United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 15, 2005
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 04-30602
TIMES-PICAYUNE PUBLISHING CORPORATION,
Plaintiff-Appellant,
versus
ZURICH AMERICAN INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
Before GARWOOD, GARZA, and BENAVIDES, Circuit Judges.
GARWOOD, Circuit Judge:
The Times-Picayune Publishing Corporation (Times-Picayune), a
Louisiana citizen, brought suit against Zurich American Insurance
Company (Zurich), a New York citizen, in the state court of Orleans
Parish, Louisiana alleging various state law causes of action
related to Zurich’s refusal to pay the Times-Picayune, as an
insured under a Zurich excess policy covering employee dishonesty,
for certain embezzlement losses. Zurich removed the case to the
Eastern District of Louisiana, and the district court ultimately
entered summary judgment in its favor. We reverse.
Facts and Proceedings Below
The material facts of this case are undisputed.
From January 1, 1995 until July 1, 2001, the Times-Picayune
was insured under a series of six $1,000,000 primary insurance
policies issued by Federal Insurance Company (Federal) that
covered, among other things, acts of employee dishonesty. The
first of these primary policies ran from January 1, 1995, to July
1, 1996, and each subsequent policy was for a one year term
beginning July 1, with the sixth and final primary policy running
from July 1, 2000, to July 1, 2001. Notably, the Federal primary
polices each contemplated the possibility that surreptitious
crimes like embezzlement might be perpetrated during the life of
one policy but not discovered until sometime thereafter. Each of
the primary policies covered losses occurring during the policy
period and required the insured to file proof of loss within 120
days after discovery of the loss. Coverage extended to losses
discovered within one year after the policy expired (the
“discovery period”).1 Importantly here, each primary policy also
provided coverage on certain conditions for losses which occurred
1
Each primary policy provided:
“DISCOVERY PERIOD
This insurance does not cover any loss, sustained by
any insured, discovered later than one year following
termination of this insurance in its entirety.”
2
prior to the policy period, pursuant to a “Prior Loss” clause
reading as follows:
“LOSS SUSTAINED PRIOR TO EFFECTIVE DATE
If you were continuously insured by a policy prior to
this insurance providing the same insurance as this
policy, but cannot recover on a loss because that
policy was terminated and its discovery period has run
out, we will cover your loss provided:
1. this insurance would have covered your loss had it
been in effect at the time the acts that caused the
loss occurred; and
2. you discovered the loss within one year after this
insurance is terminated.
We will not pay more than the Limit of Insurance for
the loss under the prior policy or under this insurance
when it became effective, whichever is less. The amount
we pay will be a part of this insurance, not in
addition to it.
If we have insured you under other policies whose
discovery period had not run out when you discovered a
loss that occurred partly under those policies and
partly under this policy, we will pay up to the Limit
of Insurance under this policy or the prior policies
issued by us, whichever is less.”
In January of 1995 a Times-Picayune employee named Arthur
Anzalone embarked on a six-year embezzlement scheme during which
he would eventually steal $2,205,879 from the Times-Picayune
until he was discovered in December of 2000. Over the course of
his crime, Anzalone stole: $536,428 during the term of Federal’s
first primary policy (1/1/95 - 7/1/96); $268,871 during the
second policy (7/1/96 - 7/1/97); $234,707 during the third policy
(7/1/97 - 7/1/98); $330,647 during the fourth policy (7/1/98 -
7/1/99); $562,859 during the fifth policy (7/1/99 - 7/1/00); and
3
$272,367 during the sixth (and last) primary policy (7/1/00 -
7/1/01). Following the discovery of Anzalone’s ongoing theft,
the Times-Picayune timely made proof of loss and filed a claim
with Federal under its sixth primary policy for both the losses
incurred during that policy period as well as the previously
undetected losses that were sustained while the preceding Federal
primary policies were in effect. Though it did not admit
liability, Federal in December 2001 settled with the Times-
Picayune for the full policy limit of $1,000,000.
