1 United States Court of Appeals,

Fifth Circuit.

No. 93-3741.

PRINCIPAL HEALTH CARE OF LOUISIANA, INC., Plaintiff-Appellant,

v.

The LEWER AGENCY, INC., and General American Life Insurance

Company, Defendants-Appellees.

Nov. 23, 1994.

Appeal from United States District Court for the Eastern District

of Louisiana.

Before REAVLEY, DeMOSS and STEWART, Circuit Judges.

STEWART, Circuit Judge:

This diversity case arising in Louisiana involves the issue of

which parent's health care insure r provides coverage for the

neonatal medical care of their illegitimate c hild under the

provisions of the parents' policies. Because we conclude that the

magistrate judge erro neously held that the Principal Health Care

plan provided primary coverage, and thus that the court improperly

granted summary judgment in favor of the mother's insurer, we

reverse.

FACTS

On December 27, 1991, Danielle C. Plauche (Plauche) gave birth

to Justin Plauche (Justin) at East Jefferson General Hospital. The

birth certificate listed Fred B. Pepper (Pepper) as the baby's

father. Pepper and Plauche were not married at the time of

Justin's birth, nor have they ever been married to each other or

lived together. Pepper has formally acknowledged his paternity of2

Justin, and Plauche concurred in this acknowledgement as provided

under Louisiana law.

Pepper's employee hea lth care plan was issued by Principal

Health Care of Louisiana, Inc. Immediately after Justin's birth,

Pepper purportedly added Justin as an additional assured and/or

member under Principal's policy. Pepper paid for the dependent

coverage himself through payroll deductions.

At the time of Justin's birth, Plauche's employee health care

plan was provided by General American Life Insurance Company

through The Lewer Agency, Inc. Immediately after Justin was born,

Plauche also added Justin to her health care policy as Pepper had

done with his plan. Plauche's dependent coverage was paid by her

employer.

Justin was born four months premature and had to remain at

East Jefferson from the date of his birth (December 27, 1991) until

April 13, 1992, incurring expensive medical bills for his neonatal

c are. Fortunately, Justin eventually became healthy enough to

leave the hospital. When he was discharged, he went to live with

his mother, where he has remained. There is no evidence that there

has ever been any judicial determination involving Justin's

custody. However, in August 1992, the Juvenile Court for the

Parish of Jefferson ordered that Pepper provide child support and

maintain his current medical insurance for Justin and that he be

responsible for the health care expenses of Justin.

Because ther e were two employee welfare plans involved, a

d ispute arose as to which employee welfare plan provided prim ary1 Under pertinent Louisiana statutes, an insurer can be

liable for "bad faith" penalties and attorney's fees if it

arbitrarily or capriciously denies coverage to an insured, fails

to pay a claim timely, or otherwise acts in "bad faith."

3 coverage for Justin's medical expenses. Because the sum total of

the bills did not exceed the maximum lim its of either plan, the

primary carrie r necessarily would be responsible for the entire

amount. Plauche filed suit against Principal in state court

asserting Justin's coverage under the Principal plan and seeking

attorney's fees and penalties under La.R.S. 22:657 1

. After

negotiations, Plauche compromised her state court suit in exchange

for an agr eement between Principal and General American whereby

each company would pay fifty ( 50%) percent of the outstanding

medical bills, which totalled $245,089.88. Of that amount, all but

approximately $500.00 represented expenses incurred during Justin's

hospitalization at East Jefferson. The agreement between Principal

and General American further provided that Principal would file a

declaratory judgmen t action to seek a determination of the

respective obligations of the parties. The prevailing party would

be entitled to reimbursement from the other party.

Pursuant to the agreement, Principal filed this de claratory

judgment action against General American and Lewer in the federal

d istrict court for the Eastern District of Louisiana. Principal

also filed a motion for summary judgment. Lewer and General

American brought a cross-motion for summary judgment. The case was

referred to the federal magistrate. The magistrate granted General

American and Lewer's motion for summary judgment, ruling that4

Justin was covered under the Principal plan as Pepper's "dependent

child" during the time that Justin was at East Jefferson, and that

Principal was the primary insurer of Justin under the so-called

"birthday rule" in the coordination of benefits provisions of the

Principal plan, because Pepper's birthday precedes Plauche's in the

calendar year. 831 F.Supp. 570. This appeal followed.

