United States Court of Appeals,

Fifth Circuit.

No. 91–3253.

The ALERT CENTRE, INC., a Delaware Corporation, Plaintiff,

v.

ALARM PROTECTION SERVICES, INC., A Louisiana Corporation, and, B. Charles Goodwin,

Jr., Defendants/Third–Party Plaintiffs/Appellants,

v.

SCOTTSDALE INSURANCE COMPANY, Third–Party Defendant/Appellee.

July 30, 1992.

Appeal from the United States District Court For the Eastern District of Louisiana.

Before REAVLEY, JOLLY and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Alarm Protection Services, Inc. and its officer and director B. Charles Goodwin, Jr.

(collectively, "APS"), appeal from a grant of summary judgment in favor of APS's liability insurer

Scottsdale Insurance Company ("Scottsdale"). APS joined Scottsdale as a third-party defendant to

an action filed by Alert Centre, Inc. ("Alert") against APS. APS contended that Scottsdale's policy

covered the liability Alert sought to impose against APS in the underlying suit. Scottsdale asserted

in its motion for summary judgment that its general liability policy provided no coverage to APS for

this liability and that Scottsdale therefore had no duty to defend the suit. The district court agreed

with Scottsdale and granted its motion. We reverse.

I.

APS is a security alarm dealer in the New Orleans area which sells and leases security alarm

systemsfor homes and businesses. Alert acquires "alarm accounts" and monitors these alarm systems

at regional monitoring centers which it operates throughout the United States. In April 1988, Alert

contracted to buy 864 alarm accounts from APS, along with the alarm system equipment the

customers had leased from APS. APS also agreed to provide maintenance services to customers
 

1Alert's complaint listed ten causes of action which it characterized as follows: (I) Breach of

Alarm Accounts Purchase Agreement; (II) Breach of Service Agreement; (III) Tortious

Interference with Monitoring Contracts; (IV) Interference with Business; (V) Tortious

Interference with Prospective Business Advantage; (VI) Fraud; (VII) Misappropriation or

Conversion of Trade Secrets; (VIII) Conversion; (IX) Unfair Competition; and (X)

Constructive Trust. 

whose accounts Alert had purchased.

Alert's complaint asserted causes of action for breach of contract, interference with contracts,

and various fraudulent and deceptive practices including conversion of property, misappropriation

and unfair competition.1 Alert alleged that: APS included in the sale fictitious accounts and accounts

which no longer required monitoring services; APS changed the computer chips in some of the alarm

systems after the sale so that these systems reported to APS rather than to Alert; APS converted to

its own use alarm equipment owned by Alert; APS instructed Alert's customers that they should pay

APS for their alarm system monitoring rather than Alert; and APS converted customer payments.

Finally, Alert alleged that APS's actions caused Alert's business to suffer, damaged their business

reputation and cost them substantial future revenue income from the converted accounts.

APS filed a third-party complaint against its general liability insurer, Scottsdale. Scottsdale

filed a motion for summary judgment, contending that the alleged damages sought by Alert were

excluded from coverage under the terms ofthe policy and that it therefore had no duty to defend APS

in that action. The district court granted the motion. APS then settled with Alert. Although APS

appeals the adverse summary judgment, it does not seek to recover from Scottsdale the amount it

paid to Alert in settlement. APS has a single objective in this appeal: recovery of its defense costs

because Scottsdale, without justification, declined to defend the Alert suit.

II.

Under Louisiana law, an insurer has a duty to defend its insured unless the allegations in the

complaint unambiguously exclude coverage. Meloy v. Conoco, Inc., 504 So.2d 833, 838 (La.1987)
(citing American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969)); Jensen

v. Snellings, 841 F.2d 600, 612 (5th Cir.1988) (applying Louisiana law). Coverage is determined by

comparing the allegations in the complaint with the terms of the policy, and the court is to look only

at the face of the complaint and the insurance contract in reaching this determination. Jensen v.

Snellings, 841 F.2d at 612; Scarborough v. Northern Assurance Co. of America, 718 F.2d 130, 134

(5thCir.1983) (applying Louisiana law). The insurer has a duty to defend its insured if the complaint

discloses the possibility of liability under the policy. Meloy v. Conoco, 504 So.2d at 839. Thus, if

the complaint alleges a single claim against the insured that is covered by the policy, the insurer must

defend the entire lawsuit, even those claims clearly excluded from coverage. Montgomery Elevator

Co. v. Building Engineering ServicesCo., Inc., 730 F.2d 377, 382 (5thCir.1984)(applyingLouisiana

law).

