United States Court of Appeals
Fifth Circuit
F I L E D
Revised March 16, 2004
March 12, 2004
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No.03-30286
NEW ORLEANS ASSETS, L.L.C.,
Plaintiff-Appellant,
v.
CARL E. WOODWARD, ET AL.,
Defendants,
LOUISIANA INSURANCE GUARANTY ASSOCIATION,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
New Orleans Assets, L.L.C., (“NOA”) sued the Louisiana
Insurance Guaranty Association (“LIGA”), the successor to NOA’s
original property insurer, for benefits due under a property
insurance policy. The district court granted summary judgment for
LIGA. We reverse and remand.
I.
NOA owns a building that houses the regional headquarters for
the Federal Bureau of Investigation. After the building was
completed, NOA learned that extensive growth of mildew and mold on
the exterior walls would necessitate nine million dollars in
repairs. NOA alleged that the mold and mildew problems resulted
from faulty design and construction and sued various parties
involved in the design and construction of the building.
NOA also sued LIGA, a state-created association designed to
assist insured parties when an insurance company becomes insolvent.
See La. Rev. Stat. Ann. § 22.1376 (West 1995). NOA had purchased
property insurance through Reliance Insurance Company, but Reliance
later became insolvent. Therefore, LIGA was “deemed the insurer”
and had “all rights, duties, and obligations of the insolvent
insurer.” La. Rev. Stat. Ann. § 22:1382(A)(2) (West Supp. 2004).
In effect, when Reliance went bankrupt, LIGA stepped into the shoes
of Reliance and became NOA’s property insurer. See id. However,
because Louisiana statute limits LIGA’s exposure to $149,900 per
claim,1 see id. § 22:1382(A)(1)(a)(iii), NOA can recover, at most,
$149,900 per claim from LIGA.
NOA later settled with several defendants, but the settlement
did not cover all of NOA’s loss. The parties do not agree on
precisely how much of NOA’s loss remains unrecovered, but they do
agree that both the settlement and the remaining unpaid loss far
exceed $149,900.
Upon learning of the settlement, LIGA filed for summary
1
LIGA’s maximum exposure is $150,000 per claim minus a $100 deductible. La.
Rev. Stat. Ann. § 22:1382(A)(1)(a)(iii) (West Supp. 2004).
2
judgment. LIGA relied on the terms of the contract between NOA and
Reliance, which now--apart from the statutory cap on liability--
governs the relationship between NOA and LIGA. According to LIGA,
this contract requires NOA to reimburse its insurer for any payment
received in settlement even if NOA has not yet recovered its full
loss. For instance, if LIGA had paid one dollar to NOA, NOA would
have to reimburse LIGA upon receiving the first dollar in
settlement. Because LIGA’s liability is capped at $149,900, and
because NOA has already received more than that amount, NOA would
have to reimburse LIGA immediately for any benefit paid.
Therefore, LIGA argued, it owes NOA nothing.
The district court agreed and granted summary judgment in
favor of LIGA.2 NOA now appeals.
II.
We review de novo a district court’s grant of summary
judgment. St. David’s Health Care Sys. v. United States, 349 F.3d
232, 234 (5th Cir. 2003). A court should grant summary judgment
only if the case presents no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law.
Fed. R. Civ. P. 56(c).
In this case, an insured party (NOA) is entitled to receive
benefits from an insurer (LIGA) and to recover damages from third
2
Although multiple parties and multiple claims for relief are involved in
NOA’s suit, the district court certified the summary judgment in favor of LIGA
as final and appealable under Federal Rule of Civil Procedure 54(b).
3
party tortfeasors. Insurance contracts typically provide for this
contingency in at least two ways: subrogation and reimbursement.
With subrogation, an insurer acquires the right to assert the
actions and rights of the insured against the liable tortfeasor.
Barreca v. Cobb, 668 So. 2d 1129, 1131 (La. 1996). With
reimbursement, the insurer has only a right of repayment against
the insured. Id.
When, as in this case, an insured party recovers only part of
its loss from a tortfeasor, two different rules might establish the
priority between an insurer and the insured to the recovery: “(1)
Plan Priority, under which priority is given to the plan for full
recovery ‘off the top,’ [or] (2) Make Whole, under which priority
is given to the beneficiary to keep everything he recovers from
third parties until he is made entirely whole.” 102 F.3d at 1373-
74 (emphasis in original). Sunbeam-Oster Co. Group Benefits Plan
for Salaried and Non-Bargaining Hourly Employees v. Whitehurst, 102
F.3d 1368, 1374 (5th Cir. 1996).3
These two sets of distinctions are connected in that, under
Louisiana’s doctrine of partial subrogation, a subrogation
agreement invariably requires application of the make whole
principle. The doctrine of partial subrogation requires that “[a]n
original obligee who has been paid only in part may exercise his
3
Sunbeam also recognized a third rule: “(1) Pro Rata, under which the plan
and the beneficiary share ratably in the beneficiary’s recovery from third
parties.” Id. at 1374. Neither party argues for application of this rule.
