lumbermens”).¹ The district court found that, as a matter of law, Royal and Lumbermens were not required to defend or indemnify a policyholder/defendant in a separate lawsuit brought by the Estate in a Mississippi state court. For the reasons that follow, we AFFIRM.

I

Mable Dean Bradley was a resident at the Indianola Health and Rehabilitation Center from February 7, 2000, to May 17, 2002, when she was transferred to the South Sunflower County Hospital in Sunflower County, Mississippi. Bradley died within 24 hours of her admission to the hospital. The immediate causes of death included acute dehydration and an untreated urinary tract infection.

Bradley's estate brought suit in Mississippi state court against the Indianola Health and Rehabilitation Center's corporate parent, Mariner Health Care, Inc., and several other defendants (“the Mariner defendants”). The Estate sought recovery based on claims of negligence, mistreatment, malice and/or gross negligence, fraud, breach of fiduciary duty, statutory survival, and wrongful death arising out of Bradley's residency at the Indianola nursing home. The Estate's complaint further alleged that the wrongs Bradley suffered “were of a continuing nature, and occurred throughout Mable Dean Bradley's stay at the Defendant's facility.”

After a ten-day jury trial in the Circuit Court of Sunflower County, the jury awarded $1.5 million in compensatory damages and $10.5 million in punitive damages to Bradley's estate, and the trial court entered final judgment accordingly. No appeal was taken from the trial court's order. The Mariner defendants wanted to pursue an appeal, and Mariner's first layer excess insurer, Lexington Insurance Company (“Lexington”), agreed to post a portion of the appellate bond. Mariner's second and third layer excess insurers— Royal and Lumbermens, respectively—would not, however. Royal maintained that the applicable portion of its excess policy had not been triggered at that point, and thus, it owed no duty to participate in bonding the jury's award on appeal. Lumbermens insisted that its excess policy was limited to indemnification, and therefore, it owed no duty to participate in defending the Mariner action or in posting an appellate bond.

The Mariner defendants and Lexington then entered into a settlement agreement with the Estate that extinguished “any and all claims relating to” Bradley's care and treatment at the Indianola nursing home, “including claims for damages, costs, or attorney's fees ... in exchange for $10.5 million.” Together, Lexington and Mariner paid a total of $2.3 million to the Estate as part of the settlement; Royal and Lumbermens paid nothing. Mariner assigned its interest in any claims against Royal and Lumbermens to the Bradley estate.

In February 2008, the Estate filed suit against Royal and Lumbermens in federal district court, based on the parties' diversity of citizenship, seeking recovery for Royal's and Lumbermens' alleged bad faith failure to defend or indemnify Mariner in the underlying state lawsuit and settlement. The Estate moved for summary judgment, asking the district court to find that the Royal policy in effect from March 1999 to March 2000, and the Lumbermens policy in effect from March 1998 to March 2001, provided excess coverage to Lexington's first layer excess policy in effect from July 1999 to July 2000.² The Estate also asked the court to find that the policies described above required the excess insurers collectively to defend and indemnify Mariner for the final judgment in the underlying state suit. Royal and Lumbermens filed cross-motions for summary judgment, asking the court to find to the contrary.

In December 2010, the district court denied the Estate's motion and granted summary judgment for both insurers, finding as a matter of law that Royal's and Lumbermens' respective policies did not require them to defend or indemnify Mariner in the state lawsuit. Because Royal and Lumbermens were not obligated to provide coverage in the underlying suit, the Estate's bad faith action could not lie, and the district court dismissed the Estate's claim with prejudice. This appeal followed.

II

We review a district court's grant of summary judgment de novo, applying the same standards as the district court. See Floyd v. Amite Cnty. Sch. Dist., 581 F.3d 244, 247 (5th Cir.2009). We view all facts in the light most favorable to the nonmoving party, and affirm only if the evidence shows that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); see also Floyd, 581 F.3d at 247–48.

Where federal jurisdiction is based on diversity of citizenship, as it is here, we apply the substantive law of the forum state. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). To determine Mississippi law, we look to the final decisions of Mississippi's highest court. See Am. Int'l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir.2003). Because the Mississippi Supreme Court has not addressed the issues presented here, the district court had to make an “ Erie guess” as to how that court would have resolved the issues if presented with them. Id.; see also Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191–92 (5th Cir.2010); Batts v. Tow–Motor Forklift Co., 66 F.3d 743, 749–50 (5th Cir.1995). We do the same, de novo, on appeal.

III

The Estate argues that the district court erred in finding that Royal and Lumbermens were not required to insure Mariner in the underlying state action. Specifically, the Estate contends that Royal's excess policy unambiguously required Royal to defend and indemnify Mariner for the state court judgment and resulting settlement, and that the Lumbermens policy required it to indemnify Mariner for the same.³

A

Under Mississippi law, an insurer's duties to defend and indemnify its insured are distinct and separate duties requiring the use of different standards. See Titan Indem. Co. v. Pope, 876 So.2d 1096, 1101–02 (Miss.Ct.App.2004); see generally 14 Lee R. Russ & Thomas F. Segala, Couch on Insurance § 200:3 (3d ed.2007); 3 Jeffrey E. Thomas et al., New Appleman on Insurance Law Library Edition §§ 16.06[3][a], 17.01[1][b][ii] (2010). When an insured is sued, an insurer's duty to defend is determined solely by comparing the facts alleged in the complaint with the terms of the policy. See United States Fid. & Guar. Co. v. Omnibank, 812 So.2d 196, 200 (Miss.2002); Delta Pride Catfish, Inc. v. Home Ins. Co., 697 So.2d 400, 403 (Miss.1997). An insurer “has an absolute duty to defend a complaint which contains allegations covered by the language of the policy, but ... no duty to defend those claims which fall outside the coverage of the policy.” Farmland Mut. Ins. Co. v. Scruggs, 886 So.2d 714, 719 (Miss.2004). Because whether Royal had a duty to defend Mariner in the underlying state suit rests on the factual allegations in the complaint and the language of its policy, we address this issue as a matter of law. See Noxubee Cnty. Sch. Dist. v. United Nat'l Ins. Co., 883 So.2d 1159, 1165 (Miss.2004) (“The interpretation of an insurance policy is a question of law, not one of fact.”).

Here, the district court looked to the terms of the Royal excess policy and observed that Royal's duty to defend arose only after the actual payment of judgments or settlements had exhausted any underlying insurance, and because that condition precedent was never satisfied, Royal's defense obligation never matured. We agree.

The Royal second layer excess policy at issue—the Big Shield Commercial Catastrophe Liability Policy—was a general liability policy that provided $10 million in coverage excess of Lexington's $2 million first layer excess policy, which itself followed Mariner's $1 million self-insured retention. With respect to Royal's duty to defend, the Big Shield policy provided:

1. INSURING AGREEMENT

1....

2. We will have the right and duty to defend any “suit” seeking those damages [that the insured becomes legally obligated to pay] when:

(a) The applicable limits of insurance of the “underlying insurance” and other insurance have been used up in the payment of judgments or settlements....

The parties agree that Lexington's $2 million...