Consolidated Companies Inc v. Lexington Insurance Co

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Consolidated Companies Inc v. Lexington Insurance Co Doc. 0 Case: 09-30178 Document: 00511206956 Page: 1 Date Filed: 08/17/2010 IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED August 17, 2010 N o . 09-30178 Lyle W. Cayce Clerk C O N S O L I D A T E D COMPANIES INC, P la in t iff - Appellee Cross-Appellant v. L E X I N G T O N INSURANCE COMPANY D e fe n d a n t - Appellant Cross-Appellee A p p e a ls from the United States District Court for the Eastern District of Louisiana B e fo r e BENAVIDES, STEWART, and SOUTHWICK, Circuit Judges. L e s lie H. Southwick, Circuit Judge: A warehouse located in Harahan, Louisiana, was damaged by Hurricane K a tr in a . The warehouse owner filed suit against its commercial-property in s u r e r due to the parties' disagreement over the amount owed under the policy. After a jury trial, a substantial amount above what the insurer offered was a w a r d e d . Statutory damages and penalties were also imposed. Judgment was e n te r e d accordingly. The insurer appealed. W e disagree with the district court's interpretation of "charges and e x p e n s e s " in the business-interruption loss provision. We VACATE that portion o f the award. We also VACATE the award of statutory damages and penalties. We REMAND on those issues. We AFFIRM the judgment in all other respects. Dockets.Justia.com Case: 09-30178 Document: 00511206956 Page: 2 Date Filed: 08/17/2010 No. 09-30178 F A C T S and PROCEDURAL HISTORY O n August 28, 2005, Lexington Insurance Company issued a commercialp r o p e r t y insurance policy to Consolidated Companies, Inc. ("Conco"). The policy in s u r e d up to $25 million in losses from interruption of business, extra expenses, a n d damage to Conco's property. The next day, Hurricane Katrina u n d is p u t a b ly a covered peril damaged Conco's property and equipment. Conco resumed partial operations within ten days. During the 15-month p e r io d before complete restoration of operations, Conco earned $205,840,489 in r e v e n u e s and incurred $205,561,483 in expenses for a small net profit. Lexington initially advanced Conco $3 million under the policy. After a d ju s tin g the claim, it determined Conco's total loss was $3,247,070. Conco, b e lie v in g this payment insufficient, refused Lexington's check for the $247,070 d iffe r e n c e . By the time of trial, Conco claimed $24,970,551 in losses under the p o lic y . This included $19,379,642 in business-interruption loss, consisting of $ 7 ,0 7 1 , 1 2 0 for lost profits and $12,308,522 for "charges and expenses." The m e a n in g of "charges and expenses" is a central dispute in this appeal. C o n c o filed this action alleging Lexington breached the insurance contract. Conco also alleged that Lexington violated Louisiana's insurance bad-faith s t a t u t e s by failing to pay the full amount of Conco's damages within the statutes' p r e s c r ib e d time periods. See La. Rev. Stat. 22:1220 & 22:658.1 T h r o u g h o u t the controversy, Lexington and Conco have disagreed on the p r o p e r interpretation of the policy's business-interruption provision. The d iffe r e n c e in the interpretation is whether certain charges and expenses, which t h e parties agree amount to about $12 million, should be paid in full or reduced t o the extent they were offset by income during the 15 months. Under the latter in t e r p r e t a t io n , which is the one we adopt, the income completely offset them. 1 La. Rev. Stat. 22:1220 and 22:658 have been recodified at La. Rev. Stat. 22:1973 and 22:1892, respectively. We use the prior section numbers in this opinion. 2 Case: 09-30178 Document: 00511206956 Page: 3 Date Filed: 08/17/2010 No. 09-30178 T h e jury awarded Conco $19,586,239 for business-interruption loss, a fig u r e later slightly reduced by the district court.2 It also found that Lexington v io la t e d the Louisiana bad-faith statutes by withholding payment arbitrarily, c a p r ic io u s ly , or without probable cause. This resulted in statutory damages of $ 2 .5 million under Section 22:1220 and a statutory penalty of $5,365,797.50 u n d e r Section 22:658.3 The jury also assessed $2.5 million in penalties (in a d d it io n to $2.5 million in damages) under Section 22:1220. The district court s e t aside this $2.5 million penalty, and Conco does not challenge the ruling. T h e district court's judgment disagreed with the verdict in other ways. A r e m it t it u r was ordered, reducing the jury verdict by $3 million to account for an a lle g e d failure by jurors to deduct the amount Lexington had advanced to Conco. Second, the business-interruption award was reduced by $206,597 based on the c o n c lu s io n that the jury improperly included inventory mark-ups and discounts in computing the loss. Third, the district court proportionately reduced the p e n a lt ie s to reflect the reductions. F in a l judgment awarded $21,463,190 in compensatory damages, $ 