### IN THE UNI TED STATES COURT OFAPPEALS FOR THE FIF TH CIRCUIT

No. 11-30121

LOONEY RICKS KISS ARCHITECTS, INCORPORATED, Plaintiff - Appellant, Cross - Appellee
v. STATE FARM FIRE & CASUALTY COMPANY, Intervenor Plaintiff - Appellee, Cross-Appellant
v. STEVE BRYAN, et al.,
Defendants

_________________________________________________________ LAFAYETTE INSURANCE COMPANY, Plaintiff - Appellee, Cross - Appellant
v. LOONEY RICKS KISS ARCHITECTS, INCORPORATED, Defendant - Appellant, Cross - Appellee
v. STEVE H. BRYAN; BRYAN CONSTRUCTION COMPANY, INCORPORATED; BRYAN COMPANY; CYPRESS LAKE DEVELOPMENT LLC, Defendants - Appellees 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 April 4, 201 2 Lyle W . Cayce Clerk Case: 11-30121 Document: 00511811278 Page: 1 Date Filed: 04/04/2012No. 11-30121

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

Before BENAVIDES, STEWART, and GRAVES, Circuit Judges. CARL E. STEWART, Circuit Judge: Looney Ricks Kiss Architects (“LRK”), an architecture firm, brought this action for copyright infringement against a former client, Steve Bryan, and his affiliated building companies (collectively, “the Bryan defendants”). Lafayette Insurance Company (“Lafayette”) and State Farm Fire and Casualty Company (“State Farm”), insurers of Bryan’s Cypress Lake Development, sought declaratory judgments that, by virtue of exclusions set forth in their respective insurance policies, they have no obligation to provide coverage or duty to defend in LRK’s suit. LRK appeals the district court’s summary judgment ruling that Lafayette and State Farm have no duty to provide coverage, and Lafayette and State Farm appeal the district court’s summary judgment ruling that they have

a duty to defend. As we conclude that the exclusions relied upon by the insurers do not preclude coverage of LRK’s copyright infringement claim, and, therefore, that the insurers owe both coverage and defense under their respective policies, we REVERSE in part and AFFIRM in part. I. LRK is an architecture fir m with its principal place of business in Memphis, Tennessee. In 1996, LRK created a design known as the Island Park Apartments, which was constructed by companies associated with Steve Bryan. On October 10, 1996, LRK and Island Park, LLC, as represented by Steve Bryan, entered into a Standard Form of Agreement Between Owner and Architect (“the

2 Case: 11-30121 Document: 00511811278 Page: 2 Date Filed: 04/04/2012No. 11-30121

1996 Agreement”). In pertinent part, Article 6.1 of the 1996 Agreement 1 provided: The Architectu r al Works, Drawings, Specifications, Technical Drawings and other documents prepared by the Architect for this Project are instruments of the Architect’s service for use solely with respect to this Project and, unless otherwise provided, the Architect shall be deemed the author of these documents and shall retain all common law, statutory, and other reserved rights, includi n g the copyright.

. . . The Architect’s Architectural Works, Drawi n g s , Specifications, Technical Drawings or other documents shall not be used by the Owner or others on other projects, for additions to this Project or for completion of this Project by others, unless the Architect is adjudged to be in default under this Agreement, except by agreement in writing and with appropriate compensation to the Architect. 2 LRK registered the Island Park Apartments with the United States Copyright Office as an Architectural Work and Technical Drawings. In 2001, Cypress Lake Development, a company associated with Bryan, applied for and obtained permits to construct the Cypress Lake Apartments in Baton Rou ge, Louisiana. LRK’s complaint alleges that these apartments infringe on its copyrighted work with o u t LRK’s consent or permission. The complaint further alleges that the Bryan defendants used depictions of its copyrighted works in promotional and advertising materials in the operation of the Cypress Lake Apartments. From June 28, 2000, through June 28, 2001, the Cypress Lake real estate development was insured by a policy issued to the Bryan d e f e n d a nts by Lafayette. Coverage B of th e policy provided coverage for personal and advertising injury liability. The policy states, in pertinent part: “‘Personal and advertising injury’ means injury, including consequential ‘bodily injury’, arising

The for m cont rac t is cop yrighte d by the Ame ric an Institut e of Archi tec ts

. Sever al 1 pr ovis ionsof

the for m cont rac t we re st ric ke n o r unde rline d.
U nderlining in origi nal. 2 3 Case: 11-30121 Document: 00511811278 Page: 3 Date Filed: 04/04/2012No. 11-30121

out of one or more of the f ollowing offenses:

