Society of Roman Catholic Church of Diocese of Lafayette, Inc. v. Interstate Fire & Cas. Co.

• Decision Date: 30 October 1997
• Docket Number: No. 95-31078,95-31078
• Parties: 47 Fed. R. Evid. Serv. 1406 The SOCIETY OF THE ROMAN CATHOLIC CHURCH OF THE DIOCESE OF LAFAYETTE, INC. and The Diocese of Lake Charles, Inc., Plaintiffs-Appellees, v. INTERSTATE FIRE & CASUALTY CO., et al., Defendants, Interstate Fire and Casualty Co., Defendant-Appellant, Arthur J. Gallagher & Co., Defendant-Appellant-Appellee, PACIFIC EMPLOYERS INSURANCE CO., Third Party Plaintiff-Appellee, v. LOUISIANA COMPANIES INC., Third Party Defendant-Appellant, St. Paul Fire and Marine Insurance Co., Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 727

126 F.3d 727

47 Fed. R. Evid. Serv. 1406

The SOCIETY OF THE ROMAN CATHOLIC CHURCH OF THE DIOCESE OF

LAFAYETTE, INC. and The Diocese of Lake Charles, Inc., Plaintiffs-Appellees, v. INTERSTATE FIRE & CASUALTY CO., et al., Defendants, Interstate Fire and Casualty Co., Defendant-Appellant, Arthur J. Gallagher & Co., Defendant-Appellant-Appellee, PACIFIC EMPLOYERS INSURANCE CO., Third Party Plaintiff-Appellee, v. LOUISIANA COMPANIES INC., Third Party Defendant-Appellant, St. Paul Fire and Marine Insurance Co., Appellant.

No. 95-31078.

United States Court of Appeals, Fifth Circuit.

Oct. 30, 1997.

Bob F. Wright, Gilbert Hennigan Dozier, Domengeaux, Wright, Moroux & Roy, Lafayette, LA, for Plaintiffs-Appellees.

Daniel Anthony Rees, Christovich & Kearney, New Orleans, LA, for Defendant-Appellant.

John A. Jeansonne, Jr., George Andrew Veazey, Jeansonne & Remondet, Lafayette, LA, for Pacific Employers Ins. Co.

Nicholas Joseph Sigur, Lafayette, LA, for Louisiana Companies, Inc., and St. Paul Fire and Marine Ins. Co.

Sidney Katherine Powell, Powell & Associates, Dallas, TX, Howard E. Sinor, Jr., Harry S. Hardin, III, Covert James Geary, Michael Richard Schroeder, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, S. Ann Saucer, Dallas, TX, for Arthur J. Gallagher & Co.

Appeals from the United States District Court for the Western District of Louisiana.

Before HIGGINBOTHAM, EMILIO M. GARZA and DeMOSS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Fifteen years ago, defendant Arthur J. Gallagher & Co. ("Gallagher"), an insurance broker, presented a proposed insurance coverage plan to The Society of the Roman Catholic Church of the Diocese of Lafayette, Inc. and the Diocese of Lake Charles, Inc. ("the Diocese"), under which, it represented, the Diocese would not be liable for any losses above $400,000 each policy year. The Diocese agreed to the plan. Later, the Diocese faced numerous claims from boys who were molested by pedophilic Diocese priests as well as claims from the boys' parents. These claims resulted in millions of dollars of losses for the first two years of the plan, 1981-82 and 1982-83. Unfortunately for the Diocese, though, there was a gap in the plan's excess coverage that resulted in some $4,500,000 in uninsured losses. The Diocese sued Gallagher to recover this amount, alleging that Gallagher had expressly warranted that the Diocese was fully insured above the $400,000 loss fund each policy year, and had breached a contract with the Diocese to provide full insurance over the loss fund. The district court granted summary judgment for the Diocese against Gallagher for the $4,500,000 plus interest. Gallagher appeals. We determine that the district court correctly granted summary judgment to the Diocese against Gallagher for breach of contract with regard to the first year of the plan, but erred in granting summary judgment for breach of contract with regard to the second year.

Meanwhile, Preferred Risk Insurance Co. ("Preferred Risk") and Pacific Employers Insurance Co. ("PEIC") had settled with two of the molested boys for about $1,532,000. Under its three-year primary policy, Preferred Risk paid $1,000,000 of this amount--its policy had a limit of $500,000 per occurrence (which, in this case, meant per molested boy) for the three years--and PEIC, as the excess carrier, had to pay the rest. However, the Preferred Risk policy was nonstandard. A standard three-year insurance policy would have been annualized and provided a policy limit of $1,500,000 for each boy (i.e., the $500,000 policy limit per occurrence would have been "refreshed" each year)--which would have meant that PEIC would have escaped paying any of the $1,532,000 settlement. Not surprisingly, PEIC sued third-party defendant Louisiana Companies, Inc. ("LACOS"), an insurance agent to the Diocese, for $532,000, alleging that LACOS had negligently misrepresented (1) the date of expiration of the Preferred Risk policy, (2) the scope of the coverage of this policy, and (3) that this policy was standard. After a bench trial, the district court agreed with PEIC and granted final judgment to PEIC against LACOS for $532,000 plus interest. LACOS appeals. We find that the district court did not err in granting final judgment for PEIC against LACOS.