STANDARD OF REVIEW

We review a district court's grant of summary judgment de

novo. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992). Summary

judgment is proper if the pleadin gs, depositions, answers to

interrogatories, and admissions on fi le together with the

affidavits filed in support of the motion, if any, show that there

is no genuine issue of material fact and that the moving party is

entitled to judgment as a matter of law. C elotex Corp. v. Catrett,

477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

Interpretation of an insurance policy is a question of law.

FDIC v. Barham, 995 F.2d 600 (5th Cir.1993). Accordingly, we

review a district court's interpretation of an insurance policy de

novo. F

DIC v. Mijalis, 15 F.3d 1 314 (5th Cir.1994); H arbor

Insurance Co. v. Urban Construction Co., 990 F.2d 195, 199 (5th

Cir.1993).

ANALYSIS

Resolution of this case depends solely upon an interpretation

of policy language. Neither party asserts that there are genuine

issues of material fact which would preclude summary judgment. In

fact, both parties have filed motions for summary judgment on the2 In its reply brief, Principal urges for the first time a

third alternative in which coverage between the two plans should

be apportioned on a pro rata basis. Not only do we question

Principal's ability to propose this Solomonic solution for the

first time in its reply brief, we also reject this argument as

meritless because there is no policy language in either of the

two plans which would support such an allocation.

Principal also has forwarded an equal protection

argument, contending that the policy as construed by the

magistrate places a heavier burden on legitimate children

than illegitimate children. While we note in passing the

facial weakness of such an argument given an apparent lack

of state action, we do not reach the constitutional issue

because we grant relief to Principal on the basis of the

policy language.

5 assertion that there are no genui ne issues of material fact.

Principal makes two arguments in support of its position that the

magistrate erred in granting summary judgment in favor of General

American. Principal contends that there are two separate and

distinct clauses contained within its policy which apply to this

issue and which would absolve it of any liability for the medical

expenses Justin incurred at East Jefferson.

First, Principal argues that Justin was not dependent upon

Pepper for the majority of his financial support and thus does not

qualify as a dependent pursuant to the Principal plan. Thus,

Principal contends that Justin is not in fact eligible for coverage

under the plan albeit that Pepper ostensibly added Justin to it.

Second, and alternatively, Principal argu es that pursuant to the

terms of the coordination of benefits provisions in both policies,

the General American plan should provide primary coverage, even if

we determine that Justin is covered under the plan. 2

As a federal court sitting in diversity, we apply Louisiana6

rules of policy interpretation in this case. Louisiana law is

clear that the interpretation of insurance policy provisions is to

be governed by the rules pertaining to the interpretation of other

types of contracts. B attig v. Hartford Accident and Indemnity Co.,

608 F.2d 119 (5th Cir.1979).

The rules for interpreting contracts are set forth in various

articles of the Louisiana Civil Code. Article 2045 provides that

"[i]nterpretation of a contract is the determination of the common

intent of the parties." Article 2046 goes on to state that "[w]hen

the words of a contract are clear and explicit and lead to no

absurd consequences, no further interpretation may be made in

search of the parties' intent." Article 2047 provides that "[t]he

words of a contract must be given their generally prevailing

meaning." Article 2048 provides that "[w]ords susceptible of

different meanings must be interpreted as having the meaning that

best conforms to the object of the contract." Finally, Article

2050 provides that "[e]ach pr ovision in a contract must be

interpreted in light of the other provisions so that each is given

the meaning suggested by the contract as a whole."

The coverage issue

As noted above, Principal first argue s that Justin does not

qualify as a dependent under the provisions of the Principal plan.

Pursuant to the plan's terms, Justin would have to qualify as a

"dependent child" of Pepper in order to be covered under the

Principal plan. The term "dependent child" as defined in the

Principal plan includes, inter alia, "(1) the Subscriber's7

unm arried, natural or legally adopted child residing within the

service area; ..." But the provisions go on to provide that "...

the child must be dependent upon the Subscriber for a majority of

his or her financial support

... and must be either under nineteen

(19) years of age, a full-time student, or a disabled dependent."

