United States Court of Appeals,
Fifth Circuit.
No. 91–3616.
CONTINENTAL CASUALTY COMPANY, Plaintiff–Appellant,
v.
RIVER RIDGE INSURANCE, INC., et al., Defendants–Appellees.
Sept. 30, 1992.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before WISDOM, SMITH, and EMILIO M. GARZA, Circuit Judges:
WISDOM, Circuit Judge:
In this case, the district court dismissed the plaintiff's complaint on the ground that the plaintiff
had failed to meet its burden of proof of proximate cause. The plaintiff appeals, asserting that the
legal standard applied by the district court was incorrect and that the factual determinations of that
court were clearly erroneous. We hold that the legal standard applied by the district court was the
appropriate one, and that the factual findings of the court were not clearly erroneous. We affirm.
I. BASIC FACTS.
The defendant/appellee, River Ridge Insurance Agency ("River Ridge"), was a local insurance
agent for the plaintiff/appellant, Continental Casualty Company ("CNA"), from January 1, 1984 until
November 30, 1987. CNA gave River Ridge the authority to issue insurance binders as follows:
Maximum Limits of Liability Which May Be Bound
1. For any Liability Coverage $1,000,000
2. For any Property Coverage * $ 250,000
*
Except for eligible Business Account Program risks (other than frame) $ 500,000
One of the property coverage policies that CNA offered was the Business Account Program
("BAP"). The BAP policy had a lower premium than other CNA commercial property policies, and
had several restrictions not applicable to other CNA policies. These restrictions included a
requirement that the building be less than 20 years old, unless certain parts of the structure had been
renovated within the past five years, and a requirement that the usable area of the building be less than
10,000 square feet. For businesses that did not qualify for the BAP policy, CNA offered several other
types of commercial property policies which were not subject to the restrictions applicable to the BAP
policy.
On November 6, 1987, an employee of River Ridge issued an insurance binder covering the
St. Claude Super Market under the BAP policy. The binder included two separate property
coverages—one covering the structure for $300,000, the other covering the contents for $250,000.
On December 24, 1987, the St. Claude Super Market burned virtually to the ground. CNA
had not yet issued a policy, but the risk was under binder pending an underwriting conclusion. CNA
determined that the structure and contents were a total loss and ultimately paid to the insured the
policy limits of $300,000 for the structure and $250,000 for the contents, as well as $8,910.75 for
business interruption losses. CNA then brought this suit alleging that River Ridge had bound this risk
in violation of limitations on its binding authority. CNA further alleged that, but for River Ridge
exceeding its binding authority, CNA would not have suffered the loss.
After trial to the court, the district court found that River Ridge was an agent of CNA and
that River Ridge did exceed its binding aut hority under the BAP, because the St. Claude Super
Market did not meet the policy requirements with regard to age and size. The court then determined,
however, that CNA had not established that this breach by River Ridge proximately caused CNA's
loss. The court found that CNA would have issued some form of policy to cover the risk. The court
therefore entered judgment dismissing CNA's complaint.
On appeal CNA contends that the district court clearly erred in finding that CNA's loss was
not proximately caused by River Ridge's breach of duty because CNA would have issued a policy to
insure the premises. CNA also challenges the legal standard under which the court made this
determination. In the alternative, CNA asserts that River Ridge is liable for any sums paid by CNA
is excess of $250,000 regardless of the outcome on the first issue, because $250,000 was the
maximum coverage River Ridge was authorized to bind.
II. PROXIMATE CAUSE.
A. The legal standard.
The district court placed the burden of proving proximate cause on the plaintiff, relying on
two Louisiana cases, Mathews v. Marquette Casualty Co.1 and Medical Arts Pharmacy v. Rabun,2
for this standard. The courts in these cases held that although an agent had breached a duty to the
insurer, the insurer had failed to prove that its loss was caused by the breach because it had failed to
prove that it would not have insured the risk anyway.