5 ,3 6 5 ,7 9 7 .5 0 in statutory penalties under Section 22:658, and $2,500,000 in s t a t u t o r y damages under Section 22:1220. Lexington timely appealed. D IS C U S S IO N A . Interpretation of the business-interruption provision L e x in g t o n asserts the district court erred by not instructing the jury to r e d u c e Conco's "charges and expenses" by revenues Conco earned during its 15 The jury also awarded damages for losses to inventory, physical damage to Conco's warehouse, and extra expenses, but only the business-interruption damages are at issue on this appeal. The penalty represents twenty-five percent of the total amount the jury found that Lexington failed to pay arbitrarily, capriciously, or without probable cause. See La. Rev. Stat. 22:658. The initial penalty was $6,167,446.75, but it was reduced to reflect the district court's post-trial modifications to the total damages. 3 2 3 Case: 09-30178 Document: 00511206956 Page: 4 Date Filed: 08/17/2010 No. 09-30178 m o n th s of partially resumed operations. Conco maintains the district court c o r r e c t ly interpreted the policy, and therefore the jury correctly awarded $ 1 2 ,3 0 8 ,5 2 2 for business-interruption loss.4 T h e district court's interpretation of an insurance contract is a question o f law that we review de novo. Admiral Ins. Co. v. Ford, 607 F.3d 420, 422 (5th C ir . 2010). Because this diversity case involves "the interpretation of insurance p o lic ie s issued in Louisiana for property located in Louisiana," that state's s u b s t a n t iv e law controls. In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5 t h Cir. 2007). We will start our de novo review by explaining Louisiana principles of c o n t r a c t construction. We then quote the policy language. After examining the d is t r ic t court's interpretation of that language, we will analyze it as well. T h e Louisiana Civil Code provides that a contract should be interpreted t o effect the "common intent of the parties," id. (quoting La. Civ. Code Ann. art. 2 0 4 5 ), and an insurance policy must be "construed according to the entirety of it s terms and conditions as set forth in the policy. . . ." Id. (quoting La. Rev. Stat. A n n . 22:654). Louisiana has established rules of analysis for interpreting a p o lic y that contains potentially ambiguous language: T h e words of a contract must be given their generally prevailing m e a n in g . When the words of a contract are clear and explicit and l e a d to no absurd consequences, no further interpretation may be m a d e in search of the parties' intent. If the policy wording at issue is clear and unambiguously expresses the parties' intent, the in s u r a n c e contract must be enforced as written. W h ere , however, an insurance policy includes ambiguous provisions, t h e ambiguity must be resolved by construing the policy as a whole; Conco asserts that Lexington did not preserve this challenge for appeal. To preserve error for failure to grant a motion for judgment, "the moving party must file both a pre-verdict Rule 50(a) motion at the close of all the evidence and the renewed Rule 50(b) motion." Satcher v. Honda Motor Co., 52 F.3d 1311, 1315 (5th Cir. 1995). Those motions were made. 4 4 Case: 09-30178 Document: 00511206956 Page: 5 Date Filed: 08/17/2010 No. 09-30178 o n e policy provision is not to be construed separately at the expense o f disregarding other policy provisions. Words susceptible of d iffe r e n t meanings must be interpreted as having the meaning that b e s t conforms to the object of the contract. A provision susceptible o f different meanings must be interpreted with a meaning that r e n d e r s it effective and not with one that renders it ineffective. A m b i g u it y may also be resolved through the use of the r e a s o n a b le -e x p e c t a t io n s doctrine i.e., by ascertaining how a r e a s o n a b le insurance policy purchaser would construe the clause at t h e time the insurance contract was entered. The court should c o n s t r u e the policy to fulfill the reasonable expectations of the p a r t ie s in light of the customs and usages of the industry. A d o u b t fu l provision must be interpreted in light of the nature of the c o n t r a c t , equity, usages, the conduct of the parties before and after t h e formation of the contract, and of other contracts of a like nature b e tw e e n the same parties. I d . at 207 (citations, quotation marks, and alterations omitted). These interpretive rules reveal that Louisiana recognizes two levels of a m b ig u it y . If an ambiguity is perceived, then various tools of construction are a p p lie d that do not initially include construing the term against the drafter. "If a ft e r applying the other general rules of construction an ambiguity remains, the a m b ig u o u s contractual provision is to be construed against the drafter, or, as o r ig in a t in g in the insurance context, in favor of the insured." Id. (quoting La. I n s . Guar. Ass'n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 