IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 01-30425
_____________________
PENNY HOLDEN, Etc.; ET AL.,
Plaintiffs,
versus
CONNEX-METALNA MANAGEMENT CONSULTING GMBH, Etc.; ET AL.,
Defendants.
__________________________________________________________________
RELIANCE NATIONAL INSURANCE COMPANY,
Plaintiff - Appellee - Cross-Appellant,
versus
LEXINGTON INSURANCE COMPANY; WESTCHESTER SURPLUS LINES
INSURANCE COMPANY,
Intervenors - Appellants - Cross-Appellees,
WESTCHESTER FIRE INSURANCE COMPANY; GENERAL STAR
INDEMNITY COMPANY,
Intervenors - Cross-Appellees,
versus
I C RAILMARINE TERMINAL COMPANY, INC.,
Defendant.
__________________________________________________________________
Appeals from the United States District Court
for the Eastern District of Louisiana
_________________________________________________________________
August 28, 2002
Before JOLLY, DeMOSS, and PARKER, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Insurers are disputing the allocation of liability for losses
suffered by their insured, IC RailMarine Terminal Co. (“IC
RailMarine”). The losses were caused by the collapse of a crane
that had just been installed as part of the construction of IC
RailMarine’s cargo terminal on the Mississippi River. The damage
was covered by various layers of property insurance. The policies
included a builder’s risk policy issued by Reliance National
Insurance Co. (“Reliance”), a joint blanket property policy issued
by Lexington Insurance Co. (“Lexington”) and Westchester Surplus
Lines Insurance Co. (“Westchester Surplus”), and a joint excess
property policy issued by Westchester Fire Insurance Company
(“Westchester Fire”) and General Star Indemnity Company (“General
Star”).
The central question is whether the blanket policies, which
provide nationwide coverage for all property owned by IC
RailMarine’s parent corporation, provide primary coverage for the
crane collapse or whether the builder’s risk policy, which was
purchased specifically for the construction project, must be
exhausted before coverage under the blanket policies is triggered.
To answer this question, we are required to make an Erie guess. We
determine that, under the particular circumstances of this case,
the Louisiana Supreme Court would conclude that the blanket
property policy functions as an “excess” policy with respect to a
2
loss associated with the construction project where the builder’s
risk policy purchased specifically for that project provided
primary coverage for the loss. Thus, Reliance is the sole primary
insurer of the loss at issue here. Accordingly, we reverse the
district court’s apportionment of liability to the general
insurers, Lexington and Westchester Surplus, and remand the case to
the district court for further proceedings not inconsistent with
this opinion.
I
The relevant facts are not in dispute. In early 1998, IC
RailMarine was constructing a bulk cargo terminal in Convent,
Louisiana. As part of this project, IC RailMarine hired Connex-
Metalna to design, build, and install a 240-foot gantry crane that
could load and unload cargo from ships docked at the terminal.
Connex-Metalna constructed and installed the crane at the IC
RailMarine terminal, but the crane fell into the Mississippi River
during a pre-acceptance load test performed on June 11, 1998.
Following the accident, IC RailMarine filed insurance claims for
the resulting losses under (1) the builder’s risk insurance policy
issued by Reliance, (2) the joint general property policy issued by
Lexington and Westchester Surplus, and (3) the joint excess
property policy issued by Westchester Fire and General Star.
Although all of these policies covered the property damage
caused by the collapse of the crane, each policy covered a
3
different range of exposures. The builder’s risk policy issued by
Reliance covered only property connected with the construction of
IC RailMarine’s bulk terminal in Convent, up to a limit of $19.42
million.1 In contrast, the blanket property policy issued by
Lexington and Westchester Surplus -- which was not connected with
the construction project -- covered all real and personal property
throughout the country held by the Illinois Central Corp. and its
subsidiaries, including IC RailMarine. The policy provided up to
$8 million in coverage for losses in excess of a $2 million self-
insured retention.2 To cover losses to its property above $10
million, Illinois Central purchased the joint excess property
policy from Westchester Fire and General Star with a coverage limit
of $15 million.
In October 1998, Reliance filed this action in the Eastern
District of Louisiana seeking a declaration of its rights and
obligations under the builder’s risk policy. A year later,
Lexington, Westchester Surplus, Westchester Fire, and General Star
intervened in the declaratory judgment action. The parties filed
1
Reliance issued the builder’s risk policy to Illinois Central
Railroad Co. Illinois Central Corp. is the ultimate parent
corporation of both IC RailMarine and Illinois Central Railroad.