That settlement, however, left the Times-Picayune with
$1,205,879 in embezzlement losses that were not reimbursed by
Federal’s primary policy. It was to recover this sum that the
Times-Picayune turned to Zurich. In July of 1996, along with its
second primary policy, the Times-Picayune also purchased from
Federal a $1,500,000 excess policy that would cover, inter alia,
acts of employee dishonesty exceeding the $1,000,000 policy limit
of the underlying primary policy. The Times-Picayune renewed
this one-year excess policy with Federal on July 1, 1997, but, on
July 1, 1998, the Times-Picayune switched excess carriers and
bought a three-year, $1,500,000 policy from Zurich that was
effective from July 1, 1998 until July 1, 2001. The Times-
Picayune timely filed an excess claim with Zurich for the
$1,205,879 not covered by (because in excess of the policy limits
of ) the Federal July 1, 2000 - July 1, 2001 primary policy.
4
Zurich balked, however. First, although the Zurich excess
policy itself contains no Prior Loss clause (nor any express
limitation to losses after policy inception or exclusion of pre-
policy losses), the third sentence of the excess policy’s
insuring clause provides that “coverage under this policy shall
then [on exhaustion of required primary coverage] apply in
conformance with and subject to the warranties, limitations,
conditions, provisions, and other terms of the Primary Policy.”
Accordingly, Zurich contended that under the Prior Loss clause in
the Federal primary policy, Zurich was not responsible for any
losses incurred before July 1, 1998 because in neither year in
which the Times-Picayune had excess coverage from Federal did
Anzalone embezzle more than the $1,000,000 limit of the
underlying primary policy.2 Second, in light of its conclusion
that it had no liability under the Prior Loss clause, Zurich
maintained that it was only bound to cover losses exceeding
$1,000,000 incurred during the three-year life of its own excess
policy (7/1/98 - 7/1/01). The amount Anzalone embezzled during
this three-year period was $1,165,873. Zurich took the position
that, once Federal’s $1,000,000 in primary coverage was
subtracted, its exposure under its $1,500,000 excess policy was
actually only $165,873 out of the $1,205,879 in embezzlement
losses that were not covered by (because in excess of the limits
2
The Times-Picayune did not carry excess insurance from
January 1, 1995 to July 1, 1996.
5
of) the Federal primary policy.3 Zurich offered to settle for
roughly this amount and in fact made a $93,064 payment to the
Times-Picayune.
On September 19, 2002, the Times-Picayune filed a six-count
complaint in Louisiana state court alleging, inter alia: (1)
common law breach of the Zurich excess insurance policy contract;
(2) breach of contract in bad faith; (3) a violation of LA. REV.
STAT. ANN. § 22:1220, which requires the prompt adjustment of
insurance claims in good faith; (4) a violation of LA. REV. STAT.
ANN. § 22:658, which requires prompt payment of a claim on
receipt of a satisfactory proof of loss; (5) a breach of the
common law implied covenant of good faith and fair dealing; and
(6) declaratory judgment. Zurich removed the case to federal
court on the basis of diversity jurisdiction under 28 U.S.C. §
1332.4
The district court granted partial summary judgment to
Zurich, ruling as a matter of law that Zurich’s excess policy
unambiguously confined its liability only to those losses
incurred during the three-year term of the Zurich policy that
exceeded the $1,000,000 limit of the underlying Federal primary
3
The Zurich policy has a $1,500 deductible but we ignore
that to simplify the calculations.
4
The parties consented to trial and disposition by the
magistrate judge, so references to the district court refer to
the magistrate judge.
6
policy. The district court subsequently entered a FED. R. CIV. P.
54(b) judgment as to count one of the complaint, concluding that,
in light of the partial summary judgment order and a payment
already made to the Times-Picayune, Zurich’s remaining liability
on count one was $60,000. The premise behind the Rule 54(b)
judgment is that the Times-Picayune could not prevail on any of
its five other causes of action without first having prevailed on
its basic breach of contract claim.