764 (La. 1994)). Further, that last principle applies only if "equivocal provisions" seek to "narrow a n insurer's obligation," and only where "an ambiguous policy provision is s u s c e p t ib le to two or more reasonable interpretations." Id. (quoting Cadwallader v . Allstate Ins., 848 So. 2d 577, 580 (La. 2003) (emphasis in original)). W e will need to apply these rules to the business-interruption provision. We will quote only the relevant parts. It begins with something of a definition. B u s in e s s interruption means loss resulting from necessary in t e r r u p t io n of business conducted by the insured and caused by 5 Case: 09-30178 Document: 00511206956 Page: 6 Date Filed: 08/17/2010 No. 09-30178 d ir e c t physical loss or damage by any of the perils covered herein d u r in g the term of this policy to Real and/or Personal Property as c o v e r e d herein. T h is is fairly straight-forward. It has a few terms of art, but nothing about t h e m are central to the dispute. The next paragraph, though, is key: I f such loss occurs during the term of this policy, it shall be adjusted o n the basis of the actual loss sustained by the Insured, during the p e r io d of restoration, consisting of the net profit (or loss) which is t h e r e b y prevented from being earned and of all charges and e x p e n s e s (excluding ordinary payroll), but only to the extent that t h e y must necessarily continue during the interruption of business, a n d only to the extent to which they would have been incurred had n o loss occurred. S o m e important terms are here. The "period of restoration" was much in d is p u t e in the district court, as it established the period for which the business in t e r r u p tio n was compensable. It is accepted on appeal that the 15 months that b e g a n when Katrina came ashore is the restoration period. "Ordinary payroll" is defined as being "the entire payroll expenses for all employees of the insured e x c e p t officers, executives and department managers." T h is paragraph also introduces the concept of "charges and expenses." As e x p la in e d in the policy itself, they are such expenses as would have been in c u r r e d without the loss and have to continue during the business i n t e r r u p t io n .5 The "actual loss" consists of the net profit or loss which the b u s in e s s interruption prevents from being earned, "and of all charges and e x p e n s e s (excluding ordinary payroll)," as defined in the policy. Another provision grants coverage for an "expense to reduce loss," which is one "necessarily incurred for the purpose of reducing any business interruption loss under this policy, provided such coverage shall not exceed the amount by which the business interruption loss covered under this policy is thereby reduced." Such an expense appears to be one that was necessitated by the damages. Conversely, the "charges and expenses" are ones that "would have been incurred had no loss occurred." Neither party contests now that the approximate $12 million awarded by the jury were "charges and expenses" as defined in the policy. None of the expenses therefore would be an "expense to reduce loss." 5 6 Case: 09-30178 Document: 00511206956 Page: 7 Date Filed: 08/17/2010 No. 09-30178 A condition of the policy was that Conco resume operations if that would r e d u c e the loss. (1 ) RESUMPTION OF OPERATIONS: It is a condition of this in s u r a n c e that if the insured could reduce the loss resulting from t h e interruption of business, (a ) by a complete or partial resumption of operations, or (b ) by making use of other available stock, merchandise or location s u c h reduction will be taken into account in arriving at the amount o f loss hereunder, but only to the extent that the business in t e r r u p t io n loss covered under this policy is thereby reduced. F r o m all this, we conclude the policy has a fairly clear set of rules. Recoverable are those profits Conco would have earned during the period that it instead was shut down due to the hurricane. So are the usual expenses that C o n c o still incurred even though not operating. There is no appellate dispute as t o the calculation of those bedrock company expenses. The policy would put a c o m p le t e ly shut-down Conco in the position it would have been if not for Katrina, b y paying the profit it did not make and paying the costs necessary to exist. Those are the compensable "actual losses." C o n c o 's business, of course, did not stay closed. Within ten days, Conco h a d started its return to operations. Over the next 15 months, approximately $ 2 0 5 million of expenses were incurred and $205 million of income was received, w it h a net profit of not very much: $279,006. There was evidence extrapolated fr o m past experience that Conco would have had a profit of $7,350,126 if not for K a t r in a . The actual profits were then subtracted to yield $7,071,120. The d iffe r e n c e between actual and expected profit was recoverable. Conco also in t r o d u c e d evidence that the costs that fit within the narrow category of "charges a n d expenses" under the policy amounted to $12,308,522. 