Court Opinion

ID: 30661
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:57:23+00
Date Added: 2024-06-11T08:39:54.930229
License: Public Domain

UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT
               _____________________________________

                            No. 02-30218
               _____________________________________

                    GEORGE C. SAMSON III, ET AL,

                                           Plaintiffs,

                                 v.

                APOLLO RESOURCES INC., Etc.; ET AL,

                                           Defendants,

                      APOLLO RESOURCES INC.,
              doing business as Apollo Services Inc.,

                                           Defendant - Third
                                           Party Plaintiff - Cross
                                           Defendant - Appellee,

                                 v.

               QBE INTERNATIONAL INSURANCE, LIMITED.,

                                            Third Party Defendant -
                                            Cross Claimant -
                                            Appellant.
         __________________________________________________

            Appeal from the United States District Court
          For the Western District of Louisiana, Lafayette
                              (98-CV-62)
         __________________________________________________
                            March 20, 2003

Before DAVIS, BARKSDALE, and DENNIS, Circuit Judges.*

     *
       Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
W. EUGENE DAVIS, Circuit Judge:**

     Apollo Resources, Inc. (“Apollo”) seeks recovery against QBE

International Insurance, Limited (“QBE”), under its Employment

Practices Liability Insurance Policy.     Apollo seeks to recover

defense costs it incurred in defending an action brought by its

employees for overtime compensation which QBE declined to defend.

The district court found that QBE owed Apollo a defense and

granted partial summary judgment in favor of Apollo on this

claim.     For the reasons that follow, we conclude that the policy

provides no coverage for the claims asserted by Apollo’s

employees.     We, therefore, vacate the district court’s grant of

partial summary judgment in favor of Apollo and remand the case

with instructions to enter judgment in accordance with this

opinion.

                                   I.

     Apollo asserted a third party demand against QBE seeking

reimbursement of defense costs incurred in Apollo’s successful

defense of this suit1 by thirty of its former employees.

Apollo’s employees brought the suit to recover overtime

compensation which Apollo defended after QBE denied coverage.

The employees alleged that Apollo wrongfully avoided payment of

     **
          Judge Dennis concurs in the judgment only.
     1
          The Fifth Circuit affirmed the district court’s judgment
in favor of Apollo in the underlying suit. Samson v. Apollo Res.,
Inc., 242 F.3d 629 (5th Cir. 2001).

                                   -2-
overtime by its improper use of a fluctuating workweek (“FWW”)2

or sliding scale method of calculating overtime pay.   The

Employment Practices Liability policy QBE issued is a “claims

made” policy effective from May 21, 1997, to May 21, 1998.

     In 1995, the Department of Labor began an investigation into

Apollo’s use of the FWW calculation method.3   As a result of

this investigation, Norman Landry, a former Apollo employee,

wrote a   letter on January 25, 1996, to Apollo demanding payment

of overtime wages allegedly due as a result of Apollo’s improper

use of the FWW method of calculating overtime wages.

     On February 6, 1996, James Meche filed a complaint in

district court seeking to recover overtime wages due and payable

     2
          Regulations promulgated by the Department of Labor under
the F.L.S.A. authorize employers to use various methods of
calculating overtime compensation to suit different employment
needs. The FWW is one such method. 29 C.F.R. § 778.114. As we
explained in Samson:
          Under the FWW method, the employee receives a
          fixed salary as compensation for all hours
          worked by the employee, whether above or below
          forty hours, as well as an additional overtime
          premium for each overtime hour. The overtime
          premium is calculated by dividing the fixed
          weekly salary by the number of hours that the
          employee actually works in a particular week
          to yield the employee’s “regular rate of pay.”
          The employee is paid an overtime premium of
          one-half his regular rate of pay for each
          overtime hour. This premium is in addition to
          his fixed weekly salary.

242 F.3d at 633.
     3
          The Department of Labor ruled Apollo’s wage calculation
method to be legal.

                                -3-
pursuant to the Fair Labor Standards Act (“F.L.S.A.”), 29 U.S.C.

