UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 99-30999
ASHTON RICHARD HARDY,
Plaintiff-Appellee-Cross-Appellant,
VERSUS
HARTFORD INSURANCE COMPANY, ET AL.,
Defendants,
THE HARTFORD INSURANCE COMPANY OF THE SOUTHEAST, erroneously sued
as Hartford Insurance Company,
Defendant-Appellant-Cross-Appellee.
Appeals from the United States District Court
For the Eastern District of Louisiana
January 5, 2001
Before DUHÉ, EMILIO M. GARZA and DeMOSS, Circuit Judges.
DUHÉ, Circuit Judge:
Hartford Insurance Company of the Southeast (“Hartford”)
appeals the district court's grant of summary judgment for Ashton
Richard Hardy (“Hardy”) and the court's denial of Hartford's cross
motion for summary judgment. The district court concluded that
Hartford was obligated to provide a defense and coverage to Hardy
under its commercial general liability (“CGL”) policy for certain
causes of action filed against Hardy by Kenneth Dowe (“Dowe”). We
conclude that Hartford had no duty to defend or provide coverage to
Hardy for Dowe's claims. We therefore REVERSE the district court
as to the issues of defense and coverage and RENDER summary
judgment for Hartford, and AFFIRM the district court's denial of
statutory penalties and fees against Hartford because its refusal
to provide coverage was not arbitrary and capricious.
BACKGROUND
We summarize only the facts relevant to the issues in dispute
in this appeal. Hardy is a former partner in the law firm of
Walker, Bordelon, Hamlin, Theriot & Hardy (“WBHTH”). Before Hardy
left the firm, WBHTH filed suit, through outside counsel, against
Dowe and the Dowe Company, Inc. (“Dowe Company”) to recover unpaid
legal fees. WBHTH later assigned its interest in the suit to Hardy
when he left the firm.
Dowe answered the suit and filed a reconventional demand
against Hardy, alleging causes of action for breach of contract,
breach of fiduciary duty, fraud, and negligent misrepresentation.
Dowe asserted that Hardy billed the Dowe Company for unauthorized
work, and for duplicative and excessive fees. Dowe also claimed
that he signed an attorney-client agreement with WBHTH only in his
capacity as President of the Dowe Company, which Hardy knew was
defunct and had no assets at the time of the suit on open account.
According to Dowe, Hardy also knew that Dowe was not personally
liable for the debts of the Dowe Company. Therefore, Dowe alleged
he suffered damages for breach of contract, damage to his
reputation, and damages caused by Hardy's alleged
2
misrepresentations, including attorney's fees incurred in defending
the suit on open account.
Hartford insured WBHTH and its partners under the CGL policy
during the years that WBHTH provided legal services to Dowe, and
when the firm sued Dowe for unpaid fees. Hartford denied Hardy's
claim for a defense and coverage to Dowe's reconventional demand,
citing the CGL policy's Endorsement SP-207, which excludes claims
related to lawyers' professional liability. Hardy's malpractice
insurer provided a defense, reserving its right to deny coverage on
the ground that Dowe's claims were not based on malpractice.
Hardy filed suit in state court against Hartford seeking a
declaration of coverage and a defense to the reconventional demand.
He also sought damages and penalties under La. R.S. 22:658 and
22:1220 for Hartford's alleged arbitrary and capricious denial of
coverage and breach of its duty of good faith and fair dealing.
Hartford removed the case to federal court.
