Pacific Insurance Co v. LA Auto Dlrs Assn ( 2001 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 01-30081
Summary Calendar
____________________
PACIFIC INSURANCE COMPANY, LIMITED
Plaintiff - Appellee
v.
LOUISIANA AUTOMOBILE DEALERS ASSOCIATION
Defendant - Cross Defendant - Appellant
and
ROBERT C ISRAEL
Defendant - Appellant
v.
BILL WATSON FORD INC; WATSON INVESTMENT INC; BILL WATSON
NISSAN INC
Defendants - Cross Claimants - Appellees
_________________________________________________________________
Appeals from the United States District Court
for the Middle District of Louisiana
No. 97-CV-676
_________________________________________________________________
August 3, 2001
Before KING, Chief Judge, and WIENER and DENNIS, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
Defendants-Appellants Louisiana Automobile Dealers
Association and Robert C. Israel appeal from the district court’s
order granting summary judgment in favor of Plaintiff-Appellee
Pacific Insurance Company and rescinding two insurance policies.
For the following reasons, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
Between 1993 and 1997, Plaintiff-Appellee Pacific Insurance
Company (“Pacific”) issued four insurance policies (collectively,
the Policies”) to the Defendant-Appellant Louisiana Automobile
Dealers Association (“LADA”) covering “Trustees Errors and
Omissions Insurance plus Directors and Officers Liability for
Associations with Self Insurance Funds.” The original policy
(the “1993-1994 Policy”), which was effective from September 15,
1993 to September 15, 1994, was renewed three times (the renewal
policies are hereinafter referred to, respectively, as the “1994-
1995 Policy,” the “1995-1996 Policy,” and the “1996-1997
Policy”). Relevant to our analysis, each application for renewal
of a Policy asked, inter alia, the following two questions: (1)
“During the last 5 years, has any claim been made, or is any
claim now pending, against the Association, it’s [sic]
Directors/Trustees or Officers?” and (2) “Is the Association
aware of any circumstances or any allegations or contentions
which may result in a claim being made against the Association or
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
2
any of its past or present Directors, Officers, Trustees or
Employees?” Furthermore, each application stated: “Signing this
application does not bind the Underwriters to provide this
insurance, but it is agreed that this application shall be made a
part of this certificate and shall be the basis of the contract
should the certificate be issued.” On each application for
renewal, “No” was checked in response to these questions, and
each application was signed by Defendant-Appellant Robert C.
Israel in his role as Executive Vice President of LADA.1
Meanwhile, on July 14, 1994, a class action complaint,
“Alfred Ghoram, Eva Faye Agnelly, and All Others Similarly
Situated Versus Louisiana Automobile Dealers Association, Inc.,
Spinato-Chrysler-Plymouth, Inc., Marshall Bros. Lincoln-Mercury,
Inc., and All Others Similarly Situated” (“the Ghoram suit”), was
filed in Louisiana state court alleging that LADA and other
defendants had improperly passed an ad valorem tax on to
consumers who had purchased automobiles from the defendants. A
similar class action complaint, “Billy Cook and Barry Kuperman
Versus Powell Buick, Inc., Hub City Ford, Inc., and Louisiana
Automobile Dealers Association, Inc.” (“the Cook suit”), was
filed in federal district court on September 20, 1994. Neither
1
The 1994-1995 Policy, the 1995-1996 Policy, and the
1996-1997 Policy were signed by Israel on July 18, 1994; July 25,
1995; and July 25, 1996 respectively. The renewal forms were
actually filled out by Milda Porter, LADA’s bookkeeper, under the
direction of Israel. Porter testified that Israel told her to
answer “No” to both of the questions.
3
of the complaints specifically named any past or present officer
or director of LADA as a defendant, nor was either complaint ever
amended to do so.2 Discovery on the merits in these lawsuits
began in the late spring or early summer of 1996, and as part of
discovery, the depositions of several past presidents of LADA and
the deposition of Israel were taken.3 During the course of those
depositions, the plaintiffs’ counsel offered that it was likely
that past presidents would be included individually in the
lawsuits. On November 8, 1996, counsel for LADA notified Pacific
of that possibility by letter. The parties to the lawsuits
decided to resolve their disputes by mediation. Pacific did not
participate in the mediation or contribute to the defense or
settlement of the Cook or Ghoram suits. A settlement agreement
was eventually reached, which included a release by the
plaintiffs of all claims contained in both the Cook and Ghoram
suits against LADA and its directors and officers.
