IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 14, 2009
No. 07-31033 Charles R. Fulbruge III
Clerk
FIRST AMERICAN BANK,
Plaintiff–Appellant,
v.
FIRST AMERICAN TRANSPORTATION TITLE INSURANCE CO.,
Defendant–Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, and OWEN and SOUTHWICK, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
Appellant First American Bank (First American or Bank) appeals a grant
of summary judgment in favor of appellee First American Transportation Title
Insurance Co. (FATTIC). The district court ruled that the measure of indemnity
under First American’s insurance policy is limited to the amount by which the
payments to the holders of the priming liens for necessaries reduced First
American’s recovery on its ship mortgages and that the Policy did not allow First
American to recover consequential damages. We affirm in part, reverse in part,
and remand for further proceedings.
No. 07-31033
I
In 2004, First American loaned Titan Cruise Lines, Inc. (Titan)
$28,000,000 to support Titan’s operation of a gaming vessel known as the Ocean
Jewel. As collateral for this loan, Titan executed ship mortgages in favor of First
American on the Ocean Jewel, and on the Emerald Express (Emerald) and the
Sapphire Express (Sapphire)—two high speed catamarans used to shuttle
customers back and forth from land to the Ocean Jewel.
FATTIC issued two separate title insurance policies to First American.
The first policy secured the Ocean Jewel and the second policy—the policy at
issue in this case—secured the Emerald and the Sapphire. The policies
cross-referenced each other and provided a single aggregate coverage limit of
$28,000,000—the value of First American’s loan to Titan.
The primary insuring clause of the policy on the Emerald and the Sapphire
(Policy) provides that FATTIC shall be liable for “actual loss or
damage . . . sustained or incurred by [First American] by reason of” any of
nineteen specifically enumerated risks. Relevant to this matter, these “covered
risks” included: “3. Unmarketability of the Title”; “11. The failure of the Insured
Mortgage to have the equivalent priority of a Preferred Mortgage as defined in
46 U.S.C. § 31322”; and
14. Lack of priority of the Mortgage insured hereunder
over any statutory lien for Necessaries (as that term is
defined in 46 U.S.C. § 31301 or its equivalent under the
law of Panama) provided to the Vessels prior to or after
the Date of Policy whether or not the statutory lien for
Necessaries arises prior to or after the Date of Policy.
In the event that First American proves that it has sustained a covered
loss, Section 7 of the Policy determines the extent of FATTIC’s liability.
Section 7, “DETERMINATION AND EXTENT OF LIABILITY,” provides, in
relevant part:
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No. 07-31033
This policy is a contract of indemnity against actual
monetary loss or damage sustained or incurred by the
Insured Claimant who has suffered loss or damage by
reason of matters insured against by this policy and
only to the extent herein described.
(a) The liability of the Company under this
policy shall not exceed the least of:
....
(iii) The difference between the value of
the Title as insured and the value of the Title subject to
the defect, lien, or encumbrance insured against by this
policy . . . .
....
(c) The Company will pay only those costs,
attorney’s fees and expenses incurred in accordance
with Section 4 of these Conditions.
Under the Policy, except when the law of Panama or the federal law of the
United States must be applied, resolution of any dispute is to be determined by
Louisiana law.
In August 2005, Titan filed for bankruptcy in the Tampa Division of the
United States District Court for the Middle District of Florida. At the time Titan
filed the proceedings, the Ocean Jewel, the Emerald, and the Sapphire were
encumbered by necessaries liens resulting from debts owed to suppliers of
necessaries for the vessels. In January 2006, the bankruptcy court approved the
sale of the Ocean Jewel.
Originally, the Sapphire was to be sold at auction with the Ocean Jewel.
However, the Sapphire was deleted from the sale after the vessel took on water
and sank at her moorings. After the Sapphire sank, the bankruptcy court
ordered that the costs Tampa Bay Shipbuilding and Repair Company (TBSR)
incurred in keeping and maintaining the Sapphire were “super-priority” claims
superior to any maritime lien on the vessel. Additionally, the bankruptcy court
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No. 07-31033
ordered that Titan’s abandonment of the Sapphire be approved. Subsequent to
the bankruptcy court’s orders, TBSR filed an in rem action against the Sapphire
in the United States District Court for the Middle District of Florida. As a result
of those proceedings, U.S. Marshals seized the Sapphire and sold it to TBSR at
public auction for $99,227, the value of TBSR’s liens.
Similarly, Eastern Shipbuilding Group, Inc. (Eastern) filed an in rem
action against the Emerald. The result of this action mirrored that of TBSR’s
in rem action against the Sapphire—U.S. Marshals seized the Emerald and sold
it to Eastern at public auction for a credit bid of $10,000, a portion of Eastern’s
$597,352.72 necessaries liens.