4
right for the balance of the debt in preference to the new
obligee.” La. Civ. Code Ann. art. 1826(B) (West Supp. 2004). In
such a case, the insured party “is always preferred,” and an
insurer can claim only that portion of the recovery which remains
after the insured has been fully compensated. Fair Grounds Corp.
v. ADT Sec. Sys., 719 So. 2d 1110, 1119 (La. Ct. App. 1998)
(emphasis added); see also S. Farm Bureau Cas. Ins. Co. v. Sonnier,
406 So. 2d 178, 180 (La. 1981) (noting the long pedigree of this
doctrine).4
LIGA seeks to avoid the application of the make whole
principle. LIGA points to a sentence in the insurance contract
4
The district court did not account for the doctrine of partial subrogation
embodied in article 1826(B), but instead relied on Sunbeam and Smith v. Manville
Forest Prods. Corp., 521 So. 2d 772, 776 (La. Ct. App. 1988), for the proposition
that make whole applies only when a contract’s plain language is silent or
ambiguous.
The interpretive rules applied in Sunbeam are inapposite. Sunbeam applied
federal law to interpret a plan governed by ERISA and carefully noted that a
different result would obtain if state law governed. We “emphasize[d] that the
Plan’s reimbursement and subrogation provisions must be read in the statutory
context of ERISA and, more particularly, in the precise textual context in which
they appeared.” Id. We also pointed out that ERISA plans and ordinary
commercial insurance policies are “far from analogous” and specifically noted
that “[w]ere [Sunbeam] a diversity case involving reimbursement or subrogation
in the context of . . . individual or group insurance plans that are not ERISA
plans, we would, of course, be Erie-bound to apply Louisiana’s partial
subrogation doctrine, which embodies the Make Whole Principle.” Id. For the
same reason, the ERISA cases cited by LIGA, Roberts v. Richard, 743 So. 2d 731
(La. Ct. App. 1999) and National Employee Benefit Trust of the Associated General
Contractors of America v. Sullivan, 940 F. Supp. 956 (W.D. La. 1996), are
inapposite.
We also disagree with the district court that Smith creates a judicially-
created exception to the clear and mandatory language of Article 1826(B). The
district court quoted Smith as holding that partial subrogation applies only
“absent express contract terms to the contrary.” 521 So. 2d at 776. This
language was not part of the Smith court’s analysis of partial subrogation, but
actually composes one small section of a longer block quotation from Westendorf
v. Stasson, 330 N.W.2d 399 (Minn. 1983), that the Smith court cited for a wholly
different proposition. Furthermore, because Smith did not consider whether
partial subrogation rights could be waived, these statements are dicta.
5
that provides: “If you [the insured] waive your rights against
another party in writing after loss or damage, we [the insurer] can
recover from you any amount you received for that waiver.”5 LIGA
characterizes this sentence as a reimbursement clause. Therefore,
LIGA argues, the rules of partial subrogation that would be
applicable to a subrogation clause are not applicable here.
5
The entire clause states:
B. The TRANSFER OF RIGHTS OF RECOVERY AGAINST OTHERS TO
US . . . :
If any person or organization to or for whom we make
payment under this Coverage Part has rights to recover
damages from another, those rights are transferred to us
to the extent of our payment. That person or
organization must do everything necessary to secure our
rights and must do nothing after loss to impair them.
But you may waive your rights against another party in
writing:
1. prior to loss or damage to your covered
property or, if business income coverage applies,
loss of business income you sustain due to direct
physical loss of or damage to property at the
described premises
2. after loss or damage to your covered property
or, if business income coverage applies, loss of
business income you sustain due to direct
physical loss of or damage to property at the
described premises, only if at time of loss or
damage that party is one of the following:
a. someone insured by this insurance;
b. a business firm:
(1) owned or controlled by you; or
(2) that owns or controls you;
c. your employee or employer;
d. the owner, lessor or tenant of the:
(1) described premises; or
(2) premises where loss or damage
occurred; including their employees,
partners and stockholders; or
e. your relative by blood or marriage.
If you waive your rights against another party in
writing after loss or damage, we can recover from you
any amount you received for that waiver. But we cannot
recover more than the amount we paid you for that loss
or damage.
(emphasis in original).
6
According to LIGA, the reimbursement clause requires NOA to
reimburse LIGA for any amounts received in settlement even if NOA
has not yet been made whole.6
Thus, we must determine the import of this contract clause.
Because this dispute presents a question that the Louisiana Supreme
Court has not addressed squarely, we must make an Erie guess. See
Am. Indem. Lloyds v. Travelers Prop. & Cas. Ins. Co., 335 F.3d 429,
435 (5th Cir. 2003). We conclude that, under Louisiana law, the
clause at issue is a conventional subrogation clause to which the
make whole principle applies.7
6
LIGA also argues that NOA’s claim is moot, but this argument appears to
have no support independent of LIGA’s arguments about the meaning of the
contract.
7
Lest the distinction drawn between subrogation and reimbursement be
misinterpreted, we add that we are not convinced that characterizing this
provision as a reimbursement clause would ultimately help LIGA’s argument.