7 Case: 09-30178 Document: 00511206956 Page: 8 Date Filed: 08/17/2010 No. 09-30178 W e have reviewed the rules of construction and the policy language. We n o w turn to how the provision was interpreted by the district court. The c o n t in u in g dispute is whether to offset the approximate $12 million in charges a n d expenses with any of the $205 million of income. I n the district court, Conco argued that there could not be any reduction fo r charges and expenses recouped during operations. The district court agreed. The issue was joined at several points in the proceedings. The jury instructions m a y be the most direct statement of the district court's interpretation.6 T h e relevant instruction started with background considerations, such as t h a t the policy paid only for actual loss incurred during the period of restoration. It also informed jurors that the policy was "not designed to put the insured in a b e tt e r position than if no loss or interruption of business had occurred." T h e critical language concerned how jurors were to deal with the partial r e s u m p t io n of operations. The court described four steps jurors were to take. T h e first was to decide when the period of restoration ended. That was a s u b s t a n t ia l issue at trial but does not remain one on appeal. Thus we do not e x p la in the first step. We start at the district court's second step. T h e second step is to determine from the evidence the net profit that C o n c o would have earned . . . and then you should subtract from t h is number any actual net profit Conco earned for that period. Conco argues that Lexington "waived its right to argue on appeal that the jury instructions were inadequate." But Lexington's challenge is to the district court's interpretation of the policy, not to a particular manifestation of that interpretation (e.g., the order denying summary judgment, the order denying Lexington's motion for judgment as a matter of law, or the jury instructions). The district court's challenged interpretation remained constant throughout trial; regardless of which manifestation Lexington explicitly challenges in its brief, it attacks the same legal conclusion. As noted, Lexington made the proper motions to preserve this issue for appeal. Therefore, we need not decide whether its opening brief sufficiently raised the specific issue of the jury instructions' adequacy on the business-interruption interpretation. We do not review the jury instructions themselves, but we look to them because they illustrate the district court's interpretation of the policy. 6 8 Case: 09-30178 Document: 00511206956 Page: 9 Date Filed: 08/17/2010 No. 09-30178 T h e third step is to determine from the evidence the charges and e x p e n s e s (excluding ordinary payroll) incurred by Conco during the p e r io d of restoration, but only to the extent that they must n e c e s s a r ily have continued during the interruption of Conco's b u s in e s s , and only to the extent to which they would have been in c u r r e d had Hurricane Katrina not occurred. Notably absent from this third step is any reduction in charges and e x p e n s e s that resulted from the resumption of operations. T h e fourth step requires you to add the two figures derived from s t e p s two and three and the combined total will constitute your a w a r d to Conco for its business interruption losses under paragraph 7 (B ) of the Policy. T h e district court interpreted the policy as allowing lost profits to be r e d u c e d by the amount of actual profits, but not permitting a reduction in c h a r g e s and expenses due to actual recoupment of such costs. The district court r e s t a t e d the reasoning behind this interpretation in a post-trial order denying L e x in g t o n 's motion for judgment as a matter of law. "The policy does not a d d r e s s `charges and expenses' in the event of a resumption of operations and d o e s not clearly state the effect that a resumption of operations has on the c a lc u la t io n of charges and expenses." The district court was referring to the a b s e n ce of any mention of "charges and expenses" in the resumption-of-operation s e c t io n of the policy. We note, though, that the section similarly fails to mention p r o fit s . Instead, it refers to whether "the insured can reduce the loss" by some le v e l of resumption. The district court then relied on the maxim that "ambiguity in an insurance policy is construed against the insurer," and determined that no r e d u c t io n in charges and expenses was permitted. W e disagree with the district court's analysis. To explain, we examine the fir s t question required by the rules of construction under Louisiana law, which is whether the relevant language is ambiguous on its face. In re Katrina Canal B r e a c h e s Litig., 495 F.3d at 207. 