American Guarantee & Liability Insurance v. 1906 Co. , 129 F.3d 802 ( 1997 )

United States Court of Appeals,
Fifth Circuit.
No. 96-60227.
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.
Dec. 9, 1997.
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
1
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
2
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
3
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
liability coverage of $5,000,000 per occurrence and in the
aggregate.
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.
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
1
The remaining two suits were dismissed as time barred.
4
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
5
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
6
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 that the endorsement is
at least ambiguous, and ambiguities must be construed against the
insurer under Mississippi law. See Papa v. Mississippi Farm Bureau
Cas. Ins. Co., 573 So. 2d 761, 763 (Miss.1990); Lumbermens Mut.
Cas. Co. v. Thomas, 555 So. 2d 67, 70 (Miss.1989).
American Guarantee argues that the endorsement makes clear
that where no premises are specifically listed on the endorsement,
the designated premises are those listed on the declarations page.
Since the VAS property is not listed in the declarations, or
anywhere else in the policy, there is no coverage for the injuries
arising out of that property according to American Guarantee.
While the policy language could be clearer, we agree with the
district court that the endorsement is sufficiently clear to
qualify as unambiguous. The designated premises endorsement is
specifically incorporated into the policy on the declarations page,
thus putting Hattiesburg Coke and its officials on notice that
their coverage was limited to certain premises. The endorsement
refers the reader back to the declarations page to find the covered
premises if no premises are listed on the endorsement. Three
7
covered premises are listed in the declarations and the VAS
property is not among them. If the designated premises endorsement
did not incorporate the premises listed in the declarations, then
there was no purpose in incorporating the endorsement into the
policy in the first place. We decline to adopt a reading of the
policy that would render the entire endorsement surplusage. See,
e.g., Brown v. Hartford Ins. Co., 606 So. 2d 122, 126 (Miss.1992)
(citing cases).
For these reasons, we agree with the district court that the
policy unambiguously limits liability under both coverage A and B
to injuries arising out of the three premises listed on the
declarations page of the policy. Because the VAS premises is not
included in that list, the district court correctly concluded that
the endorsement excluded liability for injuries arising out of the
VAS operation. John Thomson's actions giving rise to the injuries
all occurred at and were related solely to his use of the VAS
studio. Therefore, the district court correctly granted summary
judgment in favor of American Guarantee with respect to claims
against John Thomson.2 The same is true for exclusion from
coverage on all claims against Hattiesburg Coke and Richard Thomson
seeking to hold them vicariously liable for John Thomson's actions.
We reach this conclusion because those claims arise solely from
2
The district court also concluded that John Thomson's actions
in surreptitiously videotaping the women at VAS were beyond the
scope of his employment. Because we conclude that coverage for
John Thomson's actions is excluded by the plain terms of the
designated premises endorsement, we need not reach the scope of
employment issue.
8
actions taken by John Thomson at the VAS studio.
B.
Appellants further contend that even if the district court
correctly concluded that the designated premises endorsement
excludes coverage for injuries arising out of use of the VAS
property, it does not follow that this endorsement excludes
coverage for negligence claims against Hattiesburg Coke and Richard
Thomson. These insureds point out that their supervisory actions
over VAS and John Thomson were conducted from Hattiesburg Coke's
headquarters at 4501 Hardy Street, a designated premises. They
contend that because their supervision of VAS occurred at a
designated premises, their conduct constitutes a "use" of a
designated premises or at least an "operation ... incidental to" a
designated premises under the endorsement.
American Guarantee responds that the supervisory actions of
Hattiesburg Coke and Richard Thomson, while concededly occurring at
Hattiesburg Coke headquarters, related solely to the operation of
a nondesignated premises and had no nexus whatever to Hattiesburg
Coke's bottling operation, the primary operation of the designated
premises. Moreover, American Guarantee points out that the
description of the hazards contained in the policy do not refer to
any operations of the company other than those related to its
bottling operation.
Our review of Mississippi insurance law provides us with
little guidance in resolving this issue. We are thus left to make
an "Erie guess" about the instant policy's coverage. See State
9
Farm Fire and Cas. Co. v. Fullerton, 118 F.3d 374 (5th Cir.1997)
("We may consult a variety of sources in making an Erie-guess:
dicta in [state] court decisions, the general rule on the issue,
and the rules in other states that [the state] might look to, as
well as treatises and law journals."); Hill v. London, Stetelman,
& Kirkwood, Inc., 906 F.2d 204, 207 (5th Cir.1990) (same).
