*

 U.S. District Judge, Eastern District of Louisiana, sitting by designation.

United States Court of Appeals

Fifth Circuit

FILED

June 17, 2003

Charles R. Fulbruge III

Clerk

REVISED JUNE 19, 2003

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 02-60414

ACS CONSTRUCTION COMPANY, INC.

OF MISSISSIPPI,

Plaintiff-Appellant,

versus

CGU, FORMERLY KNOWN AS 

GENERAL ACCIDENT INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Mississippi

Before DeMOSS and STEWART, Circuit Judges and FALLON*, District Judge.

CARL E. STEWART, Circuit Judge:

In this civil action based on diversity jurisdiction, we determine whether on the specific facts

of this case, the terms of a commercial general liability insurance policy entitle the Appellant, the

insured, to coverage for an incident relating to faulty construction. The Appellee, the insurer, denied

coverage for losses asserting that the incident did not constitute an “occurrence” as defined in the
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policy. The Appellant, filed suit against the insurer in Mississippi which was removed to the district

court. The partiesfiled crosssummary judgment motionsin the district court on the issue of contract

liability. The district court granted summary judgment to the Appellee. For the reasons that follow

we affirm.

Factual and Procedural Background

In May 1996, ACS contracted with the U.S. ArmyCorps ofEngineersto construct munitions

bunkers at the Pope Air Force Base (the “project”) in North Carolina. In July 1996, ACS

subcontracted with Chamberlin Co., Inc. to install a waterproofing membrane to the roofs.

Chamberlin merged with Southern Commercial Waterproofing Co. of Ala., Inc. (collectively,

“Chamberlin/Southern”) who accepted allresponsibilityfor the work required under the subcontract.

Subsequent to the installation of the waterproofing membrane, leaks developed in the roofs ofsome

of the bunkers. ACS unsuccessfully sought for Chamberlin/Southern to correct the leaks. As ACS

was still responsible for the project, it was forced to make the repairs thereby suffering a loss in

excess of $190,000.

ACS had a valid commercial general liability (CGL) insurance policywithCGU at allrelevant

times. The relevant portions of the policy at issue read:

1. Insuring Agreement

a. We will pay those sumsthat the insured becomeslegally obligated to pay as damages

because of “bodily injury” or “property damage” to which this insurance applies...

b. The insurance applies to “bodily injury” or “property damage” only if:

i. The “bodily injury” or “property damage” is caused by an “occurrence” that take

place in the “coverage territory”...

In the definitions section, the policy explains that “occurrence” means “an accident, including

continuous or repeated exposure to substantially the same harmful conditions.” (emphasis added).
3

According to the contract, the insurance policy does not apply to: “ ‘Bodily injury’ or ‘property

damage’ expected or intended from the standpoint of the insured.” Thus, under the plain terms ofthe

contract, “property damage” must be caused by an “occurrence” which is defined as an “accident”

in order to trigger coverage.

Consistent with the policy, ACS sought from CGU the loss incurred. CGU determined that no

coverage existed under the policy because no “property damage” caused by an “occurrence” took

place and therefore, denied ACS’s claim. ACS filed suit in Mississippi State Court. CGU removed

it to federal court based on diversity jurisdiction pursuant to 28 U.S.C. § 1332. The partiesfiled cross

motions for summary judgment on the issue of contract liability. The district court granted CGU’s

motion for summary judgment finding that there was no “occurrence” such that ACS was entitled

to recovery under the policy.

Analysis

I. Standard of Review

We review the district court’s order granting summary judgment de novo, applying the same

standards that the district court applied. Provident Life and Accident Ins. Co. v. Goel, 274 F.3d 984,

990 (5th Cir. 2001). Summary judgment is appropriate only when the “pleadings, depositions,

answersto interrogatories, and admissions on file, together with the affidavits, if any, show that here

is no genuine issue as to any material fact.” FED. R. CIV. P. 56(c). As we review, “[f]irst, we consult

the applicable law to ascertain the materialfactual issues.” F.D.I.C. v. Firemen’sIns. Co. of Newark,

NJ, 109 F.3d 1084, 1087 (5th Cir. 1997). “We look to state law for rules governing contract

interpretation.” Id. Under Mississippi law, an insurance policy is a contract subject to the general
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rules of contract interpretation. Clark v. State Farm Mut. Auto. Ins. Co., 725 So.2d 779, 781 (Miss.

