Times-Picayune Pub. Corp. v. Zurich American Ins.

• Decision Date: 15 August 2005
• Docket Number: No. 04-30602.,04-30602.
• Citation: 421 F.3d 328
• Parties: TIMES-PICAYUNE PUBLISHING CORPORATION, Plaintiff-Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

421 F.3d 328

TIMES-PICAYUNE PUBLISHING CORPORATION, Plaintiff-Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.

No. 04-30602.

United States Court of Appeals, Fifth Circuit.

August 15, 2005.

James Richard Swanson, Loretta Gallaher Mince, Correro, Fishman, Haygood, Phelps, Walmsley & Casteix, New Orleans, LA, Edward J. Stein (argued), Anderson, Kill & Olick, New York City, for Plaintiff-Appellant.

James G. Burke, Jr., Paul Newman Vance, Burke & Mayer, New Orleans, LA, Kevin M. Mattessich (argued), Cozen O'Connor, New York City, for Defendant-Appellee.

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

Before GARWOOD, GARZA and BENAVIDES, Circuit Judges.

GARWOOD, Circuit Judge:

The Times-Picayune Publishing Corporation (Times-Picayune), a Louisiana citizen, brought suit against Zurich American Insurance Company (Zurich), a New York citizen, in the state court of Orleans Parish, Louisiana alleging various state law causes of action related to Zurich's refusal to pay the Times-Picayune, as an insured under a Zurich excess policy covering employee dishonesty, for certain embezzlement losses. Zurich removed the case to the Eastern District of Louisiana, and the district court ultimately entered summary judgment in its favor. We reverse.

Facts and Proceedings Below

The material facts of this case are undisputed.

From January 1, 1995 until July 1, 2001, the Times-Picayune was insured under a series of six $1,000,000 primary insurance policies issued by Federal Insurance Company (Federal) that covered, among other things, acts of employee dishonesty. The first of these primary policies ran from January 1, 1995, to July 1, 1996, and each subsequent policy was for a one year term beginning July 1, with the sixth and final primary policy running from July 1, 2000, to July 1, 2001. Notably, the Federal primary polices each contemplated the possibility that surreptitious crimes like embezzlement might be perpetrated during the life of one policy but not discovered until sometime thereafter. Each of the primary policies covered losses occurring during the policy period and required the insured to file proof of loss within 120 days after discovery of the loss. Coverage extended to losses discovered within one year after the policy expired (the "discovery period").¹ Importantly here, each primary policy also provided coverage on certain conditions for losses which occurred prior to the policy period, pursuant to a "Prior Loss" clause reading as follows:

"LOSS SUSTAINED PRIOR TO EFFECTIVE DATE

If you were continuously insured by a policy prior to this insurance providing the same insurance as this policy, but cannot recover on a loss because that policy was terminated and its discovery period has run out, we will cover your loss provided:

1. this insurance would have covered your loss had it been in effect at the time the acts that caused the loss occurred; and

2. you discovered the loss within one year after this insurance is terminated.

We will not pay more than the Limit of Insurance for the loss under the prior policy or under this insurance when it became effective, whichever is less. The amount we pay will be a part of this insurance, not in addition to it.

If we have insured you under other policies whose discovery period had not run out when you discovered a loss that occurred partly under those policies and partly under this policy, we will pay up to the Limit of Insurance under this policy or the prior policies issued by us, whichever is less."

In January of 1995 a Times-Picayune employee named Arthur Anzalone embarked on a six-year embezzlement scheme during which he would eventually steal $2,205,879 from the Times-Picayune until he was discovered in December of 2000. Over the course of his crime, Anzalone stole: $536,428 during the term of Federal's first primary policy (1/1/95-7/1/96); $268,871 during the second policy (7/1/96-7/1/97); $234,707 during the third policy (7/1/97-7/1/98); $330,647 during the fourth policy (7/1/98-7/1/99); $562,859 during the fifth policy (7/1/99-7/1/00); and $272,367 during the sixth (and last) primary policy (7/1/00-7/1/01). Following the discovery of Anzalone's ongoing theft, the Times-Picayune timely made proof of loss and filed a claim with Federal under its sixth primary policy for both the losses incurred during that policy period as well as the previously undetected losses that were sustained while the preceding Federal primary policies were in effect. Though it did not admit liability, Federal in December 2001 settled with the Times-Picayune for the full policy limit of $1,000,000.

