Case: 09-30485 Document: 00511188067 Page: 1 Date Filed: 07/28/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 28, 2010
No. 09-30485 Lyle W. Cayce
Clerk
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IN RE: KATRINA CANAL BREACHES LITIGATION
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LOUISIANA STATE, Individually and on behalf of State of Louisiana,
Division of Administration, Office of Community Development ex rel;
JAMES D CALDWELL, also known as Buddy Caldwell, proper plaintiff
party, in place of Charles C. Foti, Jr.,
Plaintiffs-Appellees
v.
ANPAC LOUISIANA INSURANCE COMPANY; AMERICAN NATIONAL
GENERAL INSURANCE COMPANY; AMERICAN NATIONAL PROPERTY
& CASUALTY COMPANY; REPUBLIC FIRE AND CASUALTY
INSURANCE COMPANY; AUTO CLUB FAMILY INSURANCE COMPANY;
AEGIS SECURITY INSURANCE COMPANY; AIG CENTENNIAL
INSURANCE COMPANY; AIU INSURANCE COMPANY; ALLSTATE
INDEMNITY COMPANY; ALLSTATE INSURANCE COMPANY; AMERICA
FIRST INSURANCE COMPANY; AMERICAN BANKERS INSURANCE
COMPANY OF FLORIDA; AMERICAN FAMILY INSURANCE; AMERICAN
GENERAL PROPERTY INSURANCE COMPANY; AMERICAN INSURANCE
COMPANY; AMERICAN MANUFACTURERS MUTUAL INSURANCE
COMPANY; AMERICAN MODERN INSURANCE GROUP; AMERICAN
MODERN SURPLUS LINES INSURANCE COMPANY; AMERICAN
RELIABLE INSURANCE COMPANY; AMERICAN SECURITY INSURANCE
COMPANY; AMERICAN SUMMIT INSURANCE COMPANY; AMERICAN
SOUTHERN HOME INSURANCE COMPANY; AMERICAN WESTERN
HOME INSURANCE COMPANY; AMICA MUTUAL INSURANCE
COMPANY; ARMED FORCES INSURANCE EXCHANGE; ASSURANCE
COMPANY OF AMERICA; AUDUBON INSURANCE COMPANY; BALBOA
INSURANCE COMPANY; CERTAIN UNDERWRITERS AT LLOYDS OF
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No. 09-30485
LONDON, London Market Insurers; CHUBB INDEMNITY INSURANCE
COMPANY; CHUBB CUSTOM INSURANCE COMPANY; CHUBB
NATIONAL INSURANCE COMPANY; CLARENDON NATIONAL
INSURANCE COMPANY; ECONOMY PREMIER ASSURANCE COMPANY;
EMPIRE FIRE & MARINE INSURANCE COMPANY; EMPIRE INDEMNITY
INSURANCE COMPANY; ENCOMPASS INSURANCE COMPANY OF
AMERICA; ENCOMPASS PROPERTY AND CASUALTY COMPANY;
FARMERS INSURANCE EXCHANGE; FEDERAL INSURANCE COMPANY;
FIDELITY AND DEPOSIT INSURANCE COMPANY OF MARYLAND;
FIDELITY NATIONAL INSURANCE COMPANY; FIDELITY NATIONAL
PROPERTY AND CASUALTY INSURANCE COMPANY; FIREMAN’S
FUND INSURANCE COMPANY; GREAT NORTHERN INSURANCE
COMPANY; HANOVER AMERICAN INSURANCE COMPANY; HANOVER
INSURANCE COMPANY; HARTFORD ACCIDENT & INDEMNITY
COMPANY; HARTFORD CASUALTY INSURANCE COMPANY;
HARTFORD FIRE INSURANCE COMPANY; HARTFORD INSURANCE
COMPANY OF THE MIDWEST; HARTFORD INSURANCE COMPANY OF
THE SOUTHEAST; ET AL; HOMESITE INSURANCE COMPANY; HORACE
MANN INSURANCE COMPANY; HORACE MANN PROPERTY AND
CASUALTY INSURANCE COMPANY; LAFAYETTE INSURANCE
COMPANY; LEXINGTON INSURANCE COMPANY; LIBERTY MUTUAL
FIRE INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE
COMPANY; LOUISIANA FARM BUREAU MUTUAL INSURANCE
COMPANY; LOUISIANA FARM BUREAU CASUALTY INSURANCE
COMPANY; MASSACHUSETTS BAY INSURANCE COMPANY;
MERASTAR INSURANCE COMPANY; MERITPLAN INSURANCE
COMPANY; METROPOLITAN CASUALTY INSURANCE COMPANY;
METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY;
NATIONAL LLOYDS INSURANCE COMPANY; NATIONAL SECURITY
FIRE & CASUALTY COMPANY; NATIONAL UNION FIRE INSURANCE