9 Case: 09-30178 Document: 00511206956 Page: 10 Date Filed: 08/17/2010 No. 09-30178 S o m e of the relevant wording is in the resumption-of-operations clause. As a condition of coverage, operations had to be resumed "if the insured could r e d u c e the loss resulting from the interruption of business" by such a r e s u m p t io n . The policy states that "such reduction will be taken into account in a r r iv in g at the amount of loss hereunder, but only to the extent that the b u s in e s s interruption loss covered under this policy is thereby reduced." This clause does not elaborate on what the "loss resulting from the in t e r r u p tio n of business" means. Meaning is found in the general section There, im m e d ia t e ly before the "Resumption of Operations" subparagraph. " a c t u a l loss" from an interruption of business is said to consist of the net profit t h a t the interruption prevented the insured from earning plus "all charges and e x p e n s e s (excluding ordinary payroll), but only to the extent that they must n e c e s s a r ily continue during the interruption of business, and only to the extent t o which they would have been incurred had no loss occurred." Three p a r a g r a p h s later, the policy addresses the effect of the insured's resuming o p e r a t io n s : "if the insured could reduce the loss resulting from this interruption o f business . . . by a complete or partial resumption of operations . . . such r e d u c t io n will be taken into account in arriving at the amount of loss." (emphasis added). This is the same "loss" that is defined as being expected net p r o fit plus charges and expenses. There is no ambiguity. Therefore, when a partial resumption in operations reduces the "actual lo s s ," i.e., anticipatable profits and unavoidable costs, so substantially as to c r e a t e some profit, all charges and expenses have, by definition, been covered by in c o m e . The only recovery in such an event is for the diminished profit. T a k in g the actual dollar amounts presented in this case, we repeat that C o n c o earned $205,840,489 in revenues and incurred $205,561,483 in expenses fo r a net profit of $279,006. The charges and expenses for which the policy w o u ld pay had there been no resumption of operations was shown to be 10 Case: 09-30178 Document: 00511206956 Page: 11 Date Filed: 08/17/2010 No. 09-30178 $ 1 2 ,3 0 8 ,5 2 2 . As the policy requires, those expenses are ones that "necessarily c o n t in u e during the interruption of business, and only to the extent to which t h e y would have been incurred had no loss occurred." Thus, they are not in d e p e n d e n t of the costs that are incurred during usual operations, but are a s u b s e t of them. Consequently, the roughly $12 million in expenses must be part o f the $205 million in expenses that were incurred during resumed operations. All expenses were recouped from the income of the business and are not a "loss" t o be compensated under the policy. B ecau se the policy's language unambiguously provides for this in t e r p r e t a t io n , it is not necessary to take the second step of analysis of an in s u r a n c e contract. We do anyway because the next step gives us another r e a s o n to conclude that this is the correct interpretation. Had we held "loss" to b e ambiguous in some way relevant to the dispute, any ambiguity would be c o n s id e r e d in the context of the entire policy and its purpose. T h e proper reading of a policy term is the one that gives it the meaning t h a t "best conforms to the object of the contract." See In re Katrina Canal B r e a c h e s Litig., 495 F.3d at 207 (quoting La. Civ. Code Ann. art. 2048). "The fu n d a m e n t a l principle of a property insurance contract is to indemnify the owner a g a in s t loss, that is to place him or her in the same position in which he would h a v e been if no [hurricane] had occurred." Bradley v. Allstate Ins. Co., 606 F.3d 2 1 5 , 227 (5th Cir. 2010) (quoting Berkshire Mut. Ins. Co. v. Moffett, 378 F.2d 1 0 0 7 , 1011 (5th Cir. 1967)). This represents "the reasonable expectations of the p a r tie s in light of the customs and usages of the industry," In re Katrina Canal B r e a c h e s Litig., 495 F.3d at 207, and the policy should be construed in a c c o r d a n c e with them. T h e district court's calculation method required jurors to give Conco a w in d fa ll. If the charges and expenses had already been paid by the revenue of t h e business, requiring the policy also to pay them is not placing Conco in the 11 Case: 09-30178 Document: 00511206956 Page: 12 Date Filed: 08/17/2010 No. 09-30178 s a m e position it would have been had no damage been suffered. In other words, t h e only "reasonable" reading of the policy in the light of the goal of making C o n c o whole is that the policy requires reduction of "actual loss" by income e a r n e d during the partial resumption of operations. Just as Conco would have p a id the charges and expenses out of its revenue if Katrina had never struck, the p o lic y provides for Conco to pay them, to the