United States Court of Appeals

Fifth Circuit

FILED

August 15, 2005

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 04-30602

 

TIMES-PICAYUNE PUBLISHING CORPORATION,

Plaintiff-Appellant,

versus

ZURICH AMERICAN INSURANCE COMPANY,

Defendant-Appellee.

 

Appeal from the United States District Court

for the Eastern District of Louisiana

 

Before GARWOOD, GARZA, and BENAVIDES, Circuit Judges.

GARWOOD, Circuit Judge:

The Times-Picayune Publishing Corporation (Times-Picayune), a

Louisiana citizen, brought suit against Zurich American Insurance

Company (Zurich), a New York citizen, in the state court of Orleans

Parish, Louisiana alleging various state law causes of action

related to Zurich’s refusal to pay the Times-Picayune, as an

insured under a Zurich excess policy covering employee dishonesty,

for certain embezzlement losses. Zurich removed the case to the
1

 Each primary policy provided:

“DISCOVERY PERIOD

This insurance does not cover any loss, sustained by

any insured, discovered later than one year following

termination of this insurance in its entirety.”

2

Eastern District of Louisiana, and the district court ultimately

entered summary judgment in its favor. We reverse.

Facts and Proceedings Below

The material facts of this case are undisputed.

From January 1, 1995 until July 1, 2001, the Times-Picayune

was insured under a series of six $1,000,000 primary insurance

policies issued by Federal Insurance Company (Federal) that

covered, among other things, acts of employee dishonesty. The

first of these primary policies ran from January 1, 1995, to July

1, 1996, and each subsequent policy was for a one year term

beginning July 1, with the sixth and final primary policy running

from July 1, 2000, to July 1, 2001. Notably, the Federal primary

polices each contemplated the possibility that surreptitious

crimes like embezzlement might be perpetrated during the life of

one policy but not discovered until sometime thereafter. Each of

the primary policies covered losses occurring during the policy

period and required the insured to file proof of loss within 120

days after discovery of the loss. Coverage extended to losses

discovered within one year after the policy expired (the

“discovery period”).1 Importantly here, each primary policy also

provided coverage on certain conditions for losses which occurred
3

prior to the policy period, pursuant to a “Prior Loss” clause

reading as follows:

“LOSS SUSTAINED PRIOR TO EFFECTIVE DATE

If you were continuously insured by a policy prior to

this insurance providing the same insurance as this

policy, but cannot recover on a loss because that

policy was terminated and its discovery period has run

out, we will cover your loss provided:

1. this insurance would have covered your loss had it

been in effect at the time the acts that caused the

loss occurred; and

2. you discovered the loss within one year after this

insurance is terminated.

We will not pay more than the Limit of Insurance for

the loss under the prior policy or under this insurance

when it became effective, whichever is less. The amount

we pay will be a part of this insurance, not in

addition to it.

If we have insured you under other policies whose

discovery period had not run out when you discovered a

loss that occurred partly under those policies and

partly under this policy, we will pay up to the Limit

of Insurance under this policy or the prior policies

issued by us, whichever is less.”

In January of 1995 a Times-Picayune employee named Arthur

Anzalone embarked on a six-year embezzlement scheme during which

he would eventually steal $2,205,879 from the Times-Picayune

until he was discovered in December of 2000. Over the course of

his crime, Anzalone stole: $536,428 during the term of Federal’s

first primary policy (1/1/95 - 7/1/96); $268,871 during the

second policy (7/1/96 - 7/1/97); $234,707 during the third policy

(7/1/97 - 7/1/98); $330,647 during the fourth policy (7/1/98 -

7/1/99); $562,859 during the fifth policy (7/1/99 - 7/1/00); and
4

$272,367 during the sixth (and last) primary policy (7/1/00 -

7/1/01). Following the discovery of Anzalone’s ongoing theft,

the Times-Picayune timely made proof of loss and filed a claim

with Federal under its sixth primary policy for both the losses

incurred during that policy period as well as the previously

undetected losses that were sustained while the preceding Federal

primary policies were in effect. Though it did not admit

liability, Federal in December 2001 settled with the TimesPicayune for the full policy limit of $1,000,000.

