Case: 09-30178 Document: 00511206956 Page: 1 Date Filed: 08/17/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 17, 2010
No. 09-30178 Lyle W. Cayce
Clerk
CONSOLIDATED COMPANIES INC,
Plaintiff - Appellee Cross-Appellant
v.
LEXINGTON INSURANCE COMPANY
Defendant - Appellant Cross-Appellee
Appeals from the United States District Court
for the Eastern District of Louisiana
Before BENAVIDES, STEWART, and SOUTHWICK, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
A warehouse located in Harahan, Louisiana, was damaged by Hurricane
Katrina. The warehouse owner filed suit against its commercial-property
insurer due to the parties’ disagreement over the amount owed under the policy.
After a jury trial, a substantial amount above what the insurer offered was
awarded. Statutory damages and penalties were also imposed. Judgment was
entered accordingly. The insurer appealed.
We disagree with the district court’s interpretation of “charges and
expenses” in the business-interruption loss provision. We VACATE that portion
of the award. We also VACATE the award of statutory damages and penalties.
We REMAND on those issues. We AFFIRM the judgment in all other respects.
Case: 09-30178 Document: 00511206956 Page: 2 Date Filed: 08/17/2010
No. 09-30178
FACTS and PROCEDURAL HISTORY
On August 28, 2005, Lexington Insurance Company issued a commercial-
property insurance policy to Consolidated Companies, Inc. (“Conco”). The policy
insured up to $25 million in losses from interruption of business, extra expenses,
and damage to Conco’s property. The next day, Hurricane Katrina –
undisputably a covered peril – damaged Conco’s property and equipment.
Conco resumed partial operations within ten days. During the 15-month
period before complete restoration of operations, Conco earned $205,840,489 in
revenues and incurred $205,561,483 in expenses for a small net profit.
Lexington initially advanced Conco $3 million under the policy. After
adjusting the claim, it determined Conco’s total loss was $3,247,070. Conco,
believing this payment insufficient, refused Lexington’s check for the $247,070
difference. By the time of trial, Conco claimed $24,970,551 in losses under the
policy. This included $19,379,642 in business-interruption loss, consisting of
$7,071,120 for lost profits and $12,308,522 for “charges and expenses.” The
meaning of “charges and expenses” is a central dispute in this appeal.
Conco filed this action alleging Lexington breached the insurance contract.
Conco also alleged that Lexington violated Louisiana’s insurance bad-faith
statutes by failing to pay the full amount of Conco’s damages within the statutes’
prescribed time periods. See La. Rev. Stat. §§ 22:1220 & 22:658.1
Throughout the controversy, Lexington and Conco have disagreed on the
proper interpretation of the policy’s business-interruption provision. The
difference in the interpretation is whether certain charges and expenses, which
the parties agree amount to about $12 million, should be paid in full or reduced
to the extent they were offset by income during the 15 months. Under the latter
interpretation, which is the one we adopt, the income completely offset them.
1
La. Rev. Stat. §§ 22:1220 and 22:658 have been recodified at La. Rev. Stat. §§ 22:1973
and 22:1892, respectively. We use the prior section numbers in this opinion.
2
Case: 09-30178 Document: 00511206956 Page: 3 Date Filed: 08/17/2010
No. 09-30178
The jury awarded Conco $19,586,239 for business-interruption loss, a
figure later slightly reduced by the district court.2 It also found that Lexington
violated the Louisiana bad-faith statutes by withholding payment arbitrarily,
capriciously, or without probable cause. This resulted in statutory damages of
$2.5 million under Section 22:1220 and a statutory penalty of $5,365,797.50
under Section 22:658.3 The jury also assessed $2.5 million in penalties (in
addition to $2.5 million in damages) under Section 22:1220. The district court
set aside this $2.5 million penalty, and Conco does not challenge the ruling.
The district court’s judgment disagreed with the verdict in other ways. A
remittitur was ordered, reducing the jury verdict by $3 million to account for an
alleged failure by jurors to deduct the amount Lexington had advanced to Conco.
Second, the business-interruption award was reduced by $206,597 based on the
conclusion that the jury improperly included inventory mark-ups and discounts
in computing the loss. Third, the district court proportionately reduced the
penalties to reflect the reductions.
Final judgment awarded $21,463,190 in compensatory damages,
$5,365,797.50 in statutory penalties under Section 22:658, and $2,500,000 in
statutory damages under Section 22:1220. Lexington timely appealed.
DISCUSSION
A. Interpretation of the business-interruption provision
Lexington asserts the district court erred by not instructing the jury to
reduce Conco’s “charges and expenses” by revenues Conco earned during its 15
2
The jury also awarded damages for losses to inventory, physical damage to Conco’s
warehouse, and extra expenses, but only the business-interruption damages are at issue on
this appeal.
