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

No. 10-31178

MICHAEL J FRUGE, ET AL, Plaintiffs,

v. AMERISURE MUTUAL INSURANCE COMPANY, Defendant–Appellant Cross-Appellee

v. CHUBB CUSTOM INSURANCE CO, Defendant–Appellee Cross-Appellant.

Appeals from the United States District Court for the Western District of Louisiana

Before JONES, Chief Judge, HAYN E S, Circuit Judge, and ENGELHARDT, District Judge. * PER CURIAM: Amerisure Mutual Insurance Company a p peals the district court’s summary-judgment ruling determin ing that Louisiana law prohibits the 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 Novembe r 22, 20 11 Lyle W . Cayce Clerk

D ist ric t Judge of the East ern Di st ric t of Louis iana, s itt ing by des ignati on. * Case: 10-31178 Document: 00511673235 Page: 1 Date Filed: 11/22/2011No. 10-31178

consideration of extrinsic evidence to prove mutual mistake; ranking Amerisure

as the primary ins u r e r ; a n d a l l o w i n g a n o t h e r t h ird-party insurer, Chubb Custom Insurance Company, to bring a cross-claim for defense fees. Because the district court erred in refusing to consider ext r insic evidence to prove the theory of mutual mistake, we reverse and remand wit hout considering ranking or standing. I Appell a nt–Cross-Appellee Amerisure Mutual Insurance Company (Amerisure) and Appellee–Cross-Appellant Chubb Custom Insurance Company (Chubb) each issued policies to Rockbit Holdings-owned corporations. This case arises from a motion for summary judgment on the validity of, ranking of, and reimbursements due under, insurance policies issued by Amerisure. Rockbit Holdings owns Ulterra Drilling Technologies (Drilling), which in turn owns Ulterra MWD (MWD )

. Drilling manufactures and sells drill bits; MWD conducts sit e - s p e c i f i c i n s t a l l a t i o n a n d drilling. Ronald F. Thomason, Chief Financial O f

ficer for both Drilling and MWD, contacted Cameron Jones of the William Rigg Company (Rigg) to purc h a s e i nsurance policies for both companies. Rigg filed commercial insurance applications o n b ehalf of Drilling and MWD. Chubb issued two policies to MWD: a commercial general liability (CGL) policy with a $1,000,000 limit and an umbrella policy with a $5,000,00 0 l i m i t. Both policies covered MWD from November 2005 to November 2006. Amerisure issued two policies to Drilling: a CGL policy with a $ 1 ,000,000 limit and an umbrella policy with a $10 , 0 00,000 limit. Both policies covered Drilling from December 31, 2005 for one year. Importantly, both of the Drilling policies issued by Amerisure also named MWD as an insured. In August 2006, a drill sensor installed by MWD exploded, severely injuring Michael Fr u g e . Fruge sued Drilling and MWD (among others) for negligence. Amerisure and Chubb assumed MWD’s defense in May 2007. Fruge

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voluntarily dismissed Drilling in June 2007. On September 6, 2007, Amerisure issued two Policy Change Forms deleting MWD as a named insured. Amerisure then terminated its defense of MWD on Septem b e r 18, 2007, effec tive October 19, 2007, claiming its addition of MWD to Drilling’s policy was a clerical error. Chubb c o ntinued defending MWD but filed a cross-claim against Amerisure for a declaration of Ame r i s ure’s obligation to defend MWD, a declaration of ranking of the two policies as applied to MWD, and a declaration of Amerisure’s duty to contribute to defense costs. Amerisure moved to dismiss Chubb’s cross-claim for failure to state a claim on which relief could be granted and moved for s u m m a r y j udgment on the grounds that: (1) no valid insurance contract between Amerisure and MWD was formed, due to a mutual mistake; (2) Chubb was solely responsible for de f ending MWD; and (3) Chubb lacked standing to sue Amerisure for defense costs or to compel A m e r i s u r e to defend MWD. The district court granted Chubb’s motion and denie d A m e risure’s, concluding that: (1) the parties impliedly consented to the appli c ation of Louisiana law; (2) Chubb could bring a cause of actio n a g a i n s t Amerisure to determine Amerisure’s liability to MWD; ( 3 ) Louisiana law prohibited considering extrinsic evidence of mutual mistake in a f a cially unambiguous contract; (4) Louisiana law prohi b i t e d reformation of Amerisure’s insurance policies in any event; (5) Amerisure’s policies clearly insured M W D ; and (6) Amerisure’s CGL policy ranked as the prim a r y policy, Chubb’s CGL policy ranked as the excess policy, and all liability on umbrella policies required a prorata division in proportion to policy limits of 2:1 between Amerisure and Chubb. The district court’s memorandum decision did not address Chubb’s request for reimbursement of defense costs. Amerisure and Chubb settled Fruge’s su i t w i t h M WD s ubj e c t t o A merisure reserving the right to appeal the district court’s rulings to this court. Amerisure