On July 9, 1997, Pacific filed suit against LADA in federal
district court seeking a declaratory judgment that Pacific had no
liability to LADA or any other insureds under the Policies for
2
According to the affidavit of Claude Reynaud, an
attorney at the firm hired to represent LADA in the Ghoram and
Cook suits, the plaintiffs and the defendants in those suits
informally agreed to pursue the litigation in the Cook suit.
While this agreement may have been informal, we note that the
Ghoram plaintiffs did formally intervene in the Cook suit.
3
Israel was deposed on July 14, 1995, and on August 23,
1995.
4
any costs of defense or indemnity for the claims presented in the
Cook and Ghoram suits and seeking to rescind ab initio the 1996-
1997 Policy. On August 28, 1997, Pacific amended its complaint
to add Israel as a codefendant.4
On September 5, 1997, LADA and Israel answered Pacific’s
complaint and filed a counterclaim against Pacific alleging that
Pacific had a duty to defend, indemnify, and reimburse LADA and
its directors, officers, trustees, and members for the costs and
expenses related to the Cook and Ghoram suits. LADA and Israel
alleged further that Pacific was liable for breach of contract,
bad faith, and unfair trade, insurance, and claim settlement
practices.5
4
Pacific also added Watson Investment, Inc., Bill Watson
Ford, Inc., and Bill Watson Nissan, Inc., two automobile
dealerships and their parent corporation (hereinafter referred to
collectively as “Watson”), as codefendants on August 28, 1997.
Although Watson has been a party to this suit since that date, it
did not file an Appellee’s brief in this appeal. It was notified
of its failure to do so on April 30, 2001, and has not responded
to that notification. For that reason, we find that we need not
include a recitation of the various counterclaims, cross-claims,
and motions for summary judgment involving Watson.
We do note, however, that on May 24, 2000, the district
court granted Pacific’s summary judgment motion against Watson,
finding in part that the 1995-1996 Policy was subject to
rescission under Louisiana Revised Statute § 22:619. Although
§ 22:619 is the statute at issue in this appeal as well, this
particular motion for summary judgment was filed against only
Watson, and the district court’s judgment was not appealed.
5
On October 10, 1997, LADA and Israel filed a Motion to
Dismiss or, in the Alternative, to Stay on the Grounds of
Abstention, which was denied by the district court on June 11,
1998.
5
On September 29, 1999, Pacific moved for partial summary
judgment against LADA and Israel. Pacific asserted that the
Policies required as a condition precedent of coverage that LADA
notify Pacific in writing of any claims filed against LADA.
Pacific contended that, because the uncontested material facts
showed that LADA failed to notify Pacific timely of claims filed
against LADA, coverage was barred as a matter of law under the
plain language of the contract. Pacific sought partial summary
judgment (i.e., a finding that LADA did not have coverage for
claims made against it in the Ghoram and Cook suits and a
dismissal of LADA’s and Israel’s counterclaims against it). On
November 29, 1999, the district court granted Pacific’s motion
for partial summary judgment, entered a declaratory judgment in
favor of Pacific finding that Pacific had no obligation to LADA
or its officers and directors regarding defense costs or
indemnification of claims arising out of the Ghoram and Cook
suits, and dismissed LADA’s and Israel’s counterclaims with
prejudice.
On January 7, 2000, the district court certified the
November 29, 1999 judgment as final. LADA and Israel appealed
the judgment, which was affirmed by this court on July 12, 2000.
See Pac. Ins. Co. v. La. Auto. Dealers Ass’n, Inc., 226 F.3d 643(5th Cir. 2000) (table decision).
Relevant to this appeal, Pacific moved for summary judgment
on the remainder of its claims against LADA and Israel on July
6
11, 2000. Pacific sought to rescind the 1995-1996 and the 1996-
1997 Policies based on material misrepresentations made in the
renewal applications. Pacific asserted that the circumstances
surrounding the signing and submission of the applications for
the 1995-1996 and the 1996-1997 Policies established that LADA
and Israel had made material misrepresentations with the intent
to deceive, and therefore, those Policies were subject to
rescission under Louisiana Revised Statute § 22:619.
