IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________________
No. 02-50087
__________________________
TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA,
Plaintiff-Counter Defendant-Appellant,
versus
BAPTIST HEALTH SYSTEM,
Defendant-Counter Claimant-Appellee.
__________________________________________________
BAPTIST HEALTH SYSTEM,
Plaintiff-Appellee,
versus
TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA,
Defendant-Appellant.
__________________________________________
Appeal from the United States District Court
for the Western District of Texas
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December 5, 2002
Before EMILIO M. GARZA and CLEMENT, Circuit Judges, and DAVIS,
District Judge.*
EDITH BROWN CLEMENT, Circuit Judge:
Baptist Health System (“BHS”) alleges losses of $876,545.37
*
Judge Leonard E. Davis, U.S. District Judge for the Eastern
District of Texas, sitting by designation.
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due to fraudulent invoices submitted by vendor Marshall R. Shepherd
d/b/a Medical Resource Assistance (“Shepherd”). Travelers Casualty
& Surety Company of America (“Travelers”) denied coverage and filed
for declaratory judgment. BHS counterclaimed and moved for partial
summary judgment on its breach of contract claim. Travelers made
a counter motion for summary judgment. Finding the relevant
language in the insurance contract ambiguous, the district court
granted BHS’s motion for partial summary judgment. For the reasons
stated below, we find the contract language unambiguous and its
reasonable interpretation in Travelers’ favor. The judgment of the
district court is reversed and judgment is rendered for Travelers.
I. Facts
Shepherd learned and took advantage of BHS’s internal
procedures for paying supplier invoices. During the time Shepherd
acted fraudulently against BHS, namely between January 1997 and
April 1999, Shepherd was supposed to submit invoices to BHS’s
financial services department. One or two BHS managers in that
department would approve payment on received invoices, sign their
initials on the documents (often with words such as “o.k. to pay”),
and send the invoices to the accounts payable department. Upon
receipt of a signed invoice, the accounts payable department paid
the supplier. According to BHS, a signed invoice was an
instruction to the employees in the accounts payable department to
pay the invoice. The accounts payable department did not have
discretion to refuse payment on an invoice signed by the financial
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services department.
Shepherd defrauded BHS by creating invoices for work never
performed, forging the signatures of BHS managers on the invoices,
and, instead of submitting the invoices to BHS’s financial services
department, hand delivering them directly to accounts payable.
Believing the signatures were genuine, BHS’s accounts payable
department sent Shepherd checks in the amounts indicated in the
invoices, which allegedly totaled $876,545.37.
BHS had a Crime policy with Aetna Casualty & Surety Company
(“Aetna”) for the period of August 31, 1996, to August 31, 1998,
and a Crime PLUS+ policy with Travelers for the period of August
31, 1998, to August 31, 1999. The Aetna coverage was cancelled
upon issuance of the Travelers policy. Prior to the inception of
BHS’s claim, Travelers acquired Aetna’s business and succeeded to
the rights and obligations under the Aetna policy.
Upon discovering Shepherd’s fraud, on May 6, 1999, BHS filed
a Proof of Loss to Travelers for coverage under the Travelers and
Aetna policies. Asserting that the fraudulent invoices were not
(1) “covered instruments” (2) “drawn upon” BHS as required by the
insurance contract, Travelers denied coverage under both policies.
Travelers filed for declaratory judgment in federal court, asking
that the court find that Travelers had no duty to indemnify BHS on
the relevant Proof of Loss. BHS counterclaimed for breach of
contract as well as violations of the Texas Insurance Code and
Texas Deceptive Trade Practices Act and sued Travelers in state
3
court making the same claims. The state case was removed to
federal court and consolidated with the declaratory action.