§ 203 et seq., alleging that Apollo’s use of the FWW method was

an illegal practice.   In his Complaint, Meche asked the district

court to appoint him as class representative for other similarly

situated individuals. The district court dismissed Meche’s suit

without prejudice on August 8, 1997.

     Samson and Smith filed the underlying suit against Apollo on

May 27, 1997 (“Samson suit”).     A total of twenty-eight additional

plaintiffs, including Landry and Meche, joined the suit.4    The

plaintiffs in this suit (“Plaintiffs”) sought unpaid wages,

safety bonuses, attorney’s fees and punitive damages resulting

from Apollo’s alleged illegal application of the FWW method.       In

March 1988, the district court consolidated the suit with the

related Norton and Weaver v. Apollo (“Norton suit”) case and

declared a “collective action.”     The district court tried the

claims of six of the Plaintiffs and granted Apollo’s Motion for

Judgment as a Matter of Law at the close of the Plaintiffs’ case.

The Fifth Circuit affirmed.5

     The district court severed Apollo’s third party demand

     4
          Thirty-six former employees joined the suit, but six were
dismissed or withdrew at various times.
     5
          The district court severed and stayed the claims of the
remaining twenty-four Plaintiffs pending the outcome of this trial.
Following the Fifth Circuit’s decision, the remaining twenty-four
Plaintiffs dismissed their claims with prejudice in stipulated
judgments approved by the district court as part of a settlement
agreement with Apollo.

                                  -4-
against QBE from the underlying suit.     After this court affirmed

the district court’s judgment in favor of Apollo in the

underlying litigation, the district court proceeded to consider

the issue of coverage between Apollo and QBE.     The district court

granted partial summary judgment in favor of Apollo and concluded

that QBE owed a defense to Apollo on the underlying suit.     The

court also entered judgment in favor of Apollo in the amount of

$362,362.49 for costs and expenses incurred.

     Following entry of the district court’s Order and Reasons

for Judgment, QBE requested certification of an interlocutory

appeal under 28 U.S.C. § 1292(b).     Apollo asked the district

court to certify the grant of partial summary judgment as a

partial final judgment appealable under Federal Rule of Civil

Procedure 54(b).   The district court inadvertently entered the §

1292(b) certification, but later withdrew the certification and

entered judgment under Rule 54(b).

                                II.

     QBE argues first that the district court erred in certifying

the partial summary judgment as a partial final judgment

appealable under Federal Rule of Civil Procedure 54(b) rather

than certifying it for interlocutory appeal under 28 U.S.C. §

1292(b).   We review this question de novo.

     Federal Rule of Civil Procedure 54(b) allows a district

                                -5-
court to expressly direct entry of a final judgment on “one or

more but fewer than all of the claims or parties” to a suit “upon

an express determination that there is no just reason for delay.”

FED. R. CIV. P. 54(b).   QBE argues that a Rule 54(b)

certification is inappropriate in this case because there was no

final disposition of a claim.   QBE argues that one of its

affirmative coverage defenses - that Apollo made a material

misrepresentation in its policy application - was not ripe for

decision and precluded the district court’s entry of judgment on

Apollo’s claim for defense costs.     QBE argues that it expressly

reserved this affirmative defense for trial, and Apollo did not

specifically request summary judgment on this issue.    QBE relies

on Sharlitt v. Gorinstein, 535 F.2d 282 (5th Cir. 1976), in

support of its position that it was inappropriate for the

district court to enter summary judgment sua sponte without

providing adequate notice and opportunity for QBE to present its

argument.

     QBE’s reliance on Sharlitt is misplaced.     Apollo requested a

judgment from the district court ordering QBE to honor its

defense obligations, and ordering QBE to reimburse Apollo for the

attorney’s fees and litigation costs that Apollo has incurred to

date in defense of the underlying suit.    Such a request by its

terms required the district court to consider all defenses QBE

might have to coverage, including QBE’s material

                                -6-
misrepresentation defense.

