Court Opinion

ID: 36448
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:40:36+00
Date Added: 2024-06-11T17:15:03.764929
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT                August 30, 2004

                                                         Charles R. Fulbruge III
                                                                 Clerk
                            No. 04-50116
                          Summary Calendar

AMERICAN STATES INSURANCE COMPANY; ET AL

                Plaintiffs

AMERICAN ECONOMY INSURANCE CO

                Plaintiff-Appellant

v.

SYNOD OF THE RUSSIAN ORTHODOX CHURCH OUTSIDE OF RUSSIA; ET AL

                Defendants

SYNOD OF THE RUSSIAN ORTHODOX CHURCH OUTSIDE OF RUSSIA

                Defendant-Appellee

          Appeal from the United States District Court
                for the Western District of Texas
                      USDC No. A-00-CV-824-JN

Before HIGGINBOTHAM, DAVIS, and PRADO, Circuit Judges.

PER CURIAM:*

     *
      Pursuant to 5TH CIRCUIT RULE 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that this opinion should not be published and is not precedent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 CIRCUIT
RULE 47.5.4.

                                -1-
     American States Insurance Company and American Economy

Insurance Co. (together, “American”) appeal the district court’s

grant of summary judgment, which required them to indemnify the

Synod of the Russian Orthodox Church Outside of Russia, (“the

Church”) for the costs of a settlement litigation in a separate

lawsuit.    American also appeals the denial of its own motion for

summary judgment in its favor.

Factual and Procedural Background

     In August 2000, the Church was sued by a minor who alleged

that he had been molested by two priests at a monastery in Blanco

County, Texas.    The Church promptly notified American, its

insurer at the time, of the suit.      American agreed to defend the

Church, subject to a reservation of its right to contest whether

the incident was covered under the Church’s insurance policy.

     The Church sought a declaratory judgment in Texas state

court to clarify American’s obligations to the Church under the

insurance policy.    Among other things, the Church sought a

declaration that American had a duty to defend and indemnify it

in the underlying lawsuit.    American removed the case to federal

court.    Both parties moved for partial summary judgment on the

issues of defense and indemnification.     The district court

granted partial summary judgment in favor of the Church, and

ordered that American be required to defend and indemnify the

church.    The underlying lawsuit by the minor was then settled.

                                 -2-
The district court dismissed or declared moot all remaining

claims in the lawsuit, aside from the claim regarding

indemnification.   The Church then filed a supplemental motion for

summary judgment on this remaining issue.     American filed a

second motion for summary judgment as well.     The district court

granted summary judgment in favor of the Church, finding that

American had a duty to indemnify it.

     We vacated the district court’s judgment with respect to the

duty to indemnify and remanded the case, finding that the

district court “erred when it incorrectly assumed that [American]

had a duty to indemnify the Church based solely on its duty to

defend.”   Am. States Ins. Co. v. Synod of the Russian Orthodox

Church Outside of Russia, 335 F.3d 493, 496 (5th Cir. 2003).      We

further held that “[t]he district court should have determined

whether the Church had shown that the settled claim was a covered

loss under the insurance policy.”       Id.

     On remand, the district court found that the claim was a

covered loss and that American had a duty to indemnify the Church

because the incidents leading up to the underlying lawsuit

occurred during a time when the Church was covered by its

insurance policy with American.    American argues on appeal that

the district court erred by failing to follow our mandate that it

consider whether the settlement represented a potentially covered

loss under the policy.   Specifically, American contends the

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district court failed to examine whether the settlement award

represented punitive damages, which are not insurable under New

York law.

     Standard of Review

     We review de novo whether a district court faithfully and

accurately followed our mandate on remand.     Sobley v. Southern

Natural Gas Co., 302 F.3d 325, 332 (5th Cir. 1998).     We review a

grant of summary judgment de novo.    Mowbray v. Cameron County,

Tex., 274 F.3d 269, 278 (5th Cir. 2001).     Summary judgment is

proper where the record indicates that there are “no genuine

issues as to any material fact and that the moving party is

entitled to judgment as a matter of law.”    FED. R. CIV. P. 56.

“Questions of fact are reviewed in the light most favorable to

the nonmovant and questions of law are reviewed de novo.”

Mowbray, 274 F.3d at 278-79.   The parties agree that New York law

applies to this dispute.

     Discussion

     American argues that the summary judgment evidence shows

that the settlement represented only punitive damages.     American

asserts that because punitive damages are uninsurable under New

York law it cannot be made to indemnify the Church for the

settlement.