. . . g. Infringing upon another’s copyright, trade dr e s s or slogan in your ‘advertisement’.” The policy defines “advertisement” as “a notice that is broadcast or published to the general public

or specific market segments about you r goods, products or services for the
purpose of attracting customers or supporters.” The policy further provides that the personal and advertising injury insurance does not apply to “‘Personal and advertising injury’:

. . . (6) Arising out of a breach of contract, except an implied contract to use another’s advertising idea in your ‘advertisement[]’ . . . .” From June 28, 2002, through June 28, 2005, Cypress Lakes Apartments

was insured by State Farm under three Apartment Policies. From September 6, 2002, through September 6, 2005, Cypress Lakes Apartments was insured by State Farm under three Umbrella Policies. Each of the policies provides

c o v e r age for personal and advertising injury. Advertising injury is defin e d a s “injury arising out of one or more of the following offenses: .

. . d. infringement of copyright, title or slogan

. . . .” Each of the policies states that the insurance d o e s n o t apply “to advertising injury arising out of: a. breach of contract oth e r than misappropriation of advertising ideas under an implied contract . . . .” On March 27, 2007, LRK initiated this action for copyright infringement against the Bryan defendants, their successors in interest, and an architect. On 3 July 27, 2007, State Farm intervened in the suit, seeking a determination that it owed no coverag e for the damages sought by LRK against the Bryan defendants. In March 2009, Lafayette filed a separate action seeking a declaration that it owed no coverage and had no duty to defend in the lawsuit. On July 2, 2009, the two actions were consolidated, forming the present case.

Th e a r chit ect , Ste phen G. Hill, has se ttl ed and is no longer a party to the cas e. 3 Cypre ss Lak e Ap art me ntsw as so ld. Its current ow ners , thou gh def enda nts in the cas e, are not ins uredund er the pol icie s at iss ue in this ap peal a nd are not partie s to this ap peal. 4 Case: 11-30121 Document: 00511811278 Page: 4 Date Filed: 04/04/2012No. 11-30121

On Augu s t 4, 2009, LRK moved for partial summary judgment against Lafayette, seeking a declaration that L afayette owes a duty of defense to the Bryan defendants. On August 31, 2010, Lafayette also moved f o r summary judgment, seeking a declaration that it has no duty to defend in the lawsuit or to provide coverage. On September 14 , 2 0 1 0 , S tate Farm moved for summary judgment, seeking a declaration that it owes no coverage and no duty to defend. On December 30, 2010, the di s t rict court, in two separate rulings, concluded that both insurance companies owe their insureds a duty to defend in the lawsuit, but neither insurer has a duty to provide coverage pursuant to the operation of the “breach of contract” exclus i o n s. LRK appealed the district court’s determina tion that Lafayette and State Farm have no duty to provide coverage, and Lafayette and State F arm appealed the district court’s determination that they have a duty to defend. II. This court reviews a district court’s grant of summary judgment de novo, applying the same standards as the trial court. See Urbano v. Cont’l Airlines, Inc. , 138 F.3d 204, 205 (5th Cir. 1998). Summary judgm e nt is proper if the evidence shows that there is no genuine issue as to any material fact and that the mo ving party is entitled to judgment as a matter of law. Kee v. City of Rowlett , 247 F.3d 206, 210 (5th Cir. 2001). The Court views all evidence in the light mo s t favorable to the non-moving party and draws all reasonable inferences in that party’s favor. Crawford v. Formosa Plastics Corp. , 234 F.3d 899, 902 (5th Cir. 2000). “Even if we do not agree with the reasons given by the district court to support summary judgment, we may affirm the district court’s ruling on any grounds supported by the record.” Lifecare Hosps., Inc. v. Health Plus, Inc. , 418 F.3d 436, 439 (5th Cir. 200 5).

5 Case: 11-30121 Document: 00511811278 Page: 5 Date Filed: 04/04/2012No. 11-30121 III. A. The parties agr ee that Louisiana law governs the interpretation of the insurance policies at issue in this cas e . “An insurance policy is a contract between p a rti e s and should be construed according to contract principles.” Michelet v. Scheuring Sec. Servs. Inc. , 680 So. 2d 140, 147 (La. App. 4 Cir. 1996). “When the language of a policy is clear and not ambiguous, the insurance contract must be enforced as written. When the wording is clear, the courts lack the au th o rity to alter or change the terms of the policy under the guise of interpretation.” Id. “In i nterpreting insurance contracts the judicial responsibility is to determine the parties’ common intent. Such intent is to be determined according to the ordinary, plain and popular meaning of words used in a po lic y . ” Id. “Words in an insurance contract must be ascribed their generally p r e v ailing meaning, unless the words have acquired a technical meaning, in which case the words must be ascrib e d their technical meaning.” In re St. Louis Encephalitis Outbreak , 939 So. 2d 563, 566 (La. App. 4 Cir. 2006). “The parties are free to select the types of risks to be covered.” Michelet , 680 So. 2d at 147. “A policy should not be interpreted in an u nr e a s o n able or

