IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 27, 2008
No. 07-30597 Charles R. Fulbruge III
Clerk
ROBERT WEAVER
Plaintiff
v.
CCA INDUSTRIES, INC.
Defendant – Third-Party Plaintiff – Appellant
v.
NEW YORK MARINE & GENERAL INSURANCE COMPANY
Third-Party Defendant – Appellee
Appeal from the United States District Court
for the Western District of Louisiana
Before DAVIS and SOUTHWICK, Circuit Judges, and DRELL, District Judge.*
DAVIS, Circuit Judge:
This appeal challenges the district court’s conclusion that the policy issued
by Third-Party Defendant New York Marine & General Insurance Company
(“NY Marine”) to Phoenix Laboratories, Inc. (“Phoenix”) provided no coverage to
*
United States District Judge for the Western District of Louisiana, sitting by
designation.
No. 07-30597
Third-Party Plaintiff-Appellant CCA Industries, Inc. (“CCA”) and that NY
Marine had no obligation to defend or indemnify CCA. For reasons stated below,
we vacate and remand for further proceedings.
I.
Plaintiff Robert Weaver (“Weaver”) brought this lawsuit to recover for
injuries he allegedly sustained from ingesting Permathene, a product marketed
and sold by CCA. In 1995, Weaver began taking Permathene, an
over-the-counter diet drug/appetite suppressant which contains
phenylpropanolamine (“PPA”). Eleven days after he began taking Permathene,
Weaver suffered a hemorrhagic stroke. Weaver contends that the PPA in
Permathene caused his stroke.
Weaver filed this products liability suit against CCA, as manufacturer and
seller of Permathene. Weaver contends that Permathene was unreasonably
dangerous due to defective manufacture and design, Permathene failed to
conform to CCA’s express warranty, CCA failed to provide an adequate warning
regarding the risks associated with Permathene, and CCA negligently failed to
adequately and properly test Permathene.
Although CCA sells and markets Permathene, Phoenix manufactures the
product. Using a formula provided by CCA, Phoenix combined the component
Permathene ingredients in its factory and then shipped the product in bulk to
CCA to be packaged and labeled. CCA marketed Permathene for sale to the
general public at retail outlets.
Weaver has not asserted any claim against Phoenix directly. CCA made
demands on Phoenix’s insurer, NY Marine, for defense and indemnification of
any damages it might have to pay Weaver. NY Marine declined coverage and
the request for defense in July 2002, and again in May 2006.
It is undisputed that NY Marine had in effect a Claims-Made
Products/Completed Operations Liability Insurance Policy (the “Policy”)
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No. 07-30597
affording liability coverage to Phoenix and other insureds. The Policy provides
coverage to its insureds for “those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’ or ‘property damage’
included within the ‘products-completed operations hazard’ to which the
insurance applies.”
In June 2006, CCA filed a third-party complaint against Phoenix and
against NY Marine for defense and indemnification. CCA asserts that Phoenix
obtained a claims-made liability policy from NY Marine and that under its
vendor’s endorsement, the Policy afforded liability coverage to CCA for liability
arising out of its sale of the product manufactured by Phoenix.
CCA was not a named insured under the Policy and does not claim
coverage on this basis. CCA claims coverage under the Policy’s vendor's
endorsement (“Endorsement # 5”), which provides in full:
ENDORSEMENT # 5
ADDITIONAL ASSURED - VENDORS
(BROAD FORM - BLANKET BASIS)
In consideration of the premium charged, it is hereby agreed that
the definition of insured is amended to include any person or
organization designated as a vendor but only with respect to the
distribution or sale in the regular course of the vendor’s business of
the Named Insured’s products subject to the following additional
provisions:
1. The insurance with respect to the vendor does not apply to:
(a) any express warranty unauthorized by the
named insured;
(b) bodily injury or property damage arising out of
(i) any physical or chemical change in the form of
the product made intentionally by the vendor,
(ii) repacking, unless unpacked solely for the purpose
of inspection, demonstration, testing or the
substitution of parts under instruction from the
manufacturer and then repacked in the original
container,
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No. 07-30597
(iii) demonstration, installation, servicing or repair
operations, except such operations performed at
the vendor’s premises in connection with the sale
of the product, or
(iv) products which after distribution or sale by the
named insured have been labeled or relabeled or
used as a container, part or ingredient of any
other thing or substance by or for the vendor.