     Under New York law, an insurer is required to indemnify an

insured for a settlement when the settlement is made to settle a

                                -4-
suit which involved a potential liability based on the facts

known to the insured, and the settlement was reasonable in light

of the size of possible recovery and the likelihood that the

insured would have been found liable at a trial.     Luria Brothers

& Co. Inc., v. Alliance Assurance Co., Ltd., 780 F.2d 1082, 1091

(2d Cir. 1986).    However, for reasons of public policy an insured

may not be indemnified for any award that represents punitive

damages.    Public Service Mut. Ins. Co. v. Goldfarb, 425 N.E.2d
810 (N.Y. 1981).

     The issue of determining what part of an award represents

punitive damages has rarely been presented in the settlement

context.    Where the issue has been raised, it has been found to

be a fact question of the type that might preclude summary

judgment.   In one of the few cases to address this issue,

National Union Fire Ins. Co. Of Pittsburgh, Pa. v. Ambassador

Group, Inc., an insured filed a summary judgment motion in a suit

seeking indemnification for a settlement.    556 N.Y.S.2d 549 (N.Y.

App. Div. 1990).   The National Union Fire court held that there

was a fact question regarding apportionment of the settlement

between covered compensatory damages and non-covered punitive

damages.    Id. at 553.   Because of this fact question, among other

things, the district court denied summary judgment.      Id.

     Similarly, in Ansonia Associates Limited Partnership, v.

Public Service Mutual Insurance Co., the insured contended that

                                  -5-
its insurer had to indemnify it for the entire settlement amount

because the settlement itself declared that it represented

compensatory damages only.   693 N.Y.S.2d 386 (N.Y. Sup. Ct.

1998).   The Ansonia court disagreed, finding that a question of

fact existed as to what type of damages the award represented.

The court held that “the mere fact that the settlement at issue

described the [total settlement sum] as covering only

compensatory damages is not dispositive . . . it is entirely

possible, if not likely, that at least some of the settlement

amount represented punitive damages.”   Id. at 389.

     In light of these cases, it seems that under New York law,

an insurer cannot be made to indemnify an insured for any part of

a settlement award that represents punitive damages.    Therefore,

on this summary judgment appeal, we must determine whether there

is a genuine issue of material fact regarding what type of

damages are represented by the settlement.

     American contends that no evidence was presented suggesting

that any part of the settlement represented compensatory damages.

In support, American cites the affidavit of its claims adjuster

who participated in the settlement negotiations and who

determined that the minor’s claims against the Church “had a

total settlement value range of between $300,000 to $900,000

based on the Church’s punitive damage exposure.”   American’s

argument about how this indicates the settlement only represented

                                -6-
punitive damages is unclear.    American seem to imply that because

the final settlement was less than American’s estimate of the

punitive damage exposure, the settlement amount could only have

represented punitive damages.   This evidence does not

conclusively establish American’s argument, because the figures

cited by American do not in any way indicate why the parties

settled for the final amount, or what that amount represented.

     The Church disputes American’s contention that the entire

award was based on punitive damages by arguing that under Texas

law, which would have applied to the underlying lawsuit, no

punitive damages may be awarded absent a finding of actual

damages.   Therefore, the Church argues, the settlement must have

represented at least some actual damages.   The Church further

argues that the settlement represented actual damages because the

underlying lawsuit alleged sexual abuse, which is a cause for

actual damages under Texas law.

     Neither party has presented any other evidence to illustrate

exactly what damages were represented by the settlement

represented why type of award. Yet, it must be assumed that since

the complaint in the underlying lawsuit sought both punitive and

actual damages, some portion of the settlement of that case

likely represented potential punitive damages.   Therefore,

American has presented a question of fact as to which portion of

the settlement award, if any, represented punitive damages.    That

question is material to the current suit because American cannot

                                  -7-
be made to indemnify the Church for any portion of a settlement

award that represents punitive damages.   Consequently summary

judgment in favor of either party in this case was inappropriate

because there was a genuine issue of material facts as to what

type of damages - compensatory or punitive - the settlement

represented.

     Conclusion

     Therefore we REVERSE the grant of the Church’s motion for

summary judgment, AFFIRM the denial of American’s motion for

summary judgment, REVERSE the order requiring American to

indemnify the Church for all settlement expenses, and REMAND the

case to the district court for further determination in accord

with this order.

                               -8-