It is undisputed that Justin's mother has provided for her son

almost singlehandedly from the time of conception forward. Any and

all prenatal care, hospital visits and examinations prior to birth

were pai d for by Plauche alone. From the time Justin was

discharg ed from the hospital, Plauche has provided for all of

Justin's needs, including a home, food, clothing, and emot ional

nurturing. Pepper's only contributions to Justin's support for

expenses incurred during the time Justin was in the hospital were

a one-time $200.00 payment toward the medical bills and the

approximately $88 per month in insurance premiums for Justin's

dependent coverage. Overall, Pepper's only other contribution is

the approximately $13.50 per month in child support he has been

ordered to pay. Thus, Principal contends that Justin does not

qualify as Pepp er's "dependent child" under the Principal plan

because he is not dependent upon Pepper for a majority of his

financial support.

The first time Principal appears to have asserted the

coverage issue was in its motion for summar y judgment. In its

cross-motion for summary judgment, General American contended that

Principal had waived its right to litigate the coverage issue or

otherwise deny coverage by entering into the agreement to pay half8

of the medical bills in order to end the state court litigation.

However, the magistrate did not reach this "waiver" issue.

Notwithstanding Principal's contentions to the contrary, the

magistrate concluded that during the time Justin was in the

hospital, he was dependent upon Pepper for a majority of his

financial support; thus, Justin was covered under the Principal

plan.

On appeal, Principal again seeks to deny coverage under the

plan, claiming that Justin is not Pepper's "dependent child"

because Justin does not depend upon Pepper for a majority of his

financial sup port. While General American and Lewer did not

address the waiver issue in their brief, at oral argument the

question of Principal's ability to assert non-coverage arose again.

Principal countered General American's "waiver" allegation by

pointing to a provision in the written agreement described above

between Principal and Gen eral American/Lewer which states that

"[t]he parties hereto specifically and expressly reserve any and

all rights and defenses available to them respectively." Principal

argues that, under this language of the agreement, it has the right

to assert the coverage issue. We disagree.

A careful review of the declaratory judgment complaint filed

by Principal reveals that Principal asserts t herein that "[e]ach

party, that is Principal and [General American/Lewer,] have taken

the position that their plans are secondary." Principal further

states that the purpose of the action is to adjudicate "which

party's health insurance coverage is primary and which secondary."9

In its prayer, Principal asks merely that the court "adjudicate the

rights and liabilities of the parties pursuant to the Coordination

of Benefits Provisions. " (Emphasis added.) In fact, the

coordination of benefits provisions were the only provisions under

which Princip al asked the court to adjudicate the rights and

liabilities of the parties. Nowhere in the declaratory judgment

complaint has Principal pleaded coverage as an issue. The motion

for summary judgment wherein Principal initially asserted

noncoverage does not qualify as a pleading. See Federal Rules of

Civil Procedure 7(a). Moreover, Principal never asserted coverage

as an affirmative defense. In fact, as noted above, Principal

speci fically stated in their complaint that their contention was

tha t the Principal plan provided s econdary coverage. By this

assertion, Principal implicitly acknowledged that there was in fact

some sort of coverage available for Justin, albeit secondary.

Principal effectuated a compromise of the state court

litigation and thereby avoid ed possible exposure on "bad faith"

penalties and attorney's fees; in exchange, it agreed to pay half

of the medical bills and institute a declaratory judgment action to

determine whether its coverage for Justin is primary or secondary.

Based upon the parties' agreement, the coordinatio n of benefits

issue was to be the limited question before t he lower court. In

fact, the agreement specifically provided: "As a result of

differing interpretations of each party's coordination of benefits

provisions, Principal Health Care and The Lewer Agency, on behalf

of General American Life Insurance Company have taken the position10

of sec ondary health care carriers

. ..." (Emphasis added.)

