IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-31247 & No. 08-31248

MARTCO LIMITED PARTNERSHIP,

Plaintiff

v.

WELLONS INC, doing business as Wellons USA, 

Defendant - Cross Claimant - Appellant

v.

ADMIRAL INSURANCE COMPANY,

Defendant - Cross Defendant - Appellee

Appeals from the United States District Court 

for the Western District of Louisiana 

Before BARKSDALE, SOUTHWICK, and HAYNES, Circuit Judges.

HAYNES, Circuit Judge:

This matter comes before us as a single case consolidated from appeals No.

08-31247 and No. 08-31248. Both appeals arise from the same underlying case

and center on essentially the same concerns. Accordingly, we address them

together. In No.08-31247, Wellons Inc. (“Wellons”) appeals the district court’s

determination that Wellons failed to carry its burden of establishing Admiral

Insurance Company’s (“Admiral”) duty to defend Wellons under its commercial

United States Court of Appeals

Fifth Circuit

F I L E D

November 19, 2009

Charles R. Fulbruge III

Clerk
No. 08-31247 & No. 08-31248

2

general liability policy (“Policy”). The district court declined to find a duty to

defend, citing Exclusion (m) of the Policy. 

In No. 08-31248, Admiral appeals the district court’s subsequent

determination that Admiral owed Wellons a duty to indemnify under the Policy.

Admiral contends that the district court erred in both finding coverage existed

under the Policy’s insuring clause and failing to apply any of a number of

possible exclusions. 

With respect to the duty to defend as appealed in No. 08-31247, we find

that the district court erred when it concluded that Exclusion (m) eliminated

Admiral’s duty to defend. We conclude that Admiral had a duty to defend in

light of the language of the Policy and the allegations of the underlying

complaint. With respect to the duty to indemnify as set forth in No. 08-31248,

we agree with the district court’s analysis. Accordingly, we REVERSE the

judgment and REMAND in No. 08-31247 and AFFIRM the judgment in No. 08-

31248. 

I. FACTUAL AND PROCEDURAL BACKGROUND

Martco Ltd. (“Martco”), a building product manufacturer, hired Wellons,

a manufacturer of wood-fired boiler and energy systems, to design, fabricate and

install certain improvements to its existing Wellons-brand wood-fired thermal

oil heating system (the “Wellons unit”) located in Martco’s oriented strand board

(“OSB”) plant in Le Moyen, Louisiana. The extent of this relationship was

documented by a series of five contracts executed between Martco and Wellons.

Martco’s stated goal in hiring Wellons was to increase the thermal oil output of

its Wellons unit. Construction of the improvements commenced in late

December 2002 with a planned thirty-day shutdown of the OSB plant. The work

schedule developed by the parties called for the Wellons unit to enter service and

the OSB plant to resume production on January 28, 2003.
No. 08-31247 & No. 08-31248

3

Numerous problems arose with the Wellons unit following the January 28

resumption of production. A new expansion tank installed by Wellons imploded;

a circulation pump isolation valve failed; fires developed in the dry bins; a valve

stem leaked; more ash than anticipated was generated by the new Wellons unit;

the computerized control system did not function properly; and wires burnt off

the thermocouples. Martco later demonstrated at trial that it was unable to

operate the Wellons unit for certain periods of time after the January 28 restart

because of these failures. These shutdowns and periods of defective performance

caused unplanned downtime for the entire OSB plant. Ultimately, Martco’s

inability to use the Wellons unit resulted in lost production, profits, and business

opportunities valued at $4,395,858.00. 

Martco subsequently filed suit against Wellons. Martco’s complaint stated

six separate contractual claims against Wellons. The merits of Martco’s claims

were tried and a jury returned a verdict for Martco. We affirmed that judgment

on March 9, 2009. See Martco Ltd. P’ship v. Wellons, Inc., 312 F. App’x 716, 717

(5th Cir. 2009).

Before trial, Wellons sought both defense and indemnity from Admiral.

In a letter, Admiral refused defense and indemnity on the basis that the claims

stated in Martco’s complaint did not allege “property damage” caused by an

“occurrence” within the applicable policy period. Additionally, Admiral cited

numerous exclusions as foreclosing its duty to defend or indemnify Wellons for

any claims that may have been stated. The liability issues as between Martco

and Wellons and the insurance issues as between Wellons and Admiral were

bifurcated by court order before trial. 

After trial on the underlying liability issues was completed, Admiral filed

a motion for summary judgment wherein it asserted that the Policy did not

provide indemnification for Martco’s claims in the underlying suit. Wellons,

joined by Martco, filed a cross-motion arguing that the Policy did provide
No. 08-31247 & No. 08-31248

4

indemnification for Martco’s claims. The district court found that the Policy

required Admiral to indemnify Wellons for Martco’s claims for lost productivity,

earnings, and profits. Admiral took the instant appeal on the question of

indemnity under matter No. 08-31248.

Shortly thereafter, Wellons and Martco filed a joint motion for summary

judgment on the issue of Admiral’s duty to defend. Admiral responded by

claiming that there was no duty to defend under the policy because there was no

“property damage” caused by an “occurrence” evident in the original Martco

complaint and because numerous exclusions applied. The district court found

that there was “property damage.” Without examining whether there was an

occurrence, the court turned to Exclusion (m) to determine whether the

“property damage” alleged was excluded. It concluded that this exclusion

applied such that Admiral did not have a duty to defend Wellons in the

underlying suit. The duty to defend issue was timely appealed as matter No. 08-

31247. 

II. STANDARD OF REVIEW

We apply Louisiana substantive law when reviewing a district court’s

ruling in a diversity action. Foradori v. Harris, 523 F.3d 477, 486 (5th Cir. 2008)

(citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79 (1938)). We review a grant

of summary judgment de novo, applying the same standard as the district court.