3
The penalty represents twenty-five percent of the total amount the jury found that
Lexington failed to pay arbitrarily, capriciously, or without probable cause. See La. Rev. Stat.
§ 22:658. The initial penalty was $6,167,446.75, but it was reduced to reflect the district
court’s post-trial modifications to the total damages.
3
Case: 09-30178 Document: 00511206956 Page: 4 Date Filed: 08/17/2010
No. 09-30178
months of partially resumed operations. Conco maintains the district court
correctly interpreted the policy, and therefore the jury correctly awarded
$12,308,522 for business-interruption loss.4
The district court’s interpretation of an insurance contract is a question
of law that we review de novo. Admiral Ins. Co. v. Ford, 607 F.3d 420, 422 (5th
Cir. 2010). Because this diversity case involves “the interpretation of insurance
policies issued in Louisiana for property located in Louisiana,” that state’s
substantive law controls. In re Katrina Canal Breaches Litig., 495 F.3d 191, 206
(5th Cir. 2007).
We will start our de novo review by explaining Louisiana principles of
contract construction. We then quote the policy language. After examining the
district court’s interpretation of that language, we will analyze it as well.
The Louisiana Civil Code provides that a contract should be interpreted
to effect the “common intent of the parties,” id. (quoting La. Civ. Code Ann. art.
2045), and an insurance policy must be “construed according to the entirety of
its terms and conditions as set forth in the policy. . . .” Id. (quoting La. Rev. Stat.
Ann. § 22:654). Louisiana has established rules of analysis for interpreting a
policy that contains potentially ambiguous language:
The words of a contract must be given their generally prevailing
meaning. When 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. If the policy wording at issue
is clear and unambiguously expresses the parties’ intent, the
insurance contract must be enforced as written.
Where, however, an insurance policy includes ambiguous provisions,
the ambiguity must be resolved by construing the policy as a whole;
4
Conco asserts that Lexington did not preserve this challenge for appeal. To preserve
error for failure to grant a motion for judgment, “the moving party must file both a pre-verdict
Rule 50(a) motion at the close of all the evidence and the renewed Rule 50(b) motion.” Satcher
v. Honda Motor Co., 52 F.3d 1311, 1315 (5th Cir. 1995). Those motions were made.
4
Case: 09-30178 Document: 00511206956 Page: 5 Date Filed: 08/17/2010
No. 09-30178
one policy provision is not to be construed separately at the expense
of disregarding other policy provisions. Words susceptible of
different meanings must be interpreted as having the meaning that
best conforms to the object of the contract. A provision susceptible
of different meanings must be interpreted with a meaning that
renders it effective and not with one that renders it ineffective.
Ambiguity may also be resolved through the use of the
reasonable-expectations doctrine – i.e., by ascertaining how a
reasonable insurance policy purchaser would construe the clause at
the time the insurance contract was entered. The court should
construe the policy to fulfill the reasonable expectations of the
parties in light of the customs and usages of the industry. A
doubtful provision must be interpreted in light of the nature of the
contract, equity, usages, the conduct of the parties before and after
the formation of the contract, and of other contracts of a like nature
between the same parties.
Id. at 207 (citations, quotation marks, and alterations omitted).
These interpretive rules reveal that Louisiana recognizes two levels of
ambiguity. If an ambiguity is perceived, then various tools of construction are
applied that do not initially include construing the term against the drafter. “If
after applying the other general rules of construction an ambiguity remains, the
ambiguous contractual provision is to be construed against the drafter, or, as
originating in the insurance context, in favor of the insured.” Id. (quoting La.
Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 764 (La. 1994)).
Further, that last principle applies only if “equivocal provisions” seek to “narrow
an insurer’s obligation,” and only where “an ambiguous policy provision is
susceptible to two or more reasonable interpretations.” Id. (quoting Cadwallader
v. Allstate Ins., 848 So. 2d 577, 580 (La. 2003) (emphasis in original)).
We will need to apply these rules to the business-interruption provision.
We will quote only the relevant parts. It begins with something of a definition.
Business interruption means loss resulting from necessary
interruption of business conducted by the insured and caused by
5
Case: 09-30178 Document: 00511206956 Page: 6 Date Filed: 08/17/2010
No. 09-30178
direct physical loss or damage by any of the perils covered herein
during the term of this policy to Real and/or Personal Property as
covered herein.
This is fairly straight-forward. It has a few terms of art, but nothing about
them are central to the dispute. The next paragraph, though, is key:
If such loss occurs during the term of this policy, it shall be adjusted
on the basis of the actual loss sustained by the Insured, during the
period of restoration, consisting of the net profit (or loss) which is
thereby prevented from being earned and of all charges and
expenses (excluding ordinary payroll), but only to the extent that
they must necessarily continue during the interruption of business,
and only to the extent to which they would have been incurred had
no loss occurred.