3 Case: 10-31178 Document: 00511673235 Page: 3 Date Filed: 11/22/2011No. 10-31178

appeals the district court’s application of Louisiana law and i t s r u l i n g s regarding the inapplicability of extrinsic evidence, preclusion of reformation, insurance policy rankings, and Chubb’s ability to bring a cross- c l a i m . C h ub b c r oss-appeals, requesting this court to rule that Chub b i s entitled to contribution of legal defense fees from Amerisure. II We review the grant or denial of a motion for summary judgment de novo. 1 “Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” This court views 2 all disp uted facts in the light most favorable to the non-moving party. We 3 review the district court’s determination of state law de novo. 4 A The district court applied Louisiana law, concluding that the parties agreed that Louisiana law governed the interpretation of the insurance policies. Amerisure asserts on appeal that the district court should have applied Texas, rather than Louisiana, law. However, Amerisure briefed only Louisiana law before the district court, never asserting that Texas law should apply or that the district court should engage in a ch o i c e-of-law analysis. Indeed, Amerisure relied exclusively on Louisiana law in its motion for summary judgment and in opposing Chubb’s motion for summary judgment at the district court level. Now, for the first time on appeal, Amerisure argues that the district court should have independently analyzed Louisiana’s choice-of-law rules and applied Texas law.

Catal yst Ol d Riv er H

ydro el ectr ic Ltd. P’shi p v. Ingram Bar

ge Co. , 639 F.3d 207, 210 1 (5t h Cir

. 2011)

. F E D

. R. C IV

. P. 56(a ); Catal yst , 639 F.3dat 210

. 2
See Uni ted States ex rel

. Farm er v. City of Ho uston , 523 F.3d 333, 337 (5t h Cir. 2008)

. 3
Mo orev . State Farm Fi re & Ca s. Co. , 556 F.3d264 , 269 (5t h Cir

. 2009)

. 4
4 Case: 10-31178 Document: 00511673235 Page: 4 Date Filed: 11/22/2011No. 10-31178

Failure to raise an argument before the district court waives that argument, including an argument for choice-of-law analysis. Amerisure has thus waived 5 its choice-of-law argument. B Pursuant to Amerisure’s motion for summary judgment seeking a declaration that it owed no contractual obligations to MWD, Amerisure offered affidavits of Rigg, MWD, and Amerisure officials. The district court rejected the consideration of the affidavits and Amerisure’s mutual mistake theory on two grounds: (1) because the contract was unambiguous, further interpretation was prohibited, an d ( 2 ) L o u i s i a n a l a w c ategorically prohibits reformation “that limits the recovery of a third party tort victim through post-accident invalidation of an instrument” by agreement or judicial decree. In determining that Louisiana law prohibits the consideration of extrinsic evidence, the district court applied Louisiana’s general contract interpretation rule—when the terms of a written contract are clear, unambiguous, and lead to

no absurd consequenc e s , further interpretation of the parties intent is prohibited. H o w e v er, Amerisure did not assert that the language of the