2. The insurance does not apply to any person or organization,
as insured, from whom the named insured has acquired such
products or any ingredient, part or container, entering into,
accompanying or containing such products.
ALL OTHER TERMS AND CONDITIONS REMAIN
UNCHANGED.
NY Marine filed a motion for summary judgment, which the district court
granted. In its ruling, the district court found that CCA is not an additional
insured under Endorsement #5 because the claims were based on CCA’s
independent negligence, and under Louisiana law vendor’s endorsements only
extend coverage for claims involving strict liability. The court further ruled that
even if CCA could otherwise qualify for coverage under the vendor’s
endorsements, several of the limitations under that endorsement would exclude
coverage. The district court then dismissed CCA’s third-party demand against
NY Marine and this appeal followed.
II.
A.
We review the district court’s grant of summary judgment de novo.
Facility Ins. Corp. v. Employers Ins. of Wausau, 357 F.3d 508, 512 (5th Cir. 2004)
(citing Gowesky v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir.2003)).
Under Federal Rule of Civil Procedure 56, summary judgment “should be
rendered if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that
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No. 07-30597
the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56. A
genuine issue of material fact exists if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249–50 (1986).
B.
The parties agree that Louisiana law governs interpretation of the Policy.
The Louisiana Supreme Court recently announced a number of helpful rules to
guide us in interpreting insurance policies. See generally Cadwallader v.
Allstate Ins. Co., 848 So. 2d 577, 580 (La. 2003). Under Louisiana law, an
“insurance policy is a contract between the parties and should be construed by
using the general rules of interpretation of contracts set forth in the Louisiana
Civil Code.” Id. (citations omitted). “The judiciary’s role in interpreting
insurance contracts is to ascertain the common intent of the parties to the
contract.” Id. (citing, inter alia, La. Civ. Code art. 2045). “Words and phrases
used in an insurance policy are to be construed using their plain, ordinary and
generally prevailing meaning, unless the words have acquired a technical
meaning.” Id. (citing, inter alia, La. Civ. Code art. 2047). “The determination
of whether a contract is clear or ambiguous is a question of law.” Id. (citation
omitted).
CCA argues that it is entitled to both defense and indemnity. With respect
to the duty to defend, the Louisiana Supreme Court has set out the appropriate
standard as follows:
Generally the insurer’s obligation to defend suits against its insured
is broader than its liability for damage claims. The insurer’s duty
to defend suits brought against its insured is determined by the
allegations of the injured plaintiff’s petition, with the insurer being
obligated to furnish a defense unless the petition unambiguously
excludes coverage. Thus, if, assuming all the allegations of the
petition to be true, there would be both (1) coverage under the policy
and (2) liability to the plaintiff, the insurer must defend the insured
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No. 07-30597
regardless of the outcome of the suit. Additionally, the allegations
of the petition are liberally interpreted in determining whether they
set forth grounds which bring the claim within the scope of the
insurer’s duty to defend the suit brought against its insured.
Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993) (citing Am. Home Assurance
Co. v. Czarniecki, 230 So. 2d 253 (La. 1969); Meloy v. Conoco, Inc., 504 So. 2d 833
(La. 1987); Benoit v. Fuselier, 195 So. 2d 679 (La. App. 3d Cir. 1967)).
C.
We now turn to the first issue presented in this appeal: whether CCA
qualifies as an additional insured under the vendor’s endorsement in the Policy
NY Marine issued to Phoenix.2 The critical language in Endorsement #5
provides: “it is hereby agreed that the definition of insured is amended to include
any person or organization designated as a vendor but only with respect to the
distribution or sale in the regular course of the vendor’s business in [Phoenix’s]
products subject to the following additional provisions . . . .”
The district court correctly found that CCA qualifies as a vendor. But this
does not completely answer our question. Under Louisiana law, vendor’s
endorsements “have been interpreted as providing coverage where the vendor
is found strictly liable for selling a defective product and excluding coverage
where the vendor is found to be independently negligent.” McGill v.