That settlement, however, left the Times-Picayune with

$1,205,879 in embezzlement losses that were not reimbursed by

Federal’s primary policy. It was to recover this sum that the

Times-Picayune turned to Zurich. In July of 1996, along with its

second primary policy, the Times-Picayune also purchased from

Federal a $1,500,000 excess policy that would cover, inter alia,

acts of employee dishonesty exceeding the $1,000,000 policy limit

of the underlying primary policy. The Times-Picayune renewed

this one-year excess policy with Federal on July 1, 1997, but, on

July 1, 1998, the Times-Picayune switched excess carriers and

bought a three-year, $1,500,000 policy from Zurich that was

effective from July 1, 1998 until July 1, 2001. The TimesPicayune timely filed an excess claim with Zurich for the

$1,205,879 not covered by (because in excess of the policy limits

of ) the Federal July 1, 2000 - July 1, 2001 primary policy.
2 The Times-Picayune did not carry excess insurance from

January 1, 1995 to July 1, 1996.

5

Zurich balked, however. First, although the Zurich excess

policy itself contains no Prior Loss clause (nor any express

limitation to losses after policy inception or exclusion of prepolicy losses), the third sentence of the excess policy’s

insuring clause provides that “coverage under this policy shall

then [on exhaustion of required primary coverage] apply in

conformance with and subject to the warranties, limitations,

conditions, provisions, and other terms of the Primary Policy.” 

Accordingly, Zurich contended that under the Prior Loss clause in

the Federal primary policy, Zurich was not responsible for any

losses incurred before July 1, 1998 because in neither year in

which the Times-Picayune had excess coverage from Federal did

Anzalone embezzle more than the $1,000,000 limit of the

underlying primary policy.2 Second, in light of its conclusion

that it had no liability under the Prior Loss clause, Zurich

maintained that it was only bound to cover losses exceeding

$1,000,000 incurred during the three-year life of its own excess

policy (7/1/98 - 7/1/01). The amount Anzalone embezzled during

this three-year period was $1,165,873. Zurich took the position

that, once Federal’s $1,000,000 in primary coverage was

subtracted, its exposure under its $1,500,000 excess policy was

actually only $165,873 out of the $1,205,879 in embezzlement

losses that were not covered by (because in excess of the limits
3 The Zurich policy has a $1,500 deductible but we ignore

that to simplify the calculations.

4 The parties consented to trial and disposition by the

magistrate judge, so references to the district court refer to

the magistrate judge.

6

of) the Federal primary policy.3 Zurich offered to settle for

roughly this amount and in fact made a $93,064 payment to the

Times-Picayune.

On September 19, 2002, the Times-Picayune filed a six-count

complaint in Louisiana state court alleging, inter alia: (1)

common law breach of the Zurich excess insurance policy contract;

(2) breach of contract in bad faith; (3) a violation of LA. REV.

STAT. ANN. § 22:1220, which requires the prompt adjustment of

insurance claims in good faith; (4) a violation of LA. REV. STAT.

ANN. § 22:658, which requires prompt payment of a claim on

receipt of a satisfactory proof of loss; (5) a breach of the

common law implied covenant of good faith and fair dealing; and

(6) declaratory judgment. Zurich removed the case to federal

court on the basis of diversity jurisdiction under 28 U.S.C. §

1332.4

The district court granted partial summary judgment to

Zurich, ruling as a matter of law that Zurich’s excess policy

unambiguously confined its liability only to those losses

incurred during the three-year term of the Zurich policy that

exceeded the $1,000,000 limit of the underlying Federal primary
7

policy. The district court subsequently entered a FED. R. CIV. P.

54(b) judgment as to count one of the complaint, concluding that,

in light of the partial summary judgment order and a payment

already made to the Times-Picayune, Zurich’s remaining liability

on count one was $60,000. The premise behind the Rule 54(b)

judgment is that the Times-Picayune could not prevail on any of

its five other causes of action without first having prevailed on

its basic breach of contract claim.