Bolton v. City of Dallas, 472 F.3d 261, 263 (5th Cir. 2006). Our inquiry “is

limited to the summary judgment record before the trial court.” Topalian v.

Ehrman, 954 F.2d 1125, 1131-32 n.10 (5th Cir. 1992). We must view the

evidence in the light most favorable to the non-moving party, Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986), and the movant has

the burden of showing this court that summary judgment is appropriate, Celotex

Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate

where the competent summary judgment evidence demonstrates that there is
No. 08-31247 & No. 08-31248

 Some case law articulates this point slightly differently in dicta, by positing that the 1

duty to defend is “generally broader” than the duty to indemnify. See Elliot, 949 So. 2d at

1250; Czarniecki, 230 So. 2d at 259. The relative breadth of the duty to defend when compared

to the duty to indemnify is actually irrelevant to the inquiry. In reality, the questions of

defense and indemnity are better understood as independent matters evaluated under their

own interpretive rules. A duty to indemnify can arise where there is no duty to defend (as the

district court found here) and vice versa, though the former is less common than the latter. 

5

no genuine issue of material fact and the moving party is entitled to judgment

as a matter of law. Bolton, 472 F.3d at 263; see FED. R. CIV. P. 56(c). A genuine

issue of material fact exists if a reasonable jury could enter a verdict for the

non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). 

III. DISCUSSION

An insurer’s duty to defend suits on behalf on an insured presents a

separate and distinct inquiry from that of the insurer’s duty to indemnify a

covered claim after judgment against the insured in the underlying liability case.

Elliot v. Cont’l Cas. Co., 949 So. 2d 1247, 1250 (La. 2007) (citing Am. Home

Assurance Co. v. Czarniecki, 230 So. 2d 253, 259 (La. 1969)). While factual 1

inquiries beyond the complaint are prohibited with respect to the duty to

defend, they are indispensable in assessing the duty to indemnify. Assessing

each duty requires analysis of different facts in the light of applicable controlling

presumptions. Accordingly, we will address each duty separately.

A. The Duty to Defend

Wellons’s appeal from the district court’s grant of summary judgment on

the duty to defend raises two issues for review: (1) whether Martco’s complaint

alleged a potentially covered event triggering Admiral’s duty to defend under the

Policy, and (2) whether that alleged triggering event fell within an exclusion of

the Policy. The duty to defend analysis begins with an examination of whether

any of the facts pleaded in the complaint possibly fall within matters covered

under the insuring clause. The insured bears the burden on this point. See

Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000), modified on other
No. 08-31247 & No. 08-31248

6

grounds, 782 So. 2d 573 (La. 2001). If claims potentially covered under the

insuring clause are pled, the insurer then has the burden of proving that the

complaint states only facts that fall within an exclusion from coverage. Doerr,

774 So. 2d at 124; La. Maint. Servs., Inc. v. Certain Underwriters at Lloyds, 616

So. 2d 1250, 1252 (La. 1993). To prevail, the insurer must show that the

allegations in the complaint unambiguously fall within one of the exclusionary

clauses. Alert Centre, Inc. v. Alarm Protection Servs., Inc., 967 F.2d 161, 163

(5th Cir. 1992). We conclude that Wellons was entitled to a defense under the

Policy. Read broadly, as Louisiana law requires, the complaint alleged facts that

fall within the Policy’s insuring clause. Exclusion (m) did not defeat the duty to

defend because Martco’s complaint did not allege damage to “impaired property”

as defined by the Policy.

1. Louisiana’s Duty to Defend Interpretive Rules

Under Louisiana’s “Eight Corners Rule,” we must assess whether there is

a duty to defend by applying the allegations of the complaint to the underlying

policy without resort to extrinsic evidence. Adams v. Frost, 990 So. 2d 751, 756

(La. Ct. App. 2008) (citing Vaughn v. Franklin, 785 So. 2d 79 (La. Ct. App.

2001)). The insurer has a duty to defend unless the allegations in the complaint

as applied to the policy unambiguously preclude coverage. Elliot, 949 So. 2d at

1250. Moreover, an insurer’s duty to defend arises whenever the pleadings

against the insured disclose a possibility of liability under the policy. Meloy v.

Conoco, Inc., 504 So. 2d 833, 839 (La. 1987). 

The allegations of the complaint are liberally interpreted in determining

whether they set forth grounds that bring the claim within the scope of the

insurer’s duty to defend. Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993)

(citing Czarniecki, 230 So. 2d 253). At the same time, any ambiguity in an

insurance policy is construed against the insurer. Smith v. Matthews, 611 So.
No. 08-31247 & No. 08-31248

7

2d 1377, 1379 (La. 1993); Breland v. Schilling, 550 So. 2d 609, 610 (La. 1989);

Kendrick v. Mason, 99 So. 2d 108, 116 (La. 1958).

2. Whether Martco’s Allegations Do Not Unambiguously Preclude

Coverage

Before considering any exclusions, we must first address whether Wellons

satisfied its burden of demonstrating that the complaint alleges a set of facts

that would fall within coverage. As mentioned above, the test of a liability

insurer’s duty to defend is not whether the allegations unambiguously fall within

coverage but, rather, whether the allegations do not unambiguously prevent a

conclusion that coverage could exist. Vaughn v. Franklin, 785 So. 2d 79, 84 (La.

Ct. App. 2001). We conclude that Martco alleged “property damage” caused by

an “occurrence” under the Policy.

a. Property Damage

In order to satisfy its burden, Wellons must show that Martco’s complaint

alleges “property damage” within the meaning of the Policy. Under the Policy,

“property damage” is defined as “[p]hysical injury to tangible property, including

all resulting loss of use of that property.” When construed liberally in favor of

Wellons, Paragraph 12 of Martco’s complaint, as supported by Paragraph III of

the complaint, made out a claim that falls within the policy definition.

Martco’s complaint relied on a total of eleven paragraphs of factual

allegations to make out six distinct claims. As Admiral asserts, ten of these

paragraphs were directed at Martco’s dissatisfaction with Wellons’s product.