Some important terms are here. The “period of restoration” was much in
dispute in the district court, as it established the period for which the business
interruption was compensable. It is accepted on appeal that the 15 months that
began when Katrina came ashore is the restoration period. “Ordinary payroll”
is defined as being “the entire payroll expenses for all employees of the insured
except officers, executives and department managers.”
This paragraph also introduces the concept of “charges and expenses.” As
explained in the policy itself, they are such expenses as would have been
incurred without the loss and have to continue during the business
interruption.5 The “actual loss” consists of the net profit or loss which the
business interruption prevents from being earned, “and of all charges and
expenses (excluding ordinary payroll),” as defined in the policy.
5
Another provision grants coverage for an “expense to reduce loss,” which is one
“necessarily incurred for the purpose of reducing any business interruption loss under this
policy, provided such coverage shall not exceed the amount by which the business interruption
loss covered under this policy is thereby reduced.” Such an expense appears to be one that was
necessitated by the damages. Conversely, the “charges and expenses” are ones that “would
have been incurred had no loss occurred.” Neither party contests now that the approximate
$12 million awarded by the jury were “charges and expenses” as defined in the policy. None
of the expenses therefore would be an “expense to reduce loss.”
6
Case: 09-30178 Document: 00511206956 Page: 7 Date Filed: 08/17/2010
No. 09-30178
A condition of the policy was that Conco resume operations if that would
reduce the loss.
(1) RESUMPTION OF OPERATIONS: It is a condition of this
insurance that if the insured could reduce the loss resulting from
the interruption of business,
(a) by a complete or partial resumption of operations, or
(b) by making use of other available stock, merchandise or location
such reduction will be taken into account in arriving at the amount
of loss hereunder, but only to the extent that the business
interruption loss covered under this policy is thereby reduced.
From all this, we conclude the policy has a fairly clear set of rules.
Recoverable are those profits Conco would have earned during the period that
it instead was shut down due to the hurricane. So are the usual expenses that
Conco still incurred even though not operating. There is no appellate dispute as
to the calculation of those bedrock company expenses. The policy would put a
completely shut-down Conco in the position it would have been if not for Katrina,
by paying the profit it did not make and paying the costs necessary to exist.
Those are the compensable “actual losses.”
Conco’s business, of course, did not stay closed. Within ten days, Conco
had started its return to operations. Over the next 15 months, approximately
$205 million of expenses were incurred and $205 million of income was received,
with a net profit of not very much: $279,006. There was evidence extrapolated
from past experience that Conco would have had a profit of $7,350,126 if not for
Katrina. The actual profits were then subtracted to yield $7,071,120. The
difference between actual and expected profit was recoverable. Conco also
introduced evidence that the costs that fit within the narrow category of “charges
and expenses” under the policy amounted to $12,308,522.
7
Case: 09-30178 Document: 00511206956 Page: 8 Date Filed: 08/17/2010
No. 09-30178
We have reviewed the rules of construction and the policy language. We
now turn to how the provision was interpreted by the district court. The
continuing dispute is whether to offset the approximate $12 million in charges
and expenses with any of the $205 million of income.
In the district court, Conco argued that there could not be any reduction
for charges and expenses recouped during operations. The district court agreed.
The issue was joined at several points in the proceedings. The jury instructions
may be the most direct statement of the district court’s interpretation.6
The relevant instruction started with background considerations, such as
that the policy paid only for actual loss incurred during the period of restoration.
It also informed jurors that the policy was “not designed to put the insured in a
better position than if no loss or interruption of business had occurred.”
The critical language concerned how jurors were to deal with the partial
resumption of operations. The court described four steps jurors were to take.
The first was to decide when the period of restoration ended. That was a
substantial issue at trial but does not remain one on appeal. Thus we do not
explain the first step. We start at the district court’s second step.
The second step is to determine from the evidence the net profit that
Conco would have earned . . . and then you should subtract from
this number any actual net profit Conco earned for that period.
6
Conco argues that Lexington “waived its right to argue on appeal that the jury
instructions were inadequate.” But Lexington’s challenge is to the district court’s
interpretation of the policy, not to a particular manifestation of that interpretation (e.g., the
order denying summary judgment, the order denying Lexington’s motion for judgment as a
matter of law, or the jury instructions). The district court’s challenged interpretation
remained constant throughout trial; regardless of which manifestation Lexington explicitly
challenges in its brief, it attacks the same legal conclusion. As noted, Lexington made the
proper motions to preserve this issue for appeal. Therefore, we need not decide whether its
opening brief sufficiently raised the specific issue of the jury instructions’ adequacy on the
business-interruption interpretation. We do not review the jury instructions themselves, but
we look to them because they illustrate the district court’s interpretation of the policy.