In Mathews, a Louisiana court denied an insurer's claim against an insurance agency for
damages the insurer paid as a result of an automobile accident. The agent failed to give notice to the
insurer t hat it extended coverage on an automobile acquired by the insured during the term of the
policy. Although the court agreed that the agent had breached a duty to the insurer by failing to give
notice, the court concluded that the insurer had not shown that it would not have insured the vehicle
if it had been notified. The court therefore reasoned that the breach by the agent was not the cause
of the damage; the insurer failed to prove that it would not have suffered the same loss had no breach
occurred.3
In Medical Arts Pharmacy, a Louisiana court similarly ruled that an insurer's claim against
1
152 So.2d 577 (La.App. 2d Cir.), writ denied, 244 La. 662, 153 So.2d 880 (1963).
2
517 So.2d 480 (La.App. 1st Cir.1987), writ denied, 519 So.2d 149 (La.1988).
3
Mathews, 152 So.2d at 584–585.
its agent was defeated because the insurer did not present sufficient evidence to show that it would
not have insured the risk had the agent not breached a duty. Lacking such evidence, the court
concluded that the breach was not the cause of the insurer's loss.
CNA argues that the standard established in these cases should not have been applied in the
case at hand. CNA relies on Chiasson v. Whitney4 to support this assertion. CNA contends that
Chiasson establishes a legal standard different from that of Mathews and casts doubt on the validity
of the proposition that an insurer seeking to recover from its agent for a breach of duty bears the
burden of proving proximate cause. We disagree. Examination of Chiasson reveals no departure
from the proposition established by Mathews.
In Chiasson, the insured purchased an automobile insurance policy, providing for $300,000
in liability coverage, but providing only $5000 per person in uninsured motorist coverage. At that
time, Louisiana law required uninsured motorist coverage to equal liability coverage, absent a valid
waiver by the insured. Rather than have the insured sign this waiver, the agent forged the signature
of the insured. Later, the insured's covered son was injured in an automobile accident. He filed suit
against a number of parties, including the uninsured motorist carrier. Because the insured had not
signed the waiver, the court held that there had been no valid waiver of uninsured motorist coverage
equal to liability coverage. The insured's son was therefore allowed to recover up to $300,000 from
the uninsured motorist insurer.
The uninsured motorist insurer filed a third-party claim against the agent, alleging that the
action of the agent in forging t he insured's signature caused the insurer to incur the additional
$295,000 in liability. The district court granted summary judgment for the agent, asserting that the
liability of the agent was limited to the recovery of premiums lost by the insurer.
4
427 So.2d 470 (La.App. 5th Cir.), writs denied, 433 So.2d 179, 180, and 183 (La.1983).
On appeal, the agent argued that it had not caused the insurer's loss: as agent it had the
authority to bind full uninsured motorist coverage. The Chiasson court disagreed. The agent's
argument assumed that had the insured been asked to sign the waiver form, she would have opted
for the full $300,000 coverage. The evidence contradicted this assumption, as it was not disputed
that the insured had originally requested only $5000 of uninsured motorist coverage. Therefore, had
the agent not breached his duty by failing to obtain the signature of the insured and by forging the
signature, the insurer would have been liable for $5000. The court therefore found that the agent was
responsible for this loss.
In making this finding, the court at no point stated that the burden of proving proximate cause
was not on the plaintiff. On the contrary, the court concluded that the evidence had shown that
agent's forgery was the proximate cause of the insurer's loss. The court stated: "Smith's signing
Chiasson's name was an intentional and a serious infraction causing his principal to be liable in
judgment for an extra $295,000."5 Although the Chiasson court reached a result different from the
Mathews court or the district court in the case at hand, this result was not based on the application
of a different legal standard, but rather on an evidentiary showing of proximate cause.
Though there are no Louisiana Supreme Court cases precisely addressing the issue before this
court, every reported case on point contains language to the effect that an agent is liable to an insurer
only if the agent's breach causes the loss. In the typical negligence case the burden of proving
proximate cause is on the plaintiff, and there appears to be no compelling reason why the burden
should be shifted in this setting. We conclude therefore that the district court applied the correct legal
standard in requiring CNA to prove that the breach of River Ridge was the proximate cause of its
loss.