The only issue the Times-Picayune raises on appeal is
whether Zurich is responsible under its excess policy for all (or
some part greater than awarded by the district court) of the
$1,205,879 in embezzlement losses that were not covered by
(because in excess of the policy limits of) Federal’s July 1,
2000 - July 1, 2001 primary policy, or is only responsible for
$165,873 of the $1,165,873 that was embezzled during the three-
year term of Zurich’s excess policy.
Standard of Review
A grant of summary judgment is reviewed de novo under the
same standard applied by the district court. Keelan v. Majesco
Software, Inc., 407 F.3d 332, *9 (5th Cir. 2005). Where, as in
the instant case, none of the material facts are in dispute, the
court may enter judgment as a matter of law.
Analysis
7
1. The Language of the Excess Insurance Contract
The parties do not dispute that Louisiana law controls.
“Under Louisiana law, a court should
interpret an insurance policy under ordinary
principles for the interpretation of a
contract. The intentions of the parties, as
reflected by the words of the policy, should
determine the extent of coverage. The words
should be given their plain meanings, and the
court should not change the coverage of the
policy under the guise of interpreting
ambiguous language. The court should
consider the policy as a whole, and interpret
the policy to fulfill the reasonable
expectations of the parties in the light of
the customs and usages of the industry. If a
clause remains ambiguous after such
consideration, then it should be construed
against the insurer.”
Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 269
(5th Cir. 1990) (citations and footnotes omitted).
We begin, therefore, with the relevant provisions of the
Zurich policy itself.
a. The insuring clause of the Zurich policy provides:
“I. INSURING CLAUSE.
The Underwriter shall provide the Insureds
with insurance coverage during the Policy
Period excess of the Underlying Insurance.
Coverage under this policy shall attach only
after all of the Limit(s) of Liability of the
Underlying Insurance has been exhausted by
the actual payment of loss(es). Except as
otherwise provided herein, coverage under
this policy shall then apply in conformance
with and subject to the warranties,
limitations, conditions, provisions, and
other terms of the Primary Policy as in
effect the first day of the Policy Period,
together with the warranties and limitations
8
of any other Underlying Insurance. In no
event shall coverage under this policy be
broader than coverage under any Underlying
Insurance.”
b. The drop down clause (Clause IIIB) of the Zurich
policy provides:
“B. REDUCTION/EXHAUSTION OF UNDERLYING
LIMITS
In the event and only in the event of the
reduction or exhaustion of the Limit(s) of
Liability of the Underlying Insurance solely
as the result of actual payment of loss
covered thereunder, this policy shall: (i) in
the event of reduction, pay excess of the
reduced Limit(s) of Liability of the
Underlying Insurance, and (ii) in the event
of exhaustion, continue in force as primary
insurance excess of the retention applicable
in the Primary Policy, which retention shall
be applied to any subsequent loss as
specified in the Primary Policy.
Notwithstanding any of the terms of this
policy which might be construed otherwise,
this policy shall drop down only in the event
of reduction of exhaustion of the Underlying
Insurance by the actual payment of loss and
shall not drop down for any other reason
including, but not limited to,
uncollectibility (in whole or in part) of any
Underlying Insurance. The risk of
uncollectibility of such underlying Insurance
(in whole or in part) whether because of
financial impairment or insolvency of the
underlying insurer or for any other reason,
is expressly retained by the Insureds and is
not in any way or under any circumstances
insured or assumed by the Underwriter.”
2. The Decision of the District Court
In granting summary judgment to Zurich on the contract
claim, the district court largely ignored the Zurich policy’s
9
drop down clause, and focused instead on the Prior Loss clause of
the Federal primary policy. It adopted this approach in reliance
on First Nat’l Bank of Amarillo v. Continental Cas. Co., 71 F.2d
838, 839 (5th Cir. 1934).