Because the policy language is the best indication of the
parties' intent, see, e.g., Cooper v. Crabb, 587 So. 2d 236, 240
(Miss.1991) ("Common sense suggests the parties' writings the most
reliable evidence of their intent."), we begin with the terms of
the designated premises endorsement. The endorsement limits
coverage to certain injuries "arising out of" the "ownership,
maintenance or use" of the covered premises and "operations
necessary or incidental" to those premises. The phrase "arising
out of" is ordinarily understood to mean "originating from,"
"having its origin in," "growing out of," or "flowing from." See,
e.g., Blue Bird Body Co. v. Ryder Truck Rental, Inc., 583 F.2d 717,
726 (5th Cir.1978). In the insurance context, this phrase is often
interpreted to require a causal connection between the injuries
alleged and the objects made subject to the phrase. For example,
in Roberts v. Grisham, 487 So. 2d 836, 839 (Miss.1986), the
Mississippi Supreme Court held that the phrase "arising out of the
ownership, maintenance or use of [an] uninsured motor vehicle"
required a "causal connection" between the actions giving rise to
the injuries and the uninsured automobile. The court went on to
note that it is not enough that the " "automobile was merely the
10
situs of the accident which could as well have occurred in any
other location.' " Id. (citation omitted). Similarly, in Delta
Pride Catfish, Inc. v. Home Insurance Co., 697 So. 2d 400
(Miss.1997), a court recently concluded that a clause insuring
against "advertising injury," where such injury is defined as
"injury arising out of an offense ... occurring in the course of
the named insured's advertising activities" required a showing of
"a causal connection" between the alleged injury and the
advertising activities. See also 12 COUCH ON INSURANCE § 45:56 at
146-147 (2d ed. 1981 & Supp.1996) ("The phrase "arising out of
maintenance or use of a motor vehicle,' ... requires some causal
connection between the injury and the use of the vehicle for
transportation purposes.")
Thus, we conclude that in the present case the phrase "arising
out of" the "use" of the designated premises requires that there be
a causal connection between the injuries to the women improperly
videotaped by John Thomson and the designated premises located at
4501 Harding Street. We further conclude that such a connection
exists. It is undisputed that the decisions to set up VAS,
construct its offices, purchase equipment, and, eventually, to
close it down, were all made by Richard Thomson and other
Hattiesburg Coke officials and employees at Hattiesburg Coke
headquarters, a designated premises. Moreover, VAS was operated as
a formal division of Hattiesburg Coke, with John Thomson assigned
the title of vice president of Hattiesburg Coke's "Visual Arts
Division." In addition, Richard Thomson testified in his
11
deposition that all of Hattiesburg Coke's divisions shared the same
general checking account and that all of VAS's expenses were paid
from this account. John Thomson was required to pay all VAS
expenses from a rolling petty cash account and then submit his
expenses and receipts to Hattiesburg Coke, which would then remit
these sums back into the account.
Under the circumstances, a factfinder could find a causal
connection between Hattiesburg Coke and Richard Thomson's
supervisory activities, the operation of the designated premises,
and the injuries that resulted from John Thomson's intentional and
tortious actions at VAS. Our conclusion that a sufficient causal
nexus exists is further supported by the fact that the policy at
issue is a Commercial General Liability ("CGL") policy, and not
merely an Owner's, Landlord and Tenant ("OLT") policy. A leading
treatise describes the more limited nature of an OLT policy, as
compared with a CGL policy, as follows:
A very common form of liability insurance is the one which
insures the owner, occupier, or operator of real property
against liability incident to his ownership or use of the
premises. Such insurance, the purpose of which is simply to
protect against liability arising from the condition or use of
the building as a building must be distinguished from
insurance against liability arising from the nature of the
enterprise or activity conducted therein. More simply stated,
a building liability policy does not cover a liability arising
from the insured's activity in the building.