8
Case: 09-30178 Document: 00511206956 Page: 9 Date Filed: 08/17/2010
No. 09-30178
The third step is to determine from the evidence the charges and
expenses (excluding ordinary payroll) incurred by Conco during the
period of restoration, but only to the extent that they must
necessarily have continued during the interruption of Conco’s
business, and only to the extent to which they would have been
incurred had Hurricane Katrina not occurred.
Notably absent from this third step is any reduction in charges and
expenses that resulted from the resumption of operations.
The fourth step requires you to add the two figures derived from
steps two and three and the combined total will constitute your
award to Conco for its business interruption losses under paragraph
7(B) of the Policy.
The district court interpreted the policy as allowing lost profits to be
reduced by the amount of actual profits, but not permitting a reduction in
charges and expenses due to actual recoupment of such costs. The district court
restated the reasoning behind this interpretation in a post-trial order denying
Lexington’s motion for judgment as a matter of law. “The policy does not
address ‘charges and expenses’ in the event of a resumption of operations and
does not clearly state the effect that a resumption of operations has on the
calculation of charges and expenses.” The district court was referring to the
absence of any mention of “charges and expenses” in the resumption-of-operation
section of the policy. We note, though, that the section similarly fails to mention
profits. Instead, it refers to whether “the insured can reduce the loss” by some
level of resumption. The district court then relied on the maxim that “ambiguity
in an insurance policy is construed against the insurer,” and determined that no
reduction in charges and expenses was permitted.
We disagree with the district court’s analysis. To explain, we examine the
first question required by the rules of construction under Louisiana law, which
is whether the relevant language is ambiguous on its face. In re Katrina Canal
Breaches Litig., 495 F.3d at 207.
9
Case: 09-30178 Document: 00511206956 Page: 10 Date Filed: 08/17/2010
No. 09-30178
Some of the relevant wording is in the resumption-of-operations clause.
As a condition of coverage, operations had to be resumed “if the insured could
reduce the loss resulting from the interruption of business” by such a
resumption. The policy states that “such reduction will be taken into account in
arriving at the amount of loss hereunder, but only to the extent that the
business interruption loss covered under this policy is thereby reduced.”
This clause does not elaborate on what the “loss resulting from the
interruption of business” means. Meaning is found in the general section
immediately before the “Resumption of Operations” subparagraph. There,
“actual loss” from an interruption of business is said to consist of the net profit
that the interruption prevented the insured from earning plus “all charges and
expenses (excluding ordinary payroll), but only to the extent that they must
necessarily continue during the interruption of business, and only to the extent
to which they would have been incurred had no loss occurred.” Three
paragraphs later, the policy addresses the effect of the insured’s resuming
operations: “if the insured could reduce the loss resulting from this interruption
of business . . . by a complete or partial resumption of operations . . . such
reduction will be taken into account in arriving at the amount of loss.”
(emphasis added). This is the same “loss” that is defined as being expected net
profit plus charges and expenses. There is no ambiguity.
Therefore, when a partial resumption in operations reduces the “actual
loss,” i.e., anticipatable profits and unavoidable costs, so substantially as to
create some profit, all charges and expenses have, by definition, been covered by
income. The only recovery in such an event is for the diminished profit.
Taking the actual dollar amounts presented in this case, we repeat that
Conco earned $205,840,489 in revenues and incurred $205,561,483 in expenses
for a net profit of $279,006. The charges and expenses for which the policy
would pay had there been no resumption of operations was shown to be
10
Case: 09-30178 Document: 00511206956 Page: 11 Date Filed: 08/17/2010
No. 09-30178
$12,308,522. As the policy requires, those expenses are ones that “necessarily
continue during the interruption of business, and only to the extent to which
they would have been incurred had no loss occurred.” Thus, they are not
independent of the costs that are incurred during usual operations, but are a
subset of them. Consequently, the roughly $12 million in expenses must be part
of the $205 million in expenses that were incurred during resumed operations.
All expenses were recouped from the income of the business and are not a “loss”
to be compensated under the policy.
Because the policy’s language unambiguously provides for this
interpretation, it is not necessary to take the second step of analysis of an
insurance contract. We do anyway because the next step gives us another
reason to conclude that this is the correct interpretation. Had we held “loss” to
be ambiguous in some way relevant to the dispute, any ambiguity would be
considered in the context of the entire policy and its purpose.
The proper reading of a policy term is the one that gives it the meaning
that “best conforms to the object of the contract.” See In re Katrina Canal
Breaches Litig., 495 F.3d at 207 (quoting La. Civ. Code Ann. art. 2048). “The
fundamental principle of a property insurance contract is to indemnify the owner
against loss, that is to place him or her in the same position in which he would
have been if no [hurricane] had occurred.” Bradley v. Allstate Ins. Co., 606 F.3d
215, 227 (5th Cir. 2010) (quoting Berkshire Mut. Ins. Co. v. Moffett, 378 F.2d
1007, 1011 (5th Cir. 1967)). This represents “the reasonable expectations of the
parties in light of the customs and usages of the industry,” In re Katrina Canal
Breaches Litig., 495 F.3d at 207, and the policy should be construed in
accordance with them.