Cochran-Sysco Foods, 818 So. 2d 301, 308 (La. App. 2 Cir. 2002) (citation
omitted); see also Easton v. Chevron Indus., Inc., 602 So. 2d 1032 (La. App. 4 Cir.
1992), writs denied, 604 So. 2d 1315 and 604 So. 2d 1318 (La. 1992).
2
CCA also asserts that certain Certificates of Liability Insurance (“COLI”) naming CCA
as the certificate holder and an additional insured under the NY Marine policy give rise to
coverage, but even if we were to assume, as the plaintiff asserts, that the COLI were issued
by an agent of NY Marine, the COLI cannot affect the terms of the underlying insurance
policy. At the top of the certificate appears a statement that the COLI is informational only
and does not confer rights to the holder nor does it amend, extend, or alter the coverage
outlined in the policies. Thus we must look to the Policy, not the COLI, to determine coverage.
6
No. 07-30597
It is true that Weaver’s petition asserts that CCA was independently
negligent in a number of respects. However, Weaver’s complaint also asserts
a strict liability claim under the Louisiana Product Liability Act (“LPLA”) based
on the allegation that the product was unreasonably dangerous in construction
or composition.3 Louisiana courts have made it clear that liability under the
LPLA may be based on strict liability.4
CCA could be held liable under the LPLA as a manufacturer due to the
fact that it labels the product and sells it on its own.5 Weaver’s claim under the
3
La. R.S. § 9:2800.55 (“A product is unreasonably dangerous in construction or
composition if, at the time the product left its manufacturer’s control, the product deviated in
a material way from the manufacturer’s specifications or performance standards for the
product or from otherwise identical products manufactured by the same manufacturer.”). The
LPLA is applicable to pharmaceutical products. See, e.g., Stahl v. Novartis Pharm. Corp., 283
F.3d 254 (5th Cir. 2002) (involving Lamisil, a prescription drug); Wheat v. Pfizer, Inc., 31 F.3d
340 (5th Cir. 1994) (involving Feldene, a prescription drug).
4
See, e.g., Lawson v. Mitsubishi Motor Sales of Am., Inc., 938 So. 2d 35, 49 (La. 2006)
(“However, in strict product liability cases, particularly those based upon defective manufacture,
the circumstances sometimes establish that defective manufacture was the most probable
cause of the victim’s injuries.”) (quoting FRANK L. MARAIST & THOMAS C. GALLIGAN, JR.,
LOUISIANA TORT LAW § 8.06[4] (Release No. 2, 2nd ed. 2005) (footnotes omitted)) (emphasis
added); Bearly v. Brunswick Mercury Marine Div., 888 So. 2d 309, 313 (La. App. 2 Cir. 2004)
(“La. R.S. 9:2800.55’s definition of an unreasonably dangerous product does not require that
the manufacturer have knowledge that the construction or composition of the product is
defective. The liability theory underlying that section is therefore a type of strict liability . .
. .”); Darbonne v. Wal-Mart Stores, Inc., 774 So. 2d 1022, 1029 (La. App. 3 Cir. 2000)
(discussing Section 9:2800.55 in the context of strict liability); cf. Hickman v. Wm. Wrigley, Jr.
Co., 768 So. 2d 812, 816 (La. App. 2 Cir. 2000) (discussing strict liability “foreign-natural” test
for food sellers in context of a Section 9:2800.55 claim). One treatise argues that the statute
might impose something stricter than strict liability — absolute liability — because it does not
involve “a balancing of the risks of the incorrectly made product against the dangers it
presents.” See FRANK L. MARAIST & THOMAS C. GALLIGAN, JR., LOUISIANA TORT LAW § 15.09
(Release No. 4, 2nd ed. 2007).
5
La. R.S. § 9:2800.53 provides, in relevant part:
(1) “Manufacturer” means a person or entity who is in the business of manufacturing
a product for placement into trade or commerce. “Manufacturing a product” means
producing, making, fabricating, constructing, designing, remanufacturing,
reconditioning or refurbishing a product. “Manufacturer” also means:
(a) A person or entity who labels a product as his own or who otherwise holds
himself out to be the manufacturer of the product.