s t r ai n e d manner so as to enlarge or restrict the provisions beyond what th e parties contemplated.” Id. “Absent a conflict with statutory provisions or public policy, insurers, like other individuals, are entitled to limit their liability and to impose and to enforce reasonable conditions upon the policy obligations they contractually assume.” La. Ins. Guar. Assoc. v. Interstate Fire & Cas. Co. , 630 So. 2d 759, 763 (La. 1994). “Ambiguous or equivocal pro vi s i o n s which seek to narrow the insurer’s obligations are construed against the insurer.” Michelet , 680 So. 2d at 147. “The insurer has the burden of provin g that a policy claimed loss falls within [an] exclusion.” Everett v. Philibert , 13 So. 3d 616, 618 (La. App. 1 Cir. 2009).

6 Case: 11-30121 Document: 00511811278 Page: 6 Date Filed: 04/04/2012No. 11-30121 B. In the present case, the i n surers argue that the breach of contract exclusions of their respective policies preclude coverage of LRK’s copyright infringement claim. The Louisiana Supreme Court has not addressed the issue of whether a “breach of cont r a c t” exclusion applies to preclude liability for a statutory tort which an i n s u red had a contractual obligation not to commit. Accordingly, the panel must make an Erie guess. “When making an Erie guess,

our task is to attempt to predict state law, not to create or modify it.” SMI Owen Steel Co. v. M

a rs h USA, Inc. , 520 F.3d 432, 442 (5th Cir. 2008) (internal quotation marks omitted). Courts have applied two tests when deciding wh e th e r a “breach of contract” exclusion precludes coverage. Several courts have applied a “but for” test. In states embracing this test, “the injury is only considered to have arisen out of the contractual breach if th e injury would not have occurred but for the breach of contract.” Houbigant, Inc. v. Fed. Ins. Co. , 374 F.3d 192, 202 (3d Cir. 2004); see also Hugo Boss Fashions, Inc. v. Fed. Ins. Co

. , 2 52 F.3d 608 ( 2d Cir. 2001); Auto Owners Ins. Co. v. LA Oasis, Inc. , No. 2:04-cv-174, 2005 WL 1313684 (N.D. Ind. May 26, 2005); Aero Corp. v. Am. Int’l Specialty Lines Ins. Co. , 676 F.Supp. 2d 738 (S.D. Ind. 2009). In other states, which interpret the “arising out of” phrase of the “breach of contract” exclusion more broadly, co u rt s a pply an “incidental relationship” test, such that the exclusion applies to preclude coverage as long as the contract bears some relationship to the disput e . See Callas Enters., Inc. v. Travelers Indem. Co. , 193 F.3d 952 (8th Cir. 1999); Sport Supply Grp., Inc. v. Col u m bia Cas. Co. , 335 F.3d 453 (5th Cir. 2003). 4

Altho ugh Spor t Supp ly art icula ted an “inc ide ntal rela tio nshi p” tes t, it doe s not govern 4
our res olut ion of the pr es e nt cas e beca use it is legally and fac tually dis tinguis hable. Firs t, Spor t Supp ly interp reted Texas law , rather than Louis iana law

. Additio nally, in Spor t Supp ly , the unde rlying legal pr oce edi ng wh ich wa s th e s ubj e c t of the cover age dis put e sp ecif ical ly 7 Case: 11-30121 Document: 00511811278 Page: 7 Date Filed: 04/04/2012No. 11-30121

In support of its assertion that Louisiana applies a “but for” test, LRK relies on Louisiana cases that have recognized an exception to the general applicability of “breach of contract” exclusions where th e p urportedly covered conduct is both tortious and a contractual breach. See In re St. Louis , 939 So. 2d 563; Everett , 13 So. 3d 616; see also Dubin v. Dubin , 641 So. 2d 1036 (La. App. 2 Cir. 1994). “It is well settled that the same acts or omissions may constitute breaches of both general duties and contractual duties and may give rise to both actions in tort and actions in contract.” In re St. Louis , 939 So. 2d at 566. Where

an injured party has “alleged a breach of duty owed t o all persons which supports an action in tort