COMPANY OF LOUISIANA; NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PENNSYLVANIA; OMEGA ONE
INSURANCE COMPANY; SCOTTSDALE INSURANCE COMPANY;
SECURITY PLAN FIRE INSURANCE COMPANY; SHELTER GENERAL
INSURANCE COMPANY; SHELTER MUTUAL INSURANCE COMPANY;
SOUTHWEST BUSINESS CORPORATION; STANDARD FIRE INSURANCE
COMPANY; STATE FARM FIRE & CASUALTY COMPANY; STATE FARM
GENERAL INSURANCE COMPANY; TRINITY UNIVERSAL INSURANCE
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COMPANY; UNION NATIONAL FIRE INSURANCE COMPANY; UNITED
FIRE AND CASUALTY COMPANY; UNITED FIRE AND INDEMNITY
COMPANY; UNITED SERVICES AUTOMOBILE ASSOCIATION; UNITRIN
AUTO AND HOME INSURANCE COMPANY; UNITRIN PREFERRED
INSURANCE COMPANY; USAA; CASUALTY INSURANCE COMPANY;
USAA GENERAL INDEMNITY COMPANY; USAA; VIGILANT INSURANCE
COMPANY; VOYAGER INDEMNITY INSURANCE COMPANY; VOYAGER
PROPERTY AND CASUALTY INSURANCE COMPANY; ZC STERLING
CORPORATION; ZC STERLING INSURANCE AGENCY INC; ZURICH
AMERICAN INSURANCE COMPANY; ZURICH NORTH AMERICA;
METLIFE INC,
Defendants-Appellants
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, PRADO, Circuit Judge, and O’CONNOR, District
Judge.*
EDITH H. JONES, Chief Judge:
In this interlocutory appeal, the Defendants—over 200 insurance
companies—challenge approximately 151,000 homeowner’s insurance claims
brought by the State of Louisiana based upon policyholders’ purported
assignments of policy rights to the State. Because no controlling Louisiana
Supreme Court precedent has determined whether an insurance contract’s anti-
assignment clause prohibits post-loss assignments of policy rights, because this
issue is case-dispositive, and because either the State or the insurers stand to
lose billions of dollars in claims, we certify the post-loss assignment question to
the Louisiana Supreme Court.
*
District Judge, Northern District of Texas, sitting by designation.
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I. Factual Background and Procedural History
To provide relief in the aftermath of hurricanes Katrina and Rita,
Congress appropriated federal funds, administered by the Department of
Housing and Urban Development (HUD), to affected states. Louisiana
distributed some of those funds via the “Road Home” program, which provided
grants of up to 150,000 dollars to Louisiana homeowners to repair uninsured or
under-insured property damage. Purporting to fulfill an obligation under federal
law to “prevent recipients from receiving any duplication of benefits,” 1 the State
required R oad H om e grant recipients to execute a “Lim ited
Subrogation/Assignment Agreement.” It stated, in pertinent part:
I/we hereby assign to the State of Louisiana . . . to the extent of the
grant proceeds awarded or to be awarded to me under the [Road
Home] Program, all of my/our claims and future rights to
reimbursement and all payments hereafter received or to be
received by me/us: (a) under any policy of casualty or property
damage insurance or flood insurance on the residence, excluding
contents (“Residence”) described in my/application for Homeowner’s
Assistance under the Program (“Policies”): (b) from FEMA, Small
Business Administration, and any other federal agency, arising out
of physical damage to the Residence caused by Hurricane Katrina
and/or Hurricane Rita.