1998).

The rules of contract interpretation in Mississippi are wellsettled. Under Mississippi law, the

object of contract interpretation is to ascertain the common intent of the parties. Clark, 725 So. 2d

at 781. To do so, we must construe the policy as a whole and review the language of the policy giving

“operative effect to every provision in order to reach a reasonable overallresult.” J&W Foods Corp.

v. State Farm Mutual Automobile Ins. Co., 723 So. 2d 550, 552 (Miss. 1998). If after we review the

policy, “the policy can be interpreted to have two or more reasonable meanings,” then the policy is

ambiguous. Id. If this Court finds ambiguity in the language of the insurance policy, then “we must

necessarily find in favor of coverage.” Id. Moreover, “a court must refrain from altering or changing

a policy where terms are unambiguous, despite resulting hardship on the insured.” Titan Indemnity

Co. v. Estes, 825 So. 2d 651, 656 (Miss. 2002).

II. Liability coverage under the CGL insurance policy

A. Definition of “Occurrence” in the Insurance Policy under Mississippi Law

The core ofthis dispute isthe proper test for determining whether an “occurrence” took place

under these set of facts. It is uncontested that the leaks developed because the installation of the

waterproofing membrane was faulty. The controversy stems from whether the installation of the

waterproofing membrane or whether the consequential leaks constitute an “occurrence” under the

CGL insurance policy. The CGL policy defines “occurrence” as an “accident” but does not explicitly

define “accident.” We must therefore determine whether, under Mississippi law, an “accident” refers

to the unintended consequences of installing the waterproofing membrane or whether an “accident”

refers to the underlying act of the installation itself. 
5

CGU contends that the definition of “accident” proffered under Moulton applies; whereas,

ACS contendsthat the definition proffered in Southern FarmBureau Casualty Ins. Co. v. Allard, 611

So. 2d 966 (Miss. 1992) applies. The Moulton test is whether the insured intended the underlying

action. The Allard test appears to be whether the insured intended the consequences of his actions.

In U.S. Fidelity & Guar. Co. v. Omnibank, the Mississippi Supreme Court resolved the so-called

tension between Allard and Moulton and reaffirmed its holding in Moulton. 812 So. 2d 196 (Miss

2002). For these reasons, the Moulton test is dispositive of the dispute over the interpretation of an

“occurrence” in the CGL policy.

In Moulton, the Mississippi Supreme Court held that “the term accident refers to [the

insured’s] action and not whatever unintended damages flowed from that act.” 464 So. 2d at 510.

The issue was whether Allstate had a duty to defend the insured, Moulton, under the insurance policy

in an action for malicious prosecution. 646 So.2d at 508. Moulton filed a complaint alleging that

Anthony Walls had stolen her dog. Walls was subsequently arrested and brought to trial but the

charges were dismissed. Walls then filed a malicious prosecution suit against Moulton. Moulton

expect ed Allstate to defend her under her comprehensive dwelling policy. The language in her

insurance policy provided coverage in the event of bodily injury or property damage resulting from

an occurrence. Under the policy, an “occurrence” was defined as:

an accident, including injurious exposure to conditions, which results, during the

endorsement period, in bodily injury or property damage neither expected nor

intended from the standpoint of the Insured.

Id. Acknowledging that under the terms of the policy, an “occurrence” is defined as an accident, the

Mississippi Supreme Court defined “accident.” Id. at 509. The Mississippi Supreme Court adopted

the following meaning of an “accident” in an insurance policy:
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The only relevant consideration is whether ... a chain of events leading to the injuries

complained of was set in motion and followed a course consciously devised and

controlled by appellant without the unexpected intervention of any third person or

extrinsic force.

