Court Opinion

ID: 5225
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:03:46+00
Date Added: 2024-06-11T09:03:06.207547
License: Public Domain

United States Court of Appeals,

                                             Fifth Circuit.

                                             No. 91–9530

                                         Summary Calendar.

                FIRST NATIONAL BANK OF LOUISVILLE, Plaintiff–Appellant,

                                                   v.

                                Loretta LUSTIG, et al., Defendants,

                     Fidelity & Deposit Co. of Maryland, Defendant–Appellee.

                                            Oct. 26, 1992.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, DUHÉ, and WIENER, Circuit Judges.

        DUHÉ, Circuit Judge:

        A lender sued a savings and loan association ("S & L") and its fidelity insurer for losses

resulting from the dishonesty of an S & L employee. The insurer moved to dismiss on the basis that

no direct action lies against it for the asserted claim. The district court granted the motion to dismiss

and directed the entry of final judgment under Federal Rule of Civil Procedure 54(b). Plaintiff appeals

and asks that we certify to the Louisiana Supreme Court the question whether it may sue the insurer

directly under the Louisiana direct action statute, La.Rev.Stat. § 22:655. For the following reasons,

we deny the motion to certify and affirm the judgment of dismissal.

                                           BACKGROUND

        Plaintiff–Appellant First National Bank of Louisville (FNBL) sued the insured alleging losses

from a deal gone sour: FNBL lost money on a project it financed in reliance on misrepresentations

of an S & L employee. (In related proceedings, FNBL sued the employee.) FNBL also sued

Defendant–Appellee Fidelity and Deposit Company of Maryland (F & D), who provided coverage

for employee dishonesty through a Savings and Lo an Blanket Bond in favor of the S & L. The

district court granted F & D's motion to dismiss for failure to state a claim. After the Louisiana
Supreme Court handed down Quinlan v. Liberty Bank & Trust Co.1 discussing the Louisiana direct

action statute, FNBL moved for reconsideration of the dismissal. The district court denied

reconsideration on the basis that F & D did not provide "liability" insurance as required for

application of the direct action statute. We agree and affirm.

                                              ANALYSIS

          The issue before us is whether insurance provided to the insured S & L under a standard-form

Savings and Loan Blanket Bond covering fraudulent and dishonest acts of the S & L's employees

provides "liability" insurance or "indemnity" insurance as these terms have been defined in Louisiana

law.

          The Louisiana direct action statute gives a tort victim a right of action directly against the

tortfeasor's insurance company. By its own terms the direct action statute applies only to "liability"

insurance. Nevertheless, the Louisiana Supreme Court has opined that the statute "is a mandate for

a tort victim to bring a direct suit to recover damages for personal injury or corporeal property

damage from the tortfeasor's insurer, regardless of whether the insurer has framed the policy as a

liability or an indemnity contract." Quinlan, 575 So.2d at 352.

          In a suit to recover loss to incorporeal property, however, such as the loss claimed in FNBL's

complaint, the way the insurer has framed the policy is determinative. According to Quinlan, a tort

victim seeking recovery of an incorporeal loss has a direct action only if the tortfeasor's policy

provides "liability" coverage as opposed to "indemnity" coverage. A tort vict im suffering only

incorporeal loss or damage does not have the benefit of a direct action if "the parties to the insurance

contract have agreed unambiguously that the contract shall be an indemnity contract only." Quinlan,

575 So.2d at 353.

   1
       Quinlan v. Liberty Bank & Trust Co., 575 So.2d 336 (La.1990).
        Our inquiry, then, is whether F & D's contract unambiguously provides indemnity coverage

only. The "chief distinction" between the two types of policies is that "under a liability policy a cause

of action accrues when liability attaches, whereas under an indemnification policy there is no cause

of action until the liability has been discharged, as by payment of the judgment by the insured." Id.

         The Quinlan court specifically considered the arguments regarding an insurance policy

provisions on "Loss," "Loss Payable," and "Action Against Company" to determine whether a cause

accrues when liability attaches (a liability policy) or when a liability has been discharged (an indemnity

policy). See id. at 354–55. Considering comparable provisions of the bond disputed here, we find

that this policy unambiguously provides indemnity rather than liability coverage.