According to the State, the Road Home program created perverse
incentives for insurance companies and insured homeowners—some insurers
inadequately adjusted and paid grant-eligible homeowners’ claims, and some
grant-eligible homeowners had little motivation to file claims or challenge low
insurance settlements. Consequently, Road Home applications and grant
1
The State cites to 72 Fed. Reg. 70,472-01 (Dec. 11, 2007) to support its statement that
“[f]ederal law demanded that States disbursing these funds “[e]stablish procedures to prevent
recipients from receiving any duplication of benefits.” The regulation, however, allocates this
responsibility to the Secretary of HUD and outlines five steps HUD was taking to satisfy the
directive. Louisiana’s obligation derived from its HUD-approved Road Home Action Plan,
which stated that “the State must not duplicate insurance of any type . . . or other payments
received by the homeowner for structural repairs required for . . . damages [incurred during
hurricanes Katrina and Rita].”
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amounts drastically increased, creating a one billion dollar projected shortfall
in the program.
To remedy this situation, and pursuant to the assignment agreements,
the State sued the Defendants—allegedly all of the insurers who wrote property
insurance in Louisiana at the time of the hurricanes—in state court in Orleans
Parish. The State sought to recover the funds expended and anticipated to be
expended under the Road Home program and a declaration of the insurers’
duties under the “all risk” policies they had issued to Road Home applicants.
The Defendants successfully removed the case to federal district court
under the Class Action Fairness Act (CAFA).2 According to the Defendants, the
insurance industry has paid more than 40 billion dollars to homeowners as a
result of Katrina and Rita losses. The insurers argue that the State’s suit is an
attempt to obtain yet more money from the insurers, even in situations where
the homeowner was satisfied with the amount paid, had already filed a lawsuit
against the insurer, or had reached a settlement agreement. Moreover, the
State brought suit without investigating whether the Defendants had actually
failed to make sufficient payment on individual homeowners’ claims.
The Defendants subsequently filed a Rule 12(b)(6) motion to dismiss,
arguing, inter alia, that (1) the State’s claims failed as a matter of law because
anti-assignment clauses in the homeowner’s policies invalidated the purported
2
The State used the class action device because, at the time suit was filed, thousands
of Road Home grant applications were pending and these future recipients had not yet
executed assignments. The class was defined as:
All current and former citizens of the State of Louisiana who have applied for and
received or will receive funds through the Road Home Program, and who have executed
or will execute a subrogation or assignment in favor or the State, and to whom
insurance proceeds are due and/or owed for damages sustained to any such recipient’s
residence as a result of any natural or man made occurrence associated with
Hurricanes Katrina and/or Rita under any policy of insurance . . . .
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assignments to the State,3 and (2) the State’s claims are time-barred by the
contractual suit limitation period in the policies if the insured did not sue the
insurer or the State did not obtain an assignment within two years of the loss.
Making an Erie guess,4 the district court denied the motion to dismiss,
holding that the contractual anti-assignment provisions did not bar post-loss
assignments under Louisiana law and that the State’s filing of the putative class
action lawsuit tolled the contractual suit limitation periods in the policies. The
district court also denied the Defendants’ motion for reconsideration, but
certified that order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b).
This appeal followed.5
II. Discussion
The parties have not moved this court to certify the post-loss assignment
question to the Louisiana Supreme Court, but the State did not object to
certification when questioned at oral argument. Moreover, Louisiana Supreme
Court Rule XII, section 2, provides that certification “may be invoked by . . . any
circuit court of appeal of the United States upon its own motion . . . .” We are
acutely aware that “[c]ertification is not a panacea for resolution of those
complex or difficult state law questions which have not been answered by the
highest court of the state,” Transcon. Gas Pipeline Corp. v. Transp. Ins. Co.,
958 F.2d 622, 623 (5th Cir. 1992), but “certification may be advisable where
3
The language of the various anti-assignment clauses is not identical. Many clauses
state that “[a]ssignment of this policy will not be valid unless we give our written consent,”
and others state that “[n]o interest in this policy can be transferred without our written
consent.” The parties nonetheless agree that all of the insurance contracts contain an anti-
assignment clause that, by its plain terms, purports to bar any assignment. The State does
not contend that the insurers consented to the assignments.
4
Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938).
5
The parties briefed and argued whether the limitations issue was properly before
this court pursuant to the § 1292(b) certification order and, reaching the merits, whether the
insurance contracts’ suit limitation provisions bar some or all of the State’s claims. For
reasons of judicial economy, this court does not address these questions at this time.