BHS moved for summary judgment on the breach of contract claim
and Travelers filed a cross motion for summary judgment. The cross
motions for summary judgment covered the same basic issue and
material facts were not disputed. BHS alleged that coverage
existed under the policy’s plain meaning or, alternatively, that
the policy was ambiguous and thus should be strictly construed in
favor of BHS. See State Farm Fire & Cas. Co. v. Reed, 873 S.W.2d
698, 699 (Tex. 1993) (“[I]f a contract of insurance is susceptible
to more than one reasonable interpretation, we must resolve the
uncertainty by adopting the construction most favorable to the
insured.” (internal footnote and citation omitted)). Travelers
maintained that the policy was unambiguous and that its plain
meaning did not allow coverage. Finding the relevant contract
language ambiguous, the district court granted BHS’s motion for
partial summary judgment and denied Travelers’ motion for summary
judgment. BHS dismissed the extra-contractual claims and filed a
motion for statutory interest under the Texas Insurance Code and
for attorney’s fees and costs. The district court awarded
statutory interest, pre-judgment interest, post-judgment interest,
and attorney’s fees and entered a final judgment disposing of all
claims. Although Travelers properly appealed the grant of BHS’s
motion for partial summary judgment, it did not appeal the denial
of its motion; nonetheless, because both parties’ motions covered
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the same issues, we have jurisdiction to review the grant and the
denial. See Ranger Ins. Co. v. Estate of Mijne, 991 F.2d 240, 241
(5th Cir. 1993).
II. Analysis
We review summary judgment rulings de novo, Potomac Ins. Co.
v. Jayhawk Med. Acceptance Corp., 198 F.3d 548, 550 (5th Cir.
2000), and apply the same standard as the district court. Wyatt v.
Hunt Plywood Co., Inc., 297 F.3d 405, 408 (5th Cir. 2002). Summary
judgment is appropriate when there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of
law. FED. R. CIV. P. 56(c). We view all evidence and factual
inferences in the light most favorable to the party opposing the
motion. Price v. Federal Exp. Corp., 283 F.3d 715, 719 (5th Cir.
2002). We review de novo the district court’s determination of
state law, Salve Regina College v. Russell, 499 U.S. 225, 239
(1991), as well as its interpretation of the insurance contract.
Potomac Ins. Co., 198 F.3d at 550.
Because Shepherd’s fraudulent activity occurred during the
coverage periods of both the Travelers and Aetna policies, we must
consider both. Since the slight differences in the contract
language at issue in each policy are irrelevant, we focus on the
Travelers policy. Any conclusion we make regarding that policy
also applies to the Aetna policy.
The relevant portion of the Travelers policy states:
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II. Forgery or Alteration
We will pay for loss resulting directly from “Forgery”
or alteration of, on or in “Covered Instruments” that
are:
1. Made or drawn by or drawn upon you; or
2. Made or drawn by one acting as your agent;
or that are purported to have been so made or drawn
. . . .
“Covered Instruments” means checks, drafts, promissory
notes or similar written promises, orders or directions
to pay a sum certain in “Money.”
“Forgery” means the signing of the name of another
person or organization with intent to deceive, it does
not mean a signature which consists in whole or in part
of one’s own name signed with or without authority, in
any capacity for any purpose.
The Aetna policy reads:
A. Coverage
We will pay for loss involving Covered Instruments
resulting directly from the Covered Causes of Loss.
1. Covered Instruments: Checks, drafts, promissory
notes, or similar written promises, orders or
directions to pay a sum certain in “money” that are:
a. Made or drawn by or drawn upon you;
b. Made or drawn by one acting as your agent; or that
are purported to have been so made or drawn.
2. Covered Causes of Loss: Forgery or alteration of, on
or in any “Covered Instrument.”
The district court ruled that in light of the surrounding
circumstances the terms “covered instruments” and “drawn upon” were
ambiguous. The district court rejected Travelers’ assertion that
the definition of “covered instruments” included only negotiable
instruments because the contract did not expressly use the term
negotiable. Since the forged invoices clearly were not “made or
drawn by or drawn upon” BHS or its agents nor “purported to have
been so made or drawn,” we do not have to consider whether the
definition of “covered instruments” must expressly use the term
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negotiable to exclude non-negotiable instruments.
The district court found the phrase “drawn upon you” ambiguous
and read it to include the forged invoices. The court relied upon
Omnisource Corp. v. CNA/Transcon. Ins. Co., 949 F. Supp. 681 (N.D.