The only issue the Times-Picayune raises on appeal is

whether Zurich is responsible under its excess policy for all (or

some part greater than awarded by the district court) of the

$1,205,879 in embezzlement losses that were not covered by

(because in excess of the policy limits of) Federal’s July 1,

2000 - July 1, 2001 primary policy, or is only responsible for

$165,873 of the $1,165,873 that was embezzled during the threeyear term of Zurich’s excess policy.

Standard of Review

A grant of summary judgment is reviewed de novo under the

same standard applied by the district court. Keelan v. Majesco

Software, Inc., 407 F.3d 332, *9 (5th Cir. 2005). Where, as in

the instant case, none of the material facts are in dispute, the

court may enter judgment as a matter of law.

Analysis
8

1. The Language of the Excess Insurance Contract

The parties do not dispute that Louisiana law controls.

“Under Louisiana law, a court should

interpret an insurance policy under ordinary

principles for the interpretation of a

contract. The intentions of the parties, as

reflected by the words of the policy, should

determine the extent of coverage. The words

should be given their plain meanings, and the

court should not change the coverage of the

policy under the guise of interpreting

ambiguous language. The court should

consider the policy as a whole, and interpret

the policy to fulfill the reasonable

expectations of the parties in the light of

the customs and usages of the industry. If a

clause remains ambiguous after such

consideration, then it should be construed

against the insurer.”

Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 269

(5th Cir. 1990) (citations and footnotes omitted).

We begin, therefore, with the relevant provisions of the

Zurich policy itself.

a. The insuring clause of the Zurich policy provides:

“I. INSURING CLAUSE.

The Underwriter shall provide the Insureds

with insurance coverage during the Policy

Period excess of the Underlying Insurance. 

Coverage under this policy shall attach only

after all of the Limit(s) of Liability of the

Underlying Insurance has been exhausted by

the actual payment of loss(es). Except as

otherwise provided herein, coverage under

this policy shall then apply in conformance

with and subject to the warranties,

limitations, conditions, provisions, and

other terms of the Primary Policy as in

effect the first day of the Policy Period,

together with the warranties and limitations
9

of any other Underlying Insurance. In no

event shall coverage under this policy be

broader than coverage under any Underlying

Insurance.”

b. The drop down clause (Clause IIIB) of the Zurich

policy provides:

“B. REDUCTION/EXHAUSTION OF UNDERLYING

LIMITS

In the event and only in the event of the

reduction or exhaustion of the Limit(s) of

Liability of the Underlying Insurance solely

as the result of actual payment of loss

covered thereunder, this policy shall: (i) in

the event of reduction, pay excess of the

reduced Limit(s) of Liability of the

Underlying Insurance, and (ii) in the event

of exhaustion, continue in force as primary

insurance excess of the retention applicable

in the Primary Policy, which retention shall

be applied to any subsequent loss as

specified in the Primary Policy.

Notwithstanding any of the terms of this

policy which might be construed otherwise,

this policy shall drop down only in the event

of reduction of exhaustion of the Underlying

Insurance by the actual payment of loss and

shall not drop down for any other reason

including, but not limited to,

uncollectibility (in whole or in part) of any

Underlying Insurance. The risk of

uncollectibility of such underlying Insurance

(in whole or in part) whether because of

financial impairment or insolvency of the

underlying insurer or for any other reason,

is expressly retained by the Insureds and is

not in any way or under any circumstances

insured or assumed by the Underwriter.”

2. The Decision of the District Court

In granting summary judgment to Zurich on the contract

claim, the district court largely ignored the Zurich policy’s
10

drop down clause, and focused instead on the Prior Loss clause of

the Federal primary policy. It adopted this approach in reliance

on First Nat’l Bank of Amarillo v. Continental Cas. Co., 71 F.2d

838, 839 (5th Cir. 1934).