Hardy and Hartford both moved for summary judgment in the
district court. The court denied Hartford's motion but granted
partial summary judgment for Hardy, finding that Hartford owed both
a defense and coverage under the CGL policy, and awarding Hardy
reimbursement of past costs and expenses incurred in defending
Dowe's reconventional demand. The district judge concluded that
Endorsement SP-207 was not applicable because “a close reading of
Dowe's answer and reconventional demand do [sic] not reveal a claim
3
for malpractice.”1 Hardy v. Hartford, No. 98-2994 (E.D. La. June
28, 1999) (order and reasons granting and denying cross motions for
summary judgment). The court appeared to adopt Hardy's argument
that Dowe's claims sounded in tort, rather than malpractice,
because they were based on injuries suffered by the filing of the
suit on open account, rather than on past legal services. In her
order denying both parties' motions to amend the judgment, the
district judge found that “the gravamen of Dowe's claim is that he
has a defense to the suit on account because of Hardy's conduct and
that he has been personally injured by the conduct of the law firm
in filing the suit on account.” Hardy v. Hartford, No. 98-2994
(E.D. La. Aug. 20, 1999) (order and reasons denying amended
judgment). Therefore, there was no genuine issue of material fact
that Dowe's claims were covered under the policy and that Hartford
owed Hardy a defense. The district court refused, however, to
award Hardy statutory damages and penalties because it found
Hartford's denial of coverage did not meet the “arbitrary and
capricious” prerequisite under La. R.S. 22:658 and 22:1220.
DISCUSSION
We review summary judgment rulings de novo. Prytania Park
Hotel, Ltd. v. General Star Indem. Co., 179 F.3d 169, 173 (5th Cir.
1
The court also found inapplicable Exclusion No. 16, which
excludes coverage for “personal injury arising out of any
publication or utterance . . . if the publication or utterance by
or on behalf of any insured was made in the course of or pursuant
to the conduct of the practice of law.”
4
1999). Summary judgment is proper when, taking the evidence in the
light most favorable to the non-moving party, there is no genuine
issue of material fact and the moving party is entitled to a
judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp.
v. Catrett, 477 U.S. 317, 106 S.Ct. 2548 (1986).
The insurer's duty to defend the insured is generally broader
than the duty to indemnify. Yount v. Maisano, 627 So. 2d 148, 153
(La. 1993).2 The duty to defend is determined by examining the
allegations of the injured plaintiff's petition (in this case, the
plaintiff-in-reconvention's reconventional demand), and the insurer
is obligated to tender a defense unless the petition unambiguously
excludes coverage. Id. Assuming all the allegations of the
petition are true, the insurer must defend, regardless of the
outcome of the suit, if there would be both (1) coverage under the
policy and (2) liability to the plaintiff. Id. The allegations of
the petition must be liberally interpreted in determining whether
the claim falls within the scope of the insurer's duty to defend.
Id. Likewise, ambiguous provisions in insurance policies are
strictly construed against the insurer in favor of coverage to the
insured. Louisiana Ins. Guar. Ass'n v. Interstate Fire & Cas. Co.,
630 So. 2d 759, 764 (La. 1994).
We must determine whether the district court erred in
2
See also American Home Assurance Co. v. Czarniecki, 230 So.
2d 253, 259 (La. 1969)and Benoit v. Fuselier, 195 So. 2d 679, 682
(La. App. 3 Cir. 1967).
5
concluding that Dowe's reconventional demand stated a cause of
action that fell within the coverage of the CGL policy. We
conclude that in evaluating all of Dowe's allegations, we need only
look to the insuring provisions of the policy. Although the
district court determined that Dowe's claims did not fit under
various exclusionary provisions of the policy, it did not
specifically determine which insuring provisions of the policy
provided coverage.
For ease of analysis, we will begin by evaluating coverage for
Dowe's claims for breach of contract, breach of fiduciary duty, and
fraud. The policy covers “all sums which the insured shall become
legally obligated to pay as damages because of . . . personal
injury . . . caused by an occurrence to which this insurance
applies.”3 “Occurrence” means, with respect to “personal injury,”
any offense described in the policy's definition of “personal
injury.” On a plain reading of the policy's terms, we find no
definition of “personal injury” (or any other type of injury, for
that matter) that encompasses breach of contract, breach of
fiduciary duty, or fraud. Although ambiguous provisions in
insurance policies must be strictly construed in favor of finding
coverage, this rule of strict construction “does not authorize a
perversion of language, or the exercise of inventive powers for the
purpose of creating an ambiguity where none exists.” Ledbetter v.
3
The policy also covers “bodily injury,” “property damage,”
and “advertising injury” as those terms are defined in the policy.
6
Concord Gen. Corp., 665 So. 2d 1166, 1169 (La. 1996) (quoting Muse
v. Metropolitan Life Ins. Co., 193 La. 605, 192 So. 72, 75 (1939)).
