### IN THE UNI TED STAT ES COURT OFAPPEALS FOR THE FIF TH CIRCU IT

No. 10-60650

THE ESTATE OF MABLE DEAN B RAD LEY, by and through Gloria Sample, Administratrix of the Estate of Mable Dean Bradley, as Assignee of claims held by Grancare, Incorporated, Mariner Health Care, Incorporated, Boyd P. Gentry, George Morgan, M. Scott Athans, Robin C. Skelton and Eleta Jo Grimmett, Plaintiff–Appellant

v. ROYAL SURPLUS LINES INSURANCE COMPANY, INCORPORATED; LUMBERMEN’S MUTUAL CASUALTY COMPANY, Defendants–Appellees

Appeal from the United States District Court for the Northern District of Mississippi

Before REAVLEY, GARZA, and SOUTHWICK, Circuit Judges. EMILIO M. GARZA, Circuit Judge: In this insura nc e c ove r a ge dispute, the Estate of Mable Dean Bradley (“the Estate”) appeals the district court’s grant of summary judgment to the D e f e n dants–Appellees Royal Surplus Lines Insurance Co. (“Royal”) an d Lumber mens Mutual Casualty Co. (“Lumbermens”). The district court found 1 that, as a matter of law, Royal and Lumbermens were not required to defend or U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t 

### F I L E D July 19, 2 011 Lyle W . Cayce Clerk

The Est ate errone ous ly ide ntif ied Lumb erm ens as “Lumber me n’s ” in the comp laint 1 and in the pr oce edi ngs below

. The dis tri ct cour t acc ept ed this nom encl atur e, but we wi ll ref er to Lumb erm ens by its p rop er cor por ate nam e. Case: 10-60650 Document: 00511544711 Page: 1 Date Filed: 07/19/2011No. 10-60650

indemnify a policyholder/defendant in a separate lawsuit brought by the Estate in a Mississippi state court. For the reasons that follow, we AFFIRM. I Mable Dean Bradley was a resident at the Indianola Health and Rehabilitation Center from F e bruary 7, 2000, to May 17, 2002, when she was transferred to the So u t h S unflower County Hospital in Sunflower County, Mississippi. Bradley died within 24 hours of her admission to the hospital. The immediate causes of death included acute dehydration and an untr e ated urinary tract infection. Bradley ’ s e s tate brought suit in Mississippi state court against the Indianola Health and Rehabilitation Center’s corporate parent, Mariner Health Care, Inc., and several other defendants (“the Mariner defendants”). The Estate

s o u ght recovery based on claims of negligence, mi s tr e at m e nt , m alic e a n d/o r gro s s negligence, fraud, breach of fiduciary duty, statutory survival, and wrongful death a r i s i n g out of Bradley’s residency at the Indianola nursing home. The Estate’s complaint further alleged that the wrongs Bradley suffered “were of a continuing nature, and occurred throughout Mable Dean Bradley’s stay at the Defendant’s facility.” After a ten-day jury trial in the Circuit Court of Sunflo w e r C ounty, the jury awarded $1.5 million in com p ensatory damages and $10.5 million in punitive damages to Bradley’s estate, and the trial court entered final judgment

a ccordingly. No appeal was taken from the trial court’s order. The M a r i n e r defendants wanted to pursue an appeal, and Mariner’s first layer excess insurer, Lexi n gt o n I nsurance Company (“Lexington”), agreed to post a portion of the appellate bond. Mariner’s second and third l a y e r excess insurers—Royal and Lumbermens, respectively—would not, however. Royal maint a i n e d that the applicable portion of its excess policy had not been triggered at that point, and thus, it owed no duty to p a r t i c ipate in bonding the jury’s award on appeal.

