IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 17, 2009
No. 08-60312 Charles R. Fulbruge III
Clerk
GREAT AMERICAN INSURANCE COMPANY OF NEW YORK
Plaintiff - Appellant
v.
LOWRY DEVELOPMENT LLC
Defendant - Appellee
-------------------------------------------------
LOWRY DEVELOPMENT LLC
Plaintiff - Appellant
v.
GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, a subsidiary
of American Financial Group, Inc.
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
Before JOLLY, PRADO, and SOUTHWICK, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
This is a policy coverage dispute between Lowry Development, LLC and
Great American Insurance Company of New York. The damages creating the
No. 08-60312
dispute were caused by Hurricane Katrina. Lowry sought recovery under its
policy. We find that Lowry’s policy did not include wind coverage. Accordingly,
we REVERSE the district court’s contrary determination.
I. BACKGROUND
Lowry, the insured, is the real estate developer of Tuscan Villas. The
Villas are a two-condominium project located in Gulfport, Mississippi. In early
2003, Great American issued Lowry a builder’s risk policy for the construction
of Tuscan I. That first phase of the project has been completed. Construction
of Tuscan II commenced. Great American issued Lowry a builder’s risk policy
in early 2004 for it. Hurricane Katrina struck prior to the completion of Tuscan
II. Substantial damage resulted.
A business relationship between these parties began as early as 2003. At
that time, Lowry told its procuring agent, Groves and Associates Insurance, Inc.,
that builder’s risk coverage was needed during the construction of Tuscan I.
Groves contacted Crump Insurance Services of Memphis, which served as Great
American’s selling broker. The resulting policy covered many construction risks,
but no wind coverage was obtained. Instead, protection against damages from
wind was purchased from the Mississippi Wind Pool.1 The policy terminated in
2004 when construction was completed.
In January 2004, Lowry informed Groves that coverage was now needed
for the construction of Tuscan II. Groves contacted Crump. Groves and Crump
disagreed in the district court about the details of their negotiations. Crump
contended that the negotiations excluded wind coverage, while Groves alleged
that negotiations included it. Undisputed is that, on January 29, Great
1
The Mississippi Wind Pool is the name commonly given to the Mississippi Windstorm
Underwriting Association. That entity was established by the Mississippi legislature in 1987
“to provide a mandatory program to assure an adequate market for windstorm and hail
insurance in the coast area of Mississippi.” Miss. Code Ann. § 83-34-1 note.
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American sent to Crump a confirmation that it would issue a builder’s risk policy
that excluded coverage for wind, hail, flood, and earthquake. Crump then sent
to Groves a “Quotation Confirmation.” In Crump’s transmittal, the “Coverage
Type” was said to be “All Risk Excl. Earthquake & Flood.” A separate section,
labeled “Policy Conditions,” excluded wind, hail, flood, and earthquake.
Following receipt of the confirmation of the price quote, Great American
authorized Crump to issue a binder extending coverage for Tuscan II.2 The
binder, dated January 29, 2004, had the same dichotomy as the earlier price
quote. The “Coverage Type” was “All Risk Excl. Earthquake & Flood.” The
“Policy Conditions” excluded wind, hail, flood, and earthquake.
Great American thereafter issued the insurance policy. Contrary to its
prior communications with Crump, the policy did not contain a wind exclusion.
Great American attributes this to a clerical mistake that occurred when the
policy information was entered into its record system. It contends that the error
was caught two and a half months after the original policy was issued, and in
April 2004, a wind exclusion endorsement was added. The endorsement was
sent to Crump, who forwarded it to Groves.
The April wind exclusion endorsement stated that there was “no change
in premium” but that the “wind-related exclusion [was] added per quote.” A
cover letter accompanying the endorsement also asked Groves to review the
attached documents “and advise if there are any changes or corrections to be
made.” Groves did not respond with any concerns.
The policy was scheduled to expire in January 2005, but Tuscan II was not
complete by then. Groves requested a coverage extension. The first was for six
months. At the time of the first extension, Crump sent Groves a renewal policy
2
Insurance binders “are temporary contracts of insurance, which extend coverage until
a written policy is issued or until the coverage is ultimately rejected by the insurer.” JEFFREY
JACKSON , MISSISSIPPI INSURANCE LAW & PRACTICE § 3:2 (2008).
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containing a wind exclusion endorsement. Groves faxed it to Lowry. A later
extension, granted via an endorsement, provided ninety additional days of
coverage. That final extension took coverage into the time that Hurricane
Katrina damaged the property.
