WH Holdings, L.L.C. v. ACE American Insurance

Case: 10-31091 Document: 00511878747 Page: 1 Date Filed: 06/06/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 6, 2012
No. 10-31091 Lyle W. Cayce
Clerk
WH HOLDINGS, L.L.C.; AXIS US INSURANCE; SWISS RE
INTERNATIONAL SE; LLOYDS OF LONDON; XL INSURANCE
BERMUDA, LIMITED,
Plaintiffs - Appellants,
v.
ACE AMERICAN INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:07-CV-7110
Before BARKSDALE, GARZA, and ELROD, Circuit Judges.
PER CURIAM:*
The sole question presented by this diversity action is whether the
construction contract at issue obligated the building owner, WH Holdings, or its
contractor, Gootee Construction Company, to purchase property insurance to
cover damage to renovation work. The district court determined that WH
Holdings bore that obligation under the contract and entered summary
*
Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5th Cir.
R. 47.5.4.
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No. 10-31091
judgment in favor of Gootee’s insurer, defendant ACE American Insurance
Company. We VACATE the judgment of the district court and REMAND for
further proceedings.
I.
Prior to Hurricane Katrina, WH Holdings, owner of the Ritz Carlton Hotel
complex in New Orleans, contracted with Gootee to perform renovation work on
the existing structure of the Ritz. Hurricane Katrina caused damage to the
Ritz’s Exterior Insulation Finishing System and terra cotta facade.
In August 2007, WH Holdings filed suit against ACE in Louisiana state
court, seeking $3,264,812.54, less a $7,500 deductible, in coverage for damage
to the exterior of the Ritz.1 ACE removed the case to federal court. The parties
filed cross-motions for summary judgment. The parties did not dispute that
their construction contracts incorporate and are governed by AIA Document
A201-1997, General Conditions of the Contract for Construction, as expressly
amended by the parties (General Conditions). It was also undisputed that the
ACE Builder’s Risk Policy, which ACE issued to Gootee, provides coverage for
WH Holdings only if WH Holdings qualifies as an insured under the policy’s
Broad Named Insured endorsement, which provides that “any party in interest
which the insured is responsible to insure” is an insured (emphasis added).
Thus, the district court correctly framed the determinative issue as “whether
Gootee was contractually obligated, and therefore ‘responsible,’ to insure WH
Holdings such that it became an insured on the ACE policy pursuant to the
1
WH Holdings was initially the only named plaintiff. The other named plaintiffs are
WH Holdings’s excess insurers. They purchased all of WH Holdings’s rights to this action, and
pursuant to the district court’s order joined this action in May 2010.
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Broad Named Insured endorsement.”2 The district court’s resolution of that
issue depended entirely on its interpretation of the General Conditions.
The General Conditions contract is a form contract that contains
numerous amendments that the parties negotiated. The parties’ amendments
are readily apparent from the face of the contract. Deletions are indicated by
textual strikeouts and additions by underlining and the use of a different typeface.
The district court granted summary judgment to ACE. It concluded that
WH Holdings is not an insured under the ACE policy’s Broad Named Insured
endorsement because Gootee was not “responsible” for purchasing property
insurance for the renovation work at issue in this case.
The district court began its analysis with General Conditions subsection
11.4, entitled “Property Insurance,” and more specifically subsection 11.4.1,
which provides in relevant part:
Unless otherwise provided, the Owner The Contractor shall purchase
and maintain . . . property insurance written on a builder’s risk “all-
risk” or equivalent policy form in the amount of the initial Contract
Sum, plus value of subsequent Contract modifications and cost of
materials supplied or installed by others, comprising total value for
the entire Project at the site on a replacement cost basis without
optional deductibles.
Based on this amended language, and buttressed by the parties’ deletion of
section 11.4.1.2, which instructs the owner what specific action it must take if
it does not intend to purchase the property insurance required by subsection
11.4.1, the district court concluded that it is “clear . . . that WH Holdings and
Gootee intended to reverse th[e] roles of insurance responsibility [for procuring
2
Had the district court determined that WH Holdings was an insured, it would have
had to address ACE’s alternative argument that its policy is excess to the coverage WH
Holdings has through its other insurers. Given our conclusion that the district court erred in
granting summary judgment to ACE, the district court may have to address ACE’s alternative
argument on remand.