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Lumbermens insisted that its excess policy was limited to indemnification, and therefore, it owed n o d uty to participate in defending the Mariner action or in posting an appellate bond. The Mariner defendants and Lex i n gton then entered into a settlement agreement with the Estate that extinguished “any a n d all claims relating to” Bradley’s care and treatment at the Indianola nursing home, “including claims for damages, costs, or attorney’s fees

. . . in exchang e f o r $ 1 0

. 5 million.” Together, Lexington and Mariner paid a total of $2.3 million t o t h e Estate as part of the settlement; Royal and Lumbermens paid nothing. Mariner assigned its interest in any claims against Royal and Lumbermens to the Bradley estate. In February 2008, the Estate filed suit against Royal and Lumbermens in federal district court, based on the parties’ diversity o f citizenship, seeking
recovery for Royal’s and Lumbermens’ alleged bad f a i t h f a ilure to defend or indemnify Mariner in the underlying state lawsuit and settlement. The Estate moved for summary judgment, asking the district court to find that the Royal policy in effect from March 1999 to March 2000, and the Lumbermens policy in effect from March 1998 to March 2001, provided excess coverage to Lexington’s first layer excess policy in effect from July 1999 to July 2000. The Estate also 2 asked the court to find that the po l icies described above required the excess insurers collectively to defend and indemnify Mariner for the final judgment in the underlyi n g s t a t e suit. Royal and Lumbermens filed cross-motions for summary judgment, asking the court to find to the contrary. In December 2010, the d i s t r ict court denied the Estate’s motion and granted summary judgment for both insurers, finding as a matter of law that

Royal iss ued tw o se cond layer exces s pol icie s that we re in eff ect at dif

fer e n t t i m es 2 dur ing Brad ley’s Februa ry 2000 to May 2002 st ay at the Indiano la nurs ing hom e. There we re t h r e e Lexingto n pol icie s in eff ect at dif

fer ent tim es dur ing this sam e 27-m onth sp an. The Est at e ’ s dec isi on to se ek sum mary judgm ent unde r the sp ecif ic pol icie s des cribed above is dis cus se d in Sec tio n III.A. 2, i nfra . 3 Case: 10-60650 Document: 00511544711 Page: 3 Date Filed: 07/19/2011No. 10-60650

Royal’s and Lumbermens’ respective policies did not require them to defend or indemnify Mariner in the state lawsuit. Because Royal and Lumbermens were not obligated to provide coverage in the underlying suit, the Estate’s bad faith action could not lie, and the dist r i c t c o urt dismissed the Estate’s claim with prejudice. This appeal followed. II We review a district court’s grant of summary judgment de novo , applying the same standards as the district court. See Floyd v. Amite Cnty. Sch. Dist. , 581 F.3d 244, 247 (5th Cir. 2009). We view all facts in the light most favorable to the nonmoving party, and affirm only if the evidence shows that “there is no genuine dispute as to any material fact and the m o v a n t i s entitled to judgment as a matter of law.” F E D . R. C I V . P. 56(a); see also Floyd , 581 F.3d at 247–48. Where federal jurisdiction is based on diversity of citizenship, as it is here,

we apply the substantive law of the forum state. See Erie R.R. v. Tompkins , 304 U.S. 64, 78 (1938). To determine Mississippi law, we look to the final decisions

o f Mississippi’s highest court. See Am. Int’l Specialty Lines Ins. Co. v. Ca n a l Indem. Co. , 352 F.3d 254, 260 (5th Cir. 2003). Because the Mississippi Supreme Court has not addressed the issues presented here, the district c o u r t had to make an “Erie guess ” as to how that court would have resolved the issues if presented with them. Id.; see also Holt v. State Farm Fire & Cas. Co. , 627 F.3d 188, 191–92 (5th Cir. 2010); Batts v. Tow-Motor Forklift Co. , 66 F.3d 743, 749–50 (5th Cir. 1995). We do the same, de novo , on appeal. III The Estate argues that the district court erred in finding that Royal and Lumbermens were not required to insure Mariner in the und e rlying state action. Specifically, the Estate contends that Royal’s excess policy unambiguously

r e q u i r ed Royal to defend and indemnify Mariner for the state court judgm e n t