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important state interests are at stake and the state courts have not provided
clear guidance on how to proceed.” Free v. Abbott Labs., Inc., 164 F.3d 270, 274
(5th Cir. 1999) (citing Transcon., 958 F.2d at 623). Certification is advisable
here.
A. Louisiana Civil Code Article 2653
“When faced with unsettled questions of Louisiana law, [federal courts]
adhere to Louisiana’s civilian decision-making process, by first examining
primary sources of law: the constitution, codes, and statutes.” Moore v. State
Farm Fire & Cas. Co., 556 F.3d 264, 270 (5th Cir. 2009). To determine whether
the insurance contracts’ anti-assignment clauses bar post-loss assignments to
the State, the Defendants contend that Louisiana Civil Code article 2653 is the
beginning and end of the matter. Article 2653 provides that “[a] right cannot be
assigned when the contract from which it arises prohibits assignment of that
right.” Because the policies’ anti-assignment clauses broadly prohibit any
assignment without the insurers’ consent, the insurers argue that the post-loss
assignments to the State are invalid.
The State responds, and we agree, that Article 2653 begs the question
presented in this case: whether Louisiana courts would interpret the anti-
assignment clauses in these homeowner’s insurance policies as prohibiting post-
loss assignments. Louisiana interpretive rules provide that “[w]hen the words
of a contract are clear and explicit and lead to no absurd consequences, no
further interpretation may be made in search of the parties’ intent.” L A. C IV.
C ODE A NN. art. 2046. The anti-assignment clauses at issue here are broadly
worded and clearly do not exclude post-loss assignments from the prohibition,
but, like Article 2653, Article 2046 does not end the inquiry because even
unambiguous insurance contract provisions cannot conflict with statutory law
or public policy. See 15 W ILLIAM S HELBY M CK ENZIE & H. A LSTON J OHNSON, III,
L A. C IV. L. T REATISE, Insurance Law and Practice § 4 (3d ed. 2006). Thus, the
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issue before this court is whether the Louisiana Supreme Court would hold that
a contractual prohibition on post-loss assignments violates public policy.
The Louisiana Supreme Court has not answered this question, so we “look
to the decisions of intermediate state courts for guidance,” Terrebonne Parish
Sch. Bd. v. Columbia Gulf Transmission Co., 290 F.3d 303, 317 (5th Cir. 2002)
(citations omitted). Unfortunately, the Louisiana appellate decisions conflict.
B. Geddes & Moss, Lucien Tile, and the Majority Rule
The State points to a 1936 Louisiana appellate court case, Geddes & Moss
Undertaking & Embalming Co. v. Metro. Life Ins. Co., 167 So. 209 (La. Ct. App.
1936), which invalidated an anti-assignment clause as applied to a post-loss
assignment of the right to life insurance proceeds. Geddes & Moss cited the
“great weight of authority” in other jurisdictions and reflected in leading
treatises that anti-assignment clauses are contrary to public policy when applied
to post-loss assignments. Id. at 210. Indeed, the general majority rule supports
the Geddes & Moss conclusion. See 44 Am. Jur. 2d Insurance § 787 (2009)
(“General stipulations in policies prohibiting their assignment except with the
insurer’s consent . . . apply only to assignments before loss, and accordingly do
not prevent an assignment of a claim or an interest in insurance money then
due. . . . [A] provision against an assignment after loss is generally held
unenforceable, as inconsistent with the covenant of indemnity or the right to
assign a claim for money due, and as contrary to public policy.”); 3 Couch on Ins.
§ 35:7 (“. . . the great majority of courts adhere to the rule that general
stipulations in policies prohibiting assignments thereof except with the consent
of the insurer apply only to assignments before loss . . . the assignment before
loss involves a transfer of a contractual relationship while the assignment after
loss is the transfer of a right to a money claim.”) According to the cases, the
predominant purpose of a no-assignment clause is to protect the insurer from
unanticipated underwriting exposure, but “after events giving rise to the
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insurer’s liability have occurred, the insurer’s risk cannot be increased by a
change in the insured’s identity.” Id.
