Carl E. Woodward, L.L.C. v. Acceptance Indemnity Insurance

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 15, 2014
No. 12-60561
Lyle W. Cayce
Clerk
CARL E. WOODWARD, L.L.C.; GRAY INSURANCE COMPANY,
Plaintiffs – Appellees – Cross
Appellants
v.
ACCEPTANCE INDEMNITY INSURANCE COMPANY,
Defendant – Appellant – Cross
Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
ON PETITION FOR REHEARING
Before GARZA, SOUTHWICK, and HAYNES, Circuit Judges.
PER CURIAM:
Carl E. Woodward, LLC has filed a petition asking for panel rehearing
of the court’s decision in Carl E. Woodward, L.L.C. v. Acceptance Indem. Ins.
Co., 743 F.3d 91 (5th Cir. 2014). The petition is DENIED.
Woodward challenges the panel’s conclusion that the claims alleged
against it in a “complaint” (actually, cross-claims by a co-defendant), taken
together with the damages identified in the Rimkus Report, did not state a
claim for damages arising out of DCM’s ongoing operations. Stated
alternatively, Woodward argues we erred in concluding that the only alleged
No. 12-60561
damages were those for construction in nonconformance to plans and
specifications that arose out of DCM’s completed operations.
In its petition for rehearing, Woodward makes no argument that the
complaint itself made the necessary allegations. Instead, the petition relies
solely on the Rimkus Report to argue that allegations were sufficient to create
a duty to defend because of DCM’s work. Citing this court’s prior
interpretations of Mississippi law, Woodward argues that all doubts about
whether a duty to defend exist must be resolved in favor of the insured. Barden
Miss. Gaming, LLC v. Great N. Ins. Co., 576 F.3d 235, 238 (5th Cir. 2009). In
Woodward’s view, because the Rimkus Report claims that damage to exterior
walls was caused by the defects in the concrete work, and because the Report
does not say when that damage occurred – before or after operations were
complete – the silence creates doubt, which creates duty. We disagree.
We start with the part of our initial opinion that is the focus of the
rehearing. There, we assumed without deciding that the Rimkus Report is
relevant for purposes of determining whether Acceptance had a duty to defend
Woodward. Woodward, 743 F.3d at 97. The situations to which we analogized
the Rimkus Report were circumstances where a defendant learned, due to its
own investigations, about facts that created a duty to defend even when the
complaint did not make a sufficient allegation. See Auto. Ins. Co. of Hartford
v. Lipscomb, 75 So. 3d 557 (Miss. 2011) (citing Mavar Shrimp & Oyster Co.,
Ltd. v. U. S. Fid. & Guar. Co., 187 So. 2d 871 (Miss. 1966)).
The question the older case, Mavar, answered in the affirmative was
whether the Insurance Company, under the terms of the policy
here, has the duty to defend a case where the declaration alleges
facts that do not come within the terms of the policy, but the
insurer knows, or by means of an investigation ascertains, that the
allegations are false.
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Mavar, 187 So. 2d at 874-75. The later decision, Lipscomb, relied on Mavar to
restate that an insurer’s own investigation can create a duty to defend if it
uncovers facts that create a potential for coverage:
An insurance company's duty to defend is not triggered until
it has knowledge that a complaint has been filed that contains
allegations of conduct covered by the policy. These allegations, and
particularly the conduct alleged in the complaint, determine
whether an insurer is required to defend an action. No such duty
arises when the alleged conduct falls outside the policy's coverage.
But where, through independent investigation, an insurer
becomes aware that the true facts, if established, present a claim
against the insured which potentially would be covered under the
policy, the insurer must provide a defense until it appears that the
facts upon which liability is predicated fall outside the policy’s
coverage.
Lipscomb, 75 So. 3d at 559 (footnotes omitted).
There was no insurance-company investigation in our case to
supplement the complaint. Instead, the claimant provided its investigative
report to the insurance company. Woodward on rehearing emphasizes the
following passages in the Rimkus Report that identify how the concrete work
on the balconies allegedly caused water damage in the condominium units:
DCM “failed to comply with the construction drawings and industry
standard[;] . . . this error has created conditions conducive to water intrusion[;]
. . . [w]ater intrusion has caused and continues to cause water damage in the
exterior walls of the balconies.” Woodward insists that because these
statements do not indicate when the water damage occurred, they could be
claiming that the damage occurred during DCM’s ongoing operations.