In Amarillo, the First National Bank of Amarillo, Texas,

bought two insurance policies, called “bonds” in that case, from

Continental on February 7, 1931. One Continental policy provided

$50,000 in primary coverage and replaced a prior primary policy

issued by another insurer for the same amount. The other

Continental policy provided $50,000 in excess coverage. Unlike

Continental’s primary policy, the excess policy did not replace

preexisting excess coverage from Continental or any other

insurer. The excess policy had a rider stating that it would

provide excess coverage for any loss sustained under the prior

primary policy that was uncollectible because that policy had

been terminated.

In April of 1932, First National Bank discovered that an

employee had embezzled $78,000. The embezzler stole $46,000

before February 7, 1931 and $32,000 thereafter. In other words,

neither before nor during the term of Continental’s excess policy

did the embezzler steal more than the $50,000 limit of the

underlying primary policies.

The Continental primary policy had a rider attached to it

that covered undetected prior losses as long as those losses
11

would have been covered by First National Bank’s prior primary

policy (issued by another insurer). Continental exhausted the

$50,000 primary policy by paying $46,000 for the prior loss and

$4,000 for the loss incurred during the term of its own primary

policy. The First National Bank then sought to collect the

remaining $28,000 from Continental under the $50,000 excess

policy, but Continental refused to pay.

This court, over a vigorous dissent by Judge Hutcheson,

sided with Continental. Though not citing any contractual

language, the court began by concluding that the remaining

$28,000 could not be collected under the excess policy itself

because it provided only for future losses in excess of $50,000

and First National Bank only sustained a $32,000 loss after

February 7, 1931. The court then turned to the rider attached to

the excess policy. The court reasoned that this rider too could

not be invoked because it referred specifically to losses that

would have been recoverable under the prior primary policy and

the amount embezzled during the life of that policy did not

exceed $50,000.

It was irrelevant to the court that Continental’s primary

insurance had been exhausted by the payment of benefits for

aggregate losses suffered during both the prior and current

primary policies:

“The primary bond became liable under the

terms of its own rider for the loss of
5 For the purposes of calculating the Times-Picayune’s prior

losses, the district court aggregated the losses sustained from

July 1, 1996 to July 1, 1998, when the Zurich excess policy took

effect. In using this approach, the district court rejected

Zurich’s argument that its prior loss coverage would only be

triggered if losses in any given year exceeded $1,000,000.

12

$46,000 sustained during the life of the

prior bond. That bond and the prior canceled

bond may not properly be treated as one and

thereby make the excess bond liable for

losses which it had not assumed. The excess

bond assumed liability for losses above

$50,000 incurred either before or after its

effective date; but it did not contemplate or

authorize the adding together or combining of

losses incurred both before and after that

date. To take future losses and add them to

past losses and thus make up an amount

sufficient to create a liability under the

excess bond would be not to construe the

contract by which the Casualty Company agreed

to be bound, but to make one under which the

bank could recover.”

71 F.2d at 839.

The district court applied this reasoning to the TimesPicayune’s claim, concluding that the Prior Loss provision of the

Federal primary policy, as applicable under the language of the

third sentence of the insuring clause of Zurich’s excess policy,

was never triggered because the embezzlement losses incurred

during the two years of prior excess coverage amounted to only

$503,578, well under the $1,000,000 limit of the Federal primary

policies then in force.5 Finding that the primary policy’s Prior

Loss provision (as applicable in the Zurich excess policy under

that policy’s insuring clause) was never triggered, the district

court ruled that Zurich was responsible only for prospective
13

losses exceeding $1,000,000 that were incurred after the July 1,

1998 inception date of its excess policy. This resulted in

liability to the Times-Picayune under the contract for $165,873

because the Times-Picayune suffered a $1,165,873 loss over the

course of Zurich’s three-year policy. Put differently, the

district court ruled that Zurich’s $1,500,000 excess policy was

only responsible for $165,873 of the entire $1,205,879 that the

Times-Picayune lost over and above the $1,000,000 limit of its

primary policy with Federal. The district court, following

Amarillo, ruled that it was irrelevant that the July 1, 2000 -

July 1, 2001 primary policy had been exhausted by prior losses.