After Katrina, Lowry sought recovery under its policy. Great American
filed a suit based on diversity in the U.S. District Court for the Southern District
of Mississippi. It sought a declaratory judgment that the policy did not cover
wind damage. Lowry responded with counterclaims against Great American,
Groves, and Crump.3 Lowry also filed a suit in state court that was later
removed. The district court consolidated the cases. Both Great American and
Lowry moved for summary judgment.
Great American’s argument was twofold. Either it had validly added a
wind exclusion prior to Katrina, or the policy should be reformed under the
doctrine of mutual mistake. Because we agree with Great American that the
policy did not contain wind coverage at the time of Hurricane Katrina, we will
not address the mutual mistake issue. The district court found that the April
2004 endorsement was ineffective. It also held that Great American failed to
comply with the provisions of a Mississippi notice statute when it sought to add
the wind exclusion to the policy. Partial summary judgment was granted. A
professional negligence claim against Groves was never resolved.
The mutual mistake question was submitted to a jury. Jurors found no
mistake. The parties stipulated to damages in the amount of $1,525,000.
Judgment was entered for Lowry. Great American appealed.
II. DISCUSSION
On this appeal, we review a summary judgment on the effect of the April
2004 endorsement. We consider the factual submissions and legal analysis on
3
Lowry subsequently dismissed its claims against Crump.
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which the judgment was based de novo. Cain v. Transocean Offshore USA, Inc.,
518 F.3d 295, 297 (5th Cir. 2008). We resolve the case on that sole issue.
There are two central facts in the case. The first is that the builder’s risk
policy as first issued included wind coverage. The second is that Great American
sought later to add a wind exclusion.
As to the exclusion, there were two relevant events. In April 2004, an
endorsement was sent to Groves that added the wind exclusion. The April date
was two and a half months after the issuance of the original policy. Groves
never sent the change to Lowry. The second relevant event was the issuance of
a renewal policy in January 2005. The renewal occurred after the parties agreed
to extend insurance coverage for an additional six months. Groves faxed the
renewal to Lowry. By its terms, the renewal policy excluded wind coverage.
We start with the April 2004 wind exclusion endorsement. Its efficacy is
governed by Mississippi law. Importantly, “consideration is . . . required when
insurance policies are modified by the insurer.” J ACKSON, supra, § 3:10. Absent
proof of mistake, the consideration paid must be taken to have been in exchange
for the benefits reflected in the terms of the initial policy. That included
coverage for wind damage. We do not need to reach whether there was a
mistake in the initial policy. The jury said there was not.
Great American sought to modify the policy in April 2004 through the
issuance of the wind exclusion. We note that there was no new consideration
such as a premium rebate or Great American’s suffering a legal detriment in
exchange for the decrease in coverage. See Krebs ex rel. Krebs v. Strange, 419 So.
2d 178, 183 (Miss. 1982) (holding that an insurer’s offer that it might renew the
insurance contract if the insured agreed to the modification was not supported
by adequate consideration). Nonetheless, for reasons that will become apparent
later, it is unnecessary to decide – and therefore we do not decide – whether the
April 2004 endorsement was an ineffective unilateral modification.
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The district court observed that, but for Lowry’s failure to comply with a
Mississippi notice statute that we will discuss, the January 2005 renewal “might
have been deemed sufficient notice of the reduction in coverage to bind Lowry
to the terms of the policy.” We therefore turn to two questions: (1) what was the
effect of the state statute on the renewal policy, and (2) if the notice statute is
not a bar, do the terms of the renewal policy excluding wind coverage apply?
The first question concerns a statute that makes ineffective a nonrenewal
or certain identified changes to a policy unless proper notice is first given:
A cancellation, reduction in coverage or nonrenewal of liability
insurance coverage, fire insurance coverage or single premium
multiperil insurance coverage is not effective as to any coverage
issued or renewed after June 30, 1989, unless notice is mailed or
delivered to the insured and to any named creditor loss payee by the
insurer not less than thirty (30) days prior to the effective date of
such cancellation, reduction or nonrenewal.
Miss. Code Ann. § 83-5-28(1).
The district court found no Mississippi precedents relevantly interpreting
this statute. The open issue was “whether and in what circumstances delivery
of a notice of cancellation or a reduction in coverage to an agent (and not to the
insured) satisfies the statutory requirements”; the answer was in favor of Lowry.
“The statute unequivocally requires,” the district court explained, “that the
notice be sent by the insurer to the insured, and delivery to the insured’s agent
does not conform to this statutory requirement.” We examine that analysis.
“‘The primary rule of [statutory] construction is to ascertain the intent of
the legislature from the statute as a whole and from the language used therein.’”