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No. 07-30597
LPLA therefore could potentially visit liability on CCA based on strict liability
for Phoenix’s actions. For example, if Phoenix deviated from the formula or
failed to follow the formula in manufacturing the product, CCA could be liable
as a manufacturer under the LPLA despite its lack of fault. Thus, CCA qualifies
as an additional insured under Endorsement #5 to the NY Marine policy with
respect to Weaver’s claim under the LPLA unless a specific exclusion to
Endorsement #5 precludes recovery. We turn next to a discussion of the two
relevant exclusions.
First, NY Marine argues that exclusion l(b)(iv) excludes coverage for this
claim because CCA “labeled” the product after Phoenix sold the product in bulk
to CCA.6 It is undisputed that the product arrived in bulk from Phoenix and was
packaged, labeled, and marketed by CCA. CCA agues, however, that this is not
enough to trigger the exclusion because no nexus has been shown between CCA’s
labeling or other alteration of the product and Weaver’s injury.
Very few cases have considered this precise issue of whether an insurer
must show a nexus between the labeling or alteration of the product and the
injury. We find the two federal court decisions on the issue most persuasive. In
Mattocks v. Daylin Inc., 452 F. Supp. 512 (W.D. Pa. 1978), aff’d., 614 F.2d 771
(3rd Cir. 1979) (Table), Sullcraft Manufacturing Company (“Sullcraft”)
purchased cotton goods from Dan River, Inc. (“Dan River”). From these fabrics
Sullcraft manufactured and sold pajamas to Mattocks, the underlying plaintiff,
who was injured when the pajamas ignited. Mattocks sued Dan River and
(b) A seller of a product who exercises control over or influences a characteristic
of the design, construction or quality of the product that causes damage. . . .
La. R.S. § 9:2800.53.
6
Exclusion 1(b)(iv) reads:
The insurance with respect to the vendor does not apply to . . . bodily injury or
property damage arising out of . . . products which after distribution or sale by
the named insured have been labeled or relabeled or used as a container, part
or ingredient of any other thing or substance by or for the vendor.
8
No. 07-30597
Sullcraft on a number of products liability theories including one for failure to
warn. Sullcraft sought defense and indemnity under the vendor’s endorsement
on Dan River’s policy with Insurance Company of North America (“INA”). INA
relied on the “relabeling” exclusion similar to the one NY Marine relies on in
today’s case along with an argument that Sullcraft’s alterations in the fabric, to
make them into pajamas, excluded coverage. The court rejected the insurer’s
arguments that coverage was excluded. The court reasoned, first, that the
“arising out of” language of section 1(b)(i) limited the applicability of that
exclusion7 and that changes in form by a vendor must cause plaintiff’s injuries
before the vendor is excluded from coverage under the endorsement. Id. at 515.
Second, the court concluded that the injury sustained by Mattocks when the
pajamas ignited cannot be said to have arisen out of the relabeling or changes
Sullcraft made to the product. Id.
In Sears, Roebuck and Co. v. Reliance, 654 F.2d 494 (7th Cir. 1981), the
Seventh Circuit relied heavily on Mattocks to reject a similar argument. In that
case, plaintiff sued after slacks he purchased from Sears, Roebuck and Company
(“Sears”) ignited and injured his daughter. The Riegel Textile Corporation
(“Riegel”) manufactured the fabric. Sears purchased the fabric from Riegel,
which upon Sears’ instruction, sent the fabric to Rollic, Inc., which made the
slacks and shipped them to Sears to sell. The Cumberlands purchased the
slacks from Sears for their daughter. The slacks later caught fire and she was
injured. Commercial Union Insurance Company (“Commercial Union”) issued
a liability policy to Riegel, which included a vendor’s endorsement. Sears sought
defense and indemnity for the Cumberlands’ suit. Commercial Union argued
that coverage was excluded under the vendor’s endorsement because of the
7
“Section 1(b)(i) excludes coverage with respect to any bodily injury “arising out of” any
intentional, physical change in form of the product by the vendor.” Mattocks, 452 F. Supp. at
515.