One paragraph, however, was not so clearly focused. Paragraph 12 of Martco’s

complaint stated that:

WELLONS’ efforts have produced negative results so far and the

operation of the Wellons unit has caused physical degrading of the

infrastructure through excessive ash carryover.
No. 08-31247 & No. 08-31248

2 Admiral also suggests in its discussion of Exclusion (a) that injury arising from

Wellons’s workmanship responsibilities (what it calls the “essence” of the Martco-Wellons

contract) cannot be deemed an “accident.” Wellons contends that Louisiana law conclusively

establishes that defective workmanship should be treated as an “accident” for commercial

general liability policy purposes. See Iberia Parish Sch. Bd. v. Sandifer & Son Constr. Co., 721

So. 2d 1021, 1023 (La. Ct. App. 1998) (“Defective workmanship or the incorporation of

defective materials is an ‘accident’ under the [Kendrick v. Mason, 99 So. 2d 108 (La. 1958)]

analysis. With construction defects, the real issue usually is not whether there has been an

‘occurrence,’ but whether there has been property damage . . . .”) (quoting 1 William S.

8

Martco Compl. ¶12. Much of the debate on this issue has centered on what “the

infrastructure” means. The meaning of this phrase, in fact, is determinative

when we examine the exclusions. However, at this step in the analysis, we

examine only whether “property damage” caused by an “occurrence” is arguably

pled. We need only ask if Paragraph 12 and the demand for damages for repairs

in Paragraph III can be construed as making a claim for an injury to tangible

property caused by the insured. Whether the damage that required repair was

to the Wellons unit or the larger OSB plant is immaterial to this question. The

claim that “the infrastructure”–whatever that may be–was “degrad[ed]” can

reasonably be read in conjunction with the demand for repair damages to make

out a claim for injury to some item of tangible property caused by the insured.

As such, Wellons met its burden with respect to this portion. 

b. Occurrence

Wellons must also show that the complaint alleges that the “property

damage” at issue was caused by an “occurrence.” The Policy defines an

“occurrence” as “an accident, including continuous or repeated exposure to

substantially the same general harmful conditions.” Wellons contends that

Martco’s complaint satisfactorily pled an “occurrence” under the “repeated

exposure” portion of the policy definition when it alleged damage from “excessive

ash carryover.” In response, Admiral contends that the events alleged could not

be an “occurrence” because the allegations were too ambiguous to constitute a

“repeated exposure.” Admiral’s argument, however, is insufficient to overcome

2
No. 08-31247 & No. 08-31248

McKenzie & H. Alston Johnson III, Insurance Law and Practice § 183, at 370, in 15 LOUISIANA

CIVIL LAW TREATISE (1996)). Admiral has waived this argument on appeal by failing to

advance it. Jason D.W. ex rel. Douglas W. v. Houston Indep. Sch. Dist., 158 F.3d 205, 210–11

n.4 (5th Cir. 1998) (“[F]ailure to provide any legal or factual analysis of an issue on appeal

waives that issue.”). Even if Admiral had not waived this argument, Wellons’s explanation

of the applicable Louisiana law appears to be correct.

 The possibility, of course, exists that the “excessive ash carryover” is a term of art in

3

this industry with a definition known to those within the industry. As this question speaks

to an exclusion, the burden of proving such a definition falls on the insurer. Admiral has made

no effort to show that “excessive ash carryover” carries a stylized meaning that excludes the

possibility of damage to property beyond the unit itself. Accordingly, we do not read “excessive

ash carryover” to carry any sort of meaning beyond that evidenced by a plain reading. 

9

the presumption in favor of the insured. Wellons has carried its burden of

proving an “occurrence.”

Admiral contends that nothing in the complaint could be construed as

suggesting damage arising from continuous or repeated exposure. Instead,

Admiral claims Martco would have needed to plead how often the “excessive ash

carryover” occurred for us to find coverage under the “repeated exposure”

definition. In short, Admiral complains that Martco did not affirmatively plead

sufficient facts to allow Wellons to assert coverage using Paragraph 12. 

Such a reading would require an inversion of Louisiana’s standard for

assessing the duty to defend issue. Rather, we must ask whether the allegations

do not unambiguously prevent a conclusion that coverage could exist. Vaughn,

785 So. 2d at 84. Here, Paragraph 12 is ambiguous. It does not define “excessive

ash carryover.” It does not state how often “excessive ash carryover” occurred. 3

All it states is that Wellons’s efforts at repair (which the preceding and following

paragraphs suggest lasted months) created additional harm and the resulting

ash carryover led to degradation of some undefined infrastructure. Again,

liberally construing the allegations, injury by “excessive ash carryover” can

reasonably be understood to involve repeated exposure over the long period in

which Wellons fruitlessly attempted to make repairs. While this may not be
No. 08-31247 & No. 08-31248

 Exclusions (j)(5) and j(6): 4

j. Damage To Property

“Property damage” to:

(5) That particular part of real property on which you or any contractors or

10

affirmatively clear on the pleadings, it is sufficient to conclude that the

allegations do not unambiguously preclude a finding that there was an

“occurrence.” Consequently, we conclude that the allegations of the complaint

state claims that may be covered by the insuring clause of the Policy.

3. Whether Admiral Carried Its Burden of Proving That a Policy

Exclusion Applies to Martco’s Allegations

We must next consider whether any policy exclusion applies. As noted

above, the insurer bears the burden of proving the applicability of an

exclusionary clause within the policy. Doerr v. Mobil Oil Corp., 774 So. 2d 119,

124 (La. 2000), modified on other grounds, 782 So. 2d 573 (La. 2001). A duty to

defend will exist unless the allegations are such that every claim pleaded in the

complaint (and otherwise falling within the insuring clause) unambiguously falls

within an exclusion. Alert Centre, Inc. v. Alarm Protection Servs., Inc., 967 F.2d

161, 163 (5th Cir. 1992). Finally, any ambiguity in an insurance policy is

construed against the insurer. Smith v. Matthews, 611 So. 2d 1377, 1379 (La.