Id. (quoting Winkler v. Ohio Casualty Ins. Co., 441 A.2d 1129, 1132 (Md. Ct. Spec. App. 1982)).

The Mississippi Court then explicitly rejected the theory that an accident “refers to the unintended

consequences of the act.” Id. at 510.

Applying Moulton to the present case, the faulty workmanship of the waterproofing

membrane resulting in the leaks does not constitute an “occurrence” under the policy. Just as

Moulton intended to file a complaint against Wall but may not have intended to cause him

embarrassment, ACS intended to hireChamberlin/Southern to installthe membrane but did not intend

for the work to be faulty or result in a leak. Although neither the policy, nor the policy language in

Moulton were identical to the language in the policy at issue here, Moulton defined the term

“occurrence” as it relates to coverage under an insurance policy. See 464 So.2d at 510; Omnibank,

812 So. 2d at 200-01 (applying the Moulton test to determine whether an act was an “occurrence”

in a CGL insurance policy).

Although ACS concedesthat Moulton “remainsthe Mississippi Supreme Court’s, seemingly

complete analysis, of [the] insurance Policy dispute herein,” ACS’s brief at 40, ACS, nevertheless

argues that the law changed when the Mississippi Supreme Court decided Southern Farm Bureau

Casualty Ins. Co. v. Allard, 611 So. 2d 966 (Miss. 1992). ACS asserts that the Mississippi Supreme

Court, in Allard, suggested that such an “accident” refers to the unintended consequences of the

initial act. We are not persuaded that Allard has changed the law. In Allard, the Mississippi Supreme

Court relied on the holding of Coleman v. Sanford, 521 So. 2d 876, 878 (Miss. 1988) which stated
7

that “an act isintentional if the actor desiresto cause the consequences of his act, or believes that the

consequences are substantially certain to result from it.” Allard, 611 So. 2d at 968. The Mississippi

Supreme Court focused on the language requiring intent from the standpoint of the insured and

determined that the facts of the case created a question for the jury on intent. Because the jury in

Allard found that the insured’s actions were unintentional, the Mississippi Supreme Court affirmed

that the insurance policy provided coverage to the insured. Because the language of the insurance

policy in Allard is similar to the language of the CGL policy in the present case, ACS asserts that

under this theory, from the standpoint of the insured, ACS’s actions were not intentional because it

did not desire to cause the consequent leaking.

Notwithstanding the apparent conflict that Allard createdwhenit was decided, the Mississippi

Supreme Court very recently reaffirmed its holding in Moulton and resolved the tension between

Allard and Moulton. U.S. Fidelity & Gy Co. v. Omnibank, 812 So. 2d 196 (Miss 2002). In

Omnibank, the Fifth Circuit certified the following issue to the Mississippi Court:

[W]hether, under Mississippi law, an insurer’s duty to defend under a general

commercial liability policy for injuries caused by accidents extends to injuries

unintended by the insured but which resulted from intentional actions of the insured

if those actions were negligent but not intentionally tortious.

812 So. 2d at 197; See Ramsay v. Omnibank, 215 F.3d 502, 504 (5th Cir. 2000) (certifying the

question to the Mississippi Supreme Court in part, to resolve the tension between Allard and

Moulton). The Mississippi Supreme Court answered by restating the test it promulgated in Moulton

and further clarifying it.
 

2See 812 So. 2d at 199. The CGL insurance policy language at issue in Omnibank provided in

relevant part as follows:

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an occurrence that takes place in

the “coverage territory”; ...

12. “Occurrence” means an accident, including continuous or repeated exposure to

substantially the same general harmful conditions.