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No. 07-30597
relabeling and physical changes Sears either made or caused to be made after
it left the hands of the manufacturer. The court cited the Mattocks opinion a
number of times and accepted its reasoning, stating that “the changes in form
by a vendor must cause plaintiffs injuries before the vendor is excluded from
coverage under the endorsement.” Id. at 498.
Couch on Insurance states that if the exclusion is written to apply once the
insured’s product has been relabeled, injury must arise out of the relabeling or
out of the use of the insured’s product as a part of another product in order for
coverage to be excluded.8 Although no Louisiana court has considered this
particular exclusion in this context, most courts which have considered this
question have required this nexus. See supra. Thus, our best Erie guess is that
Louisiana would adopt the majority position and require the nexus between the
alteration and the injury.
In his complaint, Weaver asserted a number of product liability theories
in support of recovery. He alleged that the product was unreasonably dangerous
due to defective manufacture and design, that the product failed to conform to
CCA’s express warranty, that CCA failed to adequately and properly test the
product, and that CCA failed to provide adequate warning. Arguably, Weaver’s
claim predicated on a failure to warn theory has a nexus to CCA’s relabeling of
the product. But, as in Mattocks, Weaver has a number of other recovery
theories that have no nexus to the relabeling. The district court therefore erred
8
COUCH ON INSURANCE § 130:10 (3d ed. 2007) (Citing Mattocks, 452 F. Supp. 512;
Oliver Machinery Co. v. United States Fid. & Guar. Co., 187 Cal. App. 3d 1510 (2d Dist. 1986);
Am. White Cross Laboratories, Inc. v. Continental Ins. Co., 495 A.2d 152 (N.J. Super. 1985));
see also Oliver Machinery, 187 Cal. App. 3d 1510 (rejected the insurer’s argument that the
relabeling exclusion triggered the exclusion from coverage under the vendor’s endorsement
predicated on the Sears case); but see Travelers Ins. Co. v. Freightliner Corp., 256 Ill. App. 3d
1049, 1056–57 (Ill. App. Ct. 1993) (disagreeing with other courts that a nexus is required
between the exclusion and the injuries).
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No. 07-30597
in determining that this exclusion defeats CCA’s claim for coverage against
Weaver’s LPLA claim.
We turn, finally, to exclusion 2.9 NY Marine argued, and the district court
agreed, that the formula provided by CCA to Phoenix was an “ingredient” for the
purposes of this exclusion. We disagree. This interpretation of ingredient is
inconsistent with the common sense meaning of that word. There is a logical,
common sense distinction between the formula, a list of ingredients, and the
ingredients themselves. A simple desktop dictionary defines “formula” as “a
prescription of ingredients in fixed proportion.” WEBSTER’S II NEW RIVERSIDE
UNIVERSITY DICTIONARY 499 (1984). “Ingredient is defined as “[a] constituent
element of a mixture or compound.” Id. at 628. In short, the formula or recipe
for a product is different from the ingredients used to create the product. Noone
would say that a recipe for lemon pie is one of the ingredients the baker uses to
make the pie. We thus conclude that the district court also erred in finding
exclusion 2 applicable.10
III.
The district court erred in holding that exclusion 1(b)(iv) and exclusion 2
exclude coverage for Weaver’s LPLA claim. Exclusion 1(b)(iv) is inapplicable
because there existed no nexus between the harm alleged in some of Weaver’s
claims and the alteration and relabeling of the product. Exclusion 2 is
inapplicable because the formula for a product is not an “ingredient” for
purposes of making that product. For these reasons, we vacate the district
9
Exclusion 2 reads: “The insurance does not apply to any person or organization, as
insured, from whom the named insured has acquired such products or any ingredient, part or
container, entering into, accompanying or containing such products.”
10
We need not address CCA’s motion to supplement the appellate record because the
purpose of the supplement was to demonstrate that the formula for a product is not the same
as the ingredients used to create the product.
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No. 07-30597
court’s judgment and remand this case to the district court for further
proceedings not inconsistent with this opinion.
VACATE and REMAND.
12