11 COUCH ON INSURANCE § 44:379 at 551-52 (2d. ed.1982). Were we
confined to finding a causal connection between the injuries
stemming from the improper videotaping at VAS and use of
Hattiesburg Coke's premises at 4501 Hardy Street as a building, we
doubt we would reach the same conclusion. However, a CGL policy is
12
designed to insure its holder from more than just injuries arising
from the condition or use of its buildings as buildings. For the
reasons described above, we conclude that the requisite causal
connection exists between the injuries alleged in the underlying
state court lawsuits and the use of the company's headquarters by
Richard Thomson and Hattiesburg Coke to supervise John Thomson's
activities at VAS, a wholly-owned division of the company. Thus,
the negligence claims against Hattiesburg Coke and Richard Thomson
are not excluded from coverage by the designated premises
endorsement.
C.
American Guarantee argues that even if coverage for
Hattiesburg Coke and Richard Thomson is not excluded under the
designated premises endorsement, there is no coverage for these
injuries because there has been no "occurrence" under the policy.
To answer this contention requires a closer look at the coverage
portions of American Guarantee's policy.
The commercial comprehensive general liability policy is
divided into two parts. The first part, Coverage A, insures
against "bodily injury" and "property damage" liability. This
coverage applies only to bodily injury or property damage that is
caused by an "occurrence," which is defined by the policy to mean
"an accident, including continuous or repeated exposure to
substantially the same general harmful conditions." Also, Coverage
A expressly excludes coverage for bodily injury or property damage
"expected or intended from the standpoint of the insured."
13
The second part, Coverage B, insures against liability for
"personal injury" and "advertising injury." Rather than using
"occurrence," as a predicate for coverage, Coverage B provides
coverage for qualifying injuries "caused by an offense arising out
of your business." The policy does not define the term "offense."
The policy does, however, define "personal injury" as being all
injury, other than bodily injury, that arises out of certain
specified "offenses." Coverage B also excludes coverage for
injuries "[a]rising out of the willful violation of a penal statute
or ordinance committed by or with the consent of the insured."
For the reasons set forth below, we conclude that the only
direct claims against Hattiesburg Coke and Richard Thomson
predicated on their own fault are not covered under Coverage A of
the policy. However, as we explain later, because the parties have
not adequately addressed coverage under Coverage B, we remand
questions relating to Coverage B to the district court.3
1.
American Guarantee argues that the claims under Coverage A
against Hattiesburg Coke and Richard Thomson are excluded by the
"deliberate acts" exclusion, which removes coverage for all
injuries "expected or intended from the standpoint of the insured."
There can be no doubt that John Thomson intended to surreptitiously
3
As we held above, all of the claims under Coverage A and B
against John Thomson, as well as those claims asserted against
Richard Thomson and Hattiesburg Coke on a theory that they are
vicariously liable for John's actions, are excluded by the
designated premises clause. Accordingly, only the negligence
claims against Richard Thomson and Hattiesburg Coke remain at
issue.
14
videotape the women and that the harm caused thereby was expected
from his standpoint. Richard Thomson and Hattiesburg Coke concede
as much, but they argue that from their standpoint, the conduct was
neither intended nor expected. They further contend that the
"separation of insureds" clause in the policy requires that we
examine their expectations and intent entirely divorced from those
of John Thomson.4
Although we have found no Mississippi cases addressing this
issue, this Court, in applying the law of neighboring
jurisdictions, has repeatedly rejected this argument. These cases
hold that no coverage is provided the employer or supervisory
personnel for claims of negligent hiring or supervision when the
underlying tortious conduct is intentional and when those claims
against the employer or supervisor are related to and are
interdependent on the employee's intentional misconduct. See
Cornhill Insurance PLC. v. Valsamis, Inc., 106 F.3d 80, 87 (5th
Cir.1997) ("[W]here liability premised on negligence is related to
and interdependent of other tortious activities, the "ultimate
issue' is whether the tortious activities themselves are
encompassed by the "occurrence' definition."); New York Life Ins.
4
The separation of insureds clause provides:
Except with respect to the Limits of Insurance, and any
rights or duties specifically assigned in this Coverage
Part to the first Named Insured, this insurance applies:
a. As if each Named Insured were the only Named
Insured; and
b. Separately to each insured against whom claim is
made or "suit" is brought.