     The party moving for summary judgment bears the initial

burden of production to demonstrate the absence of a genuine

issue of material fact.   Celotex Corp. v. Catrett, 477 U.S. 317,

323 (1986).   Once the movant has met his initial burden of

production, the burden shifts to the nonmovant to set forth

“specific facts showing that there is a genuine issue for trial.”

Id. at 324.   QBE failed to introduce evidence of Apollo’s

material misrepresentation in opposition to Apollo’s Motion for

Partial Summary Judgment on the issue of QBE’s duty to defend and

reimburse Apollo for defense costs.   It was QBE’s duty to come

forward with evidence to demonstrate that a material issue of

fact existed on its affirmative defense, requiring a trial on the

merits.   QBE could not simply “reserve” this defense to coverage

and thus shield itself from an adverse summary judgment on the

coverage issue.

     The district court’s grant of partial summary judgment in

favor of Apollo resolved Apollo’s claim that QBE was obliged to

defend Apollo in the Samson litigation and reimburse Apollo for

its defense costs.6   The district court properly entered a Rule

54(b)final judgment certification.

                               III.

     6
          Apollo’s claim for bad faith failure to provide coverage
is still pending in the district court.

                                -7-
     QBE argues next that the district court erred in granting

summary judgment in favor of Apollo and ruling that QBE’s policy

required QBE to furnish Apollo a defense and reimburse Apollo for

defense costs already incurred in defending the Consolidated

Action Suit.   We review the district court’s grant of partial

summary judgment de novo. See Blow v. City of San Antonio, 236

F.3d 293, 296 (5th Cir. 2001).

     In determining whether coverage for defense costs is

provided under a policy, Louisiana law - which controls this

issue - adopts the Eight Corners Rule and requires us to compare

the allegations in the complaint to the policy provisions.   As we

explained in Alert Center, Inc. v. Alarm Protection Services,

Inc., 967 F.2d 161, 163 (5th Cir. 1992):

          Under Louisiana law, an insurer has a duty to
          defend its insured unless the allegations in
          the complaint unambiguously exclude coverage.
          Meloy v. Conoco, Inc., 504 So. 2d 833, 838
          (La.1987) (citing American Home Assurance Co.
          v. Czarniecki, 255 La. 251, 230 So. 2d 253
          (1969)); Jensen v. Snellings, 841 F.2d 600,
          612 (5th Cir.1988) (applying Louisiana law).
          Coverage is determined by comparing the
          allegations in the complaint with the terms
          of the policy, and the court is to look only
          at the face of the complaint and the
          insurance contract in reaching this
          determination. Jensen v. Snellings, 841 F.2d
          at 612; Scarborough v. Northern Assurance Co.
          of America, 718 F.2d 130, 134 (5th Cir.1983)
          (applying Louisiana law). The insurer has a
          duty to defend its insured if the complaint
          discloses the possibility of liability under
          the policy. Meloy v. Conoco, 504 So. 2d at
          839. Thus, if the complaint alleges a single
          claim against the insured that is covered by

                                 -8-
          the policy, the insurer must defend the
          entire lawsuit, even those claims clearly
          excluded from coverage. Montgomery Elevator
          Co. v. Building Engineering Services Co.,
          Inc., 730 F.2d 377, 382 (5th Cir.1984)
          (applying Louisiana law).
“The duty to defend is determined solely from the plaintiff’s

pleadings and the face of the policy, without consideration of

extraneous evidence.” Houghtaling v. Richardson, 800 So.2d 1012,

1014 (La. Ct. App. (5th Cir.) 2001).    If the complaint asserts

facts that, if proven, establish both    coverage under the policy

and liability to the plaintiff, the insurer must defend the

insured regardless of the outcome. Czarniecki, 230 So.2d at 259.

     Under the policy, QBE agreed:

            To pay on behalf of the Insureds Loss that
            the Insureds are legally obligated to pay as
            a result of any Claim first made against the
            Insureds during the Policy Period for a
            Wrongful Employment Practice, provided always
            that such Wrongful Employment Practice
            occurs:

            1.   During the Policy Period, or

            2.   Prior to the effective date of this
                 Policy, provided further that the
                 Insured had no knowledge prior to the
                 effective date of this Policy of any
                 matter, fact or circumstance that would
                 cause a reasonable person to believe
                 that a Claim for such Wrongful
                 Employment Practice might be made.