1993). Admiral alleges three separate exclusions apply: (1) the “Work Product”

exclusion; (2) Exclusion (m) for “impaired property”; and (3) Exclusion (a) for

“intended or expected” injury. Though the district court applied Exclusion (m),

we find that no exclusion contained in the Policy applies in this case.

a. The “Work Product” Exclusion

Admiral, without specificity, alleges that any “property damage” found in

the complaint falls under one of the “Work Product” exclusions of the Policy.

This argument could refer to any of four different exclusions: Exclusion (j)(5),4
No. 08-31247 & No. 08-31248

subcontractors working directly or indirectly on your behalf are performing

operations, if the “property damage” arises out of these operations[.]

(6) That particular part of any property that must be restored, repaired, or

replaced because “your work” was incorrectly performed on it.

...

Paragraph (6) of this exclusion does not apply to “property damage” included in

the “products-completed operations hazard.”

 Exclusion (k): 5

k. Damage To Your Product

“Property damage” to “your product” arising out of it or any part of it.

 Exclusion (l):

6

l. Damage To Your Work

“Property damage” to”your work” arising out of it or any part of it and included in the

“products-completed operations hazard.”

This exclusion does not apply if the damage work or the work out of which the damage

arises was performed on your behalf by a subcontractor.

11

Exclusion (j)(6), Exclusion (k), and Exclusion (l). Regardless of which provision 5 6

Admiral intended to assert, the crux of the dispute over these four exclusions

boils down to a simple inquiry: what “infrastructure” was degraded by the

“excessive ash carryover”? As we have stated, any ambiguity is resolved in favor

of the duty to defend. Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993); Smith,

611 So. 2d at 1379. Thus, Wellons’s plausible reading of the complaint as

addressing damage to the Martco plant “infrastructure” rather than only the

Wellons unit “infrastructure” supports the conclusion that these exclusions do

not apply. 

2. Exclusion (m)
No. 08-31247 & No. 08-31248

 Exclusion (m) states in relevant part: 7

m. Damage To Impaired Property or Property Not Physically Injured

“Property damage” to “impaired property” or property that has not been physically

injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in “your product” or

“your work”; or

(2) A delay or failure by your or anyone acting on your behalf to perform a

contract or agreement in accordance with its terms.

 Admiral devotes a significant portion of its brief to criticizing the reasoning in 8

Gaylord. Specifically, Admiral claims that PCS Nitrogen Fertilizer, L.P. v. U.S.

Filter/Arrowhead, Inc., 834 So. 2d 456 (La. Ct. App. 2002), rejects Gaylord as “obviously

wrong.” PCS does not support this argument. While the court does distinguish Gaylord on

its facts, it actually appears to use Gaylord’s reasoning to apply the exact same exclusion. Id.

12

Admiral next argues, and the district court found, that Admiral’s duty to

defend was precluded by Exclusion (m) of the Policy. Exclusion (m) operates to 7

omit property damage to “impaired property.” The Policy sets forth a two-part

definition for “impaired property”:

8. “Impaired property” means tangible property, other than “your

product” or “your work,” that cannot be used or is less useful

because:

a. It incorporates “your product” or “your work” that is known or thought

to be defective, deficient, inadequate or dangerous[.]

...

If such property can be restored to use by:

a. The repair, replacement, adjustment or removal of “your product” or

“your work[.]”

Working off this definition, Wellons asserts two arguments. 

First, Wellons contends that Exclusion (m) cannot apply to claims for

physical injury to “impaired property.” For this proposition, Wellons cites

Gaylord Chem. Corp. v. ProPump, Inc., 753 So. 2d 349 (La. Ct. App. 2000). In 8
No. 08-31247 & No. 08-31248

at 459-60.

 We find two cases instructive on this point. First, in Federated Mutual Insurance Co. 9

v. Grapevine Excavation, Inc., 197 F.3d 720, 728 (5th Cir. 1999), modified on other grounds,

241 F.3d 396 (5th Cir. 2001), we found that an identical provision prevented a finding that the

complaint alleged damage to “impaired property.” In that case, the insured was sued for

improper subsurface backfilling resulting in damage to a parking lot. Id. at 722. We reasoned

that replacing the backfill would not, in itself, fix the damage to the surface. Id. at 728 (citing

Action Auto Stores Inc. v. United Capitol Ins. Co., 845 F. Supp. 417, 419 (W.D. Mich. 1993)).

13

Gaylord, the Louisiana Court of Appeals addressed an identical “impaired

property” exclusion. The Gaylord insured sought coverage for damages to a

third-party’s plant infrastructure caused by excessively vibrating pipes installed

by the insured. Id. at 351 & n.2. The court, in addressing the “impaired

property” exclusion with respect to the damaged plant, concluded that: 

[T]he “impaired property” exclusion only excludes damage to property

that has not been physically injured or for which the claimed damages

are only for loss of use of that property. Therefore, any damages based

on actual physical injury to Gaylord’s plant, equipment, or other

property would not be excluded under this provision.

Id. at 355. This interpretation of an identical “impaired property” provision is

convincing and, arguably, under Gaylord, the “impaired property” exclusion

should not apply because the allegations of Paragraph 12 by way of Paragraph

III appear to make a claim for repairs rather than loss of use. 

Wellons also argues that the restoration provision of the “impaired

property” definition prevents Exclusion (m) from applying, and we agree.

Specifically, for the exclusion to apply, the complaint must unambiguously state

that “impaired property” is susceptible to full restoration by repairing, replacing,

adjusting, or removing the insured’s “work” or the insured’s “product.” Stated

another way, Admiral must show that the degradation alleged in Paragraph 12

would be entirely repaired by simply fixing (or removing) the Wellons unit.