In Amarillo, the First National Bank of Amarillo, Texas,
bought two insurance policies, called “bonds” in that case, from
Continental on February 7, 1931. One Continental policy provided
$50,000 in primary coverage and replaced a prior primary policy
issued by another insurer for the same amount. The other
Continental policy provided $50,000 in excess coverage. Unlike
Continental’s primary policy, the excess policy did not replace
preexisting excess coverage from Continental or any other
insurer. The excess policy had a rider stating that it would
provide excess coverage for any loss sustained under the prior
primary policy that was uncollectible because that policy had
been terminated.
In April of 1932, First National Bank discovered that an
employee had embezzled $78,000. The embezzler stole $46,000
before February 7, 1931 and $32,000 thereafter. In other words,
neither before nor during the term of Continental’s excess policy
did the embezzler steal more than the $50,000 limit of the
underlying primary policies.
The Continental primary policy had a rider attached to it
that covered undetected prior losses as long as those losses
10
would have been covered by First National Bank’s prior primary
policy (issued by another insurer). Continental exhausted the
$50,000 primary policy by paying $46,000 for the prior loss and
$4,000 for the loss incurred during the term of its own primary
policy. The First National Bank then sought to collect the
remaining $28,000 from Continental under the $50,000 excess
policy, but Continental refused to pay.
This court, over a vigorous dissent by Judge Hutcheson,
sided with Continental. Though not citing any contractual
language, the court began by concluding that the remaining
$28,000 could not be collected under the excess policy itself
because it provided only for future losses in excess of $50,000
and First National Bank only sustained a $32,000 loss after
February 7, 1931. The court then turned to the rider attached to
the excess policy. The court reasoned that this rider too could
not be invoked because it referred specifically to losses that
would have been recoverable under the prior primary policy and
the amount embezzled during the life of that policy did not
exceed $50,000.
It was irrelevant to the court that Continental’s primary
insurance had been exhausted by the payment of benefits for
aggregate losses suffered during both the prior and current
primary policies:
“The primary bond became liable under the
terms of its own rider for the loss of
11
$46,000 sustained during the life of the
prior bond. That bond and the prior canceled
bond may not properly be treated as one and
thereby make the excess bond liable for
losses which it had not assumed. The excess
bond assumed liability for losses above
$50,000 incurred either before or after its
effective date; but it did not contemplate or
authorize the adding together or combining of
losses incurred both before and after that
date. To take future losses and add them to
past losses and thus make up an amount
sufficient to create a liability under the
excess bond would be not to construe the
contract by which the Casualty Company agreed
to be bound, but to make one under which the
bank could recover.”
71 F.2d at 839.
The district court applied this reasoning to the Times-
Picayune’s claim, concluding that the Prior Loss provision of the
Federal primary policy, as applicable under the language of the
third sentence of the insuring clause of Zurich’s excess policy,
was never triggered because the embezzlement losses incurred
during the two years of prior excess coverage amounted to only
$503,578, well under the $1,000,000 limit of the Federal primary
policies then in force.5 Finding that the primary policy’s Prior
Loss provision (as applicable in the Zurich excess policy under
that policy’s insuring clause) was never triggered, the district
court ruled that Zurich was responsible only for prospective
5
For the purposes of calculating the Times-Picayune’s prior
losses, the district court aggregated the losses sustained from
July 1, 1996 to July 1, 1998, when the Zurich excess policy took
effect. In using this approach, the district court rejected
Zurich’s argument that its prior loss coverage would only be
triggered if losses in any given year exceeded $1,000,000.
12
losses exceeding $1,000,000 that were incurred after the July 1,
1998 inception date of its excess policy. This resulted in
liability to the Times-Picayune under the contract for $165,873
because the Times-Picayune suffered a $1,165,873 loss over the
course of Zurich’s three-year policy. Put differently, the
district court ruled that Zurich’s $1,500,000 excess policy was
only responsible for $165,873 of the entire $1,205,879 that the
Times-Picayune lost over and above the $1,000,000 limit of its
primary policy with Federal. The district court, following
Amarillo, ruled that it was irrelevant that the July 1, 2000 -
July 1, 2001 primary policy had been exhausted by prior losses.
