American States Insurance v. Synod of the Russian ( 2004 )

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that this opinion should not be published and is not precedent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.
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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.
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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
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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
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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
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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
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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.
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