Nothing in the complaint unambiguously demonstrates such a simple solution

would repair Martco’s infrastructure. On the contrary, the construction of 9
No. 08-31247 & No. 08-31248

So too here, nothing suggests that replacing the Wellons unit would repair the alleged

degradation to Martco’s facility. 

Similarly, in Action Auto, a district court in the Western District of Michigan found that

property polluted by a faulty gasoline containment system could not constitute “impaired

property” under a similar policy definition. 845 F. Supp. at 426. As with the emitted ash in

the instant case, simply fixing the containment system would not rectify the pollution caused

by the gasoline that seeped out of the system. Id. at 425-26.

14

Paragraph III as demanding repair damages for Martco’s OSB plant suggests

the opposite conclusion. Accordingly, we find that the property damage to “the

infrastructure” as alleged in Paragraph 12 did not involve “impaired property,”

and, as such, Exclusion (m) does not apply. 

3. Exclusion (a)

Finally, Admiral argues that we should apply Exclusion (a) to affirm the

district court’s grant of summary judgment if no other exclusion applies. But

Admiral did not raise Exclusion (a) with respect to its duty to defend in the

district court. We may only affirm an order granting summary judgment on a

basis that was presented to the district court. See LeMaire v. Louisiana, 480 F.3d

383, 387 (5th Cir. 2007). This rule is in keeping with our requirement that

arguments not raised before the district court are waived and cannot be raised

for the first time on appeal. Id. Admiral only asserted Exclusion (a) with

respect to its duty to indemnify in the court below. Exclusion (a) is never once

mentioned anywhere in Admiral’s argument below regarding duty to defend.

Additionally, the district court’s ruling in no way suggests that Admiral

otherwise submitted this argument for consideration with respect to its duty to

defend. As such, this argument has been waived.

B. The Duty to Indemnify

We next turn to the question of indemnity advanced in case No. 08-31248.

Unlike our examination of the duty to defend, we are not limited by the Eight

Corners Rule in assessing the duty to indemnify. Instead, we must apply the

Policy to the actual evidence adduced at the underlying liability trial together
No. 08-31247 & No. 08-31248

 Admiral raised one other issue that we can dispense with quickly. Admiral asked in 10

the conclusion to its brief that we reverse the district court in part by striking the affidavit of

Adrian Schooner. Admiral made no argument on this point in any of its appellate briefing.

Accordingly, any claim of error regarding Schooner’s affidavit is waived. Justiss Oil Co. v.

Kerr-Megee Ref. Corp., 75 F.3d 1057, 1067 (5th Cir. 1996).

15

with any evidence introduced in the coverage case. Admiral raises four issues

for review in its appeal from the district court’s grant of summary judgment for

Wellons: (1) whether Wellons carried its burden of establishing that the actual

claims for which the judgment in the underlying case awarded damages fell

within the Policy’s insuring clause; (2) whether the Policy’s products-completed

operations hazards (“PCOH”) coverage applied; (3) whether the

coverage-triggering event fell within Exclusion (m) of the Policy based on the

facts established at trial; and (4) whether any other Policy exclusion offered by

Admiral applies. We conclude that the district court correctly decided all four 10

issues. 

1. Louisiana’s Duty to Indemnify Interpretive Rules

The parties agree that Louisiana insurance law governs the interpretation

of the Policy. As such, the question of indemnity before us should be assessed

in light of the following Louisiana interpretive rules. 

The interpretation of an insurance contract presents a question of law,

rather than of fact, and therefore is an appropriate matter for determination by

summary judgment. Bonin v. Westport Ins. Co., 930 So. 2d 906, 910 (La. 2006).

An insurance policy is a contract between the parties and should be construed

using the general rules of interpretation of contracts set forth in the Louisiana

Civil Code. Cadwallader v. Allstate Ins. Co., 848 So. 2d 577, 580 (La. 2003); La.

Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 763 (La. 1994).

Words and phrases used in an insurance policy should be construed using their

plain, ordinary and generally prevailing meaning, unless the words have
No. 08-31247 & No. 08-31248

 Admiral contends for the first time on appeal that Wellons must also show a net 11

payment to Martco out of the proceeds of any coverage under the Policy. This argument was

waived as Admiral failed to raise it in the district court. Horton v. Bank One, N.A., 387 F.3d

426, 435 (5th Cir. 2004).

16

acquired a technical meaning. Cadwallader, 848 So. 2d at 580; Carbon v.

Allstate Ins. Co., 719 So. 2d 437, 439-40 (La. 1998). 

An insurance policy must be “construed according to the entirety of its

terms and conditions as set forth in the policy, and as amplified, extended, or

modified by any rider, endorsement, or application attached to or made a part

of the policy.” Vanderbrook v. Unitrin Preferred Ins. Co., 495 F.3d 191, 206 (5th

Cir. 2007) (quoting LA. REV. STAT. ANN. § 22:654 (2004)). “Ambiguity in an

insurance contract must be resolved according to the general rules governing

contract interpretation . . . Ambiguous policy provisions are to be construed

against the confector, the insurer. Ambiguity will also be resolved by

ascertaining how a reasonable insurance policy purchaser would construe the

clause at the time the insurance contract was entered.” Breland v. Schilling, 550

So. 2d 609, 610-11 (La. 1989) (citations omitted). 

2. Coverage Under the Insuring Clause

To carry its burden, Wellons must show that the damages that it seeks to

recover from Admiral fall within the Policy’s terms. See Doerr v. Mobil Oil

Corp., 774 So. 2d 119, 124 (La. 2000), modified on other grounds, 782 So. 2d 573

(La. 2001). That is, Wellons must demonstrate that the damages for which 11

indemnity is sought constitute “property damage” caused by an “occurrence,” as

those terms are defined in the Policy. A review of the evidence adduced at trial,

the resulting verdict and judgment, and the applicable Louisiana law reveals

that Wellons clearly carried its burden of establishing coverage under the

insuring clause.
No. 08-31247 & No. 08-31248

 Admiral contends that Stewart’s discussion of this issue was dicta. Stewart’s 12

discussion of this point was a necessary holding in order to reach the court’s ultimate

conclusion. As such, we will not dismiss it as mere dicta.