6 contract was ambiguous. Rather, Amerisure asserted that there was a mutual mistake. In rejecting this argument, the district court failed to acknowledge that “[t]here i s ample authority in [Louisiana] jurisprudence to allow reformation of an insurance policy when, because of mutual error or mistake, the

See Ar thur W. Tiff

ord, PA v. Tan dem Energy Corp

. , 562 F.3d 699, 705 n . 2 ( 5 t h C i r . 5 2009) (“ Und er the Eri e rule , we mus t app ly the sub st antive law of the for um st ate— inclu ding choi ce of law rule s, wh ich may dic tat e app lying anot her st ate’ s law s. ”) ; Thom ps on & Wal la ce of Me mp his , Inc. v. Fal conw ood Corp

. , 100 F.3d 429, 434 n.3 (5t h Ci r . 1 9 9 6 ) ( find ing any choi ce- of- law argum ent to be wa ived) ; Kuce l v. Wal ter E. He ll er & Co. , 813 F.2d 67, 74 (5t h Cir. 1987) (ho ldi ng that the choi ce- of- law iss ue wa s not wa ived beca use the iss ue wa s call ed to the cour t’s at tent ion in tim e t o b e p rop erly cons ide red ).
LA

. C IV

. C ODE A N N

. art s. 204 5-20 46 ( 2008)

. 6 5 Case: 10-31178 Document: 00511673235 Page: 5 Date Filed: 11/22/2011No. 10-31178

policy fails to reflect the intent of the parties.” Instead, the court relied on 7 Louisiana R evised Statutes section 22:1262 and Washington v. Savoie to 8 conclude that Louisiana’s public policy broadly precludes p o s t -injury contract reformation—even for mutual mistake—when reformation would prejudice an injured third party. Here, however, we do not deal with an injured third-party tort victim, whose rights we do not address here. The “third party” in this case is an insurance company that expressly contracted for a risk without relying in any w a y o n any other coverage. Indeed, Chubb could not have relied on Amerisure’s coverage because the Chubb policy precedes the Amerisure policy. Thus, we find the district court’s rationale unpersuasive for several reasons. L o u i s i ana law clearly allows contract reformation. Reformation is an equit a b l e r e m e dy designed to correct an error in the contract. “An insurance 9 policy is a c o n t r a c t b etween the parties and should be construed by using the general rules of interpretation set forth in the Louisiana Civil Code.” As with 1 0

o t h e r w r i t t e n a gr e e m e n t s, insurance policies may be reformed if, th r o u gh m u t u a l

e r r o r or fraud, the policy as issued does not express the agreement o f t h e parties. “Parole [sic] evidence is admissible to show mutual error even though

1 1 the express terms of the policy are not ambiguous.” To reform an instrument, 1 2 “there must be clear proof of the a n t e c e dent agreement as well as the error in

Staten v. Sec. Indus. Ins. Co. , 414 So. 2d 1328, 1331 (La. App

. 2d Cir. 1982) ; s ee, e. g. , 7 Sam uel s v. State Fa rm M ut. Auto. Ins. Co. , 939 So. 2d 123 5 ( La. 2006)

. 634 So. 2d 117 6 ( La. 1994)

. 8
Va lhi , Inc. v. Za

pa ta Corp

. , 365 So. 2d 867 , 870 (La. Ap p. 4t h Cir

. 1978)

. 9
Cadw al la derv . Al ls tate Ins. Co. , 848 So. 2d 577 , 580 (La. 200 3). 1 0
Sam uel s , 939 So. 2dat 124 0. 1 1
Id. 1 2 6 Case: 10-31178 Document: 00511673235 Page: 6 Date Filed: 11/22/2011No. 10-31178