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In Omnibank, the Mississippi Supreme Court analyzed the identical policy language at issue

in this case and addressed the identical arguments proffered byACS.2 The MississippiSupremeCourt

answered that “according to the policy language, even if an insured acts in a negligent manner, that

actionmuststillbe accidental and unintended in order to implicate policylanguage.” Id. Undersimilar

circumstancesin the present case, even though the installation ofthe membrane was done negligently,

the action of installing the membrane was not accidental nor unintended to implicate coverage under

the policy.

TheMississippiSupremeCourtreconciled its decisionsinAllard andMoulton concluding that

the cases “are consistent in that they both address the nature of the insured party’s conduct, not the

resulting damages of that conduct.” 812 So. 2d at 201. The Mississippi Supreme Court, however,

was explicit that “Allard does not constitute a change in the law” and reaffirmed its holding in

Moulton. Id.

Nonetheless, ACS further contends that in construing “occurrence” in the CGL policy, the

district court overlooked that the exclusions language in the policy renders the coverage language

ambiguous. We disagree. Like ACS, the insured in Omnibank contended “that the policy language

which implicates coverage for ‘occurrences’ or ‘incidents’ is rendered ambiguous by exculpatory

language which exempts from coverage for ‘bodily injury’ or ‘property damage’ ‘expected’ or

‘intended’ from the standpoint of the insured.” 812 So. 2d at 198. The Mississippi Supreme Court
9

specifically rejected this argument and categorically determined that the exception language in the

policy does not create ambiguity so as to liberally construe coverage in favor of the insured. Id. at

200. Thus, the district court did not err by not creating ambiguity through the exclusion language of

the contract.

ThisCourt construed Moulton for the first time inBerry v. McLemore, 795 F.2d 452 (5thCir.

1986). In Berry, the insured wasinjured by a third-party, McLemore. McLemore was a police officer

who made a custodial arrest of Berry. When Berry resisted the arrest a fight ensued resulting in

McLemore shooting Berry. Berry filed suit and a jury returned a verdict against McLemore awarding

punitive and compensatory damages to Berry. When McLemore failed to pay the judgment against

him, Berry filed suit against the Town’sliability insurer for breaching its duty to defend and for failing

to indemnify McLemore against the judgment. 

This Court was faced with substantially similar language as the insurance policy in dispute in

Moulton.The insurance policyinBerrydefined an “occurrence” as “anaccident, including continuous

and repeated exposure to conditions, which results in bodily injury or property damage neither

expected nor intended from the standpoint of the insured.” 795 F.2d at 456. This Court relied on

Moulton to determine that the incident was not an occurrence under the policy by construing the

definition of an “occurrence” as follows:

[A]n act fell outside of the terms of the policy if ‘whether prompted by negligence

or malice, (1) defendant’s acts were committed consciously and deliberately, without

the unexpected intervention of any third force, and (2) the likely (and actual) effect

of those acts was well within the defendant’s foresight and anticipation. 

795 F.2d at 457 (quoting Moulton, 464 So. 2d at 509). Applying this definition to the facts of the

Berry-McLemore incident, this Court found that McLemore intended to fire his gun and therefore,
 

3WM. C. Vick Construction Co. v. Penn. Nat’l Mutual Casualty Ins. Co., 52 F.Supp.2d 569

(E.D.N.C. 1999) involved Chamberlin providing a faulty waterproofing system as a subcontractor

to Vick, the general contractor. Although the case arises under North Carolina law, the law is

substantially similar to the law in Mississippi and involves Chamberlin’s faulty workmanship as a

subcontractor. The district court defined the term “accident” as “unforseen, unexpected, unusual,

undesigned, the effect of an unknown cause or an unprecedented consequence” and determined that

no occurrence (defined as an “accident”) took place to trigger coverage under the insurance policy.

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it “was not an accident as referred to in the policy’s definition of an ‘occurrence.’ ” 795 F.2d at 458.

This Court rejected the theory that although McLemore intended to fire his gun, he did not intend to

cause injury to Berry so asto fall within the terms of coverage under the policy. Instead, asthis Court

explained “[t]he focus is ... not on the harm caused, but upon the act that caused the harm. The act

was the firing of the gun. The gunshot wound was the resulting harm.” Id. at 458.