Also in its final judgment, the district court equitably subrogated to Gallagher the Diocese's rights against its excess carriers. Defendant Interstate Fire & Casualty Co. ("Interstate"), one of the excess carriers, challenges this ruling on the grounds that Louisiana does not permit equitable subrogation. Because Interstate does not have standing to challenge the subrogation, we affirm.

In deciding this appeal, we will first examine the Gallagher/Diocese dispute, then the Preferred Risk/PEIC conflict, and lastly Interstate's argument about equitable subrogation.

I

We review a district court's grant of summary judgment de novo. New York Life Ins. Co. v. The Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir.1996). In doing so, we employ the same criteria as the district court, and construe all facts and inferences in the light most favorable to the nonmoving party. LeJeune v. Shell Oil Co., 950 F.2d 267, 268 (5th Cir.1992). Summary judgment is appropriate where the moving party establishes that "there is no genuine issue of material fact and that [it] is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the nonmoving party to carry its burden of proof. Celotex v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986).

Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations omitted). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. FED. R. CIV. P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

II

In late 1980, the Diocese decided to save money by opting for a partial self-insurance plan, rather than a traditional full-coverage plan. It formed a task force to look into this idea. In 1981, Gallagher met with the task force and offered the Diocese the so-called Bishop's Program ("the plan"). Under this plan, the Diocese would establish a loss fund each policy year. If an "occurrence" happened under the plan (i.e., if an event triggered plan coverage), the Diocese would pay up to $100,000 from this fund for the loss resulting from the occurrence. The Diocese would only have to use money from the fund to pay for occurrence losses. Excess insurance carriers would be responsible for (1) any amounts owed above the $100,000 the Diocese had to pay for each occurrence loss and (2) any amounts owed after the fund was exhausted. In short, the plan expressly warrants that the Diocese would be fully insured for all losses above the loss fund. ¹

Gallagher and the Diocese agreed to the original plan as proposed, except that they increased the Diocese's "deductible" from $50,000 to $100,000 and the amount of the loss fund from $375,000 to $400,000.

Unfortunately, the plan operated differently than Gallagher had represented at the meeting. If the Diocese exhausted the $400,000 loss fund, a Lloyd's excess insurance package provided as much as $100,000 of coverage per occurrence, up to an aggregate of $450,000 (the parties refer to this layer of coverage as "the excess aggregate"). After that, a $5,000,000 Interstate excess policy covered additional losses from occurrences. ² The Interstate policy, however, did not "drop down" to pick up losses exceeding $100,000 per occurrence once the Lloyd's package had reached its aggregate limit of $450,000. Assume, for example, that the Diocese faced fifty occurrences resulting in losses of $100,000 each. If so, the Diocese would not only pay out the $400,000 in the loss fund, but also $50,000 for the ninth occurrence and $100,000 for each of occurrences ten through fifty (a total of $4,550,000).

The record includes a number of documents indicating that, at the meeting, Gallagher did not inform the Diocese about the excess aggregate or that the Diocese would not be fully insured once the excess aggregate was exhausted. These documents were written by Ben Schull, Gallagher sales representative, to Tom O'Connell, Gallagher sales manager. The documents include the following statements regarding the plan:

"You have reviewed the initial proposal and have seen that there are multiple references to totally insured once you have exceed the loss fund, and you have also seen that there is no mention of any excess aggregate."

"All parties stated that they voted for the bishop's program because there was total insurance after the loss fund was exceeded."

"[The Dioceses'] understanding was that as soon as they exceeded the loss fund, they were totally insured."

"The only mention of the $450,000 excess aggregate is on the premium page and is unintelligible to the unknowing client. Our worst fears are realized:

1. The original program was oversold in the written proposal and in verbal presentation."

"How do we respond to the fully insured misrepresentation?" ³

Besides these documents, there was also relevant deposition testimony regarding the plan. The members of the Diocese task force all testified that, at the time the Diocese entered into the plan, they believed that the Diocese would be fully insured under the plan after the exhaustion of the loss fund. Moreover, James Helouin, who worked for a Gallagher affiliate and who accompanied Gerald Lillis (Schull's...