We review a decision to grant summary judgment de novo, using the same criteria as the

district court. Degan v. Ford Motor Co., 869 F.2d 889, 892 (5th Cir.1989). Scottsdale argues that

two exclusionary clausesin its policy unambiguously exclude coverage ofthe claimsraised by Alert's

complaint. We examine each argument in turn.

A.

Scottsdale arguesfirst that the damages Alert claimed did not result from an "occurrence" as

defined by the policy. The insuring clause of the general liability policy provides that Scottsdale

will pay on behalf of the insured allsums which the insured shall become legally obligated to

pay as damages because of

A. bodily injury or

B. property damage

to which thisinsurance applies, caused by an occurrence, and the companyshallhave the right

and duty to defend any suit against the insured seeking damages on account of such bodily

injury or property damage, even if any of the allegations of the suit are groundless, false or

fraudulent ...
The policy defines an "occurrence" as "an accident, including continuous or repeated exposure to

conditions, which results in bodily injury or property damage neither expected nor intended from

the standpoint of the insured" (emphasis in original).

Scottsdale argues that the damages alleged in the complaint were not the result of an

"occurrence" because the damages Alert sought were expected and intended by APS. Scottsdale

equates damages expected or intended fromAPS'sstandpoint with damagesflowing fromintentional

acts. But, under Louisiana law, an occurrence clause excludes from coverage all damages expected

or intended by the insured, not damages from all acts intentionally committed by the insured. Auster

Oil & Gas, Inc. v. Stream, 891 F.2d 570, 580 (5th Cir.1990). In Breland v. Schilling, the Louisiana

Supreme Court explained that the language "neither expected nor intended" in an occurrence clause

emphasizes that an excluded injury is one which the insured intended, not one which the

insured caused, however intentional the injury-producing act. The next phrase, "from the

standpoint of the insured," emphasizes again that it is the insured's subjective intention and

expectation which delimit the scope of the exclusion.

550 So.2d 609, 611 (La.1989). In Breland, the Court held that the plaintiff's broken jaw was not a

damage expected or intended from the standpoint of the insured where the insured had punched the

plaintiff in the face during a disagreement at an Old Timers' League baseball game. Id. at 614.

Alert's complaint sought to recover unspecified actual damages and lost profits. We cannot

discern from the petition that APS expected or int ended these damages. Even if we accepted

Scottsdale's argument that the occurrence clause excludes damagesflowing fromintentional acts, not

all of APS's acts, which Alert relied upon for recovery, were intentional. Alert's complaint included

allegations that APS acted wantonly or recklessly.

Because the petition does not exclude the possibility that some of the damages Alert sought

from APS may have been caused by an "occurrence," Scottsdale was not entitled to summary

judgment based on this argument.
B.

Scottsdale argues next that coverage is excluded under Exclusion (m) of its policy, which

excepts from coverage

loss of use of tangible property which has not been physically injured or destroyed resulting

from (1) a delay in or lack of performance by or on behalf of the named insured of any

contract or agreement ... (emphasis in original).

Scottsdale argues that all damages sought by Alert resulted from a breach by APS of the APS–Alert

contract and are excluded from coverage under Exclusion (m). The district court agreed that the

complaint alleged only breaches of duty arising from the contract and that Exclusion (m)

unambiguously excluded coverage.

The parties acknowledge that Cuté–Togs of New Orleans v. Louisiana Health Service &

Indemnity, 386 So.2d 87 (La.1980), is the closest Louisiana authority on this issue. In that case,

Cuté–Togs entered into a group insurance policy with Blue Cross in which Blue Cross agreed to

insure subscribing Cuté–Togs employees. Blue Cross failed to process the application for coverage

of one of Cuté–Togs' employees. As a result, that employee quit when he could not obtain medical

coverage for his wife's hospitalization. Cuté–Togs sued Blue Cross for damages caused by the loss

of a skilled employee, and Blue Cross filed a third-party complaint against itsliability insurer, Aetna,

contending that Aetna had a duty to defend it in the action brought by Cuté–Togs. Id.