3. The Scope of Excess Coverage
a. Amarillo does not control
We begin with the conclusion that Amarillo is not
controlling authority. Amarillo was decided in 1934, four years
before the Supreme Court issued its landmark decision Erie R.R.
v. Thompkins, 58 S. Ct. 817 (1938), in which the Court held that
federal courts sitting in diversity should apply substantive
state law and federal procedural law. Amarillo cites no court
decision, treatise or other authority whatever in support of its
conclusions, and the only reasonable inference is that the
Amarillo panel was simply elucidating a federal common law of
insurance contracts, a law that has long since ceased to apply to
cases of this kind. Furthermore, Amarillo was on appeal from the
13
Northern District of Texas, not a federal court in Louisiana. In
our view, it is inappropriate to treat such a pre-Erie Texas
case, particularly one that went uncited between 1936 and the
decision of the district court in this case, as controlling
authority respecting an insurance contract dispute under
Louisiana law.6
In addition, even if we were to consider Amarillo, it is
distinguishable on its facts. First, unlike the instant case,
there were no preexisting excess policies in Amarillo. Second,
and more importantly, the Prior Loss provision was in the excess
policy itself in Amarillo and it specifically referred to a loss
that would have been collectible under the prior primary policy.
In the instant case, on the other hand, the Prior Loss clause in
the Federal primary policy, so far as applicable in Zurich’s
excess policy, if it can properly be read to itself limit the
excess Zurich policy’s coverage in ways it does not limit the
primary policy’s coverage, is most reasonably read, in light of
all the provisions of Zurich’s excess policy, as referring to
Federal’s prior excess policy, and, as will be discussed in some
detail below, we conclude that Federal’s prior excess coverage in
this case would have covered the prior excess losses.
b. The insuring and drop down clauses control
6
Until the district court resurrected it, Amarillo had only
been cited by National Surety Co. v. First Nat’l Bank, 61 P.2d
1122 (Okla. 1936).
14
The district court discussed neither the insuring nor the
drop down clauses of the Zurich policy in its partial summary
judgment order. Instead, largely it seems in reliance on
Amarillo, the district court started with the assumption that the
Prior Loss clause exclusively controls because some of the
embezzlement losses were incurred before the July 1, 1998
inception date of the Zurich policy. This assumption was error,
however, because it prevented the district court from giving
proper effect to the excess policy’s insuring and drop down
clauses. Texas Eastern Transmission Corp. v. Amerada Hess Corp.,
145 F.3d 737, 742 (5th Cir. 1998) (“‘Each provision of a contract
must be interpreted in light of the other provisions so that each
is given the meaning suggested by the contract as a whole.’
Contract provisions susceptible to different meanings should be
interpreted ‘to avoid neutralizing or ignoring any of them or
treating them as surplusage,’ and ‘to preserve validity [of the
contract].’” (quoting LA. CIV. CODE ANN. § 2050 and Lambert v.
Maryland Cas. Co., 418 So.2d 553, 559-60 (La. 1982))). When
these clauses are properly understood in light of the excess
policy as a whole, the scope of Zurich’s liability clearly
expands in favor of the Times-Picayune.
Zurich’s excess insurance plainly covers prospective losses;
losses, in other words, that were incurred from the July 1, 1998
inception date forward. With respect to the Times-Picayune’s
15
prospective losses, there is no dispute that Anzalone stole
$1,165,873 over the three-year period of Zurich’s excess policy.
We begin, therefore, with whether the district court was correct
in ruling that Zurich’s excess policy only covers $165,873 of
this loss.
To answer this question, we turn to the plain language of
the Zurich excess policy. Section one of the excess policy,
titled the insuring clause, states in relevant part:
“The Underwriter shall provide the Insureds with
insurance coverage during the Policy Period Excess of
the Underlying Insurance. Coverage under this policy
shall attach only after all of the Limit(s) of
Liability of the Underlying Insurance has been
exhausted by the actual payment of loss(es).”