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and resulting settlement, and that the Lumbermen s p o l icy required it to indemnify Mariner for the same. 3 A Under Mississippi law, an insurer’s duties to defend and indemnify its insured are distinct and separate duties requiring the use of different standards. See Titan Indem. Co. v. Pope , 876 So. 2d 1096, 1101–02 (Miss. Ct. App. 2004); see generally 14 Lee R. Russ & Thomas F. Segala, C O U C H O N I N S U RA N C E § 200:3 (3d ed. 2007); 3 Jeffrey E. Thomas e t a l., N E W AP P L E M A N O N I N S U RA N C E LAW L I B RARY E D I T I O N §§ 16.06[3][a], 17.01[1][b][ii] (2010). When an insured is sued,

an insurer’s duty to defend is determined solely by comparing the facts alleged in the complaint with the terms of the policy. See United States Fid. & Guar. Co.

v. OmniBank , 812 So. 2d 196, 200 (Miss. 2002); Delta Pride Catfish, Inc. v. Home Ins. Co. , 697 So. 2d 400, 403 (Miss. 1997). An insurer “has an absolute duty to defend a complaint which contains allegations cov e r e d by the language of the policy, but

. . . no duty to defend those claims which fall outside the coverage of the policy.” Farmland Mut. Ins. Co. v. Scruggs , 886 So. 2d 714, 719 (Miss. 2004). B ecause whether Royal had a duty to defend Mariner in the underlyi n g s t a t e suit rests on the fact u a l allegations in the complaint and the language of its policy, we address this issue as a matter of law. See Noxubee Cnty. Sch. Dist. v. United Nat’l Ins. Co. , 883 So. 2d 1159, 1165 (Miss. 2004) (“The interpretation of an insurance policy is a question of law, not one of fact.”). 1 Here, the district court looked to the terms of the Royal excess policy and observed that Royal’s duty to defend arose only after the actual payment of

The Est ate’ s mo tio n for sum mar y judgm ent argued that Lumb erm ens ow ed a dut y to 3 inde mni fy and def

end the Mar iner def

enda nts , and the dis tri ct cour t’s opi nion add res se d both argum ents acc ord ingly. On app eal, the Est ate’ s ope ning brie f only pr es se s the fir st argum ent; the se condis w aived

. See Va lle v. Ci ty of Ho uston , 613 F.3d536 , 544 n.5 (5t h Cir

. 2010)

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judgments or settlements had exhau s t e d a ny underlying insurance, and because that condition precedent was never satisfied, Royal’s defense obligation never matured. We agree. The Royal second layer excess policy at issue—the Big Shield Commercial Catastrophe Liability Policy—was a general liability policy that provided $10 mi l lion in coverage excess of Lexington’s $2 million first layer excess policy, which itself followed Mariner’s $1 million self-insured retention. With respect to Royal’s duty to defend, the Big Shield policy provided: 1. INSURING AGREEMENT 1.

. . . 2. We w i l l have the right and duty to defend any “suit” seeking those damages [that the in sured becomes legally obligated to pay] when: (a) T he applicable limits of insurance of the “underlying insurance” and other insurance have been used up in the payment of judgments or settlements . . . . The p a r t i e s a gree that Lexington’s $2 million first layer excess policy and Mariner’s $1 million self-insured retention make up the “underlying insurance” referred to in this section of the Royal policy. Royal’s Big Shield policy also included an endorsement that modified the policy’s default terms and limited coverage for professional liability:

PROFESSIONAL LIABILITY LIMITATION This endorsement modifies insurance provided under the following: Commerci al C at a s tro p h e Li ab ility I n s urance (“Big Shield” Policy) With respect to “Professional liability” arising out of any Insured’s activiti e s as a(n) Nursing Facilit[y] this policy is limited to the coverage provided in the “Underlying Insurance”.