3
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builder’s risk property insurance] in their amended and customized version of
the General Conditions.” “Thus,” the district court reasoned, “if subsection
11.4.1 existed in a vacuum, ACE would have no basis to contest the assertion
that Gootee was the party responsible to insure WH Holdings with respect to the
renovations at the Ritz.”
Nevertheless, the district court concluded that the General Conditions
unambiguously obligated WH Holdings, not Gootee, to purchase the property
insurance. It reached that conclusion by determining that subsection
11.1.5(g)—an opaque provision from a different section of the
contract—unambiguously creates an exception to 11.4.1’s general requirement
that Gootee purchase property insurance, obligating WH Holdings to carry the
insurance “when the construction is an addition or renovation.” Despite
appearing in section 11.1, which is entitled “Contractor’s Liability Insurance,”
and despite following lead-in language in section 11.1.5 that states that “[t]he
insurance covered by paragraph 11.1.1 [which specifies certain types of liability
coverage Gootee must carry] shall be written for not less than the following
limits[:],” subsection 11.1.5(g) provides:
g. Builder’s Risk Insurance Limits
Full Replacement Cost Value on the Work being
installed as described in the Construction
Contract
This policy shall name as an [sic] named insured
the Owner and any other entity required by the
Contract between the Contractor and the Owner
This policy shall waive subrogation against
Owner and any other Owner related entity
whether or not required by the Contract between
the Contractor and the Owner
This coverage will be placed by the Contractor
on an “All Risk” replacement cost basis for the
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full value of the construction unless the
construction is an addition or renovation to an
existing structure. If this construction is an
addition or renovation than [sic] the Owner shall
be responsible for providing this coverage and
will add the Contractor and its subcontractors
and sub-subcontractors as additional insured[s]
and waive subrogation against the Contractor
and its subcontractors and sub-subcontractors
as regards any structures being built or
renovated and already existing at the site.
(Italics added.) Relying on the italicized language, the district court concluded
that 11.1.5(g) unambiguously qualifies 11.4.1 and obligates WH Holdings to
purchase property insurance for renovation work. Because the district court
found the contract to be unambiguous, it did not consider the course of conduct
evidence submitted by WH Holdings. This appeal timely followed.
II.
We review “the district court’s summary judgment de novo, applying the
same legal standards used by the district court.” Apache Corp. v. W & T
Offshore, Inc., 626 F.3d 789, 793 (5th Cir. 2010). A district court “shall grant
summary judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). “‘[T]he court views all facts and evidence in the light
most favorable to the non-moving party,’ and ‘[m]ere conclusory allegations are
insufficient to defeat summary judgment.’” Apache Corp., 626 F.3d at 793(quoting Moss v. BMC Software, Inc., 610 F.3d 917, 922 (5th Cir. 2010)).
III.
For this diversity action, Louisiana law controls. Under Louisiana law,
“[w]hen the words of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of the parties’
intent.” La. Civ. Code art. 2046. Extrinsic evidence is admissible only if “‘the
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terms of a written contract are susceptible to more than one interpretation, or
there is uncertainty or ambiguity as to its provisions, or the intent of the parties
cannot be ascertained from the language employed.’” Brown v. Driller’s, Inc.,
630 So. 2d 741, 748 n.10 (La. 1994) (quoting Dixie Campers, Inc. v. Vesely Co.,
398 So. 2d 1087, 1089 (La. 1981)). If a contract is ambiguous, a court must
consider any proffered course of conduct evidence. La. Civ. Code art. 2053 (“A
doubtful provision must be interpreted in light of the nature of the contract,
equity, usages, the conduct of the parties before and after the formation of the
contract, and of other contracts of a like nature between the same parties.”); see
also Crooks v. Placid Oil Co., 981 So. 2d 125, 128 n.1 (La. Ct. App. 2008) (“‘[O]ne
of the best ways to determine what the parties intended in a contract is to
examine the method in which the contract is performed, particularly if
performance has been consistent for a period of many years.’” (quoting Total
Minatome Corp. v. Union Tex. Prods. Corp., 766 So. 2d 685, 689 (La. Ct. App.
2000))), writs denied, 989 So. 2d 104 (La. 2008).
