American Guarantee and Liability Ins. Co. v. 1906 Co.

• Citation: 129 F.3d 802
• Decision Date: 09 December 1997
• Docket Number: No. 96-60227,96-60227
• Parties: 13 IER Cases 906 AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff-Counter Defendant-Appellee, v. The 1906 COMPANY, formerly known as Hattiesburg Coca-Cola Bottling Company, et al., Defendants, The 1906 Company (formerly known as Hattiesburg Coca-Cola Bottling Company), John C. Thomson, Richard S. Thomson, Defendants-Cross Defendants-Counter Claimants-Appellants, General Star National Insurance Company, Defendant-Cross Claimant-Counter Claimant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 802

129 F.3d 802

13 IER Cases 906

AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY Plaintiff-Counter Defendant-Appellee, v. The 1906 COMPANY, formerly known as Hattiesburg Coca-Cola Bottling Company, et al., Defendants The 1906 Company (formerly known as Hattiesburg Coca-Cola Bottling Company), John C. Thomson, Richard S Thomson, Defendants-Cross Defendants-Counter Claimants-Appellants General Star National Insurance Company, Defendant-Cross Claimant-Counter Claimant-Appellant.

No. 96-60227.

United States Court of Appeals, Fifth Circuit.

Dec. 9, 1997.

Ignatius John Melito, Melito & Adolfsen, New York City, S. Dwight Stephens, New York City, John B. Clark, Daniel, Coker, Horton & Bell, Jackson, MS, for American Guarantee and Liability Ins. Co.

Janet D. McMurtray, Alan W. Perry, Forman, Perry, Watkins & Krutz, Jackson, MS, for The 1906 Co. and Richard S. Thomson.

Frank W. Trapp, Jackson, MS, Luther T. Munford, Phelps Dunbar, Jackson, MS, for John C. Thomson.

W. Scott Welch, III, William Massie Gage, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS, for General Star Nat. Ins. Co.

Appeal from the United States District Court for the Southern District of Mississippi.

Before DAVIS, STEWART and PARKER, Circuit Judges.

DAVIS, Circuit Judge:

American Guarantee and Liability Insurance Company ("American Guarantee") filed a declaratory judgment action to resolve coverage questions between it and its insureds, the 1906 Company, formerly known as Hattiesburg Coca-Cola Bottling Company ("Hattiesburg Coke"), and certain officers of that company. The district court determined on summary judgment that American Guarantee's comprehensive general liability policy afforded no coverage for the outstanding claims. We affirm in part, vacate in part, and remand the case for further consideration in light of our opinion.

I.

The facts of this case are essentially undisputed. Having recently developed an interest in photography while living in Minnesota, John Thomson returned to Hattiesburg, Mississippi with a desire to open his own photography studio. In early 1990, Richard Thomson, John's father and CEO of Hattiesburg Coke, authorized the use of Hattiesburg Coke funds to open a photography studio, Visual Arts Studio (VAS). The new studio was located at 3820 Hardy Street, Hattiesburg, Mississippi, more than a mile from the company's bottling operation. The studio concentrated on photographing and videotaping young women for modeling portfolios and advertisements, as well as "glamour photography." Although the studio operated under a different name and was physically separate from the bottling company, it was owned and operated as a division of Hattiesburg Coke. Moreover, the VAS employees were considered employees of Hattiesburg Coke, and all major business decisions concerning the studio, from the purchase of equipment to the scope and ultimate termination of the business, were made at Hattiesburg Coke's corporate headquarters at 4501 Hardy Street.

By the spring of 1991, VAS was operating in the red and John Thomson wanted to return to school. Thus, Hattiesburg Coke officials decided to terminate the studio's operations. John, however, still had access to VAS and was in the midst of winding up its affairs when the events giving rise to the underlying state court lawsuits came to light.

In November 1991, a VAS client picked up a videotape which she thought contained her portfolio photographs. When she viewed the tape, she discovered footage of herself dressing and undressing in the VAS dressing room. She reported her discovery to police, who searched the studio and found numerous other tapes containing footage of young women dressing and undressing in the same room. The police also discovered a fiber optic camera concealed underneath a bench in the dressing room.

In the months following the police investigation, twenty-one women filed lawsuits against John Thomson, Richard Thomson, VAS, and Hattiesburg Coke. These plaintiffs alleged various causes of action including invasion of privacy, outrage, intentional infliction of emotional distress, fraud, negligence, and exploitation of minors. The complaints included allegations that Hattiesburg Coke and Richard Thomson were vicariously liable for John's acts because John acted as a Hattiesburg Coke employee in making the tapes and because John served as a director and officer of Hattiesburg Coke. The complaints also sought to visit liability on Hattiesburg Coke and Richard Thomson for a host of negligence-based torts, including negligent entrustment, negligent supervision, and negligent hiring.