Aetna argued that Exclusion (m) excluded coverage for this claim because all damages

Cuté–Togssought fromBlueCrossresulted fromBlueCross's breachofits contract withCuté–Togs.

The Supreme Court of Louisiana agreed, finding that Blue Cross's duty to insure Cuté–Togs'

employees arose out of the contract. The Court concluded that the "allegations of the plaintiff's

petition allege no more than a negligent failure of that duty." 386 S.2d at 89. The Court stated that

Exclusion (m) "excludes from coverage any damage occasioned by the breach of any contracts or

agreements." Id., at 88.
 

2Under Louisiana law, in order to constitute conversion, " "there must be either some

repudiation of the owner's right, or some exercise of dominion over it inconsistent with such right,

... or, as otherwise expressed, there must be a wrongful taking or a wrongful detention, or an

illegal user or misuser.' " Importsales, Inc. v. Lindeman, 92 So.2d 574, 576 (La.1957) (quoting

89 C.J.S., verbo, Trover & Conversion, § 3). The Louisiana Supreme Court has defined the

essential element of conversion as "an act in derogation of the plaintiff's possessory rights, and any

wrongful exercise or assumption of authority over another's goods, depriving him of the

possession, permanently or for an indefinite time." Quealy v. Paine, Webber, Jackson & Curtis,

Inc., 475 So.2d 756, 760 (La.1985) (citing Importsales ). 

The onlyconduct Cuté–Togs complained ofin its complaint wasBlueCross'sfailure to timely

process the insurance application of the Cuté Togs employee. The duty to process this application

existed only because of the contract. In the absence of the insurance agreement between Blue Cross

and Cuté–Togs, Blue Cross would have been under no obligation to process the employee's

application or take any other action related to the employee. The Louisiana Supreme Court

concluded that Cuté–Togs's allegations that Blue Cross failed to process the application with

reasonable care and speed constituted "a delay in or lack of performance" of the Blue Cross contract

to insure Cuté–Togs's employees.

We now turn to Alert's allegations. The complaint alleged breaches of the APS–Alert

contract. Clearly, such claims are excluded by Exclusion (m). Alert also alleged tortious conduct by

APS that was directly related to the Alert–APS contract. For example, Alert alleged that APS

tortiously interfered with monitoring contracts and fraudulently failed to comply with the contract.

Cuté–Togs would also exclude from coverage these claims because they are predicated on tort

theories for breach of duties established solely by the Alert/APS contract.

Alert's complaint, however, alleged that APS committed other tortious actssignificantlymore

remote from the contract than those al leged in Cuté–Togs. Alert's allegations supporting its

conversion claim strike us as particularly independent of the contract.2 Alert alleged that APS

changed co mputer chips in alarm systems so that the systems would report to APS rather than to

Alert, that APS converted alarmequipment owned byAlert, that APS told customersthat theyshould

pay APS rat her than Alert, and that APS converted customer payments. These allegations are
sufficient to state a claim for conversion under Louisiana law.

The APS–Alert contract obviously has some relevance to Alert's conversion claim. The

contract memorializes the business relationship between the two entities. Alert may have acquired

ownership or a possessory right to the alarm equipment and the proceeds from the accounts as part

of the contract. But the duty not to convert another's property is imposed as a matter of law without

regard to the existence of a contract. In contrast, the Cuté–Togs–Blue Cross contract is the exclusive

source of the duty that was allegedly breached.

We conclude that the allegations comprising Alert's conversion claim are not enough to

trigger Exclusion (m) under Cuté–Togs. The primary source of the duty to refrain from converting

another's property is general tort law. Based upon the complaint, we cannot say that the contract's

role in establishing Alert's conversion claim would have been anything but secondary or peripheral.

We need not examine the other claims raised in the complaint. Because the complaint states at least

one cause of action which issufficiently independent of the contract, we conclude that Exclusion (m)

does not unambiguously exclude coverage. See Montgomery, 730 F.2d 377. Scottsdale therefore

had a duty to defend APS in the Alert suit.

III.

Having determined that Exclusion (m) does not unambiguously exclude coverage of the

damages alleged in the complaint, we conclude that the district court erred in granting Scottsdale's

motion for summary judgment. We therefore REVERSE the district court judgment and REMAND

the case for further proceedings.