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If coverage is not provided by “Underlying I n s u r ance”, coverage is excluded from this policy. . . . Lexington’s first layer excess policy is the “underlying insurance” contemplated here. The gravamen of the Estate’s claim is that Royal’s policy “followed form” to the Lexington policy in all respects, and because Lexington had a broad duty to defend under its own policy and was obligated to pay all premiums on appeal bonds, that R o y a l l i kewise was obligated to defend and participate in bonding the jury’s award on appeal. This is mistaken. 4 As the district court correctly observed, nothing i n t h e Royal policy suggests that it follows form as to all terms and condit i o n s in the Lexington policy. Rather, the Professional Liability Limitation endorsement is the only term that contains a follow form provision, and it specifies that the Royal policy will follow form to the Lexington policy “[w]ith respect to ‘professional liability’” arising out of Mariner’s operations at the Indianola nursing home. A review of th e L exington policy’s corresponding Medical Professional Liability Coverage endorsement reveals no reference to a defense obligation. Thus, in the absence of a duty to defend under the Lexington policy’s relevant endorsement, Royal’s defense obligation, if any, must be determined by reference to the default terms of the Big Shield policy. And, as that policy provided, Royal’s duty to defend only

arose after “[t]he applicable limits of the ‘underlying in s u r ance’ and other insurance have been used up in the payment of judgments or settlements

. . . .”

See Insituf

orm Tec hs. , Inc. v. Am

. Ho me As sur . Co. , 566 F.3d 274, 278 (1s t Cir. 2009) 4 (“ The phr ase ‘f

ollo w for m’ ref

ers to the pr act ice, com mo n in exces s pol icie s, of having the se cond -la yer cover age fol low sub st antive ly the prim ary layer pr ovide d by the mai n ins urer .” );
see also id. at 278 n.3 (“[B] ut is a mi st ak e to assum e pr ecis ion in suc h ter mi nology; and even wh ere a pol icy is des cribed as ‘f ollo w for m, ’ it doe s not nece ss aril y pr ovid e cover age that is sub st antive ly ide ntica l to the unde rlying one. ”) (em phas i s i n o r i ginal) (c itin g Barry R. Os tra ger & Thom as R. New man , 2 H A NDBO OK ON I NSURAN CE C OVERAGE D ISPUTES § 13.0 1 (11t h e d. 200 2))

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(emphasis added). Contrary to the Estate’s claim, the mere entry of a judgment that exceeded the limits of the underlying insurance was insufficient to trigger Royal’s defense duty. Instead, Royal’s policy required actual p a yment that exhausted Mariner’s self-insured retention and Lexington’s policy limits. That condition never occurred prior to Mariner’s settlement with the Bradley estate. As such, Royal did not have a duty to post an appellate bond or otherwise defend its insured in the underlying state lawsuit. 2 Unlike the duty to defend, which can be determined at the beginning of a lawsuit, an insurer’s duty to indemnify generally cannot be ascertained until the completion of litigation, when liability is established, if at all. See Barden Miss. Gaming LLC v. Great N. Ins. Co. , 576 F.3d 235, 239–40 (5th Cir. 2009); see also VRV Dev. L.P. v. Mid-Contin e n t Cas . Co. , 630 F.3d 451, 459 (5th Cir. 2011) (“[A]n insurer’s duty t o i n d e m nify typically can be resolved only after the conclusion of the underlying action.”) (applying Texas law). T h i s is because, unlike the duty to defend, which turns on the pleadings and the policy, the duty to indemnify turns on the actual facts giving rise to l i ab i l ity in the underlying suit, and whether any damages caused by the insured and later proven at trial

are covered by the policy. See Columbia Cas. Co. v. Ga. & Fla. Railnet Inc. , 542 F.3d 106, 111 (5th Cir. 2008) ( applying Texas law); see generally 14 C O U C H O N I N S U RA N C E § 200:3; 3 N E W AP P L E M A N O N I N S U RA N C E LAW L I B RAR Y E D I T I O N § 17.01[1][b][ii]. Thus, in determining whether Royal or Lumbermens had any duty to indemnify Mariner, we look to the actual facts put forward at trial that established Mariner’s liability in the state lawsuit. 5