3. The Scope of Excess Coverage

a. Amarillo does not control

We begin with the conclusion that Amarillo is not

controlling authority. Amarillo was decided in 1934, four years

before the Supreme Court issued its landmark decision Erie R.R.

v. Thompkins, 58 S. Ct. 817 (1938), in which the Court held that

federal courts sitting in diversity should apply substantive

state law and federal procedural law. Amarillo cites no court

decision, treatise or other authority whatever in support of its

conclusions, and the only reasonable inference is that the

Amarillo panel was simply elucidating a federal common law of

insurance contracts, a law that has long since ceased to apply to

cases of this kind. Furthermore, Amarillo was on appeal from the
6 Until the district court resurrected it, Amarillo had only

been cited by National Surety Co. v. First Nat’l Bank, 61 P.2d

1122 (Okla. 1936).

14

Northern District of Texas, not a federal court in Louisiana. In

our view, it is inappropriate to treat such a pre-Erie Texas

case, particularly one that went uncited between 1936 and the

decision of the district court in this case, as controlling

authority respecting an insurance contract dispute under

Louisiana law.6

In addition, even if we were to consider Amarillo, it is

distinguishable on its facts. First, unlike the instant case,

there were no preexisting excess policies in Amarillo. Second,

and more importantly, the Prior Loss provision was in the excess

policy itself in Amarillo and it specifically referred to a loss

that would have been collectible under the prior primary policy. 

In the instant case, on the other hand, the Prior Loss clause in

the Federal primary policy, so far as applicable in Zurich’s

excess policy, if it can properly be read to itself limit the

excess Zurich policy’s coverage in ways it does not limit the

primary policy’s coverage, is most reasonably read, in light of

all the provisions of Zurich’s excess policy, as referring to

Federal’s prior excess policy, and, as will be discussed in some

detail below, we conclude that Federal’s prior excess coverage in

this case would have covered the prior excess losses.

b. The insuring and drop down clauses control
15

The district court discussed neither the insuring nor the

drop down clauses of the Zurich policy in its partial summary

judgment order. Instead, largely it seems in reliance on

Amarillo, the district court started with the assumption that the

Prior Loss clause exclusively controls because some of the

embezzlement losses were incurred before the July 1, 1998

inception date of the Zurich policy. This assumption was error,

however, because it prevented the district court from giving

proper effect to the excess policy’s insuring and drop down

clauses. Texas Eastern Transmission Corp. v. Amerada Hess Corp.,

145 F.3d 737, 742 (5th Cir. 1998) (“‘Each provision of 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.’ 

Contract provisions susceptible to different meanings should be

interpreted ‘to avoid neutralizing or ignoring any of them or

treating them as surplusage,’ and ‘to preserve validity [of the

contract].’” (quoting LA. CIV. CODE ANN. § 2050 and Lambert v.

Maryland Cas. Co., 418 So.2d 553, 559-60 (La. 1982))). When

these clauses are properly understood in light of the excess

policy as a whole, the scope of Zurich’s liability clearly

expands in favor of the Times-Picayune.

Zurich’s excess insurance plainly covers prospective losses;

losses, in other words, that were incurred from the July 1, 1998

inception date forward. With respect to the Times-Picayune’s
7 Zurich contends that the drop down clause has no

application to this case because , by virtue of its sub-clause

(ii), the provision of the drop down clause stating that the

Zurich policy will drop down as primary coverage insurance in the

event of exhaustion applies only to subsequent losses. The plain

language of the sub-clause (ii), however, is clear that what

applies in the event of subsequent losses is simply the retention

applicable to the exhausted primary policy.

16

prospective losses, there is no dispute that Anzalone stole

$1,165,873 over the three-year period of Zurich’s excess policy. 

We begin, therefore, with whether the district court was correct

in ruling that Zurich’s excess policy only covers $165,873 of

this loss.