The term “Wrongful Employment Practice” is defined in the policy7

     7
         The policy defines “Wrongful Employment Practices” to mean:
             any actual or alleged:
             1.   Wrongful Employment Termination by an
                  Insured of an Employee;

                                  -9-
and limits covered acts to specific types of conduct by the

employer.    The only conduct relevant to this case included in the

definition is “employment-related misrepresentation by an

Insured.”

     QBE argues that coverage for Apollo’s defense costs is

excluded by Exclusion H of the policy which denies coverage for

Wrongful Employment Practices that relate back to claims made

before the effective date of the policy and Interrelated Wrongful

Employment Practices.8    Consideration of QBE’s argument led us to

            2.   Discrimination by an insured against an
                 Employee or an applicant for employment;
            3.   Sexual harassment by an Insured of an
                 Employee;
            4.   Adverse employment action in violation of
                 the whistle blower provisions of any
                 federal, state or local law;
            5.   False   arrest,    libel,   slander    or
                 defamation, invasion of privacy, assault
                 or battery by an Insured of an Employee,
                 when asserted in connection with a Claim
                 within III.O.1. through III.O.4 above;
            6.   Employment-related misrepresentation by
                 an Insured; or
            7.   Negligent hiring, supervision, promotion,
                 demotion or retention.
     8
            Exclusion H denies coverage for any claim made against an
Insured:

            Based upon or directly or indirectly arising
            out of:
            1.   Any Wrongful Employment Practice or any
                 matter, fact or circumstance that has
                 been the subject of any claim made prior
                 to the effective date of this Policy or
                 of any notice given during any prior
                 policy;
            2.   Any other Wrongful Employment Practice
                 which,   together   with    a   Wrongful

                                 -10-
consider whether the terms of the policy provided coverage for

defense costs absent this exclusion.   After the issue of coverage

was raised in more detail at oral argument, the parties were

asked to submit additional briefs directly addressing the

application of the Eight Corners Rule and the exclusions in the

policy’s “Loss” provision to this case.

     In its original brief to this court, Apollo did not rely on

any misrepresentation allegation the Plaintiffs made in their

Complaint to establish coverage or a duty to defend.   Rather,

Apollo pointed to the deposition testimony of former Apollo

employees to support their contention that these plaintiffs based

their claim in part on “misrepresentations.”    When asked by the

court following argument to submit a supplemental brief citing

specific   allegations in the Plaintiffs’ Complaint that alleged

misrepresentations, Apollo points to four paragraphs from the

Complaint,9 the deposition testimony of some of the Plaintiffs

                Employment Practice that has been the
                subject of any claim or notice identified
                in   H.1.    above,   would    constitute
                Interrelated     Wrongful     Employment
                Practices.
     9
          In its supplemental brief, Apollo points to the following
portions of the Plaintiffs’ Fourth Amended Complaint as alleging
employment-related misrepresentations:

                                21.
           The underpayment for the plaintiffs misuse of
           the “sliding scale” method of making overtime
           payments.

                                -11-
and our opinion in Samson v. Apollo Resources, Inc., 242 F.3d 629

(5th Cir. 2001).

     Federal courts liberally construe the complaint to determine

if it asserts claims that are unambiguously excluded from

coverage. See Stone Petroleum Corp. v. Ins. Co. of N. Am., 961

F.2d 90, 92 (5th Cir. 1992).   Apollo argues that, liberally

construed, the Plaintiffs’ Complaint alleges employment-related

misrepresentations. We disagree.       The Plaintiffs alleged that

Apollo underpaid the amount of regular and overtime wages due

Plaintiffs in violation of the Fair Labor Standards Act as a

result of Apollo’s misuse of the FWW method.       Plaintiffs sought

unpaid compensation, safety bonuses and liquidated damages,

attorney’s fees and pre-judgment interest under the F.L.S.A. and

penalties for failing to promptly pay wages due.       The complaint

filed in the Norton suit alleged nearly identical claims.       As QBE

properly points out, misrepresentation is not a required element

                                22.
          The   defendant’s   employee  contracts   for
          fluctuating hours, as used by the defendant
          and applied to these plaintiffs, violated the
          Fair Labor Standards Act’s requirements for
          fluctuating hours employee contracts.