15
v. Travelers Ins. Co., 92 F.3d 336, 339 (5th Cir.1996) (excluding
claims for negligent hiring, training, and supervision against
employer that were "related to" and "interdependent on" claim of
fraud by employee because employee's intent is imputed to
employer); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins.
Co., 99 F.3d 695, 703 (5th Cir.1996) ("Where the legal claims
asserted by the plaintiffs are not independent and mutually
exclusive, but rather related to and dependent upon excluded
conduct, the claims are not covered, even if asserted against an
insured who did not himself engage in the prohibited conduct.");
Old Republic Ins. Co. v. Comprehensive Health Care Assoc., Inc.,
786 F. Supp. 629, 632 (N.D.Tex.1992), aff'd on other grounds, 2 F.3d
105 (5th Cir.1993) (finding no duty to defend insured against claim
of negligent hiring when the claim of negligent hiring arises out
of agent's intentional sexual harassment); Columbia Mut. Ins. Co.
v. Fiesta Mart, Inc., 987 F.2d 1124, 1128 (5th Cir.1993) (holding
that under Texas law, where liability of insured and liability of
its agent were "related and interdependent," court must look to
whether agent's fraud was covered by policy); Huey T. Littleton
Claims, Inc. v. Employers Reinsurance Corp., 933 F.2d 337, 339 (5th
Cir.1991) (holding that under Louisiana law, dishonest act
exclusion in employer's commercial liability policy excluded
negligence and vicarious liability claims against employer for
losses based upon the excluded conduct of its employee).
A leading commentator has observed that courts have not been
consistent in their treatment of separation of insured clauses,
16
particularly where claims against one insured are closely related
to claims against another. See 7A J. Appleman, INSURANCE LAW AND
PRACTICE § 4492.01 at 20 (Berdal ed. 1979) ("The severability
clause added to standard liability policies in 1955 is not usually
recognized in most of the litigation regarding intentional or
negligent acts that result in liability to the insured. It would
seem that its implications are not recognized adequately by the
litigants or the courts."). Indeed, this is an issue that has
caused our Circuit some difficulty. See Western Heritage Ins. v.
Magic Years Learning Ctrs. & Child Care, Inc., 45 F.3d 85 (5th
Cir.1995) (holding negligence claims against employer related to
sexual molestation of child by employee were not excluded by
intentional acts exclusion, in part because the policy contained a
separability clause); New York Life, 92 F.3d at 340 n. 4
(declining to follow Magic Years because that portion of the
opinion related to the intentional acts exclusion was an
alternative holding, and because it failed to acknowledge and is
inconsistent with our opinion in Fiesta Mart, which was binding as
prior precedent).
Although a close question, we conclude that Mississippi
courts would likely follow the lead of neighboring jurisdictions
and hold that where negligence claims against an employer, such as
negligent hiring, negligent training, and negligent entrustment,
are related to and interdependent on the intentional misconduct of
an employee, the "ultimate question" for coverage purposes is
whether the employee's intentional misconduct itself falls within
17
the definition of an occurrence. As we explained in New York Life,
the issue turns largely on principles of agency and imputed intent.
See 92 F.3d at 340-41 ("Fiesta Mart resolves ... whether an agent's
intent or expectations will be imputed to a principal," and holds
that "[w]hen an agent intends or expects an injury, such intent and
knowledge will be imputed to the principal for purposes of
determining whether there is an occurrence."). We believe
Mississippi courts would apply these same principles in resolving
the issue.
Because the injuries stemming from the improper videotaping
were intended or expected from the standpoint of John Thomson, the
related negligence claims against Hattiesburg Coke and Richard
Thomson are excluded under Coverage A. Accordingly, we conclude
that the district court properly granted summary judgment in favor
of American Guarantee on this issue.
2.
Hattiesburg Coke and Richard Thomson argue further that even
if the district court correctly found that American Guarantee
provided no coverage to them under Coverage A, they are still
entitled to recover under Coverage B. The district court,
apparently concluding that it had resolved all the coverage issues
presented, did not specifically address the applicability of
Coverage B. Furthermore, although appellants claim coverage exists
under Coverage B, they provide scant discussion of this issue in
their briefs. We are also unable to determine from the record
whether the parties raised Coverage B issues with sufficient
18
specificity in the district court so that we should address them on
appeal. Rather than resolve this issue on the basis of the limited
record before us, we remand the issues under Coverage B to the
district court for further consideration in light of this opinion.5
III.