Louisiana courts have observed that “[t]he policy that subrogation should not
injure the subrogor is equally applicable to reimbursement.” Great West Cas. Co.
v. Manning, 687 So. 2d 416, 419 (La. Ct. App. 1996); Smith, 521 So. 2d at 772.
Federal courts examining Louisiana law have interpreted such statements as
indications that the make whole doctrine applies equally to subrogation and
reimbursement. See, e.g., Evans v. Midland Enters. Inc., 754 F. Supp. 91, 95
(M.D. La. 1990). For instance, in Sunbeam, we recognized in dicta that, if
presented with “a diversity case involving reimbursement or subrogation in the
context of . . . individual or group insurance plans that are not ERISA plans,
we would, of course, be Erie-bound to apply Louisiana’s partial subrogation
doctrine, which embodies the Make Whole principle.” 102 F.3d at 1374 (emphasis
in original).
LIGA argues strenuously that we must distinguish between subrogation and
reimbursement. Reimbursement and subrogation are not identical concepts, but
they often produce identical results. See Barreca, 668 So. 2d at 1131; Great
West, 687 So. 2d at 419; Smith, 521 So. 2d at 776. In many circumstances,
therefore, “the label we place on [an insurer’s] rights is immaterial.” Great
West, 687 So. 2d at 419. While LIGA’s brief draws many distinctions between
subrogation and reimbursement, it fails to marshal any legal authority for the
distinction most critical to its argument: that the make whole principle does not
apply to reimbursement clauses.
Regardless, because the clause at issue is a subrogation clause, we need
not decide whether the partial subrogation rule embodied in Article 1826 applies
to reimbursement.
7
In determining whether a provision establishes subrogation or
reimbursement, Louisiana courts “must examine the language used in
the provision and, more importantly, the rights which it grants to
the insurer.” Barreca, 668 So. 2d at 1131. Even if a provision
mentions both subrogation and reimbursement, if that provision
gives the insurer the right to assert the actions and rights of the
insured against the tortfeasor, then the clause is a subrogation
clause. Id. A true reimbursement clause does not allow the
insurer to proceed against the tortfeasor. Id.
For instance, in Barreca, the provision at issue stated that
the insured “agree[d] to pay the [insurer] from the proceeds of any
settlement, judgment or otherwise.” This language suggests a right
of reimbursement, but because the same provision granted
subrogation rights, the court applied principles applicable to
subrogation. Id. Likewise, in Smith, the provision at issue
stated that “benefits shall be provided only if the [insured] . . .
shall agree in writing . . . to reimburse [the insurer] for the
amount of benefits provided immediately upon collection of
damages.” 521 So. 2d at 774 (emphasis added). Like the court in
Barreca, the court in Smith ruled that this phrase–-though
explicitly evoking reimbursement--was simply part of a larger
subrogation clause.8 The mixture of subrogation language and
8
LIGA insisted at oral argument that Smith is distinguishable because the
provision at issue in that case required the insured to provide the insurer with
a lien and order directing reimbursement. 521 So. 2d at 774. However, Smith’s
8
reimbursement language is unsurprising; because “the object of
conventional subrogation is reimbursement,” subrogation rights will
commonly subsume reimbursement. See id. at 775.
Given these examples, the provision at issue in this case,
read as a whole, is a subrogation clause.9 The provision is
entitled “TRANSFER OF RIGHTS OF RECOVERY AGAINST OTHERS TO US.”
Cf. Smith, 521 So. 2d at 775-76 (examining title of provision to
determine whether it provided for subrogation). Similarly, the
first paragraph transfers to the insurer “rights to recover damages
from another.” The transfer of rights from the insured to the
insurer is the essence of subrogation. Barreca, 668 So. 2d at
1131. In light of this language, we cannot characterize this
section of the contract as providing for reimbursement; the
Louisiana Supreme Court has recognized that a true reimbursement
provision does not allow the insurer to proceed against the
tortfeasor. See id. Because the clause at issue provides for both
subrogation rights and reimbursement, we treat it as a subrogation
clause.
analysis did not hinge on the mechanism for granting the insurer rights, but the
fact that the agreement granted rights to the insurer--a hallmark of subrogation.
See id. at 775-76.
9
LIGA points out, and we fully recognize, that the ordinary meaning of the
text governs the meaning of contracts. Succession of Fannaly v. Lafayette Ins.
Co., 805 So.2d 1134, 1137 (La. 2002). LIGA rests its argument on a single
sentence from a longer provision. However, under Louisiana law, “an insurance
contract is construed as a whole and each provision in the contract must be
interpreted in light of the other provisions.” Id. Viewing the clause as a
whole, and mindful of the examples set in Barreca and Smith, both of which allude
to reimbursement but provide for subrogation, we construe the contract as
providing for subrogation.
9
Thus, because the make whole doctrine applies to subrogation
agreements, see La. Civ. Code Ann. art. 1826(B), the make whole
doctrine applies to this case. The clause relied upon by LIGA does
not shield it from its statutory and contractual responsibility as
successor insurer.10
III.
We therefore REVERSE the district court’s grant of summary
judgment and REMAND this case for further proceedings.
10
Because we render a decision in this case, we deny as moot NOA’s
alternative motion to certify this issue to the Louisiana Supreme Court.
10