We note that the Mis sis sip pi case law add res sin g liabil ity ins urer s’ se par ate du tie s 5 to def end and inde mni fy is lim ite d, and that the dut y to def end is dis cus se d alm os t exclus ively in thos e Mis sis sip pi cas es ide ntif ying the tw o dut ies

. The lone excep tio n app ears to be Ti tan Indem nity Co. v. Pop e , 876 So. 2d 1096 (M iss . Ct. App. 2004). In mak ing an Eri e gues s as to Royal’s and Lumb erm ens ’ inde mni fic atio n obligat ions here , we rely on Circ uit pr ece dent and 8 Case: 10-60650 Document: 00511544711 Page: 8 Date Filed: 07/19/2011No. 10-60650

At the outset, we note that th e r e w e r e two Royal policies in effect, and three Lexington policies in effect, at different times during Bradley’s February 2000 to May 2002 stay at the Indianola nursing home. The Estate sought 6
summary judgment based on the Royal policy in effect from Ma r c h 1999 to March 2000, a n d t h e Lumbermens policy in effect from March 1998 to March 2001. Obviou s l y , a significant portion of Bradley’s 27-month residency fell outside the coverage periods for these specific policies. The Estate argued below,

a s i t does here, that Bradley’s injuries “were of a continuing nature” an d t h a t under the terms of the Lexington policy’s professional liability endorsement, the entire 27-month span of Bradley’s stay was to be considered a single “medical incident.” The Estate elected, its argument goes, to submit its claim under that combination of policies that offered the greatest coverage limits at any single point during Bradley’s residency. 7 Unsurprisingly, Royal a n d L umbermens take issue with the claim that Bradley’s injuries should be characterized as one continuous “medical incident.” Both excess insurers note that the injuries that immediately preceded Bradley’s death—acute dehydrat i o n , a broken femur, and an untreated urinary tract infection—occurred in April and May 2002, w e l l o utside either of Royal’s or Lumbermens’ policy periods. And, the insurers argue, the jury’s compensatory

lead ing se cond ary so urc es acc ord ingly. We have fou nd noth ing in our res earc h that sugges ts that the Miss iss ipp i Sup rem e Court wo uld devia te fr om the acc ept ed def init ion of indem nity if thatc ourtw erec alledup on to dec idet he ques tio n be for e u s.

Thereis on ly o ne Lumb erm ens p olic y atis sueint his c ase . 6
The T e x a s S u p r e m e Court autho rized this type of elec tio n in cas es wh ere a sin gle, 7 indivisible injury tri ggers mo re than one pol icy, cover ing dif fer ent pol icy per iod s. See Am

. Physi ci ansIns. Exc h. v. G arci a , 876 S. W.2 d 842, 855 (Tex. 1994)

. TheM iss iss ipp i S upr em e Courthas no t pas se d on the iss ue dec ide d in Ga rci aandw e d o n ot reac h i t eit her.