In summary, we agree with the district court that all claims
against John Thomson are excluded from coverage by the designated
premises endorsement. We also agree that American Guarantee's
policy provides no coverage to Richard Thompson and Hattiesburg
Coke for claims predicated on those insured's vicarious liability
for John's acts. The remainder of the claims against Richard
Thomson and Hattiesburg Coke are excluded from coverage under
Coverage A by the "intentional acts" exclusion. To the extent the
district court's order excluded coverage to Richard Thomson and
Hattiesburg Coke under coverage B, that part of the order is
vacated and we remand to the district court to determine whether
the claims against Richard Thomson and Hattiesburg Coke are covered
under Coverage B of the policy. The district court shall also
consider Richard Thomas and Hattiesburg Coke's claim for attorney's
fees on remand. Accordingly, the district court's grant of summary
judgment in favor of American Guarantee is AFFIRMED IN PART,
5
The parties also dispute whether Richard Thomson and the 1906
Company are entitled to reimbursement of attorneys' fees they
expended for counsel they independently retained after American
Guarantee agreed to defend them under a reservation of rights. The
district court did not address this issue, and American Guarantee
contends the issue was not properly preserved below. In light of
our decision to remand the issue of coverage under Coverage B of
the policy, we also remand the question of attorney's fees for the
district court's consideration.
19
VACATED IN PART, and REMANDED for further proceedings consistent
with this opinion.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.
PARKER, Circuit Judge, concurring in part, dissenting in part:
COVERAGE AS TO JOHN THOMSON
In granting American Guarantee summary judgment, the district
court found that there was no ambiguity as to the designation of
premises and held that VAS was not a premises designated by the
policy's endorsement. The district court also held that John
Thomson's acts were outside the scope of his employment and thus he
was not insured under the terms of the policies. The majority
affirms the first conclusion and declines to reach the second. I
would hold that the policy is ambiguous as to the designation of
premises, and that the VAS premises is within the policy's
coverage. However, because I believe that the district court was
correct in holding that John Thomson's acts were outside the scope
of his employment, I concur with the affirmance of the district
court's decision that John Thomson was not insured under the
policy.
a. Designated Premises
There are no premises listed on the policy's endorsement. The
endorsement instructs that if there is no entry as to designated
premises, "information required to complete this endorsement will
be shown in the Declarations as applicable to this endorsement."
The Declarations page lists three properties which are followed by
the limits on property coverage liability. There is no reference
20
to the designated premises endorsement nor is there any reference
to these premises being designated premises for purposes of
liability limitation.
The question presented as to this issue is whether the listing
of these three property addresses together with limits on property
coverage are to be read as also serving as a list of designated
premises for purposes of the discussed endorsement. A district
court's interpretation of an insurance policy is a question of law
which we review de novo. Boatner v. Atlanta Speciality Ins. Co.,
115 F.3d 1248, 1251 (5th Cir.1997). An insurance policy is a
contract and as such, we turn to contract construction principles.
When construing a contract, the contract is read as a whole, so as
to give effect to all of its clauses. Brown v. Hartford Ins. Co.,
606 So. 2d 122, 126 (Miss.1992); Gunn v. Principal Casualty Ins.
Co., 605 So. 2d 741, 746 (Miss.1992). Viewing the endorsement in
light of this rule, we must give meaning to its phrase "as
applicable to this endorsement." We may not simply read it out of
the contract.
Two reasonable interpretations are possible when reading the
endorsement and declarations page together. The endorsement was
never completed with the designation of any premises in the
appropriate areas indicated on the endorsement and there is no
reference to any designation of premises "applicable to [the]
endorsement" on the declarations page, leading to the reasonable
conclusion that no list of premises was included in the contract to
which coverage was limited. A second plausible interpretation is
21
urged by American Guarantee and adopted by the majority—that the
property addresses listed on the declarations page serve as the
designated premises for purposes of the endorsement since the
endorsement refers the reader to the declarations page and on the
declarations page there is a list of some properties. An ambiguity
is defined as a susceptibility to two reasonable interpretations.