Bailey v. Al-Mefty, 807 So. 2d 1203, 1206 (Miss. 2001) (quoting Clark v. State ex
rel. Miss. State Med. Ass’n, 381 So. 2d 1046, 1048 (Miss. 1980)). To decipher
legislative intent, courts “may look not only to the language used but also to its
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No. 08-60312
historical background, its subject matter, and the purposes and objects to be
accomplished.” Id. (internal quotation marks omitted).
The purpose of notice statutes such as this is to allow the insured to obtain
insurance elsewhere when there is a reduction of coverage. See Carter v. Allstate
Indem. Co., 592 So. 2d 66, 74 (Miss. 1991). Whether or not notice to such an
agent is adequate to accomplish this goal depends on the relationship between
the insured and its agent. “Mississippi recognizes that agency is the key issue
in [notice] cases.” Peel v. Am. Fid. Assurance Co., 680 F.2d 374, 377 (5th Cir.
1982). In Peel, we relied on Section 268(1)(c) of the Restatement (Second) of
Agency, which states that notice to an agent constitutes notice to the principal
when it is given “to an agent authorized to conduct a transaction, with respect
to matters connected with it as to which notice is usually given to an agent.” In
that case, the plaintiff was insured under a Mississippi Education Association
(“MEA”) group policy. Id. at 375-77. Two years after the issuance of the policy,
the insurance company and MEA reduced coverage, but notice was given only
to the insured’s agent. “If the MEA was [the plaintiff]’s agent when it
renegotiated policy coverage, knowledge of the change in coverage was imputed
to her as principal.” Id. at 377. This holding is consistent with general law:
“Knowledge on the part of [an] insured’s agent is imputed to the insured.” L EE
R. R USS & T HOMAS F. S EGALLA, C OUCH ON INSURANCE § 46:21 (3d ed. 2006).
The Peel policy was issued before the statute we have been discussing was
adopted in 1989. So in addition to considering the relationship between Lowry
and Groves, we need to consider whether the statute changed agency rules.
The relationship of Lowry and Groves can be seen in the fact that Groves
had express authority to handle all matters related to insurance. Lowry testified
that its standard practice was to send insurance documents to Groves without
reading them. Accordingly, there would be no utility in requiring notice to be
sent directly to Lowry instead of to Groves.
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It is certainly true that an agent’s authority is not limitless. Instead, the
agent has only such powers as are conferred by the principal. Gulf Guar. Life
Ins. Co. v. Middleton, 361 So. 2d 1377, 1382 (Miss. 1978). In a precedent the
district court relied upon, a bank did not have authority to agree with the
insured’s agent to cancel the original policy without consent and without notice.
Stewart v. Coleman & Co., 81 So. 653, 654-55 (Miss. 1919). In so holding, the
Mississippi Supreme Court wrote that “an agency to procure insurance does not
necessarily confer the power to cancel insurance.” Id. (internal quotation marks
omitted). Here, though, the only evidence was that Groves’s authority to act on
behalf of Lowry with respect to insurance was all but plenary. Importantly, the
authority the agent was questionably exercising was not a right to terminate.
It was simply the right to receive notice of modification.
Lowry also cites two cases that are said to support the district court’s
decision. Both focused on the amount of authority the principal had bestowed
upon its agent. In one, a Louisiana appeals court found that there was no
evidence of “any course of dealing or express authority which would support
imputing authorization for [the agent] to accept notice on behalf of” the insured.
Ferrara v. Strain, 497 So. 2d 1077, 1080 (La. App. 1986). In the other, this court
affirmed the district court’s conclusion that the nominal agent actually was a
broker in the transaction in question “and was not clothed with authority to
accept a notice of cancellation” for the insured. Wis. Barge Line, Inc. v. Coastal
Marine Transp., Inc., 414 F.2d 872, 874 (5th Cir. 1969). These cases are
consistent with our interpretation of Mississippi’s notice statute.
Complete authority over insurance matters was delegated to this agent.
The argument essentially is that Section 83-5-28 created a limitation on even the
most empowered agent’s authority. The statutory shackles on the agent would
have to come from the requirement that certain changes are ineffective “unless
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No. 08-60312
notice is mailed or delivered to the insured” in a timely manner, and only
because “agents” were not mentioned. See Miss. Code Ann. § 83-5-28(1).
The usual rule, as we have already explained, is that agents may act on
behalf of principals. “Once an agency relationship is created, the agent steps
into the shoes of his or her principal and has the authority to transact business
on the principal’s behalf.” Gordon U. Sanford, III, Agency, in 1 E NCYCLOPEDIA
OF M ISSISSIPPI L AW § 4:2 (Jeffrey Jackson & Mary Miller eds., 2001). Our
question is whether this statute changes the rule.