The district court’s calculation method required jurors to give Conco a
windfall. If the charges and expenses had already been paid by the revenue of
the business, requiring the policy also to pay them is not placing Conco in the
11
Case: 09-30178 Document: 00511206956 Page: 12 Date Filed: 08/17/2010
No. 09-30178
same position it would have been had no damage been suffered. In other words,
the only “reasonable” reading of the policy in the light of the goal of making
Conco whole is that the policy requires reduction of “actual loss” by income
earned during the partial resumption of operations. Just as Conco would have
paid the charges and expenses out of its revenue if Katrina had never struck, the
policy provides for Conco to pay them, to the extent it could do so, out of the
revenue from partially resumed operations. Only if revenue did not offset the
charges and expenses would the insurance policy be called upon for payment.
We acknowledge that the district court informed jurors that this “policy is
designed to place the insured in the position that it would have been in if there
had been no interruption,” but the court did not allow jurors to make the
reduction for charges and expenses necessary to do that. Conco was placed in
a better position than if there had been no interruption.
Because Conco was able to pay all of its charges and expenses with
revenue during the restoration period, we vacate the award of $12,308,522 in
charges and expenses. No part of that amount can be recovered in this case.
B. Sufficiency of Conco’s proof of damages
Lexington next claims Conco’s proof was insufficient to support the lost-
profits portion of its business-interruption damages. Specifically, Lexington
maintains that some of Conco’s lost profits were caused by the generally poor
post-Katrina business conditions. Lexington claims those losses are not covered,
and that they must be distinguished from lost profits caused by damage to
Conco’s property. According to Lexington, Conco’s failure to offer evidence
sufficiently distinguishing these two types of damages should result in reversal
of the lost-profits damages.
Although Lexington styles this challenge as going to the evidence’s
sufficiency, its arguments rest entirely on its interpretation of the insurance
policy. In that regard, we review de novo the policy interpretation underlying
12
Case: 09-30178 Document: 00511206956 Page: 13 Date Filed: 08/17/2010
No. 09-30178
Lexington’s contention. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 428
(5th Cir. 2004). If Lexington’s interpretation is incorrect, its sufficiency
contention has a false premise, and our inquiry ends. Otherwise, we proceed to
consider the sufficiency of the evidence.
The policy’s language relevant to the kind of evidence needed to prove the
amount of business-interruption loss states,
(3) EXPERIENCE OF BUSINESS: In determining the amount of
net profit (or loss), charges and expenses covered hereunder for the
purpose of ascertaining the amount of loss sustained, due
consideration shall be given to the experience of the insured’s
business before the date of damage or destruction and to the
probable experience thereafter had no loss occurred.
The district court informed the jury that the amount of this loss “need not
be proved with mathematical precision. Broad latitude is given in proving this
loss. Nevertheless, losses for business interruption cannot be based on
conjecture or speculation.”
We recently interpreted similar policy language under Mississippi law.
Catlin Syndicate Ltd. v. Imperial Palace of Miss., 600 F.3d 511 (5th Cir. 2010).
A casino’s insurance policy contained an “Experience of Business” provision
stating that “due consideration shall be given to experience of the business
before the loss and the probable experience thereafter had no loss occurred.” Id.
at 513 (emphasis added).
Under that policy, the insurer (Catlin) brought a declaratory judgment
action against the insured casino (Imperial Palace) to resolve their dispute over
the amount of Imperial Palace’s post-Katrina business-interruption loss. Id. at
512. The dispute centered on whether the policy allowed consideration of
Imperial Palace’s post-reopening revenues to determine the profits Imperial
Palace lost during the interruption. These were much greater than the casino’s
pre-Katrina revenues because it was one of the first casinos to reopen, thereby
13
Case: 09-30178 Document: 00511206956 Page: 14 Date Filed: 08/17/2010
No. 09-30178
providing one of only a few choices for gamblers. Id. Catlin argued that only
historical sales figures should be considered to determine business-interruption
loss; Imperial Palace asserted that the policy allowed consideration of post-
reopening revenues. Id.
To the district court, “Catlin argued that under the business-interruption
provision, Imperial Palace’s recovery should be based on net profits Imperial
Palace would probably have earned if Hurricane Katrina had not struck the
Mississippi Gulf Coast and damaged its facilities.” Id. at 513. On the other
hand, “Imperial Palace argued that the correct hypothetical was not one in
which Hurricane Katrina did not strike at all; it was one in which Hurricane
Katrina struck but did not damage Imperial Palace’s facilities.” Id. The District
Court granted summary judgment for Catlin.