Ins. Co. of No. Am. v. Deposit Guaranty Nat'l Bank, 258 So. 2d 798,
800 (Miss.1972). I would find the designated premises portion of
the contract ambiguous.
In the case of an ambiguity in an insurance policy, it has
long been established that resolution of the ambiguity must be in
favor of the insured. New Hampshire Ins. Co. v. Robertson, 352
So. 2d 1307, 1311 (Miss.1977).
In construing the provisions of a contract of insurance, all
the provisions of the policy must be so construed, if it can
be reasonably done, so as to give effect to each. When the
policy is subject to two interpretations, equally reasonable,
that which gives the greater indemnity to the insured will
prevail.... In all cases the policy must be liberally
construed in favor of the insured, in order to accomplish the
purpose of the insurance.
Gunn, 605 So. 2d at 746 (quoting Southern Home Ins. Co. v. Wall, 156
Miss. 865, 127 So. 298, 299 (1930)). Following this
long-established rule of contract construction, I would construe
the ambiguity against American Guarantee and find that the policy
lacks a designation of premises to which coverage was limited and
thus find that the endorsement does not preclude coverage for the
VAS premises.
Having determined that the policy did not designate particular
22
1906 Company premises to which coverage was limited1, I must then
determine if coverage is precluded for other reasons.
b. Scope of employment
Under "Section II—Who is an Insured", coverage is excluded for
acts by employees not "within the scope of their employment." The
district court considered a number of Mississippi cases dealing
with the scope issue and found that John Thomson's secret
videotaping of the women in the dressing room was not within the
scope of his employment and thus no coverage was available under
the policy for John Thomson's liabilities.
Mississippi cases have established that the proper inquiry in
determining whether tortious acts were within the scope of
employment is to ask whether a servant was acting in furtherance of
the employer's business by engaging in the activity or whether the
employee was engaged in a private purpose. Holliday v. Pizza Inn,
Inc., 659 So. 2d 860, 865 (Miss.1995). We are called upon to make
an Erie guess as to whether or not John Thomson was acting within
the scope of his employment. See Nautilus Ins. Co. v. Zamora, 114
F.3d 536, 538 (5th Cir.1997).
This case does not resemble the Mississippi "deviation" cases
in which the servant deviated from the master's business and his
tortious acts were thus outside the scope of his employment. See,
e.g., Seedkem South, Inc. v. Lee, 391 So. 2d 990, 995 (Miss.1980);
Lovett Motor Co. v. Walley, 217 Miss. 384, 64 So. 2d 370, 372-73
1
I posit no position on the majority's discussion of causal
connection, as my resolution of the designated premises question
renders the issue irrelevant.
23
(1953); Stovall v. Jepsen, 195 Miss. 115, 13 So. 2d 229, 230
(1943). John Thomson did not leave his place of employment and he
performed the same acts as he always did at VAS albeit without the
permission of the photographic subjects. Rather, the decisive fact
in this case was that John Thomson was videotaping the undressed
women without their permission and was clearly serving his own
purpose in that respect. That aspect of the activities indicates
that the videotaping was for John Thomson's own purposes.
The Mississippi Supreme Court has explained that the
determination of whether an act was within the scope of employment
rests on the employee's purposes in his tortious activity. "[T]he
decisive question is not whether the servant was acting in
accordance with the instructions of the master, but, was he at the
time doing any act in furtherance of his masters' [sic] business.
If a servant, having completed his duty to his master, then
proceeds to prosecute some private purpose of his own, the master
is not liable." Holliday, 659 So. 2d at 864-65 (quoting Barmore v.
Vicksburg, S & P R.R. Co., 85 Miss. 426, 38 So. 210, 212 (1905)).
The Mississippi Supreme Court has in effect refocused the scope and
coverage inquiry to the question of the employee's purposes.
The inquiry is not whether the act in question, in any case,
was done, so far as time is concerned, while the servant was
engaged in the master's business, nor as to mode or manner or
doing it,—whether in doing the act he uses the appliances of
the master,—but whether, from the nature of the act itself as
actually done, it was an act done in the master's business, or
wholly disconnected therefrom by the servant, not as servant,
but as an individual on his own account.