        The policy does not indicate that a cause of action against F & D accrues when liability

attaches. The policy obligates Fidelity to "indemnify the Insured for ... Loss resulting directly from

dishonest or fraudulent acts of an Employee committed alone or in collusion with others." Bond at

2, Insuring Agreement A (appended to Def.'s Mot.Dismiss filed Jan. 19, 1988). The use of the phrase

"indemnify for Loss" in this provision manifests the intent that the policy indemnify against loss rather

insure against liability. Moreover, the provision continues, "Dishonest or fraudulent acts ... shall

mean [such acts] committed ... with the manifest intent to cause the Insured to sustain such loss."

Id. (emphasis added). This definition signifies that the losses indemnified are the insured 's losses

from employee dishonesty. The requirement that a loss be "sustained" further denotes an indemnity

agreement. See Meloy v. Conoco, Inc., 504 So.2d 833, 839 (La.1987) (noting the characteristic of

an indemnity agreement to provide that the indemnitor is not liable "until the indemnitee actually

makes payment or sustains loss").

        FNBL contends that certain provisions of the policy suggest liability coverage or at least

produce an ambiguity in the type of coverage intended. Contrary to arguments of FNBL, we do not
find that exclusion (u),2 the "Discovery" sect ion (describing which losses are within the period of

coverage),3 or the costs-of-defense provision (providing for indemnification against court costs and

attorneys' fees)4 instructive in determining the nature of the fidelity coverage. Nor do these

provisions create an ambiguity in the policy suggesting liability coverage. Exclusion (u) and the

"Discovery" section mention "loss covered under this bond," "loss covered by the bond," or "loss

under this bond"; but these provisions do not define "loss" to include third party claims. The

cost-of-defense provision sheds no light on the meaning of the employee dishonesty provision or the

scope of its coverage.

          This policy contains no ambiguity as did the policy in Quinlan requiring as a condition

precedent to a claim that the insured pay "its full liability." (The court found the condition precedent

   2
    Exclusion (u) provides that the bond does not cover "damages of any type for which the
Insured is legally liable, except direct compensatory damages arising from loss covered under this
bond." Bond at 4.
   3
       The "Discovery" section provides as follows:

                  This bond applies to loss discovered by the Insured during the bond period.
                  Discovery occurs when the Insured becomes aware of facts which would cause a
                  reasonable person to assume that a loss covered by the bond has been or will be
                  incurred, even though the exact amount or details of loss may not then be known.

                          Notice to the Insured of an actual or potential claim by a third party which
                  alleges that the Insured is liable under circumstances which, if true, would create a
                  loss under this bond constitutes such discovery.

          Bond at 5, § 4.
   4
       The cost-of-defense provision is as follows:

                          E. The Underwriter shall indemnify the Insured against court costs and
                  reasonable attorneys' fees incurred and paid by the Insured in defending any suit or
                  legal proceeding brought against the Insured to enforce the Insured's liability or
                  alleged liability on account of any loss, claim or damage which, if established
                  against the Insured, would constitute a collectible loss under this bond in excess of
                  any Deductible Amount.

                          The Insured shall promptly give notice to the Underwriter of the institution
                  of any such suit or legal proceeding....

          Bond at 3, Gen.Agreement E.
ambiguous because it could plausibly be interpreted as requiring payment of the full limit of its

retention rather than the full payment of the judgment .) We do not find this policy susceptible to

more than one reasonable interpretation. Guided by Quinlan, we hold that the policy in question is

solely and unambiguously an indemnification policy.

        The F & D policy provides that "This bond affords coverage only in favor of the Insured.

No suit, act ion or legal proceedings shall be brought hereunder by any one other than the named

Insured." Bond at 5, § 5(f). This no-action clause need not be ignored under Quinlan since the

policy is unambiguously an indemnity policy. The Louisiana high court has not extended the direct

action statute's prohibition of no-action clauses to indemnity contracts in situations where a plaintiff

is claiming only incorporeal injuries. See Quinlan at 353.

       Because Quinlan provides us sufficient guidance regarding application of the Louisiana direct

action statute, we deny the motion to certify. See La.Sup.Ct.R. 12; La.Rev.Stat. § 13:72.1.

                                           CONCLUSION

       The bond conclusively demonstrates the intent to indemnify losses and not the intent to insure

against liability. The direct action statute has no application to such a policy. Accordingly, the

district court properly dismissed the Plaintiff's suit against F & D.

       Judgment AFFIRMED; motion to certify DENIED.