We affirmed. We rejected Imperial Palace’s argument that “Catlin’s
interpretation of the business-interruption provision [improperly] conflates the
term ‘loss’ with the idea of an ‘occurrence,’” explaining that
Hurricane Katrina was the “occurrence”, which inflicted “losses” on
many victims, one of which was Imperial Palace. Imperial Palace
asserts that Catlin asks us to interpret the business-interruption
provision in such a way that the phrase “had no loss occurred”
morphs into “had no occurrence occurred.” Imperial Palace argues
that instead, we should disentangle the loss from the occurrence and
determine loss based on a hypothetical in which Hurricane Katrina
hit Mississippi, damaged all of Imperial Palace’s competitors, but
left Imperial Palace intact: the occurrence occurred, but the loss did
not. While we agree with Imperial Palace that the loss is distinct
from the occurrence—at least in theory—we also believe that the
two are inextricably intertwined under the language of the
business-interruption provision. Without language in the policy
instructing us to do so, we decline to interpret the
business-interruption provision in such a way that the loss caused
by Hurricane Katrina can be distinguished from the occurrence of
Hurricane Katrina itself.
14
Case: 09-30178 Document: 00511206956 Page: 15 Date Filed: 08/17/2010
No. 09-30178
Id. at 515. In sum, we held that the lost-profit calculation does not involve the
company’s business experience after the hurricane. We supported this
conclusion with a case from Texas involving a similar insurance policy. See
Finger Furniture Co. v. Commonwealth Ins. Co., 404 F.3d 312, 314 (5th Cir.
2005) (“The contract language does not suggest that the insurer can look
prospectively to what occurred after the loss to determine whether its insured
incurred a business-interruption loss.”).
Catlin and Finger Furniture do not directly control because this action
arose under Louisiana law. There are not, however, any material differences
among the states’ relevant contract-interpretation laws. Compare La. Civ. Code.
Ann. art. 2047 (“The words of a contract must be given their generally prevailing
meaning.”) with Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)
(“When there is no ambiguity [in an insurance contract], it is the court’s duty to
give the words used their plain meaning.”) and U.S. Fidelity and Guar. Co. of
Miss. v. Martin, 998 So. 2d 956, 963 (Miss. 2008) (“[I]f [an insurance policy] is
clear and unambiguous, then it must be interpreted as written.”). We conclude
that Louisiana courts would interpret this policy language in the same way as
Mississippi and Texas courts. We follow the clear guidance our court has
provided in Catlin.
With this background, we consider Lexington’s contention that Conco did
not sufficiently prove its damages because it failed to “examine . . . Conco’s likely
performance after Hurricane Katrina if [Conco’s] property had not been
damaged.” The premise is that because economic conditions affecting Conco’s
customers post-Katrina were poor, Conco’s profits would have been reduced from
their usual level even had there been no damage to Conco. This is effectively the
same interpretation rejected in Catlin, namely, that the policy requires Conco
to calculate damages as if Hurricane Katrina “struck but did not damage
[Conco’s] facilities,” not as if “Hurricane Katrina did not strike at all.” See
15
Case: 09-30178 Document: 00511206956 Page: 16 Date Filed: 08/17/2010
No. 09-30178
Catlin, 600 F.3d at 513. We reject this interpretation for the same reasons we
rejected it in Catlin. See 600 F.3d at 515. The jury was not to look at the real-
world opportunities for profit post-Katrina, but instead was to decide the amount
of money required to place Conco “in the same position in which [it] would have
been had [Katrina not] occurred.’” Bradley, 606 F.3d at 227.
Conco was not required to draw a bright line in its evidence between loss
stemming from property damage and loss stemming from market conditions.
Lexington’s entire insufficiency contention rests on this incorrect interpretation.
Therefore, our review of this issue ends here.
C. Statutory Damages and Penalties
Lexington raises several challenges to the district court’s imposition of
$2.5 million in statutory damages and $5,365,797.50 in statutory penalties. See
La Rev. Stat. § 22:1220 (damages), § 22:658 (penalties).7
Lexington contends that the district court erred in allowing both of these
statutory awards to be made. Whether the two are mutually exclusive is the
essential issue.
Section 22:1220 states, in relevant part:
(A) An insurer . . . owes to his insured a duty of good faith and fair
dealing. The insurer has an affirmative duty to adjust claims fairly
and promptly and to make a reasonable effort to settle claims with
the insured or the claimant, or both. Any insurer who breaches
these duties shall be liable for any damages sustained as a result of
the breach . . . .
