Seafirst Commercial Corp. v. U.S. Fidelity and Guar. Co.

• Decision Date: 24 January 1986
• Docket Number: No. 84-3729,84-3729
• Citation: 780 F.2d 1290
• Parties: SEAFIRST COMMERCIAL CORPORATION, Plaintiff-Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1290

780 F.2d 1290

SEAFIRST COMMERCIAL CORPORATION, Plaintiff-Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Appellee.

No. 84-3729.

United States Court of Appeals,

Fifth Circuit.

Jan. 24, 1986.

Adams & Reese, John M. Duck, New Orleans, La., for plaintiff-appellant.

Bienvenu, Foster, Ryan & O'Bannon, Leonard A. Young, Franklin H. Jones, III, New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BROWN, REAVLEY, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge:

Plaintiff-appellant Seafirst Commercial Corporation (Seafirst) appeals from a summary judgment in favor of defendant-appellee United States Fidelity & Guaranty Company (USF & G) in this Louisiana law diversity case. We affirm.

I.

Seafirst was a mortgagee of RTL Corporation and its related companies (collectively RTL) under a chattel mortgage on a crane. The terms of the chattel mortgage required RTL to provide insurance satisfactory to Seafirst and that the insurance policy name Seafirst as a joint loss payee. On January 1, 1982, USF & G issued a policy of insurance to RTL on the crane. The policy contained an endorsement naming Seafirst as a joint loss payee.

On January 11, 1982, an explosion destroyed the crane. RTL, as the named insured, submitted a proof of loss to USF & G. USF & G, without notice to or the consent of Seafirst, approved the claim and issued a draft payable solely to RTL for the amount of the loss. By not issuing the draft jointly in the name of RTL and Seafirst, USF & G breached the loss payable clause of the insurance policy. RTL negotiated the draft and failed to make any payment to Seafirst; RTL filed for bankruptcy protection in December 1983. Seafirst became aware of USF & G's breach of the loss payable clause on November 8, 1982; however, Seafirst did not file the instant lawsuit until March 27, 1984, more than sixteen months after learning of USF & G's error. Seafirst characterized its suit as one for breach of the loss payable clause.

The insurance policy contained a suit limitation provision requiring that suits "for the recovery of any claim under this policy" be brought within twelve months of the discovery of the claim.

No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim....

On the ground that the one year prescription period contained in the policy barred Seafirst's action as untimely, the district court granted USF & G's motion for summary judgment. ¹ This appeal followed.

II.

Seafirst alleges three reasons why the twelve month limitation period should not apply to its suit: (1) the suit limitation provision was contained in the main policy and does not apply to the endorsement adding Seafirst as a loss payee, (2) the suit limitation provision applies only to the insured and not to the loss payee, and (3) the suit limitation provision applies only to "claims" and Seafirst's action was not for a "claim." Seafirst's first two arguments may easily be disposed of by applying settled Louisiana law. ² Seafirst's third argument has yet to be addressed by the Louisiana court; however, it too is without merit.

A.

Seafirst first contends that the twelve month suit limitation provision contained in the policy does not apply to the endorsement adding Seafirst as a loss payee. ³ According to Seafirst, since the endorsement itself does not contain a suit limitation provision, the policy is silent as to a limitation period applicable to Seafirst and the applicable prescription period is provided by the Louisiana Civil Code, specifically article 3499. Article 3499 provides for a prescriptive period of ten years in personal actions not otherwise provided for by legislation. La.Civ.Code Ann. art. 3499 (West Supp.1985).

Seafirst's argument ignores the clear language of the endorsement stating that the endorsement is "attached to and forming part of Policy No. SP 537117." Policy No. SP 537117 is the policy covering the crane and containing the suit limitation clause. Seafirst also ignores established Louisiana jurisprudence holding that an endorsement is construed together with the rest of the policy. Roberts v. P. & J. Boat Service, Inc., 357 F.Supp. 729, 733 (E.D.La.1973) ("The insurance policy remains in full force and effect except as altered by the words of the endorsement."); Roman Catholic Church of Eunice v. Royal Ins. Co., 158 La. 601, 104 So. 383, 385 (1925); Smith v. Western Preferred Casualty Co., 424 So.2d 375 (La.Ct.App.1982), writ denied, 427 So.2d 1212 (La.1983) ("Riders or endorsements affixed to an insurance policy are to be read with and harmonized with the provisions of the policy."). The endorsement naming Seafirst as a loss payee was attached to the main policy, and the terms of the endorsement did not alter the terms of the insurance policy; therefore, the provisions of the policy, including the suit limitation provision, apply to Seafirst.