Specifically, Israel signed the respective renewal applications
on July 25, 1995, and July 25, 1996 stating (1) that no claim was
pending or had been made in the last five years against LADA or
its directors or officers and (2) that LADA was not aware “of any
circumstance or any allegations or contentions which [might]
result in a claim being made against the Association or any of
its past or present Directors, Officers, Trustees or Employees,”
even though the Ghoram and Cook suits had been filed in 1994 and
extensive discovery had occurred, including the depositions of
Israel and LADA’s former general counsel. Further, Pacific noted
that Claude Reynaud, an attorney at the firm retained by LADA to
defend it in the Cook and Ghoram suits, stated that as early as
late spring or early summer of 1996, when the depositions of its
past presidents were taken, LADA was informed that claims would
likely be made against its officers.
LADA and Israel argued to the district court that genuine
issues of material fact existed as to whether the statements were
7
made with an intent to deceive. Specifically, LADA and Israel
asserted that Israel had instructed Milda Porter, LADA’s
bookkeeper, to answer “No” to the claims questions because Israel
believed that a loss had to be sustained by LADA before it needed
to be reported as a “claim” in the insurance renewal application.
LADA and Israel contended that, although Israel may have been
incorrect in his assumption, his testimony established that he
did not make a materially false statement to Pacific with the
intent to deceive.
On August 2, 2000, the district court granted summary
judgment in favor of Pacific and rescinded the 1995-1996 and the
1996-1997 Policies. The court noted first that LADA and Israel
did not contest that Israel’s misrepresentations were material;
therefore, the district court adopted its prior ruling regarding
the materiality of the statements as the law of the case.
Regarding “intent to deceive,” the district court found that even
if it accepted as true Israel’s assertion — that he believed a
“claim” did not exist against LADA until it had suffered a loss —
Israel could not deny that the suits were, at a minimum,
“circumstances,” “allegations,” or “contentions” that may result
in a claim. The district court concluded that the only
reasonable assumption that could be drawn from Israel’s execution
of the renewal applications was, therefore, that he recognized
the materiality of the misrepresentations and that he intended to
deceive Pacific.
8
LADA and Israel timely appeal.
II. STANDARD OF REVIEW
We review de novo the district court’s grant of a motion for
summary judgment, applying the same standard of review as the
district court. See Martinez v. Bally’s La., Inc., 244 F.3d 474,
476 (5th Cir. 2001). “Summary judgment is appropriate ‘if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law.’”
Evans v. City of Houston, 246 F.3d 344, 347-48 (5th Cir. 2001)
(quoting FED. R. CIV. P. 56(c)).
“The movant has the burden of showing that there is no
genuine issue of [material] fact.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 256 (1986); see Celotex Corp. v. Catrett, 477
U.S. 317, 325 (1986) (“[T]he burden on the moving party may be
discharged by ‘showing’ — that is, pointing out to the district
court — that there is an absence of evidence to support the
nonmoving party’s case.”). If the movant meets this burden, “the
nonmovant must go beyond the pleadings and designate specific
facts showing that there is a genuine issue for trial.” Little
v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
9
This court considers the evidence and all reasonable
inferences drawn therefrom in the light most favorable to the
nonmovant. See Kennedy v. Tangipahoa Parish Library Bd. of
Control, 224 F.3d 359, 365 (5th Cir. 2000).
III. ANALYSIS
LADA and Israel argue that the district court erred in
granting summary judgment in favor of Pacific because Pacific did
not prove that LADA or Israel made material misrepresentations on
the renewal applications with the intent to deceive Pacific.
Specifically, they assert that because Israel testified that he
did not believe a claim existed until there was an actual loss
and because, at the time Israel completed the applications, no
such loss had occurred in either the Ghoram or Cook suits, there
is a genuine issue of material fact regarding whether the
materially false statements were made to Pacific with the intent
to deceive. They contend that the only evidence offered by
Pacific is the applications themselves, which merely demonstrate
Israel’s error in judgment, not any intent to deceive.
Pacific, by contrast, avers that the circumstances
surrounding the completion of the renewal applications confirm
that LADA and Israel made material misrepresentations with the
intent to deceive, and therefore, the policies may be voided ab
initio. Pacific contends that not only were the lawsuits
10
indisputably “claims” when the renewal applications were
submitted, but also that, even if Israel believed that lawsuits
did not become claims until a loss had been sustained, he must
have been aware that the lawsuits could result in a claim, and
therefore, his negative answer to that question shows his intent
to deceive.
Under Louisiana law, an insurance provider can avoid a
liability insurance contract if an oral or written material
misrepresentation was made by or on behalf of the insured in
negotiating the insurance contract, and if the material
misrepresentation was made with the intent to deceive. See LA.