(B) Any one of the following acts, if knowingly committed or
performed by an insurer, constitutes a breach of the insurer’s duties
imposed in Subsection A:
. . . (5) Failing to pay the amount of any claim due any person
insured by the contract within sixty days after receipt of satisfactory
7
As noted supra, La. Rev. Stat. §§ 22:1220 and 22:658 have been recodified at La. Rev.
Stat. §§ 22:1973 and 22:1892, respectively.
16
Case: 09-30178 Document: 00511206956 Page: 17 Date Filed: 08/17/2010
No. 09-30178
proof of loss from the claimant when such failure is arbitrary,
capricious, or without probable cause.
(C) In addition to any general or special damages to which a
claimant is entitled for breach of the imposed duty, the claimant
may be awarded penalties assessed against the insurer in an
amount not to exceed two times the damages sustained or five
thousand dollars, whichever is greater. Such penalties, if awarded,
shall not be used by the insurer in computing either past or
prospective loss experience for the purpose of setting rates or
making rate filings.
(emphasis added),
Section 22:658 says this:
A. (1) All insurers issuing any type of contract . . . shall pay the
amount of any claim due any insured within thirty days after
receipt of satisfactory proofs of loss from the insured or any party in
interest . . . .
B. (1) Failure to make such payment within thirty days after receipt
of such satisfactory written proofs and demand therefor or failure to
make a written offer to settle any property damage claim . . . within
thirty days after receipt of satisfactory proofs of loss of that claim .
. . or failure to make such payment within thirty days after written
agreement or settlement . . . when such failure is found to be
arbitrary, capricious, or without probable cause, shall subject the
insurer to a penalty, in addition to the amount of the loss, of
[twenty-five] percent damages on the amount found to be due from
the insurer to the insured, or one thousand dollars, whichever is
greater . . . .
(emphasis added).8
Lexington argues that the Supreme Court of Louisiana has already
decided that awards under both sections cannot be made. See Calogero v.
Safeway Ins. Co. of La., 753 So. 2d 170 (La. 2000). There, the court held that a
plaintiff may not recover penalties both under Section 22:1220 and under Section
8
A recodified and revised version of this statute increases the amount of the penalty
from twenty-five percent of damages to fifty percent of damages. See La. Rev. Stat. § 22:1892.
17
Case: 09-30178 Document: 00511206956 Page: 18 Date Filed: 08/17/2010
No. 09-30178
22:658. Id. at 174. The court did, however, allow Calogero to recover attorney
fees under Section 22:658 in addition to penalties under Section 22:1220. Id.
The court explained that, unlike the permissive language in Section 22:1220(C),
the language in Section 22:658(B)(1) requires the payment of attorney fees. Id.
Therefore, because Section 22:1220 did not also provide for the recovery of
attorney fees, Calogero’s recovery of statutory damages under Section 22:1220
did not preclude its recovering attorney fees under Section 22:658. Id.
Conco was awarded $2,500,000 statutory damages under Section
22:1220(A) in addition to $5,365,797.50 in penalties under Section 22:658(B)(1).
Like the attorney-fee language in Section 22:658(B)(1), which was at issue in
Calogero, the language in Section 22:1220(A) is mandatory: “Any insurer who
breaches these duties shall be liable for any damages sustained as a result of the
breach.” La. Rev. Stat. § 22:1220(A) (emphasis added). Further, Section 22:658
does not provide for a similar recovery of statutory damages based on the
insurer’s breach. Therefore Calogero’s reasoning supports the award of both the
damages and the penalties.
Moreover, it is consistent with the statutory scheme to award damages
under Section 22:1220(A) and at the same time assess penalties under
Section 22:658(B)(1). Damages are awarded to compensate the insured for losses
caused by the insurer’s refusal to pay. Penalties, on the other hand, are assessed
to punish the insurer for its bad faith. The fact that both require the same
finding of bad faith does not render this distinction irrelevant, nor does it render
redundant awarding statutory damages along with assessing statutory
penalties. In sum, statutory damages under Section 22:1220(A) may be awarded
concurrent with statutory penalties under Section 22:658(B)(1).
As is clear from the language we have quoted from each statute, these
damages and penalties require jurors to decide whether an insurance company
has been arbitrary, capricious, or has otherwise acted in bad faith. Very much
18
Case: 09-30178 Document: 00511206956 Page: 19 Date Filed: 08/17/2010
No. 09-30178
part of the evidence and the law announced by the district court was that
Lexington has improperly refused to pay the approximate $12 million in charges
and expenses. That amount is a large percentage of the overall award by the
jury. It was an amount jurors had to find was owed and was not paid by the
insurance company.
Also not paid was what the jury accepted was about $7 million in lost
profits. We have no way of knowing whether jurors might have viewed the
denial of the validity of the figure on lost profits to be less egregious conduct,
even good faith conduct, than the denial of the charges and expenses.