                               24.
          The misuse of the sliding scale method and
          fluctuating hours contracts was willful.

                               25.
          The defendant also withheld “safety” bonuses
          from the plaintiffs.

                                -12-
of an F.L.S.A. wage claim.   See 29 C.F.R. 778.0 et seq.   The only

allegation that even arguably could include misrepresentations is

the assertion that Apollo misused the sliding scale wage method.

However, Apollo candidly admits in its letter brief that the

misuse of the sliding scale “does not fall within the definition

of ‘wrongful employment practice’ in the QBE policy.”   Liberally

construing the Plaintiffs’ Complaint, we find no allegations in

the complaint that Apollo made any misrepresentations regarding

their employment that would give rise to coverage in this case.

     Apollo also points to facts developed outside the pleadings

to support coverage.   The court requested that Apollo provide

support for its position that we may consider facts developed in

the Plaintiffs’ deposition testimony introduced at trial in

determining whether QBE owed a duty to defend the underlying

suit.   Apollo simply points to Fed. R. Civ. P. 15(b) which allows

amendment of the pleadings to conform to the evidence introduced

at trial.   Apollo provides no authority to support its position

that facts outside the complaint may be considered under the

Eight Corners Rule.

     All of the Louisiana cases we have found discussing this

issue definitively state that Louisiana law does not permit

reliance on evidence extrinsic to the complaint to demonstrate

the insurer’s obligation to defend. See Houghtaling, 800 So.2d at

1014; Stone Petroleum Corp. 961 F.2d at 92; KLL Consultants, Inc.

                                -13-
v. Aetna Cas. & Sur. Co., 738 So.2d 691, 696 (La. App. (5th Cir.)

1999).    In Singleton v. United Tugs, Inc., 710 So.2d 347 (La.

App. (4th Cir.) 1998), the court refused to impose a duty to

defend when the insurance company made the decision that it owed

no duty to defend based on the plaintiff’s failure to allege

covered claims in his petition, even though the plaintiff

produced evidence at trial that triggered coverage.    Adopting a

rule that would impose a duty to defend based on evidence arising

during trial would run counter to the sensible bright line rule

which allows insurance companies to make a decision on their duty

to defend at the outset of litigation based on the allegations of

the complaint.

     Because Plaintiffs asserted no claim that was covered by

QBE’s policy,    QBE owed no duty to defend Apollo in the

underlying suit. See Czarniecki, 230 So.2d at 259. Because QBE

had no duty to defend, Apollo, it also has no duty to reimburse

Apollo for the defense costs Apollo spent defending the

underlying suit.10

                                 V.

     For the reasons stated above, we conclude that the district

     10
          Apollo argues in its letter brief that the Eight Corners
Rule is irrelevant to the resolution of this case because “QBE’s
policy contains an independent contractual duty on the part of QBE
to reimburse Apollo for its defense costs, a duty that is not
dependant on the obligation to defend or the ‘Eight Corners Rule’.”
Apollo relies on dicta in FDIC v. Booth, 824 F. Supp. 76 (M.D. La.
1993) that interprets a particular policy provision that is not
pertinent to this case.

                                 -14-
court erred in granting partial summary judgment in favor of

Apollo on the issue of QBE’s duty to defend and to reimburse

Apollo for defense costs, and we must VACATE that judgment.

Given our conclusion on the coverage issues, Apollo’s claim for

penalties for willful failure to provide coverage must also fall.

We therefore REMAND this case to the district court with

instructions to enter judgment consistent with this opinion.

VACATED and REMANDED.

                               -15-