REV. STAT. ANN. § 22:619 (West 1995)6; Darby v. Safeco Ins. Co. of
Am., 545 So. 2d 1022, 1025-26 (La. 1989); see also FDIC v. Duffy,
6
Louisiana Revised Statutes § 22:619 provides:
A. Except as provided in Subsection B of this Section
and R.S. 22:692, and R.S. 22:692.1, no oral or written
misrepresentation or warranty made in the negotiation
of an insurance contract, by the insured or in his
behalf, shall be deemed material or defeat or void the
contract or prevent it attaching, unless the
misrepresentation or warranty is made with the intent
to deceive.
B. In any application for life or health and accident
insurance made in writing by the insured, all
statements therein made by the insured shall, in the
absence of fraud, be deemed representations and not
warranties. The falsity of any such statement shall not
bar the right to recovery under the contract unless
such false statement was made with actual intent to
deceive or unless it materially affected either the
acceptance of the risk or the hazard assumed by the
insurer.
LA. REV. STAT. ANN. § 22:619 (West 1995).
11
47 F.3d 146, 151 (5th Cir. 1995) (“Under Louisiana law, an
insurance policy is null from its inception if a material ‘oral
or written misrepresentation or warranty [is] made in the
negotiation of an insurance contract, by the insured in his
behalf . . . [if] the misrepresentation or warranty is made with
the intent to deceive.’” (alterations in original) (quoting Mazur
v. Gaudet, 826 F. Supp. 188, 193 (E.D. La. 1992))); Breaux v.
Bene, 95-1004 (La. App. 1 Cir. 12/15/95), 664 So. 2d 1377, 1380.
The insurer has the burden of proving both that the insured
misrepresented a material fact and that he did so with the intent
to deceive. See Darby, 545 So. 2d at 1026; Cousin v. Page, 372
So. 2d 1231, 1233 (La. 1979); see also Wohlman v. Paul Revere
Life Ins. Co., 980 F.2d 283, 285-86 (5th Cir. 1992). On appeal,
LADA and Israel do not challenge the district court’s finding
that the misrepresentations were material, only that they were
made with the intent to deceive.
We recognize that cases which turn on state of mind are
rarely appropriate for summary judgment. See Guillory v. Domtar
Indus. Inc. v. John Deere Co., 95 F.3d 1320, 1326 (5th Cir. 1996)
(“[S]ummary judgment is rarely proper when an issue of intent is
involved.”); Bodenheimer v. PPG Indus., Inc., 5 F.3d 955, 956
n. 3 (5th Cir. 1993) (“[W]hen state of mind is at issue, summary
judgment is less fashionable because motive or intent is
inherently a question of fact which turns on credibility.”); Krim
v. BancTexas Group, Inc., 989 F.2d 1435, 1449 (5th Cir. 1993)
12
(“We are not unmindful of the fact that cases which turn on state
of mind are often inappropriate for resolution at the summary
judgment stage.”); Pryor v. State Farm Mut. Ins. Co., No. 95-187
(La. App. 3 Cir. 8/30/95), 663 So. 2d 112, 114 (“[A] motion for
summary judgment ‘ . . . is rarely appropriate for a
determination based on subjective facts such as intent, motive,
malice, knowledge or good faith.’” (quoting Penalber v. Blount,
550 So. 2d 577, 583 (La. 1989))).
However, “the presence of an intent issue does not preclude
summary judgment: the case must be evaluated like any other to
determine whether a genuine issue of material fact exists.”
Guillory, 95 F.3d at 1326; Bodenheimer, 5 F.3d at 956 n.3; Pryor,
663 So. 2d at 114 (“[E]ven though the granting of a summary
judgment based on an intent, malice or good faith issue may be
rare, it can be done when there is no issue of material fact
concerning the pertinent intent, malice, or good faith.
Accordingly, when the evidence submitted on the motion leaves no
relevant, genuine issue of fact, and when reasonable minds must
inevitably conclude that the mover is entitled to judgment on the
facts before the court, a motion for summary judgment should be
granted.” (citations omitted)).
Because summary judgment is not well suited to cases
involving state of mind,
the court must be vigilant to draw every reasonable
inference from the evidence in the record in a light
most flattering to the nonmoving party. Summary
13
judgment, to be sure, may be appropriate, “[e]ven in
cases where elusive concepts such as motive or intent
are at issue, . . . if the nonmoving party rests merely
upon conclusory allegations, improbable inferences, and
unsupported speculation.”
Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1266 (5th
Cir. 1991) (alterations in original) (quoting Medina-Munoz v.
R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990)); see
also Guillory, 95 F.3d at 1326.