17

a. Property Damage

Admiral makes two arguments with respect to the “property damage”

prong of coverage analysis. First, Admiral contends that any attempt to show

“property damage” as part of Martco’s contractual claims is precluded as a

matter of law. Second, Admiral contends that Wellons cannot show any

“property damage” under the Policy definition for that term. The district court’s

rejection of both of these arguments was sound and accurately reflects the

current state of insurance law in Louisiana. Accordingly, we conclude that

Wellons has adequately proven “property damage” under the Policy.

i. Contract Claims as “Property Damage” Claims

Admiral first contends that, as a matter of law, a claim for breach of

contract cannot constitute a claim for “property damage.” Admiral reasons that

any recovery derived from such claims would involve purely economic damages

and, as such, Martco failed to prove the necessary injury. As the district court

noted, however, this argument fails because the Louisiana Court of Appeals has

addressed this exact issue and rejected Admiral’s position. 

In Stewart Interior Contractors, L.L.C. v. MetalPro Industries, L.L.C., 969

So. 2d 653 (La. Ct. App. 2007), the court addressed whether claims for breach of

contract and redhibition due to misrepresentation were claims “solely for

economic losses” caused by breach of contract and not covered by the policy. Id.

at 660. The court concluded that such claims could be covered, and, moreover,

CGL policies would simply not make sense if the court held otherwise.

Specifically, various CGL provisions and exclusions carefully address situations

arising from contractual breaches producing property damage. Id. In light of

this analysis, the Stewart court affirmatively found that granting summary 12
No. 08-31247 & No. 08-31248

18

judgment merely because only contractual claims were involved constitutes error

under Louisiana law. Id. As such, Martco’s claims are, as a threshold matter,

eligible for “property damage” coverage under the Policy. 

ii. “Loss of Use” as “Property Damage” in This Case

Admiral alternatively contends that Martco and Wellons have not proven

“property damage” as defined under the Policy. As the district court noted, three

exhibits clearly set forth the “downtime” at the OSB plant caused by various

failures in the Wellons unit. More importantly, the jury agreed. The jury’s

verdict form expressly awards $4,395,858.00 for “Lost Productivity, Earnings,

and Profits” due to Wellons’s breach of contract, negligence, and sale of a product

with a redhibitory defect. The district court correctly concluded that these

findings show Martco demonstrated “loss of use.” As such, Wellons, by way of

Martco, adequately demonstrated “property damage” as that term is defined in

the Policy.

b. Occurrence

On appeal, Admiral only makes one relevant argument regarding whether

Martco and Wellons satisfactorily demonstrated “property damage” caused by

an “occurrence.” Admiral suggests that the district court erred when it

concluded that Louisiana law no longer categorically excludes construction

defects as possible “occurrences.” Yet Louisiana case law fully supports the

district court’s assessment of the “occurrence” requirement. As such, Wellons

easily satisfies its burden of demonstrating the proven “property damage” was

caused by an “occurrence.” 

Below, Admiral vigorously contended that no construction defect could

ever constitute an “occurrence” under a CGL policy. The district court correctly

found, however, that the Louisiana Court of Appeals directly addressed and

rejected that proposition. See Rando v. Top Notch Props., L.L.C., 879 So. 2d 821,

833 (La. Ct. App. 2004) (“[T]he clear weight of authority in more recent cases
No. 08-31247 & No. 08-31248

19

considers defects in construction that result in damage subsequent to completion

to be ‘accidents’ and ‘occurrences’ when they manifest themselves.”). On appeal,

Admiral attempts to argue, instead, that Louisiana law excludes this type of

construction defect case. Admiral cites no authority that supports this point.

Massey v. Parker, 733 So. 2d 74 (La. Ct. App. 1999), does not so hold. As

discussed above, the jury found that Martco alleged and proved more than $4

million in “property damage” in the form of “loss of use.” That loss of use flowed

from repeated, sudden breakdowns. As such, this case alleges exactly the sort

of construction defect resulting in damage that the court in Massey accepted as

falling within an ordinary CGL policy. 

3. Whether a Policy Exclusion Applies to Martco’s Allegations

 Admiral bears the burden of proving the applicability of an exclusionary

clause within the Policy. Doerr, 774 So. 2d at 124; La. Maint. Servs., Inc. v.

Certain Underwriters at Lloyds, 616 So. 2d 1250, 1252 (La. 1993). If Admiral

cannot unambiguously show an exclusion applies, the Policy must be construed

in favor of coverage. Doerr, 774 So. 2d at 124 (citing Yount v. Maisano, 627 So.

2d 148, 151 (La. 1993)). Admiral variously argues that the district court

incorrectly considered PCOH coverage, incorrectly applied the exception to

Exclusion (m), and incorrectly failed to apply the “Work Product” exclusions. 

We conclude that the district court correctly decided all of the above issues and,

as such, Wellons is entitled to indemnification under the Policy.

a. Applicability of PCOH Coverage

As the district court noted below, the applicability of the policy definition

for a “products-completed operations hazard” (“PCOH”) has proven to be perhaps

the most contested issue surrounding the question of indemnification. The

parties even dispute why we must consider whether PCOH applies. Admiral

suggests PCOH analysis is necessary to fully consider Exclusion (j)(6) for certain

harms relating to “Work Product.” Wellons contends that PCOH analysis is
No. 08-31247 & No. 08-31248

 The policy definition for PCOH states in relevant part: 13

16. “Products-Completed Operations Hazard”:

a. Includes all “bodily injury” and “property damage” occurring away from premises

you own or rent and arising out of “your product” or “your work” except:

...