Hardy, however, argues that the true nature of Dowe's claim is
that he was defamed by the filing of the suit on open account,
which was the covered “occurrence” under the policy. He arrives at
this conclusion because Dowe's recitation of damages in the
reconventional demand includes an allegation of injury to his
reputation.4 Therefore, Hardy argues he is entitled to coverage
under the policy's definition of “personal injury” as “the
publication or utterance of a libel or slander or of other
defamatory or disparaging material.” Indeed, in refusing to amend
its judgment, the district court concluded it was not bound by
Dowe's own characterization of his causes of action. Hence the
court thought it was free, under the rule requiring a liberal
interpretation of Dowe's claims, to recast the reconventional
demand as a defense to the suit on open account and a claim for
“personal injuries” caused by WBHTH's conduct in filing suit.
We recognize that the Louisiana case law requires a liberal
interpretation of Dowe's claims. However, we do not think that
even the most liberal reading of Dowe's reconventional demand
4
Hardy also urges us to consider that Dowe could not logically
make a claim for malpractice while at the same time asserting that
his company was WBHTH's real client, not Dowe himself. While this
argument may afford Hardy a valid defense to Dowe's claims,
Hartford's duty to defend must be determined by assuming that all
Dowe's allegations concerning Hardy's malpractice against him are
true. See Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993).
7
permits us to disregard his clear and distinct statement of causes
of action for “breach of contract,” “breach of fiduciary duty,” and
“fraud,” arising from the factual allegations of over-billing and
unauthorized work. It is true that part of the remedy Dowe seeks
is damages for injury to his reputation. A recitation of damages,
however, is not a factual allegation, and in determining Hartford's
duty to defend, we must be guided only by the facts and resulting
causes of action that Dowe alleges. Even the district court noted
in its order that Dowe's only reference to reputation damages was
contained in the recitation of damages he suffered. In Associated
Indemnity Corp. v. Louisiana Industries Prestressed Corp., 259 So.
2d 89, 92-93 (La. App. 4 Cir. 1972), a Louisiana court interpreted
an insuring provision similar to the one at issue in this case.
Noting that “a person's reputation can be damaged in many ways,
only one of which is by libel or slander,” the court held that the
policy only covered reputation damages resulting from defamation,
libel or slander, not reputation damages arising from other causes
of action such as breach of contract. Id. at 92.
Moreover, although some of Dowe's claims could have been
stated as affirmative defenses to the suit on open account, he
clearly chose to make his allegations in an independent action for
damages. We therefore hold that the district court erred as a
matter of law in concluding that the CGL policy provided coverage
for these three causes of action.
Our evaluation of Dowe's cause of action for negligent
8
misrepresentation, however, requires a more searching analysis.
Both parties believe that this claim was based on the act of filing
suit on the open account against Dowe personally, after the
attorney-client relationship with Dowe and/or the Dowe Company had
ceased. The filing of the suit, therefore, amounted to a “negligent
misrepresentation” that Dowe was personally liable for the unpaid
fees.
First, we note that under Louisiana law, an action for
negligent misrepresentation is not one similar to defamation,
libel, or slander. Rather, a negligent misrepresentation claim is
made out when a person, in the course of his business or other
matters in which he has a pecuniary interest, supplies false
information without exercising reasonable care, for the guidance of
others, who justifiably and detrimentally rely on such information
and thereby suffer a pecuniary loss. Dousson v. South Central
Bell, 429 So. 2d 466, 468 (La. App. 4 Cir.), writ not considered,
437 So. 2d 1135 (La. 1983) (noting that Louisiana courts have
adopted the definition of negligent misrepresentation set forth in
the Restatement (2d) of Torts). Whether or not Dowe had a basis
for such a cause of action, it clearly is not a claim for a
“personal injury” in the form of “the publication or utterance of
a libel or slander or of other defamatory or disparaging material,”
nor would it be covered under any other insuring provision of the
policy.