The Defendants, however, direct this court’s attention to R. L. Lucien Tile
Co. v. Am. Sec. Ins. Co., 8 So. 3d 753 (La. App. 4th Cir. 2009), a case decided
shortly after the district court denied the insurers’ Motion to Dismiss but which
the district court declined to follow in refusing to reconsider. Lucien Tile
involved property insurance covering wind and rain damage from Hurricane
Katrina. The court enforced an anti-assignment clause to invalidate a post-loss
assignment of all claims “against anyone . . . arising out of the ownership of” the
insured property.6 Id. at 756. The court did so without identifying any public
policy grounds that would justify narrowly construing the anti-assignment
clause to allow post-loss assignments. Moreover, Lucien Tile is consistent with
several cases from other jurisdictions that effectuate anti-assignment clauses
against post-loss assignments. See Del Monte Fresh Produce (Haw.) Inc. v.
Fireman’s Fund Ins. Co., 183 P.3d 734, 747 (Haw. 2007); Holloway v. Republic
Indem. Co., 147 P.3d 329, 334 (Or. 2006); Conoco, Inc. v. Republic Ins. Co.,
819 F.2d 120, 124 (5th Cir. 1987) (applying Texas law).
Thus, far from providing clear guidance as to how the Louisiana Supreme
Court would proceed, Louisiana appellate court decisions, as well as the cases
of other jurisdictions, are inconsistent.
C. Public Policy Implications
Complicating matters further, it is not clear to us that the facts of this case
comport with the policy considerations underlying the majority rule. Unlike
6
The State incorrectly describes Lucien Tile as “simply ruling that the two documents
at issue failed to assign Lucien Tile any rights under the ASIC policy.” It is true that an initial
assignment was held not to apply to the insurance policy, but Lucien Tile never ruled that the
second, broader assignment of all claims “against anyone . . . arising out of ownership of” the
insured property was insufficient potentially to assign rights against the insurer. The court
held flatly that the assignment, lacking the insurer’s consent, was invalid.
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Geddes & Moss, this case does not involve a simple transfer of a right to claim
an undisputed amount of money due. Here, more akin to pre-loss assignments,
contractual duties are indeed transferred to the State because the policies
impose reciprocal duties on insureds to provide timely notice, substantiate their
claims, and mitigate losses. Nor does this case contemplate a simple change in
the insured’s identity, resulting in no increased risk to the insurer. Instead, the
State seeks to re-litigate claims that may have already been pursued by the
insured, subjecting the Defendants to multiple lawsuits by a third party whose
only evidence of underpayment is that Road Home applications increased to the
point of a projected budget shortfall.
When certifying an insurance interpretation to the Supreme Court of
Alabama, this court explained that “[w]hen the state law is in doubt especially
on the underlying public policy aims, it is in the best administration of justice
to afford the litigants a consistent final judicial resolution by utilizing the
certification procedure.” Barnes v. Atl. & Pac. Life Ins. Co. of Am., 514 F.2d 704,
706 (5th Cir. 1975). We follow that admonition here and certify the question.
CERTIFICATION
Because interpretation of the policy provisions at issue is a matter of
Louisiana law that will determine the outcome of this case and because there are
no clear controlling precedents in the decisions of the Louisiana Supreme Court,
we hereby invoke the certification privilege granted by Louisiana Supreme Court
Rule XII.7
7
Louisiana Supreme Court Rule XII, section 1 reads:
When it appears to the Supreme Court of the United States, or to any circuit court of
appeal of the United States, that there are involved in any proceedings before it
questions or propositions of law of this state which are determinative of said cause
independently of any other questions involved in said case and that there are no clear
controlling precedents in the decisions of the supreme court of this state, such federal
court before rendering a decision may certify such questions or propositions of law of
this state to the Supreme Court of Louisiana for rendition of a judgment or opinion
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We certify the following question to the Louisiana Supreme Court:
1) Does an anti-assignment clause in a homeowner’s insurance policy,
which by its plain terms purports to bar any assignment of the
policy or an interest therein without the insurer’s consent, bar an
insured’s post-loss assignment of the insured’s claims under the
policy when such an assignment transfers contractual obligations,
not just the right to money due?
If the Louisiana Supreme Court accepts this certificate, the answers
provided will determine the outcome of this appeal. We disclaim any intent that
the Louisiana Supreme Court confine its reply to the precise form or scope of the
legal questions certified. We retain cognizance of this appeal while it is pending
before the Louisiana Supreme Court and transfer the record and appellate briefs
with our certification to the Supreme Court of Louisiana.
QUESTION CERTIFIED.
concerning such questions or propositions of Louisiana law. This court may, in its
discretion, decline to answer the questions certified to it.
11