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and punitive damages awards were based on thes e thr e e in j uries specifically; not a finding of continuing negligence. The Lexington medical professiona l l i ab ility endorsement is indeed the correct benchmark for assessing Royal’s duty to indemnify Mariner. This is because, as all parties agree, Royal’s excess policy follows form to the Lexington policy with respect to professional liability. The Lexington policy provides: I. COVERAGE – MEDICAL PROFESSIONAL LIABILITY 1. The Company [Lexington] will pay o n b ehalf of the Insured [Mariner] that portion of ultimate net loss in excess of the Self-Insured Retention which the Insured shall become legally obligat e d to pay as Damages which occur during the policy period, resul ting from a medical incident arising out of the following professional services provided by the Insured to any person at any ph a rmacy or facility owned, managed or operated by the Named Insured in Item # 1 of the Declarations: a) medi c a l , surgical, dental or nursing treatment to a patient , including th e f u rnishing of food or beverage in connection therewith; b) furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances if the personal injury occurs after the Insured has relinquished possession thereof to others;

. . . Any such rendering of o r f a i lure to render the above described professional services, together with all rel a t e d acts or omissions in t h e f u rnishing of such services to any one patient r esulting in a claim shall be considered as arising out of one medical incident

. (emp h a s i s i n original). The Estate relies on this provision, coupled with its assertion that it put on evidence at tria l d emonstrating Mariner’s negligence throughout Bradley’s 27-month stay, for the proposition that the jury’s verdict

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included the specific Royal and Lumbermens policy periods in issue. The record suggests otherwise. The state trial record shows that the claims submitted to the jury related exclusivel y to the injuries that Bradley suffered in the weeks before her death (i.e., dehydration, a b roken femur, and a severe urinary tract infection). The 8 trial court restricted expert testimony to the April–May 200 2 t ime frame, and the Estate’s medical expert on causation, as well as Bradley’s attend i n g nurse practitioner, limited their testimony to this time frame accordingly. While the Estate did present some evidence of Mariner’s general negligence that occurred throughout the term of Bradley’s stay, in the form of insufficien t s t a f f i n g and charting irregularities, this evidence could not have supported the j ury’ s li ab ility findings or damages awards. This is because the trial court charg e d t he jury with finding that for medical liability to attac h , t h ere had to be a causal relationship between Mariner’s wrongful c o n d uct and Bradley’s injuries. And the only evidence providing a nexus bet w e e n M a riner’s wrongful conduct and actual harm to Bradley related to conduct that occurred in April and May 2002. Lexington’s first la y er excess policy unambiguously limits indemnity to those damages resulting from medical incidents “which occur during the policy
p e r i o d.” And because the Royal and Lumbermens policies follow form to th e Lexington policy with respect to medical pro f e s sional liability, Royal and Lumbermens only h a d a d u ty to indemnify Mariner for those damages that occurred within their respect iv e policy periods. Here, those policy periods ran from March 1999 to March 2000, and March 1998 to March 2001, for Royal and

Th e E s t ate argues that it wa s err or for the dis tri ct cour t to ref er to the st ate tri al 8
rec ord , and it cont ends t hat we ar e l ik ew ise p rec lude d fr omd oing soonap pea l. There is no sup por t for this ass ert ion

. See N. Am

. Spec ia lty Ins. Co. v. Roya l Surp lus Line s Ins. Co. , 541 F.3d 552, 558 n.12 (5t h Cir. 2008) (ap plyin g T e xas law). The st ate tri al rec ord wa s pr ope rly bef ore the dis tri ct cour t and, in det erm ining the fac ts unde rlying the Est ate’ s inde mni ty clai m, the cour t wa s fr ee to lookt o t he rec ordf rom t he unde rlying sui t. See F ED

. R. C IV

. P. 56(c ). 11 Case: 10-60650 Document: 00511544711 Page: 11 Date Filed: 07/19/2011No. 10-60650

Lumbermens, respectively. Because the actual facts giving rise to liability in the underlying suit occurred outside of Royal’s and Lumberme n s’ policies, neither

excess insurer had a duty to indemnify Mariner for the judgment or settlement in the underlying state suit. There being no duty to indemnify, there could no b r e a c h in denying coverage. See A & S Trucking Co. v. First General Ins. Co . , 578 So. 2d 1212, 1218 (Miss. 1991). The Estate’s bad faith action fails as a matter of law. IV The district court’s summary judgment is AFFIRMED.

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