Principal cannot seek now in this appeal, nor did it have the right

to assert in the lower court via summary judgment motion, relief it

did not pray for or otherwise plead. While it m ay be true that

Principal reserved the right to assert coverage as a defense by

virtue of the reservation clause in the agreement with General

American/Lewer, in never asserted this right via its pleadings in

the declaratory judgment action. Thus, we hold that Justin was

covered as Pepper's dependent child under the P rincipal policy.

The only question that remains is whether that coverage is primary

or secondary.

The coordination of benefits provision

Although the magistrate granted summary judgment in favor of

General American, he did so on the basis of the coordination of

benefits provision of the P rincipal policy, ruling that the

Principal plan provided primary coverage for Justin.

The main point of contention surrounding the coordination of

benefits provisions of the Principal plan is whether the so-called

"birthday rule" or "custody rule" applies to determine whether the

plan provides primary coverage. Under the "birthday rule," the

Principal plan, by its own terms, would provide primary coverage

because Pepper's birthday precedes Plauche's in the calendar year.

Under the "custody rule," the Principal plan would require that

benefits be determined under Plauche's plan before th ey would be

determined u nder the Principal plan. Specifically, these

provisions of the Principal plan (referred to as "the Health Plan"3 The corresponding provision in the General American policy

is substantially the same as the Principal provision, containing

the more general "birthday rule," except in cases where the

parents are "separated or divorced and the parent with custody of

the child has not remarried," in which case the custody rule will

apply.

4 The magistrate opined in dicta that during the time Justin

was in the hospital, he was not in the custody of either parent.

We disagree. We hold that at all times relevant herein, Justin

has been in the custody of his mother. There is no evidence that

11 therein) state as follows, in pertinent part:

2) The Health Plan determines its order of benefits using the

first of the following rules which applies:

....

b) Except as stated in paragraph 4.1.C.2.c, whe n the

Health Plan a nd another Plan cover the same child

as a Family Dependent of different persons, called

"parents":

1. The benefits of the Plan of the parent whose

b irthday falls earlier in a year are dete rmined

before those of the Pla n of the parent whose

birthday falls later in the year

....

c) If two or more Plans cover a Member as a de pendent

child of divorced or separated parents, benefits

for the child are determined in this order:

1. Firs t, the Plan of the parent with c ustody of

the child, ...

(Emphasis added.) 3

Principal contends that, because Pepper and Plauche were never

married and living to gether, they should be viewed as "separated

parents" unde r the COB provision of the Principal policy and

therefore the "custody rule" applies. Because Plauche has had

physical custody of Justin at all times, her plan would provide

primary coverage under the "custody rule." 4 General American/Lewerthere has ever been any legal determination of custody; however,

Plauche as a matter of fact always has had physical custody of

Justin. We have no difficulty determining that, in the absence

of a legal determination of custody to the contrary, that Justin

was in the custody of his mother as long as he remained at the

hospital, where she had given birth to him. After he was

released from East Jefferson, Justin went to live with Plauche,

where he has remained. Plauche is the parent with custody of the

child under the "custody rule" of the Principal plan.

5 Humana Health Insurance Company of Florida, Inc. v. Halifax

Health Network, 579 So.2d 384 (Fla.Dist.Ct.App. 5th Dist.1991)

(parents who were never married and never lived together cannot

be said to be "divorced" or "separated"). We decline to follow

Humana, particularly in light of the fact that it is a Florida

case, not a Louisiana case. Moreover, Humana involved an

interpretation of an insurance statute, not an insurance policy,

and is therefore factually distinguishable. Also, even case law

from Louisiana courts technically is not binding in this civilian

jurisdiction, because Louisiana does not recognize stare decisis.

However, as a practical matter, lower courts often do follow the

dictates of higher courts within their jurisdiction, but it is

because they choose to do so, not because they must.

6 As noted above, Louisiana Civil Code Article 2047 is a rule

of contract interpretation which provides that "[t]he words of a

contract must be given their generally prevailing meaning."

Louisiana, being the only civil law jurisdiction among the fifty

states, is unique in that its approach to solving most legal

12 argues that Pepper and Plauche are not "divorced or separated"

because they were never married, and therefore the "custody rule,"

which is an exception to the more general "birthday rule," does not

apply. Pepper's birthday is April 29th, and Plauche's birthday is

December 9th. Because Pepper's birthday falls earlier in the year,

General American contends that the Principal plan should provide

primary coverage.

