American Guarantee & Liability Insurance v. 1906 Co.

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