Courts in Louisiana allow an insurer to carry its burden of
proof on the issue of intent to deceive based on an examination
of the surrounding circumstances. See Coregis Ins. Co. v. Bell,
No. CIV. A. 96-2502, 1997 WL 335594, at *3 (E.D. La. June 17,
1997).
Because of the difficulties inherent in proving that a
person acted with the intent to deceive, the courts
have lightened somewhat the insurer’s burden by
considering the surrounding circumstances in
determining whether the insured knew that
representations made to the insurer were false: Intent
to deceive must be determined from surrounding
circumstances indicating the insured’s knowledge of the
falsity of the representations made in the application
and his recognition of the materiality of his
misrepresentations, or from circumstances which create
a reasonable assumption that the insured recognized the
materiality.
Darby, 545 So. 2d at 1026 (internal quotations omitted) (quoting
Cousin, 372 So. 2d at 1233); see also Breaux, 664 So. 2d at 1380
(using surrounding circumstances to determine existence of intent
to deceive on summary judgment); Pryor, 663 So. 2d at 114 (same).
LADA and Israel suggest that Israel’s deposition testimony
creates an issue of material fact as to whether the
14
misrepresentations were made with the intent to deceive, thus
precluding summary judgment. We disagree. Israel testified at
his deposition:
I’m not an expert in the field of insurance and I would
interpret that as a claims pending to be -- you know,
my experience with insurance quite frankly is more in
the area of automobile accidents or liability or
something like that.
And to me, a claims pending would be a claim, a
loss. And the claim -- the only one I have ever filed
for in my experience with insurance has been an
automobile accident, or I had a flood in my house at
one time. And I believe that, you know, it has always
been my assumption that you had to have a loss before
you could file a claim.
Since then I have -- it’s become clear to me that,
you know, the whole area of defense is something that
we are here at issue about, but that was not my
specific knowledge or understanding.
It just didn’t come into my thought process, about
applying for defense. And what I understood is, as
long as -- as long as this case was open and being
litigated and had not -- there had been no claim
against LADA, we had no loss and thereby there was no
claim to make to you. Because if we are innocent in
the claim, we had no loss and there wouldn’t be a
claim.
This excerpt of Israel’s deposition testimony does not reveal a
material question of fact such that summary judgment would be
precluded.
In addition to asking whether any claim had been made or was
pending against LADA or its Directors, Trustees, or Officers, the
renewal applications ask: “Is the Association aware of any
circumstances or any allegations or contentions which may result
in a claim being made against the association or any of its past
or present Directors, Officers, Trustees or Employees?” We hold
15
that the circumstances surrounding Israel’s negative answer to
this question on the renewal applications indicate his
“‘knowledge of the falsity of the representations made in the
application and his recognition of the materiality of his
misrepresentations,’” Darby, 545 So. 2d at 1026 (quoting Cousin,
372 So. 2d at 1233), or, at a minimum, indicate “‘circumstances
which create a reasonable assumption that the insured recognized
the materiality.’” Id. (quoting Cousin, 372 So. 2d at 1233).
This conclusion is based on the following facts. Israel
signed the renewal form for the 1995-1996 Policy on July 25,
1995. At that time, Israel knew that two lawsuits had been filed
against LADA in 1994. He himself had been deposed regarding the
Cook suit a mere eleven days before he signed the renewal form.
Although Israel stated that he believed that a claim did not
exist until a judgment was entered against a party, he also
testified that he considered the Cook suit to be a “charge,” a
“complaint,” an “assertion,” or an “allegation.” Additionally,
Israel admitted that the inventory-tax (i.e., the ad valorem tax)
issue was the overriding legal issue facing LADA. Finally,
Reynaud stated that it was during the depositions of the past
presidents of LADA for the Cook suit, which occurred in the late
spring or early summer of 1996, that “plaintiff’s counsel offered
that it was likely that these past presidents would be included
in the lawsuit individually.”
16
All of the above “surrounding circumstances” were also
present at the time Israel signed the renewal application for the
1996-1997 Policy. Additionally, by the time he signed this
renewal application, Israel had been deposed for the Cook suit a
second time on August 23, 1995.
Israel himself noted that, while he did not consider the
lawsuits to be “claims,” they could be referred to as
“allegations.” The surrounding circumstances support as a matter
of law that Israel recognized the materiality of the
misrepresentation. Therefore, we agree with the district court
that Israel made material misrepresentations with the intent to
deceive and that Pacific is entitled to summary judgment.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
17