Woodward then argues that this potential means that Acceptance had a duty
to defend Woodward.
There are significant problems with such an interpretation. The Rimkus
Report itself explains that its conclusions are based on inspections made at the
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earliest in March 2008, with the balconies and walls being inspected in
November 2008. The Rimkus Report also states that substantial completion
of the entire project, not just the concrete subcontractor’s part, occurred on
August 6, 2007. Thus, the Rimkus Report itself fully explains that the
subcontractor’s ongoing operations had to have been completed well before
August 2007; in November 2008, water damage was discovered in the walls of
the balconies attributable to the concrete work. The report makes no
assertions about when the walls were built or whether it was reasonable to
believe from the 2008 inspections that any of the claimed damage occurred
before the concrete subcontractor completed its work. Whether the Rimkus
Report’s failure to say anything about the timing of the damages should be
interpreted under Mississippi law to create a duty to defend is the question
Woodward seeks us to answer in its favor. We conclude it does not.
“[W]e apply Mississippi substantive law” when analyzing an insurer’s
duty to defend claims arising in that state. Delta & Pine Land Co. v.
Nationwide Agribusiness Ins. Co., 530 F.3d 395, 399 (5th Cir. 2008). Whether
Acceptance owed Woodward the duty to defend “depends on the language of
the policy and the allegations in the underlying complaint.” Barden Miss.
Gaming, 576 F.3d at 238. Recent decisions by the Mississippi Supreme Court
provide that an insurer’s duty to defend is triggered when “the allegations of a
complaint reasonably bring a claim within the coverage of its policy.” Baker
Donelson Bearman & Caldwell, P.C. v. Muirhead, 920 So. 2d 440, 451 (Miss.
2006). The court further held that “an insurance company’s duty to defend its
insured is triggered when it becomes aware that a complaint has been filed
which contains reasonable, plausible allegations of conduct covered by the
policy.” Id. That same test was reiterated as recently as in 2013. See Southern
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Healthcare Services, Inc. v. Lloyd’s of London, 110 So. 3d 735, 747 (Miss. 2013)
(quoting Baker Donelson, 920 So. 2d at 451). 1
These opinions were addressing the interpretation of complaints.
Woodward, on rehearing, is arguing that something besides the complaint, i.e.,
the Rimkus Report, created uncertainties that must be read in favor of a duty
to defend. We should not overlook that when Lipscomb and Mavar broadened
the sources of information relevant for triggering a duty to defend, the new
information was that uncovered by an insurer’s own investigation. Those two
cases require consideration of what an insurer actually knows, not on what
arguably might be meant by an ambiguous explanation in an investigative
report by the claimant. In other words, neither case dealt with our question,
which is whether to give a broad reading to a second set of allegations outside
of a complaint. Thus, the Rimkus Report can be distinguished from what an
insurer learns from its own investigations, just as the factual information
gained from an insurer’s own investigation can be distinguished from the
allegations in a complaint. Nonetheless, we need not in this case decide how
liberally an insurer should interpret a report on a claimant’s investigations in
deciding if there is a duty to defend. Read literally or liberally, the Rimkus
Report does not make a claim of conduct covered by the policy.
We conclude simply that the identified passages in the Rimkus Report,
even if the report should be considered in analyzing the duty to defend, do not
reasonably and plausibly state that the damages occurred during DCM’s
ongoing operations. Taken as true, the statements in the Rimkus Report
1 This court has at times used the articulation that under Mississippi law the duty to
defend is triggered “[i]f the complaint state[s] a claim that is within or arguably within the
scope of coverage provided by the policy.” Am. Guarantee and Liab. Ins. Co. v. 1906 Co., 273
F.3d 605, 610 (5th Cir. 2001). We do not suggest there is any difference between this
articulation and the recent Mississippi caselaw we cite. We do conclude, though, that the
clear and recent Mississippi interpretations must be followed.
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identify only that DCM failed to conform its work to plans and specifications
and that, when the condominium units were inspected well after substantial
completion of the entire project, water damage was found. The report cannot
reasonably and plausibly be seen as making or even desiring to make any
allegations about when those damages first arose.
Because the complaint and report do not allege that damage occurred
during DCM’s ongoing operations, they do not state a claim within the scope of
coverage provided by the policy.
The petition for rehearing is DENIED.
HAYNES, Circuit Judge, joins in denying rehearing only.
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