Ind. 1996), to find “that a reasonable interpretation of the phrase
[“drawn upon you”] is to trace the payment on the forged
instruments to the ultimate source of liability for any money paid
in reliance on the forged instruments.” To reach such a
conclusion, the district court adopted Omnisource’s use of the
dictionary definition of “drawn” rather than the more limited legal
and commercial usage of the term. See id. at 689 (“[T]he phrase
‘draw upon’ is susceptible to at least two interpretations. ‘Draw’
is defined as, inter alia, ‘[t]he act of a drawer in creating a
draft. To draw a bill of exchange, check, or draft, is to write
(or cause it to be written) and sign it; to make, as a note.’
Black’s Law Dictionary (6th ed. 1996). The term also, however,
means the following: ‘[t]o withdraw money; i.e., to take out money
from a bank, treasury, or other depository in the exercise of a
lawful right and in a lawful manner,’ id.; ‘[t]o use or call upon
part of a fund or store. Used with “on” or “upon,”’ American
Heritage Dictionary of the English Language 397 (Family ed.
1979).”).
Since the district court ruling, we have rejected Omnisource’s
expansive reading of the term “drawn” as used in insurance contract
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clauses nearly identical to the one in the Travelers and Aetna
policies. See Parkans Int’l LLC v. Zurich Ins. Co., 299 F.3d 514,
517 (5th Cir. 2002). Like the policy in Parkans International, the
Travelers policy “uses the term ‘drawn’ in the context of the
specific listed instruments and ‘similar . . . promises, orders or
directions to pay.’ In the commercial paper context the phrases
‘drawn by’ and ‘drawn upon’ are not ambiguous and have a definite
legal meaning. A contract term that can be given a definite or
certain legal meaning is not ambiguous. We will not therefore
interpose multiple dictionary usages.” Id. (internal citation
omitted).
The forged invoices were not made, drawn by, or drawn upon BHS
as those terms are used in the commercial paper context or under
the Uniform Commercial Code. The addition of forged signatures to
the invoices did not create instruments on which a party could
demand payment from a bank. In the commercial context, BHS is not
a “maker” or “drawer” of the forged invoices.1
It is true that BHS’s bank took funds from BHS’s account to
pay the checks written to Shepherd in amounts indicated in the
1
Definitions that fall in line with common commercial use include:
A “maker” is “a person who signs or is identified in a note as a
person undertaking to pay.” TEX. BUS. & COMM. CODE § 3.103(a)(5)
(Vernon Supp. 2002). A “drawer” is “a person who signs or is
identified in a draft as a person ordering payment.” TEX. BUS. &
COMM. CODE § 3.103(a)(3). A “drawer” is “one who directs a person
or entity, usually a bank, to pay a sum of money stated in an
instrument–for example, a person who writes a check; the maker of
a note or draft.” Black’s Law Dictionary 510 (7th Ed. 1999).
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forged invoices. However, the checks were not forged and do not
fall within the contract provision. We could only conclude that
the checks fall within the provision or that the invoices were
drawn upon BHS if we determined that the checks and forged invoices
should be treated as one instrument instead of as separate
instruments. Courts have occasionally bundled documents in
situations in which the bank demanded all involved documentation to
extend credit or honor a draft. See, e.g., Omnisource, 949 F.
Supp. at 686-688; Community State Bank of Galva v. Hartford Ins.
Co., 542 N.E.2d 1317, 1320 (Ill. App. Ct. 1989) (viewing as a
single instrument all of the documents on which a bank relied in
extending credit). Even if we were to recognize the legitimacy of
bundling in such contexts, we would distinguish the invoices forged
by Shepherd. To pay the checks drawn upon BHS, the bank did not
have to receive the invoices; the bank demanded no supporting
documents to honor the checks. We decline to treat the checks and
forged invoices as one instrument. The invoices were only
prerequisites insofar as internal BHS procedure made them such.
They were not required by law or the bank.
III. Conclusion
The judgment of the district court is reversed and judgment is
rendered for Travelers denying all relief to BHS.
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