2
Illinois Central Railroad also purchased a commercial property insurance policy from Royal
Surplus Lines Insurance Co. (“Royal”) to cover IC RailMarine’s $2 million deductible under
the general property policies.
4
cross motions for summary judgment in September 2000.3 In its
summary judgment motion, Reliance argued that the losses caused by
the crane accident were not covered by the builder’s risk policy.
Lexington and Westchester Surplus argued that, as blanket insurers,
they were not obligated to pay for losses associated with the crane
accident until the builder’s risk policy -- which, as we have
noted, was issued by Reliance specifically for the construction
project -- reached its coverage limit.
The district court held that, although the exclusions in the
builder’s risk policy did not bar coverage in this case, factual
issues remained concerning whether Reliance could deny coverage
under other terms of the policy. The district court further
rejected the argument advanced by Lexington and Westchester Surplus
that Louisiana law treats blanket policies as excess insurance
where the specific policy provides primary coverage.
Shortly before the trial on the remaining factual questions,
IC RailMarine settled all of its claims against Reliance,
Lexington, and Westchester Surplus for $11.5 million.4 According
to the terms of the settlement, the three insurers reserved the
3
In addition, IC RailMarine asserted claims against the intervening general property insurers.
The declaratory judgment action was ultimately consolidated with an action filed by individuals who
were injured in the crane accident.
4
In a separate agreement, IC RailMarine settled its claim
under Royal’s policy covering the general property policy
deductible for $1.975 million. IC RailMarine thus settled all of
its insurance claims associated with the crane accident for a total
of $13.475 million.
5
right to litigate each company’s share, if any, of the $11.5
million settlement amount. Before proceeding to trial, Reliance
moved to exclude extrinsic evidence of the parties’ interpretation
of the blanket policies.5
The district court held that the proffered parol evidence was
not admissible under Louisiana law because the language in the
relevant insurance policies was unambiguous. Specifically, the
district court found that (1) the plain language of the joint
policy issued by Lexington and Westchester Surplus provided primary
coverage for the losses associated with the crane accident and (2)
the joint policy issued by Westchester Fire and General Star was a
“true” excess policy under the plain meaning of its terms and
therefore did not provide coverage until coverage under the primary
policy was exhausted. The district court then determined that the
$11.5 million settlement with IC RailMarine should be divided among
the three primary insurers in the proportion that their respective
policy limits bear to the combined policy limit. The district
court therefore allotted $8.165 million to Reliance, $2.084 million
to Lexington, and $1.251 million to Westchester Surplus. This
appeal followed.
5
Following Reliance’s motion to exclude, the general property
insurers proffered testimony by employees of IC RailMarine and the
blanket insurers concerning their understanding of (1) the priority
of payment between general and specific insurance policies and (2)
the interpretation of specific provisions in the blanket insurance
policies. In response, Reliance filed a counter-proffer tending to
refute the testimony proffered by the general property insurers.
6
II
Before turning to the substantive question posed in this case,
we must deal with Reliance’s motion to stay these proceedings in
deference to a Pennsylvania state court order.
On May 29, 2001, the Commonwealth Court of Pennsylvania issued
an order placing Reliance in rehabilitation.6 Under the
rehabilitation order, the Pennsylvania Insurance Commissioner has
sole authority to dispose of assets held by Reliance and to satisfy
claims against Reliance. The order also includes a provision that
purports to stay “[a]ll actions currently pending against Reliance
in the Courts of the Commonwealth of Pennsylvania or elsewhere.”
Reliance argues that we are required to abstain from exercising
jurisdiction in this case under Burford v. Sun Oil Co., 319 U.S.
315 (1943), because our decision is likely to interfere with the
orderly administration of Reliance’s assets by state authorities.
The Burford abstention doctrine stands as a narrow exception
to the rule that federal courts “have a strict duty to exercise the
jurisdiction that is conferred upon them by Congress.” Quackenbush
v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). As we observed in
Webb v. B.C. Rogers Poultry, Inc., 174 F.3d 697, 700-01 (5th Cir.
1999), the Burford doctrine requires us to “weigh the federal
interests in retaining jurisdiction over the dispute against the
6
The state court issued the order after the parties had filed
their notices of appeal from the district court judgment but before
oral argument was held in this Court.
7
state's interests in independent action to uniformly address a
matter of state concern, and to abstain when the balance tips in
favor of the latter.”