B.

Seafirst next argues that the suit limitation provision applies only to the insured, RTL, and not to the loss payee, Seafirst, because the suit limitation provision does not specifically state that it applies to the loss payee. Seafirst further maintains that, since the suit limitation provision does not apply to a loss payee, the policy is silent as to the prescriptive period applicable to a loss payee's suit, and, therefore, the ten year prescriptive period of article 3499 applies.

In spite of Seafirst's protestations to the contrary, the Louisiana courts consistently hold that a simple or open loss payable clause ⁴ subjects the loss payee to the terms of the policy.

Where the policy contains a simple or open loss payee clause, the contract remains one between the insurer and the insured. The loss payee is but a conditional payee of a part of the proceeds of the policy. The rights of the loss payee are no greater than the rights of the insured and are subject to all of the terms and conditions of the policy.

Howard Griffin, Inc. v. Progressive Casualty Insurance Co., 409 So.2d 1262, 1263 (La.Ct.App.1982); see also Officer v. American Eagle Fire Ins. Co., 175 La. 581, 143 So. 500, 502 (1932) ("The mortgagee is only a conditional appointee of the mortgagor to receive part of the proceeds in case of loss."); 5A Appleman, Insurance Law Practice Sec. 3401, at 283 (1970) ("It [the open loss payable clause] does not create a new contract with the payee nor abrogate any condition of the policy"). The loss payable clause in the instant case is clearly an open clause, and Louisiana law clearly provides that all the policy provisions apply to the loss payee; therefore, the suit limitation provision applies to Seafirst.

C.

Seafirst's last contention, and the real heart of its claim, is that its suit against USF & G is not a "claim" as that term is used in the suit limitation provision. Seafirst characterized its suit as one for breach of contract. Seafirst maintains that its suit falls outside the suit limitation provision and is therefore governed by the ten year prescriptive period of article 3499. In the course of our research we have not discovered any Louisiana cases deciding whether a suit such as Seafirst's is one for a "claim" under the policy. The two cases cited by Seafirst for the proposition that its suit is not one for a claim are not applicable to Seafirst's case. ⁵ Thus, as a court hearing a diversity jurisdiction case, we must decide this issue as a Louisiana court would decide it. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

In our role as on Erie court, "[i]t is our duty ... to view ourselves ... as an inferior state court and to reach the decision that we think a state court would reach." Dipascal v. New York Life Insurance Co., 749 F.2d 255, 260 (5th Cir.1985). In the absence of specific guidance from the Louisiana Supreme Court, our prediction of state law looks to: (1) lower state court decisions and Supreme Court dicta, (2) the district court ruling in this case, (3) the general rule on the question, (4) the rule in other states looked to by Louisiana when they formulate Louisiana substantive law, and (5) other available sources, such as restatements, treatises, and law review articles. See 19 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 4507 (1982). We now turn to the sources listed above in our attempt to decide this issue as a Louisiana court would decide it.

While we have been unable to find a Louisiana case on point, we have discovered one Louisiana case on a related point which we believe provides significant guidance for our resolution of this issue. In Muse v. Heine, 189 So.2d 40 (La.Ct.App.), writ denied, 249 La. 734, 190 So.2d 241 (1966), the insured's building was destroyed by fire. The insurance company inadvertently paid the proceeds of the policy to the insured rather than jointly to the insured and the mortgagee. Eighteen months after discovering that fire had destroyed the building, but less than twelve months after discovering that the proceeds had been paid to the insured, the mortgagee brought suit against the insured and the insurance company. The insurance company defended on the grounds that the twelve month suit limitation provision barred the mortgagee's suit. The suit limitation clause provided that: "No suit or action on this policy for the recovery of any claims shall be sustainable in any Court of law or equity unless all the requirements of this policy have been complied with, and unless commenced within twelve months next after inception of the loss." Id. at 42 (emphasis in original). The trial court dismissed the suit against the insurance company on the ground that it was filed too late, and the Louisiana Court of Appeals affirm...