The most straightforward construction of this clause is that
Zurich will pay for covered losses that the primary policy will
not cover because it has been exhausted by the actual payment of
benefits. This reading of the insuring clause is substantially
reenforced by the unambiguous language of the drop down clause,
which obligates Zurich “in the event of exhaustion, [to] continue
in force as primary insurance excess of the retention applicable
in the Primary Policy.”7 Under the wording of these two clauses,
7
Zurich contends that the drop down clause has no
application to this case because , by virtue of its sub-clause
(ii), the provision of the drop down clause stating that the
Zurich policy will drop down as primary coverage insurance in the
event of exhaustion applies only to subsequent losses. The plain
language of the sub-clause (ii), however, is clear that what
applies in the event of subsequent losses is simply the retention
applicable to the exhausted primary policy.
16
Zurich’s duty to pay is triggered by a single condition: the
exhaustion of the underlying primary policy by actual payment of
benefits.
Neither the insuring clause nor the drop down clause, nor
anything else in Zurich’s policy, clearly conduces to Zurich’s
view, which was adopted by the district court, that liability
attaches only after both of two distinct conditions are met: (1)
exhaustion of the underlying primary insurance; and (2) in the
event the first condition is met, Zurich is in any case only
bound to cover that part of losses sustained during its policy
period that exceed $1,000,000. While this second condition may
be something Amarillo suggests, it is not what the policy itself,
taken as a whole, provides. There is simply nothing in the plain
language of the excess policy clearly stating that Zurich is only
bound to pay for losses (exceeding $1,000,000) which were
incurred during the period of its policy. To the extent that the
district court and Zurich have developed a plausible alternative
construction of the excess policy, all they have done is
manufactured an ambiguity and it is elementary under Louisiana
law that such ambiguities are construed in favor of coverage.
Between July 1, 1998 and the discovery of Anzalone’s
embezzlement in December of 2000, the Times-Picayune undisputedly
lost $1,165,873. It is also undisputed that the Federal primary
policy was entirely exhausted by the payment of actual losses to
17
the Times-Picayune for embezzlement losses covered under the
primary policy that were incurred since the inception of the
embezzlement scheme in 1995. Accordingly, under the plain and
unambiguous language of the insuring and drop down clauses,
Zurich is liable as primary insurer for the entire $1,165,873
that Anzalone embezzled between July 1, 1998, and July 1, 2001.
c. The prior loss
Having determined that Zurich is liable to the Times-
Picayune for the entire $1,165,873 that was stolen during the
term of Zurich’s excess policy, we turn to a final detail. The
$1,000,000 payment by Federal under its primary policy
compensated the Times-Picayune for the first $1,000,000 of its
total $2,205,879 embezzlement losses incurred from 1995 through
2000. Anzalone, however, stole $1,040,006 thereof between the
beginning of his scheme in 1995 and the inception date of the
Zurich excess policy on July 1, 1998. Because $40,006 more than
$1,000,000 primary coverage was embezzled before the Zurich
policy incepted on July 1, 1998, it was not included in the
preceding analysis. The final question, therefore, is whether
this outstanding $40,006 is also covered by Zurich’s excess
policy.
We begin with the Prior Loss clause because this $40,006 was
embezzled prior to the inception of Zurich’s excess policy on
July 1, 1998. The Prior Loss clause imposes two distinct
18
conditions. First, as stated in the introductory clause of the
Prior Loss clause, the insured must have been “continuously
insured” by a substantively identical policy, which the district
court read to mean, for purposes of the Zurich policy, a
substantively identical excess policy. Second, as stated in
clause “1.” of the Prior Loss clause, “this insurance would have
covered your loss had it been in effect at the time the acts that
caused the loss occurred[.]” The district court construed “this
insurance” to refer to the Zurich excess policy. The district
court construed the term “continuously” to mean that the only
losses that counted for the purposes of the Prior Loss clause
were losses that were incurred during a period of uninterrupted
excess coverage. Because the Times-Picayune did not have excess
coverage between January 1, 1995, and July 1, 1996, the district
court did not consider any of the $536,428 in embezzlement losses
from that period as part of the losses that qualified under the
Prior Loss clause. The district court then ruled that the Prior
Loss clause was not triggered because the aggregate losses in the
two years immediately prior to the inception of the Zurich
policy, years during which the Times-Picayune was covered by
Federal excess policies, only added up to $503,578, well below
the $1,000,000 limit of the Federal primary policy.