Unlike an outright dismissal of a federal action, a stay of
federal proceedings on abstention grounds is best viewed as a
“postponement of decision for its best fruition.”7 Quackenbush,
517 U.S. at 720-21. Thus, a stay is typically warranted to await
resolution of a difficult, potentially controlling issue of state
law. See id.; see also Louisiana Power & Light Co. v. City of
Thibodaux, 360 U.S. 25, 27 (1959) (“We have increasingly recognized
the wisdom of staying actions in the federal courts pending
determination by a state court of decisive issues of state law.”).
In the appeal before us, however, there is no decisive issue
of Pennsylvania law to be decided. Neither does the issue of law
that we address implicate federalism concerns -- unlike, for
example, the exercise of the state’s power of eminent domain, the
relationship between city and state, or the application of a new
state statute of questionable constitutionality. See Thibodaux,
360 U.S. at 27-28. Although the Pennsylvania state court order may
very well preclude enforcement of any judgment against Reliance, we
fail to see how our resolution of this appeal would substantially
7
The Supreme Court has identified a distinction “between abstention-based remand orders
or dismissals and abstention-based decisions merely to stay adjudication of a federal suit.”
Quackenbush, 517 U.S. at 720. In this case, Reliance has requested only an “order staying all further
proceedings in this action.”
8
interfere in the administration of Reliance’s assets by the
Pennsylvania state authorities. In short, we conclude that a stay
of these proceedings is neither required nor appropriate.
III
The pivotal issue in this appeal is whether the joint blanket
policy issued by Lexington and Westchester Surplus provides primary
coverage of the losses associated with the collapse of the crane.
Reliance argues that all of the general property insurers (along
with Reliance itself) are obligated to provide primary coverage for
the losses incurred by IC RailMarine because they all agreed to
insure the same property and the same risk. Thus, Reliance argues
that the losses must be allocated among all of the companies that
insured the damaged property.
Lexington and Westchester Surplus respond that their blanket
property policy does not cover the same exposure as the builder’s
risk policy issued by Reliance. Relying principally on Fasullo v.
Am. Druggists' Ins. Co., 262 So.2d 810 (La. App. 4 Cir.), writ
denied, 266 So.2d 220 (La. 1972), they argue that Louisiana law
establishes different levels of priority for insurance coverage
depending on whether the coverage is “general” or “specific.”
According to Lexington and Westchester Surplus, under Louisiana
law, insurance coverage that applies only to specified property --
like the builder’s risk policy issued by Reliance in this case --
must be exhausted before coverage is triggered under blanket
9
property policies. The rationale for this rule is simple: The law
should presume that a blanket property policy is intended only to
cover losses in excess of the limits of a policy purchased for a
specific project because it is redundant to purchase a project-
specific policy that simply duplicates the coverage of the broader
blanket policy. Following this principle, Lexington and
Westchester Surplus argue that Reliance is the sole primary insurer
of losses connected with the terminal construction project, while
the general property policies provide successive layers of excess
insurance in the event that the builder’s risk policy is not
sufficient to cover the losses.
The district court, however, agreed with Reliance and
concluded that Fasullo does not control in this case. Instead, the
district court held that the Lexington and Westchester Surplus
policy provided primary coverage for the losses at issue here. We
review the district court’s interpretation of insurance policies de
novo. See Norfolk Shipbuilding & Drydock Corp. v. Seabulk
Transmarine Partnership, Ltd., 274 F.3d 249, 252 (5th Cir. 2001).
In this diversity case, the parties agree that the substantive
law of Louisiana governs our decision.8 The Louisiana Supreme
Court, however, has not addressed whether blanket insurance
8
Because the insurance policies at issue here do not contain
choice-of-law provisions, the district court applied the law of the
forum state, Louisiana. See Guaranty Nat. Ins. Co. v. Azrock
Industries Inc., 211 F.3d 239, 243 (5th Cir. 2000). The parties do
not challenge this decision on appeal.
10
policies become “excess” policies where a more specific policy
applies. We must therefore determine, in our best judgment, how
the Louisiana Supreme Court would resolve the issue if presented
with the same case. See Rogers v. Corrosion Prod., Inc., 42 F.3d
292, 295 (5th Cir. 1995); Associated Int’l Ins. Co. v. Blythe, 286
F.3d 780, 783 (5th Cir. 2002). Although an intermediate appellate
court decision is “not controlling where the highest state court
has not spoken on the subject,” we ordinarily defer to the holdings
of lower appellate courts in the absence of guidance from the
highest court. Rogers, 42 F.3d at 295; Blythe, 286 F.3d at 783.