First American filed suit after FATTIC refused to pay anything on the
Emerald or Sapphire above the amounts paid to TBSR and Eastern in the
foreclosure sales. First American claimed, inter alia, damages for breach of
contract and breach of the duty of good faith and fair dealing.
FATTIC filed a motion for partial summary judgment requesting a
declaratory judgment that the measure of indemnity is limited under
Section 7(a)(iii) of the Policy to the amount by which the payments to the holders
of the priming liens for necessaries reduced First American’s recovery on its
mortgages. The district court adopted FATTIC’s position and also held that the
Policy did not allow First American to recover consequential damages. The
district court certified its interlocutory decision for appeal, and this court
accepted jurisdiction pursuant to 28 U.S.C. § 1292(b).
II
This court reviews a grant or denial of summary judgment de novo,
applying the same standard as the district court.1 Summary judgment is
appropriate if “the pleadings, the discovery and disclosure materials on file, and
1
Robinson v. Orient Marine Co. Ltd., 505 F.3d 364, 365 (5th Cir. 2007) (citing Gowesky
v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir. 2003)).
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No. 07-31033
any affidavits show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.”2 Any reasonable
inferences are to be drawn in favor of the non-moving party.3 Because the
interpretation of an insurance policy is a question of law,4 we review the district
court’s determination de novo. 5
III
By its express terms, FATTIC’s title policy is governed by the law of
Louisiana. Louisiana law provides that an insurance policy is a contract
between the parties and should be construed using the general rules of contract
interpretation set forth in the Louisiana Civil Code.6 The words used in an
insurance policy must be given their generally prevailing meaning.7 “[W]hen the
‘language of an insurance policy is clear, courts lack the authority to change or
alter its terms under the guise of interpretation.’” 8 Further, each provision of an
insurance policy “must be interpreted in light of the other provisions so that each
is given the meaning suggested by the contract as a whole.” 9 Insurance policies
“should not be interpreted in an unreasonable or strained manner so as to
2
Fed. R. Civ. P. 56(c).
3
Robinson, 505 F.3d at 366 (citing Gowesky, 321 F.3d at 507).
4
Principal Health Care of La., Inc. v. Lewer Agency, Inc., 38 F.3d 240, 242 (5th Cir.
1994); Bonin v. Westport Ins. Corp., 2005-0886, pp. 4-5 (La. 5/17/06); 930 So. 2d 906, 910.
5
Principal Health Care of La., Inc., 38 F.3d at 242.
6
Bonin, 2005-0886, at pp. 4-5; 930 So. 2d at 910; Coleman v. Sch. Bd. of Richland
Parish, 418 F.3d 511, 516 (5th Cir. 2005).
7
L A . CIV . CODE ANN . art. 2047; Bonin, 2005-0886, at p. 5; 930 So. 2d at 910; Coleman,
418 F.3d at 516.
8
Coleman, 418 F.3d at 518 (quoting La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co.,
93-0911 (La. 1/14/94); 630 So. 2d 759, 764); see also LA . CIV . CODE ANN . art. 2046.
9
L A . CIV . CODE ANN . art. 2050; Coleman, 418 F.3d at 517.
5
No. 07-31033
enlarge or to restrict its provisions beyond what is reasonably contemplated by
its terms or so as to achieve an absurd conclusion.”10
As has been noted, Section 7(a)(iii) states, in relevant part, that the
“liability of the Company under this policy shall not exceed the least
of: . . . (iii) The difference between the value of the Title as insured and the value
of the Title subject to the defect, lien, or encumbrance insured against by this
policy.” The district court interpreted this language to mean that FATTIC’s
liability is limited to the difference between the value of First American’s ship
mortgages when unencumbered and the value of First American’s ship
mortgages subject to the necessaries liens. Based on this language, the district
court also went on to state that the Bank’s recovery is limited to the amount by
which First American’s recovery on its mortgages was reduced by payments to
the holders of the priming liens for necessaries. While we agree that FATTIC’s
liability under the Policy is limited to the difference between the value of First
American’s ship mortgages when unencumbered and the value of First
American’s ship mortgages subject to the necessaries liens, we disagree that the
difference in values is to be determined solely by the proceeds recovered from the
foreclosure sale.
The Louisiana Supreme Court, in Volunteer State Life Insurance Co. v.