Second, we do not read any of the factual allegations in
9
Dowe's claim as stating a cause of action for defamation, libel,
slander or similar theories. Hardy, however, would have us glean
an allegation of defamation from Dowe's statement in his
reconventional demand that Hardy knew or should have known that
Dowe was not personally liable for the debt and that Hardy knew or
should have known that the Dowe Company was defunct and had no
assets. An action for defamation in Louisiana requires the
plaintiff to plead and prove: (1) defamatory words, (2)
publication, (3) falsity, (4) malice (actual or implied), and (5)
resulting injury. Cangelosi v. Schwegmann Bros. Giant Super
Markets, 390 So. 2d 196, 198 (La. 1980). Louisiana is a fact
pleading jurisdiction. Fitzgerald v. Tucker, 737 So. 2d 706, 713
(La. 1999). Thus, a plaintiff pleading defamation must
specifically allege that the defendant made defamatory statements,
with malice. We fail to see, under the most liberal reading of
Dowe's reconventional demand, any allegation of defamation.
Nowhere in the pleading does Dowe state that Hardy or WBHTH
“defamed” him or even that the suit on open account constituted
“disparaging material.” Moreover, there is clearly no allegation
of malice. Accordingly, even under the rule of liberal
construction and looking at the pleading as a whole, we do not
think that Dowe has made even a rudimentary claim for defamation
and we decline to read one into his reconventional demand.5
5
But see Federal Ins. Co. v. St. Paul Fire and Marine Ins.
Co., 638 So. 2d 1132 (La. App. 1 Cir. 1994), and Rio Rouge Dev.
10
Finally, as we have already stated, we do not think an
allegation of reputation damages should guide us in determining the
duty to defend. The recitation of reputation damages does not
convert Dowe's action into one for defamation. Regardless of
whatever Dowe may have intended to sue for, we think the
allegations which he actually stated in the reconventional demand,
liberally interpreted, unambiguously exclude coverage.
Because we have disposed of Hardy's claim on the basis of the
insuring provisions of the CGL policy alone, we find it unnecessary
to examine any of the policy's exclusionary provisions.
The district court refused to assess statutory penalties
against Hartford because it found that the denial of coverage was
not an arbitrary and capricious act under La. R.S. 22:658 and
22:1220. This finding was a finding of fact and is thus reviewable
only for clear error. Riley Stoker Corp. v. Fidelity and Guar.
Ins. Underwriters, Inc., 26 F.3d 581, 590 (5th Cir. 1994). We find
no such error. Hardy contends, citing Credeur v. McCullough, 702
Corp. v. Security First Nat'l Bank, 610 So. 2d 172 (La. App. 3 Cir.
1992). In both of these cases, the plaintiff's allegations were
deemed sufficient to trigger the insurer's duty to defend a claim
of defamation. However, in those cases, the plaintiff's petition
contained specific allegations of “false statements and innuendos
[made] maliciously and with total disregard for the truth or
falsity of said statements.” (Federal, 638 So. 2d at 1134) or
“derogatory remarks” (Rio Rouge, 610 So. 2d at 175).
We note that in its briefs, Hartford has referred to Dowe's
negligent misrepresentation claim as one of “defamation.” Despite
this characterization of the claim, our own review of the
reconventional demand leads us to the inescapable conclusion that
Dowe has not made any allegation of defamation.
11
So. 2d 985 (La. App. 3 Cir. 1997), that La. R.S. 22:1220 does not
contain the “arbitrary and capricious” factual prerequisite to a
finding of bad faith from denying coverage. Assuming without
deciding that Hardy is correct, we find the district court did not
err in failing to conclude that Hartford lacked good faith even as
a matter of law, because Hartford had no duty to provide a defense
or coverage to Hardy.
CONCLUSION
Because we have found that Hartford had no duty to provide a
defense or coverage to Hardy, there is no genuine issue of material
fact and Hartford is entitled to a judgment as a matter of law.
The district court's grant of summary judgment for Hardy was in
error. We REVERSE and RENDER in part, and AFFIRM in part.
12
Hardy v. Hartford Insurance
Court: Court of Appeals for the Fifth Circuit
Date filed: 2001-01-05
Citations: 236 F.3d 287
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