That settlement, however, left the Times-Picayune with $1,205,879 in embezzlement losses that were not reimbursed by Federal's primary policy. It was to recover this sum that the Times-Picayune turned to Zurich. In July of 1996, along with its second primary policy, the Times-Picayune also purchased from Federal a $1,500,000 excess policy that would cover, inter alia, acts of employee dishonesty exceeding the $1,000,000 policy limit of the underlying primary policy. The Times-Picayune renewed this one-year excess policy with Federal on July 1, 1997, but, on July 1, 1998, the Times-Picayune switched excess carriers and bought a three-year, $1,500,000 policy from Zurich that was effective from July 1, 1998 until July 1, 2001. The Times-Picayune timely filed an excess claim with Zurich for the $1,205,879 not covered by (because in excess of the policy limits of) the Federal July 1, 2000-July 1, 2001 primary policy.

Zurich balked, however. First, although the Zurich excess policy itself contains no Prior Loss clause (nor any express limitation to losses after policy inception or exclusion of pre-policy losses), the third sentence of the excess policy's insuring clause provides that "coverage under this policy shall then [on exhaustion of required primary coverage] apply in conformance with and subject to the warranties, limitations, conditions, provisions, and other terms of the Primary Policy." Accordingly, Zurich contended that under the Prior Loss clause in the Federal primary policy, Zurich was not responsible for any losses incurred before July 1, 1998 because in neither year in which the Times-Picayune had excess coverage from Federal did Anzalone embezzle more than the $1,000,000 limit of the underlying primary policy.² Second, in light of its conclusion that it had no liability under the Prior Loss clause, Zurich maintained that it was only bound to cover losses exceeding $1,000,000 incurred during the three-year life of its own excess policy (7/1/98-7/1/01). The amount Anzalone embezzled during this three-year period was $1,165,873. Zurich took the position that, once Federal's $1,000,000 in primary coverage was subtracted, its exposure under its $1,500,000 excess policy was actually only $165,873 out of the $1,205,879 in embezzlement losses that were not covered by (because in excess of the limits of) the Federal primary policy.³ Zurich offered to settle for roughly this amount and in fact made a $93,064 payment to the Times-Picayune.

On September 19, 2002, the Times-Picayune filed a six-count complaint in Louisiana state court alleging, inter alia: (1) common law breach of the Zurich excess insurance policy contract; (2) breach of contract in bad faith; (3) a violation of LA.REV.STAT. ANN. § 22:1220, which requires the prompt adjustment of insurance claims in good faith; (4) a violation of LA.REV.STAT. ANN. § 22:658, which requires prompt payment of a claim on receipt of a satisfactory proof of loss; (5) a breach of the common law implied covenant of good faith and fair dealing; and (6) declaratory judgment. Zurich removed the case to federal court on the basis of diversity jurisdiction under 28 U.S.C. § 1332.⁴

The district court granted partial summary judgment to Zurich, ruling as a matter of law that Zurich's excess policy unambiguously confined its liability only to those losses incurred during the three-year term of the Zurich policy that exceeded the $1,000,000 limit of the underlying Federal primary policy. The district court subsequently entered a FED.R.CIV.P. 54(b) judgment as to count one of the complaint, concluding that, in light of the partial summary judgment order and a payment already made to the Times-Picayune, Zurich's remaining liability on count one was $60,000. The premise behind the Rule 54(b) judgment is that the Times-Picayune could not prevail on any of its five other causes of action without first having prevailed on its basic breach of contract claim.

The only issue the Times-Picayune raises on appeal is whether Zurich is responsible under its excess policy for all (or some part greater than awarded by the district court) of the $1,205,879 in embezzlement losses that were not covered by (because in excess of the policy limits of) Federal's July 1, 2000-July 1, 2001 primary policy, or is only responsible for $165,873 of the $1,165,873 that was embezzled during the three-year term of Zurich's excess policy.

Standard of Review

A grant of summary judgment is reviewed de novo under the same standard applied by the district court. Keelan v. Majesco Software, Inc., 407 F.3d 332, 346 (5th Cir.2005). Where, as in the instant case, none of the material facts are in dispute, the court may enter judgment as a matter of law.

Analysis

1. The Language of the Excess Insurance Contract

The parties do not dispute that Louisiana law controls.

"Under Louisiana law, a court should interpret an insurance policy under ordinary principles for the interpretation of a contract. The intentions of the parties, as reflected by the words of the policy, should determine the extent of coverage. The words should be given their plain meanings, and the court should not change the coverage of the policy under the guise of interpreting ambiguous language. The court should consider the policy as a whole, and interpret the...