However, the district court did not opt for the simplest and
most straightforward reading of Zurich’s policy. It is
19
undisputed that all of the Times-Picayune’s $805,299 in
embezzlement losses from January 1, 1995 until July 1, 1997 were
within the coverage of the Federal primary policy. It is also
undisputed that the Federal primary policy covered $194,701 of
the Times-Picayune’s losses from July 1, 1997, to July 1, 1998,
when the Zurich policy began. What the Federal primary policy
did not cover, however, was the additional $40,006 that Anzalone
stole during this last year before the Zurich excess policy
incepted on July 1, 1998. The Federal primary policy did not
cover this $40,006 simply and only because the $1,000,000 policy
limit had been reached by actual payment of losses. Thus the
only loss to the Times-Picayune that is relevant for the purposes
of the district court’s reading of the Prior Loss clause as
applied to the Zurich policy is this $40,006 that was embezzled
sometime between July 1, 1997, and July 1, 1998.
Returning now to the language of the Prior Loss clause, it
is undisputed that the Times-Picayune was continuously insured by
an applicable excess policy from July 1, 1997 (indeed, from July
1, 1996), until the Zurich excess policy began on July 1, 1998.
Thus the first condition of coverage (under the district court’s
reading of the Prior Loss clause as applied in the Zurich policy)
is satisfied.
The second condition (again as construed by the district
court’s reading of the Prior Loss clause as applied in the Zurich
20
policy) is also satisfied because Zurich’s excess coverage “would
have covered [the Times-Picayune’s $40,006] loss had it been in
effect at the time the acts that caused the loss occurred,” as
stated in clause “1.” of the Prior Loss clause. This is
indisputable. Had the Times-Picayune discovered Anzalone’s theft
on June 5, 1998, and had Zurich’s excess policy been in effect at
that time, Zurich would have been liable for the $40,006 because
the underlying Federal primary policy would have been exhausted
by the actual payment of losses. Because Zurich would have been
liable then, it is liable now. Any other construction of the
Prior Loss clause would constitute impermissibly construing an
ambiguity in favor of the insurer.
Finally, considering the Zurich policy as a whole, we cannot
accept the district court’s reading of the third sentence of its
insuring clause.8 The sentence in question plainly intends to of
itself exclude from the excess policy coverage of any loss
excluded from (or not covered by or otherwise not recoverable
under) the primary policy, whether or not otherwise excluded by
the excess policy itself. But we cannot read that sentence as
8
That sentence states
“Except as otherwise provided herein, coverage under
this policy shall apply in conformance with and subject
to the warranties, limitations, conditions, provisions,
and other terms of the Primary Policy as in effect the
first day of the Policy Period, together with the
warranties and limitations of any other Underlying
Insurance.”
21
unambiguously of itself independently imposing a limitation on
coverage under the excess policy so as to exclude from the excess
policy coverage of losses that are within the coverage of and are
not excluded by or otherwise not recoverable under the underlying
primary policy. The excess policy has no Prior Loss clause, and
it contains no provision excluding prior losses or limiting
coverage to losses incurred after the effective date of the
policy. The underlying primary policies each do have a Prior
Loss clause, and it does provide coverage under those policies
(subject to certain conditions, which are indisputably satisfied
respecting the Federal primary policy in effect from July 1,
2000, to July 1, 2001, as to the entire $2,205,879 loss). To the
extent there is ambiguity in this respect it must be resolved
against Zurich. For this reason also, the Prior Loss clause of
the primary policy does not support the district court’s
judgment.
Conclusion
For the foregoing reasons, the judgment of the district
court is REVERSED and this case is REMANDED to the district court
for further proceedings not inconsistent with this opinion.
REVERSED and REMANDED
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