(2) Work that has not yet been completed or abandoned. However, “your work”

will be deemed completed at the earliest of the following times:

(a) When all the work called for in your contract has been completed;

...

(c) When that part of the work done at a job site has been put to its intended

use by any person or organization other than another contractor or

subcontractors working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but

which is otherwise complete, will be treated as completed.

20

necessary to address the applicability of the exception to Exclusion (m). As

applied to either issue, the district court’s application of the policy definition for

PCOH was correct. 13

i. PCOH and Exclusion (j)(6)

Admiral argues that the district court erred in its application of the Policy

definition of PCOH. Specifically, Admiral contends that the district court

incorrectly determined that Martco proved “loss of use” caused by Wellons’s

product. On the contrary, the district court’s interpretation of PCOH with

respect to this exclusion appears to be correct. As such, Martco’s claim cannot

fall within Exclusion (j)(6) of the Policy due to the PCOH exception. 

Admiral’s primary reason for appealing the district court’s PCOH

assessment was the district court’s interpretation of the policy definition for

PCOH in the context of an exception to Exclusion (j)(6). Exclusion (j)(6)

excludes:

“Property damage” to:
No. 08-31247 & No. 08-31248

21

...

(6) That particular part of any property that must be restored, repaired

or replaced because “your work” was incorrectly performed on it.

...

Paragraph (6) of this exclusion does not apply to “property damage”

included in the “products-operation hazard.”

The district court squarely addressed the applicability of the PCOH

definition to Martco’s claimed damages. The Policy allows for indemnification

where “property damage” to “other property” arose from Wellons’s product.

Martco Ltd. P’ship v. Wellons, Inc., No. 04-673, 2008 U.S. Dist. LEXIS 98385, at

*25-29 (W.D. La. Dec. 1, 2008). Admiral contends that the district court’s

reasoning circularly asserts “loss of use” was caused by “loss of use.” We

conclude that the district court correctly found that Martco “lost the use” of the

OSB plant because it “lost the use” of the Wellons unit through a series of

mechanical failures. Far from circular, this justification in the district court’s

opinion shows the sort of direct causal link required by the PCOH definition. As

such, the district court’s application of the PCOH definition with respect to

Martco’s “loss of use of other property” was correct and Exclusion (j)(6) does not

apply due to the exception provision.

ii. PCOH and Exclusion (m)

Wellons asserts that the district court undertook its analysis of PCOH

coverage as part of its assessment of the applicability of Exclusion (m).

Specifically, Wellons points out that the exception to Exclusion (m) and the

PCOH definition both require a showing that the insured’s product was “put to

its intended use.” “Put to its intended use” is not a defined term in the Policy.

The district court concluded that the jury awarded damages to Martco which

arose after the Wellons unit was “put to its intended use.”
No. 08-31247 & No. 08-31248

For the text of Exclusion (m), see supra note 7. 14

22

The primary point of contention regarding PCOH and Exclusion (m)

centers on whether Wellons’s work was ever completed and put to use by Martco.

Neither party disputes that the start-up of the Wellons unit occurred on January

28, 2003. Neither party disputes that the ensuing work on the Wellons unit was

outside the original contracts and, instead, reflected remedial efforts. All of the

available evidence demonstrates that Martco’s “loss of use” damages did not

begin to accrue until after the January re-start when Martco was supposed to be

able to fully utilize the upgraded furnace. 

Words and phrases used in an insurance policy should be construed using

their plain, ordinary, and generally prevailing meaning, unless the words have

acquired a technical meaning. Cadwallader, 848 So. 2d at 580; Carbon, 719 So.

2d at 439. Here, “put to its intended use” does not have a technical meaning or

a policy-specific definition. Applying the common meaning, then, the Wellons

unit was put to use as soon as Martco began employing it as part of its factory.

Wellons was putatively done with its responsibilities, and Martco had begun

trying to make use of its new furnace. Only as it began using the product did

Martco start incurring unexpected downtime. The district court’s conclusions

(1) that Wellons completed its work on January 28, 2003, and (2) that Martco

began putting the furnace to use on January 28, 2003, were correct.

Consequently, the PCOH definition applies to Martco’s damages in the instant

case.

b. Exclusion (m)14

When we addressed Exclusion (m) in the section on duty to defend, we

noted that the parties focused on whether the “impaired property” prong of that

exclusion applied. Because the pleading alleged “damage to infrastructure” from

“excessive ash carryover,” the second prong of Exclusion (m) – “property that has
No. 08-31247 & No. 08-31248

 Wellons did not appeal the district court’s conclusion that Exclusion (m) applies.

15

Instead, it argues that the district court correctly applied the exception to Exclusion (m). As

such, the applicability of Exclusion (m) is not addressed in this section. 

23

not been physically injured” – was not at issue. However, following a trial in

which the bulk of damages awarded were for “loss of use,” Exclusion (m)

arguably applies. The district court found that the exception to the exclusion 15

applied to negate the exclusion. 

Admiral claims that the district court improperly applied the exception.

The district court’s analysis of these issues is both correct and consistent with

Louisiana and Fifth Circuit case law. As such, we affirm the district court’s

application of the exception to Exclusion (m). 

The exception to Exclusion (m) reads in relevant part: 

This exclusion does not apply to the loss of use of other property arising

out of sudden and accidental physical injury to “your product” or “your

work” after it has been put to its intended use. 

Admiral claims that the district court lacked any evidence to conclude the jury

awarded damages for (1) injury to “other property” (the OSB plant) (2) caused

by sudden and accidental physical injury to the Wellons unit. Yet the district

court had ample evidence to support these conclusions. The evidence at trial

demonstrated that a thermal oil tank installed by Wellons imploded; a

circulation pump isolation valve failed; a valve stem leaked; the computerized

control system did not function properly; and wires burnt off the thermocouples.