As always, in conducting this inquiry our task is “to predict state
law, not to create or modify it” -- that is, we are “to apply
existing [Louisiana] law, not to adopt innovative theories for the
state.” United Parcel Service, Inc. v. Weben Industries, Inc., 794
F.2d 1005, 1008 (5th Cir. 1986).
As Lexington and Westchester Surplus point out, Fasullo is the
only Louisiana case to address the prioritization of payments
between general and specific insurers.9 The dispute in Fasullo
9
The district court declined to apply Fasullo because other
Louisiana courts have not followed it. It would appear, however,
that no other Louisiana court has had occasion to address this
issue. The district court also observed that the Louisiana First
Circuit Court of Appeal in Prudential Assur. Co. Ltd. v. London &
Hull Maritime Ins. Co., Ltd., 621 So.2d 1165, 1167 (La. App. 1 Cir.
1993), asserted that Fasullo is “no longer ‘good law.’” Taken in
context, however, this statement refers only to Fasullo’s separate
holding that the Louisiana proration statute does not create an
affirmative right to contribution. See also Rocha v. Landry, 615
So.2d 995, 998 & n.5 (La. App. 1 Cir. 1993) (observing that several
courts have declined to follow Fasullo’s holding that the pro rata
11
arose out of a fire that destroyed a building housing two separate
businesses -- a retail drugstore and a wholesale drug business --
owned by the same insured. 262 So.2d at 811. The dispute centered
on the allocation of the resulting losses among three insurers.
See id. One insurer’s policy covered only the property associated
with the retail drugstore, while the other two insurers issued
blanket policies covering the entire building, including all
personal property owned by the insured. See id. In resolving this
dispute, the Louisiana Fourth Circuit Court of Appeal held that a
“specific policy must bear the entire loss on the portion of the
[property] which it covers up to its face amount, with the blanket
policy or policies affording residual or excess coverage to the
extent of their respective limits of liability.”10 Id. at 815
statute does not create a right to contribution). Finally, the
district court suggested that Fasullo is distinguishable from the
instant case because Fasullo involved the interpretation of the
Louisiana proration statute rather than a contractual proration
clause. The court’s holding in Fasullo, however, was based on
policy considerations and not on the court’s interpretation of
statutory language. In any event, the proration statute does not
come into play until the court identifies multiple insurers that
provide primary coverage for the loss. In sum, we find that
Fasullo remains persuasive authority on this issue.
10
As Reliance observes, the builder’s risk and the blanket
property policy both contain “other insurance” provisions that
purport to convert each policy into an excess policy where another
insurer provides concurrent coverage. Where effective, such
provisions ordinarily cancel each other out, and the loss is
prorated among the insurers. See Hartford Fire Ins. Co. v. Roger
Wilson, Inc., 291 So.2d 852, 856 (La. App. 3 Cir. 1974); Jefferson
Downs, Inc. v. American General Ins. Co., 214 So.2d 244, 248 (La.
App. 4 Cir. 1968). But, under the “Pennsylvania Rule,” a specific
policy and a blanket policy do not constitute concurrent or double
insurance because they do not cover the same range of property.
12
(citing Sloat v. Royal Ins. Co., 49 Pa. 14 (1865); Blue Anchor
Overall Co. v. Penn. Lumbermens Mut. Ins. Co., 123 A.2d 413 (Pa.
1956)). The court reasoned that this rule, often known as the
“Pennsylvania Rule,” maximizes the scope of insurance coverage by
avoiding overlapping coverage by multiple insurers. See id.
We find the principle applied in Fasullo instructive in making
our Erie guess of how the Louisiana courts would resolve the
coverage issue in the instant case. More specifically, we believe
that the Louisiana Supreme Court would hold that, when a policy is
purchased to cover a specific loss at a specific property during
the course of a specific project, its coverage must be first
exhausted before coverage arises under a general blanket policy
that covers all property losses at all of the insured’s various
properties.
We recognize that the “Pennsylvania Rule” applied in Fasullo
represents a minority position among the courts that have
considered the priority of coverage between general and specific
policies.11 We are nevertheless persuaded that the Louisiana
See Fasullo, 262 So.2d at 812. Under this view, the “other
insurance” provisions in the builder’s risk and blanket property
policy are not triggered. Because Wilson and Jefferson Downs did
not involve policies with differing scopes of coverage, they are
distinguishable from the present case.