. . . the breach of contract exclusion is inapplicable.” Id. at 5 6 7

. In order to overcome “the breach of contract” exclusion, the facts must demon s t r ate “that the[] negligence [or tort] claims are separate and distinct and not arising from the breach of contract claim.” Everett , 13 So. 3d at 620. “Particularly, the tort claim must arise from a duty other than one imposed by the contract.” Id. These cases establish that the Louisiana courts will not apply the “breach of contract” exclusion to preclude an insurer’s liability for a tort action, even though the same factual basis could support a claim for breach of contract. The reasoning of these cases makes clear that a claim for relief cannot be considered to have “arisen out of” a breach of contract where the legal support for the claim emanates from a so u rc e o th e r than contract law. Therefore, we conclude that Louisiana would apply the “but for” test. Our conclusion is bolstered by the established principle under Louisiana law that ambiguous policy exclusions are to be construed against the insurer. Accordingly, if there is a reaso n ab l e construction that would permit coverage,

ch a l l e n g ed the allege d brea ch of the lice nsi ng agree me nt. Convers ely, in the pr es ent cas e, LRK has brou ght an act ion ag a i n st the Bryan def enda nts for cop yright infringem ent, not brea ch of cont rac t. He re, brea ch of cont rac t is only im pli cat ed because the cont rac t wa s in fac t brea chedby the infringem ent. 8 Case: 11-30121 Document: 00511811278 Page: 8 Date Filed: 04/04/2012No. 11-30121

that construction should be applied. The insurance policies at issue in this case do not define the “arising out of” language. Both the “but for” approach and the “incidental relationship” approach are reasonable constru c tions of the “breach of contract” exclusions. Thus, under Louisiana law, the construction most generous to coverage, the “but for” approach, should prevail. As LRK’s claim for relief under the federal copyright laws would exist even in the absence of its 1996 Agreement with Bryan, the “breac h o f contract” provisions of the relevant insurance policies do not a p p ly t o preclude coverage for LRK’s claim. Accordingly, the district court’s determination that the insurance policies at issue in this case preclude coverage must be reversed. IV. Insurers have appealed the district court’s ruling that they owe a duty to def e n d the Bryan defendants in this lawsuit. They argue that, because the district court determined that they owe no coverage, they have no corresponding duty to defend. 5

“Th e duty to defend is broader than an insurer’s liability for damage claims.” Allstate Ins. Co. v. Roy , 6 53 So. 2d 1327, 1333 (La. App. 1 Cir. 1995). “The duty to defend arises whenever the pleadings against the insured disclose

even a possibility of liability under the policy.” Matheny v. Ludwig, 742 So. 2d 1029, 1035 (La. App. 2 Cir. 1999). “Once a complaint states one claim within the policy’s coverage, the insurer has a duty to accept defense of the entire lawsuit

Lafaye tte als o argues that LRK has no st andi ng to se ek a dec laration that Lafaye tte 5
ow es a duty to def

end its ins ured s. This cont enti on is belie d by our es tabl ish ed pr ece dent

. In Da ir yla nd Insura nceCo. v. Mako ve r , wehe ld thatinjuredp artiesnam ed as de fen dant s in a dec larat ory j u d g m ent act ion brou ght by an ins uranc e com pany had st andi ng to app eal the dis tri ct court’s judgm ent that the pol icy did not cover the put ative ins ured

. 654 F.2d 1120 (5th Cir. 1981)

. “It is dec isive to our holding that Da iryland nam ed the app ellant s as def enda nts in its dec larat ory judgm ent act ion. ” Id. at 1123. LRK has failed to articula te any reas on why th i s pr ece dent is inap pli cable

. Acco rdingly, as Lafaye tte nam ed LRK as a def enda nt in its dec larat ory judgm ent action, our pr ece dent is clea r t h a t LR K has st andi ng to chall enge Lafaye tte ’sc laimthat it ow esnoc overa ge t o i tsin sur eds andhas noduty to def end. 9 Case: 11-30121 Document: 00511811278 Page: 9 Date Filed: 04/04/2012No. 11-30121

. . . . ” Treadway v. Vaughn , 633 So. 2d 626, 628 (La. App. 1 Cir. 1 9 9 3 )

. Accordingly, because, a s e xp r essed above, we conclude that LRK’s copyright infringement claim is covered by the insurance policies at issue in this case, the district court’s d e t e r mination that the insurers have a duty to defend in this lawsuit must be affirmed. V. For the foregoing reasons, w e REVERSE the district court’s summary judgment in favor of the insurers w ith r e s p e ct to coverage and AFFIRM the district court’s summary judgment recognizing the insurers’ duty to defend. We REMAND this case to the district court for further proceedings consistent with this opinion.

10 Case: 11-30121 Document: 00511811278 Page: 10 Date Filed: 04/04/2012