committing it to writing.” “The burden is on the one see k i n g r e formation to 1 3
p r o v e t h e error alleged by clear and convincing evidence.” Louisiana law i s 1 4 clear: a party may present extrinsic evidenc e t o prove mutual mistake, even when the language of the contract is not ambiguous. 1 5 S p e c ifically, Louisiana cases have allowed post-accident contract reformation. I n Samuels v. State Farm , a homeowner purchased an umbrella policy from State Far m and a separate policy from Evanston Insurance for additional umbrella liability coverage. An Evanston employee misidentified 1 6 the underlying State Farm policy in the Evanston policy documents. After the 1 7 insured suffered an accident and made a claim, Evanston submitted multiple affidavits to demonstrate a mistake, which the Louisiana trial court rejected. 1 8 State Farm argued the lack of amb i g u i t y in Evanston’s policy prevented the court from reforming it. The Louisiana Supreme Court rejected this argument, 1 9 stating that parol evidence “is admissible to show mutual error even though the
express terms of the policy a re not ambiguous.” The court expressly 2 0

Fir st State Bank & Trus t Co. of E. Baton Rouge Pari sh v. Sev en Ga ble s In c . , 5 0 1 13 So. 2d 280 , 285 (La. Ap p. 1s t Cir. 198 6), wr it deni ed , 502 So. 2d 103 ( La. 1987)

.

Id. 1 4
We do not dec ide tod ay wh ethe r Ame ris ure can me et the requ ired burd en of clea r and 1 5 convin cing evide nce, but only that the dis tri ct cour t err ed in ref usi ng to cons ide r extr ins i c evide nce to pr ove mut ual mi st ak e.
939 S o. 2d. at 123 7. 1 6
Id. at 1238. 1 7
Id

. at 1238- 39. 1 8
Id

. at 1241. 1 9
Id. at 1240. 2 0 7 Case: 10-31178 Document: 00511673235 Page: 7 Date Filed: 11/22/2011No. 10-31178

distinguished “interpreting an ambiguity in [a] policy” from “ c orrecting a clerical error to reflect the parties’ mutual intent.” 2 1 The district court acknowledged that L o uisiana law allows reformation when a written instrument does not reflect the true intent of the contracting parties but differentiated the present case as being barred by Louisiana Revised Statutes section 22:1262 and public policy. We find the district court’s reliance on this statute to be misplaced. Section 22:1262 provides: No insurance c o n t r a c t i n s u r i n g against loss or damage through legal liability for the bodily injury or death by accident of any individual, or f or damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such annulment attempted shall be null and void. 2 2
The language and purpose of section 22:1262 suggests its irrelevance to a reformation action. By its terms, 22:1262 prohibits insurers and insureds from rescinding or annulling policy contracts by agreemen t

. Amerisure does not 23 seek to annul the contract by agreement; it seeks reformation based on mutual mistake. Louisiana courts have not interpreted this statutory language. In the absence of controlling authority by the Louisiana Supreme Court, Erie requires this court to predict how the Louisiana Suprem e C o u r t would determine this

Id

. at 1241. 2 1
LA

. R EV

. S T

AT

. A N N

. § 2 2:12 62 ( 2010)

. 2 2
T h e Louis iana Sup rem e Court cons ide rs highly analogo us dec isi ons fr om othe r cour ts 2 3
as per sua sive autho rit y. C H F Fin. Co. v. Jochu m, 127 So. 2d 534, 539 (La. 1961)

. Thus it is rele vant that se veral othe r st ate a n d f e d e r a l cour ts inte rp ret ing sim ilar pr ovis ions als o sugges t the st atut e’s irr elevanc e to a ref orm atio n act ion. See, e. g. , State Com pe nsa tion Fund v. Ma r Pac He li cop ter Corp

. , 752 P.2d 1, 7-8 (Ar iz. Ct. App

. 1987) (ho ldi ng a sim ilar pr ovis ion “by its very ter ms governs bilat eral agree me nts [and ] ther efo re doe s not app ly to an ins urer ’s unilat eral res cis sio n of a cont rac t”) ; Am

. Cont’l Ins. Co. v. Steen , 91 P.3d 864, 870 n.3 (Was h. 2 0 0 4 ) ( e n banc) (“ [The pr ovis ion] voids agre em ents betw een ins ured s and ins urer s to ret roac tivel y annul a pol icy