Applying Berry to the facts of this case, no “occurrence” took place. The negligence in

installing the waterproofing membrane in the roofs was the foreseeable cause of the leaks that

developed. The act of installing the waterproofing membrane fell outside of the terms of the policy

because regardless of whether prompted by negligence (1) ACS’s acts were committed deliberately

and the intervention of Chamberlin/Southern to complete the work was expected; and (2) the likely

(and actual) leaking that developed as a result of faulty workmanship was within ACS’s foresight.3

The faulty workmanship of Chamberlin/Southern unfortunately amounts to negligence. Hiring the

subcontractors and installing the waterproofing membranes were not accidents under the terms ofthe

policy. 

Applying the foregoing Mississippi law, the installation ofthe waterproofing membrane isthe

underlying act referenced in “occurrence” which does not trigger coverage under the policy. 

B. The definition of “property damage” under the policy
11

In the alternative, CGU contends that the resulting damage did not constitute “property

damage” under the policyto trigger coverage. Because we have found that no “occurrence” hastaken

place, we need not reach thisissue. Moreover, the MississippiCourts have not yet defined “property

damage” in a CGL insurance policy as it definitively defined “occurrence” in Omnibank. This Court

is Erie-bound to apply Mississippi law to the issue, and because our decision on “occurrence” is

dispositive of the breach of contract claim, we do not reach this issue.

III. The Exclusionary language in the CGL insurance policy

ACS alternatively argues that the district court did not adequately consider the exclusionary

language in the insurance policy in order to create coverage. The relevant portions of the policy are

as follows:

2. Exclusions

This insurance does not apply to:

j. Damage to Property

“Property damage” to ... (6) that particular part of any property that must be

restored,repaired orreplaced because “your work”wasincorrectlyperformed

on it.

l. “Property damage” to “your work” arising out of it or any part of it and

included inthe “Products-CompletedOperations hazard.”This exclusiondoes

not apply if the damaged work or the work out of which the damage arises

was performed on your behalf by a subcontractor.

“Your work” means

(a) Work or operations performed by you on or on your behalf; and

(b) materials, parts or equipment furnished in connection with such work or

operations.

ACS argues that the exception to the exclusion in part 2.l. means that the faulty work of a

subcontractor is an “occurrence” covered by the insurance policy. Overall, ACS contends that the

exclusionary language means that the work undertaken by the subcontractors and the fact that the
12

leaks were discovered before the project was completed constituted “property damage” under the

policy. As the district court aptly explained, “what ACS seeks from its insurer is a performance

bond.”Consequently, the district court declined to convert the liabilitypolicyinto a suretyagreement.

Moreover, the Mississippi Supreme Court recently explained that the exclusionary language in the

policy cannot be used to create coverage where none exists. Omnibank, 812 So.2d at 200. The

exclusionary language in the contract cannot be used to create coverage where none exists. 

Conclusion 

ACS urgesthis Court to applyAllard or to look to other jurisdictions arguing that Omnibank

failed to reconcile Allard and Moulton and therefore, Allard, the more recent case should take

precedence. We cannot agree. Federal jurisdiction arises from diversity in this case. This Court is,

therefore, Erie-bound to applyMississippilaw to the issue at dispute. UnderMississippilaw, Moulton

and Omnibank make clear that in a CGL insurance policy which defines an “occurrence” as an

“accident,” coverage istriggered ifthe underlying act wasintentional and deliberate. These cases also

make clear that an “occurrence” defined as an “accident” in a CGL insurance policy does not refer

to the unintended consequences of the act. Thus, the district court did not err when it applied

Moulton and Omnibank and concluded that ACS’s intent to subcontract with Chamberlin/Southern

and its intent to install the waterproofing membrane to the bunker roofs did not constitute an

“occurrence” under its CGL insurance policy with CGU to trigger coverage. For the foregoing

reasons we AFFIRM the judgment of the district court.

AFFIRM.