We look for guidance from general rules concerning statutory construction
in Mississippi. By statute, “words and phrases contained in the statutes are
used according to their common and ordinary acceptation and meaning; but
technical words and phrases according to their technical meaning.” Miss. Code
Ann. § 1-3-65. “Insured” in Section 83-5-28 is referring to a person involved in
a contract with an insurer. We perceive no technical meaning in the word, such
that it would block the common interpretation that authorizing a person to act
in a certain way also authorizes a person’s agents to do so. Further, words in
statutes are to be read in context. Kerr-McGee Chem. Corp. v. Buelow, 670 So.
2d 12, 17 (Miss. 1995). We find no context for this use of “insured” that suggests
it did not encompass an agent who was otherwise clearly authorized to send and
receive notices under general agency law.
In summary, there is no language in Section 83-5-28, nor in any caselaw
pointed out to us, to support that this statute should be read as preventing a
properly authorized agent from being sent the notice that is required. We
interpret the statute as allowing agents to receive the notice. There is no
dispute that the notice of the new policy language was sent to Groves.
We now look at the effect of the renewal policy that became effective in
January 2005. Lowry maintains that, even though the renewal policy excluded
wind coverage, it did not become effective because Great American simply
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No. 08-60312
reissued the original policy “without any notice of the change or any attempt to
advise [Groves] of the changes.”
On the one hand, there is “a duty to read an insurance contract and
knowledge of the contract’s terms will be imputed to the party even if she does
not read it.” Frye v. S. Farm Bureau Cas. Ins. Co., 915 So. 2d 486, 492 (Miss. Ct.
App. 2005). On the other, some courts in other states have recognized an
exception if an insurer renews a policy without notifying the insured of a
reduction in coverage. See R USS & S EGALLA, supra, § 29:42 (collecting cases). In
its brief, Lowry states that “Mississippi has not specifically addressed the issue
of the effect of changes in a renewal policy without conspicuous notice of the
changes” but nonetheless requests that we adopt the position of those courts that
have embraced such an exception.
Apparently the only case applying Mississippi law on this point is a federal
district court decision. Gurley v. Carpenter, 673 F. Supp. 805 (N.D. Miss. 1987).
That court determined “the general rule [is] that an insured may rely on the
assumption that renewal will be on the same terms as the original contract
where the changes in the policy are not called to his attention.” Id. at 809. In
affirming the judgment on appeal, we explained that “we do not reach the
questions of Mississippi law that the district court reached because we find that
we are able to affirm its result simply by looking at the terms of the insurance
policy itself.” Gurley v. Carpenter, 855 F.2d 194, 196 (5th Cir. 1988). We also
wrote that “the reasoning of the district court” was not approved. Id. at 196 n.1.
Whatever the law on that issue might be, there are other issues. Groves
received the April 2004 wind exclusion endorsement, which clearly stated that
a wind exclusion was being added to the policy and asked Groves to read “and
advise if there are any changes or corrections to be made.” 4 Groves sent that
4
In the district court, Groves acknowledged that he received the April 2004 wind
exclusion but testified that he did not actually read it. This is of no moment. Groves, as
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No. 08-60312
April 2004 change to Lowry. We have already discussed that a notification given
to an agent is notice to the principal, if the agent is so authorized. See Peel, 680
F.2d at 377. Groves was.
Therefore, even though the wind exclusion in the January 2005 renewal
policy was not highlighted, the change was the single subject of the April 2004
letter. That put Groves and Lowry on notice at that time and at least required
them to be aware that the renewal policy likely did not contain wind coverage.
What this means is that even though the April 2004 wind exclusion endorsement
may not have been adequate to modify the terms of the original policy because
of the absence of consideration, it was sufficient to notify Lowry that, upon
renewal, wind coverage would not be included.
We hold that the renewal policy, excluding wind coverage, governed at the
time of the damage to Tuscan II.
III. CONCLUSION
The district court’s judgment is REVERSED and the cause REMANDED
for proceedings consistent with this opinion.
Lowry’s agent, had a duty to read the document. See Frye, 915 So. 2d at 492; RESTATEM ENT
(SECOND ) OF AGENCY § 9(3) (1958) (“A person has notice of a fact if his agent has knowledge
of the fact, reason to know it or should know it, or has been given a notification of it, under
circumstances coming within the rules applying to the liability of a principal because of notice
to his agent.”).
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