To answer this question, we turn to the plain language of

the Zurich excess policy. Section one of the excess policy,

titled the insuring clause, states in relevant part: 

“The Underwriter shall provide the Insureds with

insurance coverage during the Policy Period Excess of

the Underlying Insurance. Coverage under this policy

shall attach only after all of the Limit(s) of

Liability of the Underlying Insurance has been

exhausted by the actual payment of loss(es).”

The most straightforward construction of this clause is that

Zurich will pay for covered losses that the primary policy will

not cover because it has been exhausted by the actual payment of

benefits. This reading of the insuring clause is substantially

reenforced by the unambiguous language of the drop down clause,

which obligates Zurich “in the event of exhaustion, [to] continue

in force as primary insurance excess of the retention applicable

in the Primary Policy.”7 Under the wording of these two clauses,
17

Zurich’s duty to pay is triggered by a single condition: the

exhaustion of the underlying primary policy by actual payment of

benefits.

Neither the insuring clause nor the drop down clause, nor

anything else in Zurich’s policy, clearly conduces to Zurich’s

view, which was adopted by the district court, that liability

attaches only after both of two distinct conditions are met: (1)

exhaustion of the underlying primary insurance; and (2) in the

event the first condition is met, Zurich is in any case only

bound to cover that part of losses sustained during its policy

period that exceed $1,000,000. While this second condition may

be something Amarillo suggests, it is not what the policy itself,

taken as a whole, provides. There is simply nothing in the plain

language of the excess policy clearly stating that Zurich is only

bound to pay for losses (exceeding $1,000,000) which were

incurred during the period of its policy. To the extent that the

district court and Zurich have developed a plausible alternative

construction of the excess policy, all they have done is

manufactured an ambiguity and it is elementary under Louisiana

law that such ambiguities are construed in favor of coverage. 

Between July 1, 1998 and the discovery of Anzalone’s

embezzlement in December of 2000, the Times-Picayune undisputedly

lost $1,165,873. It is also undisputed that the Federal primary

policy was entirely exhausted by the payment of actual losses to
18

the Times-Picayune for embezzlement losses covered under the

primary policy that were incurred since the inception of the

embezzlement scheme in 1995. Accordingly, under the plain and

unambiguous language of the insuring and drop down clauses,

Zurich is liable as primary insurer for the entire $1,165,873

that Anzalone embezzled between July 1, 1998, and July 1, 2001.

c. The prior loss

Having determined that Zurich is liable to the TimesPicayune for the entire $1,165,873 that was stolen during the

term of Zurich’s excess policy, we turn to a final detail. The

$1,000,000 payment by Federal under its primary policy

compensated the Times-Picayune for the first $1,000,000 of its

total $2,205,879 embezzlement losses incurred from 1995 through

2000. Anzalone, however, stole $1,040,006 thereof between the

beginning of his scheme in 1995 and the inception date of the

Zurich excess policy on July 1, 1998. Because $40,006 more than

$1,000,000 primary coverage was embezzled before the Zurich

policy incepted on July 1, 1998, it was not included in the

preceding analysis. The final question, therefore, is whether

this outstanding $40,006 is also covered by Zurich’s excess

policy.

We begin with the Prior Loss clause because this $40,006 was

embezzled prior to the inception of Zurich’s excess policy on

July 1, 1998. The Prior Loss clause imposes two distinct
19

conditions. First, as stated in the introductory clause of the

Prior Loss clause, the insured must have been “continuously

insured” by a substantively identical policy, which the district

court read to mean, for purposes of the Zurich policy, a

substantively identical excess policy. Second, as stated in

clause “1.” of the Prior Loss clause, “this insurance would have

covered your loss had it been in effect at the time the acts that

caused the loss occurred[.]” The district court construed “this

insurance” to refer to the Zurich excess policy. The district

court construed the term “continuously” to mean that the only

losses that counted for the purposes of the Prior Loss clause

were losses that were incurred during a period of uninterrupted

excess coverage. Because the Times-Picayune did not have excess

coverage between January 1, 1995, and July 1, 1996, the district

court did not consider any of the $536,428 in embezzlement losses

from that period as part of the losses that qualified under the

Prior Loss clause. The district court then ruled that the Prior

Loss clause was not triggered because the aggregate losses in the

two years immediately prior to the inception of the Zurich

policy, years during which the Times-Picayune was covered by

Federal excess policies, only added up to $503,578, well below

the $1,000,000 limit of the Federal primary policy.