The magistrate agreed with General American that Pepper and

Plauche cannot be "separated" because they have never been married.

He cited a case fromanother jurisdiction 5 as well as Louisiana

Civil Code art. 2047 6 in support of his conclusion and explainedquestions begins first and foremost with a review of the

Louisiana Civil Code. The Civil Code is thus the civilian's

"Bible." Jurists in common law jurisdictions, on the other hand,

usually begin with a review of the case law on a particular

issue. The late Judge Alvin B. Rubin lamented that Louisiana

federal courts sitting in diversity often fail to employ civilian

methodology, although they are Erie -bound to do so. In the

instant case, the magistrate's efforts to be true to Erie and

employ civilian interpretation are laudable, although we disagree

with his conclusion. For Judge Rubin's delightful and

enlightening discussion of the hazards that Louisiana federal

courts present to the civilian tradition, see Alvin B. Rubin,

Hazards of a Civilian Venturer in a Federal Court; Travel and

Travail on the Erie Railroad, 48 La.L.Rev. 1369 (1988).

13 that the generally prevailing meaning of the word "separa ted" in

the context of the phrase "dependent child of divorced or separated

parents" is married but living separately. Because he felt Justin

could not be construed as a "dependent child of divorced or

separated parents," the magistrate held that the "custody rule" did

not apply, and thus that the more general "birthday rule" applied.

Under the birthday rule, the Principal plan would provide primary

coverage. Accordingly, the magistrate granted summary judgment in

favor of General American/Lewer.

On appeal, Principal contends that the "custody rule" should

apply in lieu of the "birthday rule" because Pepper and Plauche are

"separated parents" in that they have never been married.

Principal points out that the general, common sense definition of

the term "separated" means "not together." Moreover, Principal

points out that the arbitrary "birthday rule" is only appropriate

when parents are not "separated" or divorced, i.e., when they are

living together, because assumedly both parents will have an equal

interest in, and responsibili ty for, the health care provided to14

the child. When parents are "separated" or divorced, however, the

rules state that the plan of the parent with custody is primary.

Thus, Principal contends that the obvious intent of the COB

provision is to impose primary liability on the plan of the parent

residing with the child when the two parents do not live together.

We agree.

Louisiana Civil Code Article 2048, cited above, provides that

"words sus ceptible of different meanings must be interpreted as

having the meaning that best conforms to the object of the

contract." Also, Article 2050, cited above, provides that "[e]ach

provision in a contract must be interpreted in light of the other

provisions...." We interpret the word "separated" as used in the

"custody rule" of the Principal plan to connote people who do not

reside together. This interpretation is most consistent with the

overall purpose of the two rules governing which plan is primary in

the event that a chil d is covered under both parents' plans: if

the parents are living together with the child, the arbitrary

birthday rule is an acceptable way of determining primary coverage

b etween two parents who have equal contact with the child and an

equal interest in its medical care and insurance coverage; if the

parents are not living together, the parent with custody of the

child has more contact with the child and perhaps a greater

interest in the medical care it receives and the insurance coverage

affor ded to it. In this case, Justin's mother always has had

custody of him rather than his father. Accordingly, the Principal

plan indicates that it provides only secondary coverage for Justin15

if he is covered under Plauche's plan. Consequently, we hold that

primary coverage for Justin i s provided by General American, the

insurer of Plauche.

CONCLUSION

For the foregoing reasons, the magistrate's summary judgment

in favor of Gener al American and Lewer is REVERSED. Under the

coordination of benefits provisions of the Principal plan, benefits

under the General American plan are to be determined before those

under the Principal plan. Having construed the language of the

policies in accordance with civilian methodol ogy, we hold that

primary medic al insurance coverage for Justin is provided by

General American Life Insurance Company. Judgment is here rendered

in favor of Principal Health Care of Louisiana, Inc. Costs of the

appeal are assessed to General American Life Insurance Company

through the Lewer Agency.

REVERSED AND RENDERED.