Union Title Guarantee Co.,11 has previously held that courts must take into
account other information, in addition to foreclosure sale proceeds, when valuing
a property for title-insurance purposes. In Volunteer State Life, a title insurer
10
Coleman, 418 F.3d at 517; Bonin, 2005-0886, at p. 5; 930 So. 2d at 910-11; see also
LA . CIV . CODE ANN . art. 2049 (“A provision susceptible of different meanings must be
interpreted with a meaning that renders it effective and not with one that renders it
ineffective.”).
11
143 So. 43 (La. 1932).
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No. 07-31033
insured the plaintiff’s $10,000 mortgage on a certain property.12 However,
neither party had knowledge of a previously recorded $17,500 mortgage by a
third party, Southern Casualty Company (SCC).13 After SCC foreclosed by
executory proceedings, the sheriff sold the mortgaged property at public auction
for $2,500 to the receivers for SCC—“that is, for $15,000 less than the amount
due to the company.” 14 The plaintiff then brought suit against the title insurer
for $10,000.15 Although admitting liability for $2,500, the defendant contended
that “the only criterion of the value of the property, or the amount of the security
which the plaintiff had lost, was the price for which the property was sold by the
sheriff at public auction.”16 The Louisiana Supreme Court disagreed, concluding
that the foreclosure auction price “was not the only criterion of the value of the
property, or of the amount of the security which the plaintiff lost.” 17
Based on Volunteer State Life, the district court erroneously confined the
loss in value suffered by First American solely to the amounts bid at foreclosure
sale of the two catamarans. Instead, the finder-of-fact must take into
consideration all other relevant information when valuing loss under a title
insurance policy. Accordingly, we hold that a determination of the value of First
American’s unencumbered ship mortgages and the value of the mortgages
subject to the necessaries liens raises genuine issues of material fact based upon
any appraisals, the foreclosure proceeds, and other market data. In light of this
holding, we also remand for the determination of the proper date of valuation.
12
Id. at 43.
13
Id.
14
Id.
15
Id.
16
Id.
17
Id. at 44.
7
No. 07-31033
IV
The district court also ruled that the Policy did not allow for the recovery
of consequential damages. We agree.
The Policy begins by stating that FATTIC insures “against actual loss or
damage.” Section 7 also reiterates that the parties entered into a “contract of
indemnity against actual monetary loss or damage.” While the Policy provides
for some recovery other than “actual loss or damage,” it limits such payments to
costs, attorney’s fees, and expenses incurred in accordance with defending and
prosecuting a claim adverse to the insured. The Policy does not mention
consequential damages.
Under Louisiana law, the words used in an insurance policy must be given
their generally prevailing meaning. 18 To determine the generally prevailing
meaning in an insurance contract, Louisiana courts often resort to the use of
Black’s Law Dictionary.19 According to Black’s, “actual loss” is “[a] loss resulting
from the real and substantial destruction of insured property.”20 Black’s makes
reference to “actual loss” when it defines “actual damages” as “[a]n amount
awarded to a complainant to compensate for a proven injury or loss; damages
that repay actual losses.”21 In contrast, Black’s separately defines “consequential
loss” as “[a] loss arising from the results of damage rather than from the damage
18
L A . CIV . CO D E ANN . art. 2047; Bonin v. Westport Ins. Corp., 2005-0886, p. 4-5 (La.
5/17/06); 930 So. 2d 906, 910; Coleman v. Sch. Bd. of Richland Parish, 418 F.3d 511, 516 (5th
Cir. 2005).
19
See, e.g., Campbell v. Markel Am. Ins. Co., 2000-1448, p. 11 (La. App. 1 Cir. 9/21/01);
822 So. 2d 617, 624; McGuire v. Davis Truck Servs., Inc., 518 So. 2d 1171, 1174 (La. App. 5 Cir.
1988).
20
B LACK ’S LAW DICTIONARY 963 (8th ed. 2004).
21
Id. at 416.
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No. 07-31033
itself,” and notes that it is “[a]lso termed indirect loss; consequential injury.”22
According to Black’s, “consequential damages” entail “[l]osses that do not flow
directly and immediately from an injurious act but that result indirectly from
the act.”23 A plain reading of “actual loss or damage” does not include
“consequential loss” or “consequential damage.”
The plain language of the Policy allows for recovery of “actual loss or
damage” and not consequential damages. Therefore, we conclude that the Policy
does not allow for the recovery of consequential damages.
* * *
We hold that the determination of the value of First American’s ship
mortgages unencumbered and subject to the necessaries liens involves genuine
issues of material fact. We also hold that First American is not entitled to
consequential damages. Accordingly, we AFFIRM in part, REVERSE in part,
and REMAND for further proceedings.
22
Id. at 964.
23
Id. at 416.
9