Holliday, 659 So. 2d at 864 (quoting Canton Cotton Warehouse Co. v.
Pool, 78 Miss. 147, 28 So. 823, 824 (1900)). I agree with the
24
district court that coverage for John Thomson is precluded under
the policy because his acts were outside the scope of his
employment as they were for his own personal purposes. I therefore
concur with the majority that the policy affords no coverage for
John Thomson.
COVERAGE FOR RICHARD THOMSON AND THE 1906 COMPANY
Since I have concluded that John Thomson acted outside the
scope of his employment, there can be no vicarious liability for
Richard Thomson and the 1906 Company. Consequently, the policy
affords no coverage for Richard Thomson and the 1906 Company for
claims of vicarious liability for John Thomson's tortious acts.
We are then left with the direct claims against Richard
Thomson and the 1906 Company predicated on their own actions,
including, inter alia, negligent entrustment, negligent supervision
and negligent hiring. The policy contains a "separation of
insureds" provision that instructs that the insurance applies "[a]s
if each Named Insured were the only named Insured" and that it
applies "[s]eparately to each insured against whom claim is made or
"suit' is brought." The majority relies on cases holding that
where liability premised on negligence is interdependent with other
tortious activities, the determining issue for coverage purposes is
whether the tortious activities themselves are encompassed by the
"occurrence" definition. See, e.g., Cornhill Ins. PLC v. Valsamis,
Inc., 106 F.3d 80, 87 (5th Cir.1997) (applying Texas law). These
cases involve neither Mississippi law nor the consideration of
separation of insureds provisions. As a court sitting in
25
diversity, we are obligated to do as we believe the Mississippi
Supreme Court would think best. See Zamora, 114 F.3d at 538. The
Mississippi Supreme Court has made no suggestion of following the
way of the "Cornhill-type" cases. Under Mississippi law, "the
keystone of the occurrence definition is that the event giving rise
to the claim should be neither expected nor intended from the
standpoint of the insured." U.S. Fidelity & Guaranty Co. v. T.K.
Stanley, Inc., 764 F. Supp. 81 (S.D.Miss.1991). A leading treatise
offers a similar definition: "the act is an accident if it was
unexpected or unanticipated from the standpoint of the insured."
Couch on Insurance 2d (rev. ed.) § 41:14, at 20-21. One district
court has explained the proper approach.
"The test of whether an injury is the result of an accident is
to be determined from the viewpoint of the insured and not
from the viewpoint of the one that committed the act causing
the injury." Mohn v. Am. Casualty Co., 458 Pa. 576, 326 A.2d
346 (1974). Obviously, from the standpoint of [the employer],
[the employee]'s acts were "unexpected or unanticipated." It
would require a tortured interpretation of this case to decide
that when [the employer] hired [the employee] it intended or
expected that he would molest children.
Silverball Amusement, Inc. v. Utah Home Fire Ins. Co., 842 F. Supp.
1151, 1157-58 (W.D.Ark.) (considering a policy's definition of
"occurrence" virtually identical to the one in policy at hand),
aff'd, 33 F.3d 1476 (8th Cir.1994). I remain mindful of the
long-established rule of Mississippi contract construction that
directs that ambiguities be resolved against the insurer. Gunn,
605 So. 2d at 746. As there is no allegation that the 1906 Company
or Richard Thomson expected or intended to injure the plaintiffs in
the underlying state suits, the policy's definition of "occurrence"
26
does not preclude coverage for either of these two appellants.
CONCLUSION
I concur with the majority's determination that the policy in
question affords no coverage to John Thomson or VAS, although I
reach that conclusion by a different route. I further concur that
the issues under Coverage B of the policy as well as the question
of attorney fees should be remanded to the district court for
further consideration.
However, I dissent from the majority's determination that the
policy afforded no coverage to Richard Thomson and the 1906 Company
under the separation of insureds clause. Because the district
court found that American Guarantee had no obligations under its
policy, it found no basis for General Star's claim for indemnity
for the payments it had made on behalf of Richard Thomson and the
1906 Company. Because I would hold that American Guarantee was
indeed obligated to Richard Thomson and the 1906 Company under its
policy, I would also remand General Star's indemnity claim to the
district court for a determination of the amount of American
Guarantee's indemnity obligation to General Star.
27