. . . . It is an imp ort ant dif fer ence the l e g i s l a t u r e has dec lare d law .” ). 8 Case: 10-31178 Document: 00511673235 Page: 8 Date Filed: 11/22/2011No. 10-31178

issue and apply Louisiana law accordingly. It i s unlikely the Louisiana 2 4 Supreme Court would interpret section 22:1262 as barring all post-accident reformation in light of the Louisiana cases discussing post-accident reformation in various contexts, none of which apply, or even address, section 22:1262 or its predecessor, section 22:639. 2 5 W a s h i ngton v. Savoie , dealing with the particular requirements of uninsured motorist coverage, does not require judgment for Chubb here. The 2 6 tortfeasor has settled. The only dispu t e lies in who must bear the loss of settlement. Additionally, by the parties’ admissions, the re is no evidence that Chubb relied on Amerisure’s insuring MWD. In fact, Chubb issued its policies 2 7 to MWD before Amerisure included MWD in its Drilling policies. Whether the parties a c t u a l l y made a mutual mistake remains an open question. Amerisure claims it listed MWD on its polici e s o n l y through an unintended clerical error, and Amerisure’s affidavits unequivocally disavow any

Mo ore v . State Farm Fi re & Ca s. Co. , 556 F.3d264 , 269 (5t h Cir

. 2009)

. 2 4 See, e .g. , Pal me r v. Mar tinez , 42 So. 3d 1147, 1156- 57 ( La. App

. 2d Cir. ) (r evers ing 2 5 im pr ope r ref

orm atio n to inclu de unins ured par ty in ins uranc e cont rac t wi thou t dis cus sin g 22:1 262) , wr its d e n ie d , 50 So. 3d 804, 805 (La. 2010) ; Ho pe v. S & J Di vi ng, Inc. , 996 So. 2d 50, 54-5 5 (La. App

. 4th Cir. 2008) (d isc uss ing Louis iana’ s ins uranc e ref orm atio n pr incip les in mar itim e-i nsur ance cont ext wi thou t ref ere nce to 22:1 262) ; Farm ers -M erc hants Bank & Trus t Co. v. St. Kathe ri ne Ins. Co. , 693 So. 2d 876, 880- 81 (La. App

. 3d Cir. ) (no ting co u r t ’ s “co nsi st ent” hold ing “in cer tain ins tanc es of negligenc e, mi st ak e, err or or fr aud on the par t of an agent or em plo yee of an ins urer ,” that an ins uranc e cont rac t may b e r e f o r m e d i n a cas e wh en los s alre ady occ urr ed wi thou t ref ere nce to sect ion 22: 1262) , wr it deni ed , 703 So. 2d 25 (La. 1997) ; Stanl ey v. Saf ew ay I ns. Co. , 682 So. 2d 951, 954 (La. App

. 3d C ir. 1996) (r eject ing ref orm atio n of app lica ble ins uranc e d ate wi thou t ref ere nce to 22:1 262) , wr it deni ed , 689 So. 2d 1371 (La. 199 7).

See 634 So. 2d 117 6 ( La. 1994)

. 2 6 Cf. Sam uel s v. State Fa rm M ut. Auto. Ins. Co. , 939 So. 2d 123 5, 1239- 40 ( La. 2006) 2 7 (f indi ng it “s ignif

icant that Sta te Farm in no wa y reli ed on this cler ical err or” and em phas izing that rat her than the a m o unt of cover age the ins ured wi ll rec eive, “th e only iss ue is wh ich ins uranc e c om pany wi ll benef it fr om [ the] d ecis ion. ”)

.

9 Case: 10-31178 Document: 00511673235 Page: 9 Date Filed: 11/22/2011No. 10-31178

intention to insure MWD. Louisiana law permits consideration of this evidence to determine whether there was mutual mistake that merits reformation. * * * For the foregoing reason s , w e R E V E R S E and REMAND the district court’s judgment.

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