WH Holdings argues that the contract did not unambiguously require it
to purchase property insurance for the renovation work at issue and that the
district court erred in so concluding. We agree. The district court relied entirely
on subsection 11.1.5(g) in finding the contract unambiguous, but subsection
11.1.5(g) is not nearly as “crystal clear” as the district court thought it to be.
Whereas section 11.4 of the contract deals with “Property Insurance,” as its
heading reflects, subsection 11.1.5(g) is located in section 11.1, entitled
“Contractor’s Liability Insurance.” Consistent with its heading, section 11.1
deals exclusively with Gootee’s obligation to carry third-party liability
insurance—with the arguable exception of subsection 11.1.5(g). Moreover,
subsection 11.1.5(g) is one of seven subsections that follow the lead-in clause in
11.1.5, which provides, “the insurance covered by paragraph 11.1.1 shall be
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written for not less than the following limits, or greater if required by law . . . .”
Paragraph 11.1.1 lists eight types of common third-party claims against which
Gootee must insure itself. Thus, to read subsection 11.1.5(g) as modifying
subsection 11.4.1’s general requirement that Gootee purchase property
insurance, rather than setting forth parameters for the liability insurance
required by 11.1.1, is to ignore the prefatory language in 11.1.5, which expressly
limits the scope of the subsections that follow, including 11.1.5(g), to the third-
party liability insurance set forth in subsection 11.1.1. Given these difficulties
with the district court’s interpretation of the contract, we cannot conclude, as did
the district court, that subsection 11.1.5(g) unambiguously obligated WH
Holdings to purchase property insurance for renovation work.
Neither do we agree, however, with WH Holdings’s further argument that
the contract unambiguously required Gootee to purchase the property insurance.
WH Holdings has not persuasively explained what 11.1.5(g) could mean if the
contract is construed as assigning to Gootee the property insurance obligation
for all projects, renovation or otherwise. Given the difficulties with each party’s
contention that the contract unambiguously supports its position, we conclude
that the contract is ambiguous as to whether WH Holdings or Gootee bore the
obligation to purchase property insurance to cover the renovation work.
Given our conclusion that the contract is ambiguous, WH Holdings is
correct that Louisiana law requires consideration of the parties’ course of
conduct evidence.3 La. Civ. Code art. 2053. We therefore remand this case for
3
We reject ACE’s argument that the contract’s merger clause renders the course of
conduct evidence inadmissible. Subsection 1.1.2 of the General Conditions provides that the
written contract is the entire integrated agreement of the parties and that “[n]o course of
conduct between the parties, no matter how consistent and no matter how violative of the
terms or conditions of the Contract for Construction will amend or otherwise modify the
Contract for Construction.” WH Holdings is not, however, introducing course of conduct
evidence to “amend or otherwise modify” the contract, but rather to clarify the parties’ intent
with respect to an ambiguous provision of the contract. See Liljeberg Enters., Inc. v. Lifemark
Hosps. of La., Inc., 620 So. 2d 1331, 1335–36, 1347 (La. Ct. App. 1993) (holding parol evidence
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the district court to consider that evidence. In addition to such course of conduct
evidence, the parties may proffer, and the district court consider, other forms of
extrinsic evidence in accordance with Louisiana law. See La. Civ. Code art. 2053
(“A doubtful provision must be interpreted in light of the nature of the contract,
equity, usages, the conduct of the parties before and after the formation of the
contract, and of other contracts of a like nature between the same parties.”).
IV.
We VACATE the judgment of the district court and REMAND for further
proceedings consistent with this opinion.
admissible to clarify parties’ intent where contract at issue contained a similar merger clause),
writs denied, 621 So. 2d 818 (La. 1993). Moreover, inasmuch as ACE invokes the parol
evidence rule, that rule is inapplicable where extrinsic evidence is introduced to clarify an
ambiguity. See La. Civ. Code art. 1848 (“Testimonial or other evidence may not be admitted
to negate or vary the contents of an authentic act or an act under private signature.” (emphasis
added)); see also McCarroll v. McCarroll, 701 So. 2d 1280, 1286 (La. 1997) (although
inadmissible to vary the terms of a written instrument, parol evidence is admissible to clarify
an ambiguity).
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