11
Under the majority view, policies that cover the same risks with respect to the damaged
property must be treated as “concurrent insurance” -- even if the policies do not cover an identical
set of property. See, e.g., Am. Emp. Ins. Co. v. Continental Cas. Co., 512 P.2d 674, 678 (N.M.
1973) (adopting the “prevailing view” that general policies prorate with specific policies); Home v.
Great American Ins. Co., 134 S.E.2d 865 (Ga. App. 1964) (same); Indus. Indemnity Co. v.
13
Supreme Court, if presented with the particular facts in this case,
would follow the principle applied in Fasullo.12 We do not,
however, extend our Erie guess to predict how the Louisiana Supreme
Court might resolve coverage issues between general and specific
policies in other contexts. We only conclude that, where an
insured has in force blanket property policies that cover the same
property as a policy purchased specifically for a well-defined
project, the Louisiana Supreme Court would hold that the blanket
policies provide coverage only for losses in excess of the limits
Continental Casualty Co., 375 F.2d 183 (10th Cir. 1967) (same under Oklahoma law); South Carolina
Ins. Co. v. Fidelity and Guar. Ins. Underwriters, Inc., 489 S.E.2d 200, 214 (S.C. 1997) (rejecting
distinction between specific and general policies and instead determining which policies were intended
to provide primary coverage); see generally 15 Couch on Insurance § 219:17 at 24-25 (3d ed. 1999)
(“As a rule, general policies prorate with specific policies. . . .”); 44 Am. Jur. 2d Insurance § 1786
(collecting cases and stating that the “majority of courts” agree that “[b]lanket policies prorate with
specific policies”).
12
Other courts have similarly found the occasion to apply the
“Pennsylvania Rule.” See United Services Auto. Ass'n v. U. S.
Fidelity & Guaranty Co., 555 S.W.2d 38, 43 (Mo. App. 1977) (“Since
the U.S.A.A. policy affords blanket or floater coverage and the
U.S.F. & G. is a specific coverage policy under the principles
above discussed, the latter affords primary coverage and the former
is only supplemental or excess coverage and responsibility attaches
under it only when the specific coverage has been exhausted.”);
Mill Factors Corp. v. Ming Toy Dyeing Co., 41 F.Supp. 467, 469
(D.C.N.Y. 1941) (holding that specific policy covering goods at a
specific location must bear loss before coverage under floater
policy is triggered although both policies contained “other
insurance” clauses); see also John A. Appleman & Jean Appleman,
Insurance Law & Practice § 3912 (1972) (“A blanket or floating
policy is only intended to supplement specific insurance, and it
cannot become operative until the specific insurance has become
exhausted.”); Continental Cas. Co. v. Suttenfield, 236 F.2d 433,
438 (5th Cir. 1956) (“We are reminded of the holding of some courts
that where two or more policies of insurance are partly coextensive
as to assumed hazards, the primary liability should be cast upon
the company whose policy affords specific insurance.”).
14
of the project-specific policy.13
Applying this rule to the facts of the present case, we hold
that the builder’s risk policy issued by Reliance provides primary
coverage for the losses caused by the crane accident, while the
blanket property policy issued by Lexington and Westchester Surplus
provides coverage for losses in excess of the builder’s risk policy
limit. As a consequence, the district court erred in holding that
Lexington and Westchester Surplus were primary insurers of the IC
RailMarine construction project and shared in the liability for the
damages associated with that project.
IV
For the reasons set out above, we reverse the district court’s
judgment apportioning the losses from the crane accident among
Reliance, Lexington, and Westchester Surplus and remand to the
district court for further proceedings not inconsistent with this
opinion. We affirm the district court’s judgment insofar as it
holds that Westchester Fire and General Star are not primarily
liable for the losses caused by the crane collapse.14
13
Of course, the presumption would be rebutted if the insured
negotiated a lower premium from one or both of the insurers based
on the concurrent coverage. In this case, however, there is no
evidence that the insured negotiated a lower price for the
builder’s risk policy or the blanket insurance policies. Indeed,
Reliance’s position appears to be that the insured was essentially
unaware of the overlapping coverage when it purchased the Reliance
policy.
14
Reliance maintains that the policies issued by Westchester
Fire and General Star are not “excess” policies because they cover
precisely the same exposures as the other general property
15
REVERSED IN PART, AFFIRMED IN PART, and REMANDED.
policies. We need not reach this question, however, because we
conclude that none of the general property insurers are primarily
liable for the losses at issue here.
16