Martco offered evidence of the downtime caused by each of these injuries in its

presentation to the jury. The jury found that Wellons’s negligence in performing

its contractual duties resulted in lost production and profits. In short, a huge

portion of Martco’s case was dedicated to showing that it lost use of “other

property,” namely the OSB plant, because of sudden and accidental physical

injury to the Wellons unit. As such, the district court had more than sufficient
No. 08-31247 & No. 08-31248

24

evidence in the record to find that Martco’s claim conformed to the requirements

of Exclusion (m)’s exception provision. 

Moreover, this result is supported by the available Fifth Circuit case law.

The district court’s decision primarily relied upon Riley Stoker v. Fidelity and

Guarantee Insurance Underwriters, Inc., 26 F.3d 581 (5th Cir. 1994). In Riley,

the insured’s coal-fired steam generators suffered severe mechanical failures

after the insured’s client began using the generator. Id. at 584. As a result, the

insured’s client was forced to shut down initial operations to allow for repairs.

Id. The court in Riley found that breakdowns in initial operations were

sufficient to trigger the exception. Id. at 589. The instant case involves the

same sort of repeated mechanical failure during initial performance involved in

Riley. More importantly, the resulting injury and claim for damages were the

same–unexpected downtime leading to lost production and profits. As such, the

district court’s reliance on Riley was appropriate. 

Admiral cites PCS Nitrogen Fertilizer, LP v. U.S. Filter/Arrowhead, Inc.,

834 So. 2d 456 (La. Ct. App. 2002), for the proposition that Riley is inconsistent

with Louisiana law. Yet PCS has no bearing on the instant case for two

important reasons. First, PCS never reached the exception to Exclusion (m).

Instead, the court ruled on the applicability of Exclusion (m) itself without

needing to address the exception. Id. at 458. Second, the court in PCS was not

concerned with the same portion of Exclusion (m). Exclusion (m) applies to

“property damage” flowing from either defective work product or failure to

perform a contract according to its terms. PCS involved a contracting party that

failed to timely perform. Id. We, like the court in Riley, are faced with defective

work product. As such, PCS is distinguishable and it does not affect the

application of the exception to Exclusion (m) in this case.

Though Admiral arguably showed Exclusion (m) applied, Wellons carried

its burden of proving the exception. As such, the district court correctly found
No. 08-31247 & No. 08-31248

Notes 4 - 6, supra, quote the full text of Exclusions( j)(5)-(6), Exclusion (k), and

16

Exclusion (l), respectively.

25

the exception applied and, more broadly, correctly concluded that the Policy

provides indemnification for Martco’s claims. 

c. “Work Product” Exclusions

Finally, as in the companion duty to defend case, Admiral, without

specificity, alleges that all possible “property damage” found in the complaint or

presented at trial falls under one of the “Work Product” exclusions of the Policy.

Again, this argument could refer to as many as four different exclusions:

Exclusion (j)(5), Exclusion (j)(6), Exclusion (k), and Exclusion (l). None of these 16

exclusions apply to the instant case. 

Neither Exclusion (j)(5) nor Exclusion (j)(6) can apply to this case as a

matter of Louisiana law. The Louisiana Supreme Court has explained “that

exclusions [(j)(5)] and (6) apply while the insured’s work is in process, i.e., the

work is not yet completed.” Supreme Servs. & Specialty Co. v. Sonny Greer, Inc.,

958 So. 2d 634, 641 (La. 2007). As discussed above, the district court correctly

found that Wellons’s work was “complete” on January 28, 2003, at which point

Martco had a reasonable expectation of full usage of the Wellons unit. The fact

that the unit failed and required additional repairs does not affect this

conclusion. Here, all of Martco’s claims stem from downtime after the January

28 completion date. Accordingly, Exclusion (j)(5) and Exclusion (j)(6) cannot

apply because Wellons’s work was already complete insofar as the policy was

concerned when the claimed injury occurred. 

Admiral’s arguments with respect to Exclusion (k) and Exclusion (l) rest

on a faulty assumption. Admiral suggests that the district court found coverage

for the physical, tangible injury to the Wellons unit itself. While this injury

occurred – and is part of the coverage analysis – the actual award of damages for

which indemnity was found was in the form of loss of use. That loss of use was
No. 08-31247 & No. 08-31248

26

suffered by the OSB plant as a whole. These injuries were presented at trial

through evidence of specific instances of plant-wide downtime caused by the

various mechanical failures of the Wellons unit. The jury found for Martco on

the negligence claim and awarded damages for lost production, profits, and

business opportunities. In short, everything in the record supports a

determination that the jury awarded damages – and the district court awarded

indemnity – only for injury to “other property” and, accordingly, Exclusion (k)

and Exclusion (l) cannot apply. 

IV. CONCLUSION

With respect to No. 08-31247, Martco’s complaint and the Policy, taken

together, do not unambiguously preclude a finding that Admiral retained a duty

to defend Wellons in this case. Applying Louisiana’s rules of construction, we

conclude that the Martco complaint alleges covered property damage caused by

an occurrence. At the same time, none of the policy exclusions advanced by

Admiral work to extinguish its duty under the Policy. 

Similarly, regarding No. 08-31248, Wellons has successfully carried its

burden with respect to indemnification. Wellons has demonstrated “property

damage” caused by an “occurrence” within the applicable policy definitions in

light of the evidence adduced at trial. The district court correctly concluded that

Martco’s claims fall within the PCOH definition of the Policy. Wellons has

shown that the exception to Exclusion (m) applies in this case. Finally, Admiral

has not carried its burden with respect to any of the possible “Work Product”

exclusions. 

In light of these conclusions, we find that Admiral did in fact have a duty

to defend Wellons under the Policy and, as the district court found, Admiral also

had a duty to indemnify Wellons. Accordingly, in No. 08-31247, we REVERSE

and REMAND for proceedings consistent with this opinion; in No. 08-31248, we

AFFIRM.