However, the district court did not opt for the simplest and

most straightforward reading of Zurich’s policy. It is
20

undisputed that all of the Times-Picayune’s $805,299 in

embezzlement losses from January 1, 1995 until July 1, 1997 were

within the coverage of the Federal primary policy. It is also

undisputed that the Federal primary policy covered $194,701 of

the Times-Picayune’s losses from July 1, 1997, to July 1, 1998,

when the Zurich policy began. What the Federal primary policy

did not cover, however, was the additional $40,006 that Anzalone

stole during this last year before the Zurich excess policy

incepted on July 1, 1998. The Federal primary policy did not

cover this $40,006 simply and only because the $1,000,000 policy

limit had been reached by actual payment of losses. Thus the

only loss to the Times-Picayune that is relevant for the purposes

of the district court’s reading of the Prior Loss clause as

applied to the Zurich policy is this $40,006 that was embezzled

sometime between July 1, 1997, and July 1, 1998. 

Returning now to the language of the Prior Loss clause, it

is undisputed that the Times-Picayune was continuously insured by

an applicable excess policy from July 1, 1997 (indeed, from July

1, 1996), until the Zurich excess policy began on July 1, 1998. 

Thus the first condition of coverage (under the district court’s

reading of the Prior Loss clause as applied in the Zurich policy)

is satisfied.

The second condition (again as construed by the district

court’s reading of the Prior Loss clause as applied in the Zurich
8

 That sentence states 

“Except as otherwise provided herein, coverage under

this policy shall apply in conformance with and subject

to the warranties, limitations, conditions, provisions,

and other terms of the Primary Policy as in effect the

first day of the Policy Period, together with the

warranties and limitations of any other Underlying

Insurance.”

21

policy) is also satisfied because Zurich’s excess coverage “would

have covered [the Times-Picayune’s $40,006] loss had it been in

effect at the time the acts that caused the loss occurred,” as

stated in clause “1.” of the Prior Loss clause. This is

indisputable. Had the Times-Picayune discovered Anzalone’s theft

on June 5, 1998, and had Zurich’s excess policy been in effect at

that time, Zurich would have been liable for the $40,006 because

the underlying Federal primary policy would have been exhausted

by the actual payment of losses. Because Zurich would have been

liable then, it is liable now. Any other construction of the

Prior Loss clause would constitute impermissibly construing an

ambiguity in favor of the insurer.

Finally, considering the Zurich policy as a whole, we cannot

accept the district court’s reading of the third sentence of its

insuring clause.8 The sentence in question plainly intends to of

itself exclude from the excess policy coverage of any loss

excluded from (or not covered by or otherwise not recoverable

under) the primary policy, whether or not otherwise excluded by

the excess policy itself. But we cannot read that sentence as
22

unambiguously of itself independently imposing a limitation on

coverage under the excess policy so as to exclude from the excess

policy coverage of losses that are within the coverage of and are

not excluded by or otherwise not recoverable under the underlying

primary policy. The excess policy has no Prior Loss clause, and

it contains no provision excluding prior losses or limiting

coverage to losses incurred after the effective date of the

policy. The underlying primary policies each do have a Prior

Loss clause, and it does provide coverage under those policies

(subject to certain conditions, which are indisputably satisfied

respecting the Federal primary policy in effect from July 1,

2000, to July 1, 2001, as to the entire $2,205,879 loss). To the

extent there is ambiguity in this respect it must be resolved

against Zurich. For this reason also, the Prior Loss clause of

the primary policy does not support the district court’s

judgment.

Conclusion

For the foregoing reasons, the judgment of the district

court is REVERSED and this case is REMANDED to the district court

for further proceedings not inconsistent with this opinion.

REVERSED and REMANDED