Hattiesburg Coke held liability insurance policies for the periods in question. American Guarantee, their principal insurer, issued a combined property and comprehensive general liability insurance policy to Hattiesburg Coke covering the period from December 31, 1989, through December 31, 1990. The policy was renewed for the period from December 31, 1990, through December 31, 1991. The policy provided liability insurance coverage of $500,000 per occurrence and $1,000,000 in the aggregate. Hattiesburg Coke was also the named insured under an Umbrella Liability Policy for the Coca-Cola Bottlers Association issued by General Star National Insurance Company ("General Star") for the policy period January 1, 1990, through January 1, 1991. Each General Star policy provided After discussions concerning coverage, American Guarantee agreed to defend Hattiesburg Coke and Richard Thomson in the state court suits under a reservation of rights, but refused to defend or indemnify John Thomson. In its reservation of rights correspondence, American Guarantee raised several coverage questions, including whether the VAS building was a designated premises; whether the conduct alleged constituted an "occurrence"; whether the damages alleged constituted "bodily injury"; and whether John's conduct fell within a policy exclusion for criminal activities. Eventually, nineteen of the twenty-one suits were settled, ¹ with John Thomson agreeing to contribute approximately $2,545,000 and General Star agreeing to pay approximately $3,774,000 on behalf of Richard Thomson and Hattiesburg Coke.

liability coverage of $5,000,000 per occurrence and in the aggregate.

Once the underlying lawsuits were settled, American Guarantee filed this declaratory judgment action against John Thomson, the 1906 Company, Richard Thomson, and General Star to resolve its coverage obligations. The district court found that the insurance policy unambiguously limited liability coverage to injuries arising from certain premises designated on the declarations page of the policy and that the VAS property was not included in that designation. The court also concluded that John Thomson's actions were not within the scope of his employment and that the injuries alleged by the women did not constitute an "occurrence" under the policy because they were intended or expected from the standpoint of the insured. Accordingly, the district court granted summary judgment in favor of American Guarantee. The court also denied General Star's claim for indemnification for the payments it had made on behalf of Richard Thomson and the 1906 Company. This appeal followed.

II.

We review the district court's grant of summary judgment and its interpretation of American Guarantee's insurance policy de novo, applying the same standards as the district court. American States Ins. Co. v. Nethery, 79 F.3d 473, 475 (5th Cir.1996); Constitution State Ins. Co. v. Iso-Tex, Inc., 61 F.3d 405, 407 (5th Cir.1995). Under Mississippi contract law, if an insurance policy is unambiguous, its terms must be given their plain meaning and enforced as written. Nethery, 79 F.3d at 475; Aero Int'l, Inc. v. United States Fire Ins. Co., 713 F.2d 1106, 1109 (5th Cir.1983). However, if, but only if, a policy is ambiguous, it will be interpreted in the light most favorable to the insured. Nationwide Mut. Ins. Co. v. Garriga, 636 So.2d 658, 662 (Miss.1994).

A.

The primary dispute between the parties concerns the effect of a designated premises endorsement attached to American Guarantee's policy. The policy provided coverage to Hattiesburg Coke and its officers and directors while acting within the scope of their employment. An endorsement attached to the policy and specifically made part of the policy in the declarations limited coverage to injuries and damages arising out of certain designated premises. The contract language is reproduced below:

LIMITATION OF COVERAGE TO DESIGNATED PREMISES OR PROJECT

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART.

SCHEDULE

Premises:

Project:

(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

This insurance applies only to "bodily injury," "property damage," "personal injury," "advertising injury" and medical expenses arising out of:

1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; ...

No premises are listed in the endorsement. The only premises referenced on the declarations page of the policy are three buildings, listed under the header "Covered Premises," located at 4501 Hardy Street in Hattiesburg, Mississippi: the bottling plant (4501-A), the maintenance building (4501-B), and the ice house (4501-C). No other properties are mentioned in the declarations and no specific reference ties the listed premises to the designated premises endorsement.

Hattiesburg Coke contends that because no premises are listed in the endorsement itself and because those premises listed in the declarations make no reference to the designated premises endorsement, the endorsement has no effect; consequently, the liability coverage is not limited to injuries arising out of any particular property. It further contends...