Inasmuch as we have disagreed with the district court as to the charges
and expenses, we also conclude that the two statutory awards based on
arbitrariness or bad faith must be reversed and reconsidered on remand in light
of the remaining sums that Lexington failed properly to pay.
D. Conco’s cross-appeal concerning remittitur of $3 million 9
Conco asserts the district court erred by entering a remittitur to correct
the jury’s failure to deduct the $3 million advance Lexington initially paid to
Conco. “The decision to grant or deny a motion for new trial or remittitur rests
in the sound discretion of the trial judge; that exercise of discretion can be set
aside only upon a clear showing of abuse.” Eiland v. Westinghouse Elec. Corp.,
58 F.3d 176, 183 (5th Cir. 1995).
“When a damage award is merely excessive or so large as to appear
contrary to right reason, remittitur is the appropriate remedy.” Laxton v. Gap
Inc., 333 F.3d 572, 586 (5th Cir. 2003). When the district court deems a jury
award “excessive” it may remit the award rather than order a new trial, so long
9
Conco also asserts on cross-appeal that the district court should have applied a more
recent, amended version of La. Rev. Stat. § 22:658 based on the date Conco provided Lexington
with proof of loss (Conco would receive a greater penalty under the amended statute). We do
not reach this issue because our holding on business-interruption loss necessitates a remand
for determination of the statutory damages and penalties.
19
Case: 09-30178 Document: 00511206956 Page: 20 Date Filed: 08/17/2010
No. 09-30178
as the award does not result from “passion or prejudice” on the part of the jury.
Polanco v. City of Austin, Tex., 78 F.3d 968, 981 (5th Cir. 1996). Although the
Seventh Amendment prohibits remittitur without offering the plaintiffs a new
trial, there is an exception for situations where “it is apparent as a matter of law
that certain identifiable sums included in the verdict should not have been
there.” Foradori v. Harris, 523 F.3d 477, 503 (5th Cir. 2008).
As the district court explained in its post-trial order, the jury’s award of
$24,669,787 (including $19,586,239 in business-interruption loss) is exactly the
same as the “entire amount of Conco’s claim of $24,970,551, less $300,764 for
repairs attributable to rusted metal decking on the roof, and does not consider
the advance.” Accordingly, the district court found that “the jury’s failure to
subtract $3,000,000 from the award [was] obvious and an oversight, and the
correction of the error is mechanical.”
Conco contends that because it presented the jury with two business-
interruption figures ($19,379,642 and $24,174,527), “it is plausible (if not likely)”
that the jury’s finding that the business-interruption loss fell between those two
figures represents a compromise among jurors who properly subtracted the $3
million advance. In effect, Conco’s argument rests on its presumption that the
jury did as it was instructed and subtracted the $3 million, despite the jury’s
awarding the precise amount it would have awarded had it accepted Conco’s
calculation but failed to subtract the $3 million.
A review of the jury’s award reveals the district court was correct. First,
jurors awarded $617,178 for inventory: Conco’s requested $823,775, less
$124,475 for mark-ups and $82,122 for discounts. Second, jurors awarded
$1,578,682 for losses for physical damage to Conco’s warehouse: the $1,879,446
Conco requested, less $300,764 for metal decking that was previously rusted.
Third, it awarded Conco’s entire requested $2,887,688 in losses for extra
expenses. Finally, jurors awarded $19,586,239 for business-interruption loss,
20
Case: 09-30178 Document: 00511206956 Page: 21 Date Filed: 08/17/2010
No. 09-30178
representing the entire amount Conco requested ($19,379,642), plus the mark-up
and discounts that were subtracted from the inventory award.
These figures show that the jury’s $24,669,787 award is, exactly, the entire
amount Conco requested, except for the $300,764 for the rusted metal decking.
Contrary to Conco’s contention that this represents a compromise by jurors, “it
is apparent from the exact figures used that the jury failed to take into account
[the already paid $3 million].” See Shingleton v. Armor Velvet Corp., 621 F.2d
180, 182 (5th Cir. 1980). This is the type of error where the “oversight is patent
and the correction mechanical.” Id.; see also Smith v. Lightning Bolt Prods., Inc.,
861 F.2d 363, 371 (2d Cir. 1988) (ordering a remittitur because “there was an
error in the jury’s calculation of compensatory damages” that was “easily
identifiable”). Therefore the district court did not abuse its discretion in
granting Lexington’s motion to enter a remittitur adjusting the verdict
downward by $3 million.
CONCLUSION
We AFFIRM Conco’s damage award except for the $12,308,522 for charges
and expenses, which we VACATE and REMAND for entry of judgment denying
that recovery. For the statutory damages and statutory penalties, we REVERSE
and REMAND for further proceedings consistent with this opinion. We AFFIRM
the judgment in all other respects, including the district court’s remittitur of $3
million of damages.
21