B. The factual finding.
5
Chiasson, 427 So.2d at 478 (emphasis added).
CNA also argues that the conclusions of fact by the district court are clearly erroneous. The
district court found that CNA would have insured the St. Claude Super Market under some form of
policy, although it may not have issued a BAP policy. The court based this determination on evidence
of CNA's past underwriting history. River Ridge introduced numerous CNA underwriting files where
CNA had determined that a risk submitted by an agent and bound under a BAP application was not
qualified for the BAP policy, but CNA did not cancel coverage. CNA continued to insure the risks
under the BAP until the policies bound by the agents expired. CNA then offered to write coverage
for the risks under other programs. Such examples cited by the district court include "All Natural
Foods", "Hometown Supermarket", and "Friendly Grocery". The court concluded that, more
probably than not, CNA would have treated the St. Claude Super Market risk in a similar fashion.
CNA argues that this factual finding represents clear error. CNA states that "the evidence
was uncontradicted that [CNA] would have never insured the property that burned". This is
apparently a reference to the testimony of CNA underwriters Mikey Mauldin and Betsy Sullivan, who
stated that absent a loss control investigation (which could not be performed after the building burned
down) the building would never have been insured. Because a loss control survey could not be
performed, CNA argues, the district court's conclusion that CNA would have insured the risk is
speculative.
CNA offered no documentation to support the testimony of its underwriters or its position
that the building would not have been insured absent a loss control survey. River Ridge, on the other
hand, introduced numerous examples of underwriting files where CNA wrote policies before
obtaining a loss control survey.6 River Ridge also introduced CNA underwriting files in which CNA
continued to insure a risk after a loss control investigation was performed and the risk was
6
Examples include "Ferrara's Supermarket", Def. Exh. P–116, at 176; and "Gulf Marine and
Industrial Supplies", Def. Exh. P–119–5, at 324.
determined unsatisfactory.7 This evidence supports the district court's conclusion; it was not
speculative, and certainly was not clearly erroneous.
CNA also argues that the district court misinterpreted some of the underwriting files on
previous risks that CNA had insured. With regard to "All Natural Foods", for example, CNA asserts
that the district court incorrectly determined that the application on its face revealed that the BAP
requirements were not met. CNA argues that although the building was more than twenty years old,
it had been renovated in 1981. This does not meet the BAP requirements, however, because the
application was in 1987, and renovations must have been no more than five years prior. CNA's other
arguments in this regard are similarly weak.
In sum, CNA has pointed to no evidence supporting their view that the factual determinations
of the district court were clearly erroneous.
III. MONETARY LIMITS ON BINDING AUTHORITY.
CNA argues that River Ridge is liable for all sums paid in excess of $250,000 regardless of
the outcome on the first issue. CNA bases this argument on the fact that River Ridge was authorized
to bind property coverage up to a $250,000 maximum, and exceeded its authority when it bound the
St. Claude property for $550,000. Based on the wording of the agency agreement and the evidence
presented at trial, River Ridge was authorized to bind up to $250,000 per property coverage, and was
authorized to issue more than one type of coverage per property. This would mean that River Ridge
exceeded it aut hority by only $50,000 because it bound two types of coverage, one of which did
exceed the $250,000 limit. Final resolution of this issue is, however, irrelevant.
In order for CNA to recover from River Ridge, CNA must prove that the breach of River
Ridge caused CNA's loss. CNA presented no evidence that River Ridge, by exceeding its binding
7
An example is "Mattress Makers", Def. Exh. P–131–3B, at 86.
authority, was the proximate cause of any loss of CNA. CNA presented no evidence that it was not
common practice for agents to exceed the monetary limits of their binding authority, or that CNA
would not have continued to cover the building for $300,000. Because CNA has not met its burden
of proof of proximate cause, there can be no recovery from River Ridge.
IV. CONCLUSION.
We affirm the judgment of the district court.