extent it could do so, out of the r e v e n u e from partially resumed operations. Only if revenue did not offset the c h a r g e s and expenses would the insurance policy be called upon for payment. W e acknowledge that the district court informed jurors that this "policy is d e s ig n e d to place the insured in the position that it would have been in if there h a d been no interruption," but the court did not allow jurors to make the r e d u c t io n for charges and expenses necessary to do that. Conco was placed in a better position than if there had been no interruption. B e c a u s e Conco was able to pay all of its charges and expenses with r e v e n u e during the restoration period, we vacate the award of $12,308,522 in c h a r g e s and expenses. No part of that amount can be recovered in this case. B. Sufficiency of Conco's proof of damages L e x in g t o n next claims Conco's proof was insufficient to support the lostp r o fit s portion of its business-interruption damages. Specifically, Lexington m a i n t a i n s that some of Conco's lost profits were caused by the generally poor p o s t -K a t r in a business conditions. Lexington claims those losses are not covered, a n d that they must be distinguished from lost profits caused by damage to C o n c o 's property. According to Lexington, Conco's failure to offer evidence s u ffic ie n t ly distinguishing these two types of damages should result in reversal o f the lost-profits damages. A lt h o u g h Lexington styles this challenge as going to the evidence's s u ffic ie n c y , its arguments rest entirely on its interpretation of the insurance p o l i c y . In that regard, we review de novo the policy interpretation underlying 12 Case: 09-30178 Document: 00511206956 Page: 13 Date Filed: 08/17/2010 No. 09-30178 L e x in g t o n 's contention. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 428 (5 t h Cir. 2004). If Lexington's interpretation is incorrect, its sufficiency c o n t e n t io n has a false premise, and our inquiry ends. Otherwise, we proceed to c o n s id e r the sufficiency of the evidence. The policy's language relevant to the kind of evidence needed to prove the a m o u n t of business-interruption loss states, (3 ) EXPERIENCE OF BUSINESS: In determining the amount of n e t profit (or loss), charges and expenses covered hereunder for the p u r p o s e of ascertaining the amount of loss sustained, due c o n s id e r a t io n shall be given to the experience of the insured's b u s in e s s before the date of damage or destruction and to the p r o b a b le experience thereafter had no loss occurred. T h e district court informed the jury that the amount of this loss "need not b e proved with mathematical precision. Broad latitude is given in proving this lo s s . Nevertheless, losses for business interruption cannot be based on c o n je c t u r e or speculation." W e recently interpreted similar policy language under Mississippi law. Catlin Syndicate Ltd. v. Imperial Palace of Miss., 600 F.3d 511 (5th Cir. 2010). A casino's insurance policy contained an "Experience of Business" provision s t a t in g that "due consideration shall be given to experience of the business b e fo r e the loss and the probable experience thereafter had no loss occurred." Id. a t 513 (emphasis added). U n d e r that policy, the insurer (Catlin) brought a declaratory judgment a c t io n against the insured casino (Imperial Palace) to resolve their dispute over t h e amount of Imperial Palace's post-Katrina business-interruption loss. Id. at 512. The dispute centered on whether the policy allowed consideration of I m p e r ia l Palace's post-reopening revenues to determine the profits Imperial P a la c e lost during the interruption. These were much greater than the casino's p r e -K a t r in a revenues because it was one of the first casinos to reopen, thereby 13 Case: 09-30178 Document: 00511206956 Page: 14 Date Filed: 08/17/2010 No. 09-30178 p r o v id in g one of only a few choices for gamblers. Id. Catlin argued that only h is t o r ic a l sales figures should be considered to determine business-interruption lo s s ; Imperial Palace asserted that the policy allowed consideration of postr e o p e n in g revenues. Id. T o the district court, "Catlin argued that under the business-interruption p r o v is io n , Imperial Palace's recovery should be based on net profits Imperial P a la c e would probably have earned if Hurricane Katrina had not struck the M is s is s ip p i Gulf Coast and damaged its facilities." Id. at 513. On the other h a n d , "Imperial Palace argued that the correct hypothetical was not one in w h ic h Hurricane Katrina did not strike at all; it was one in which Hurricane K a t r in a struck but did not damage Imperial Palace's facilities." Id. The District C o u r t granted summary judgment for Catlin. W e affirmed. We rejected Imperial Palace's argument that "Catlin's in t e r p r e t a t io n of the business-interruption provision [improperly] conflates the t e r m `loss' with the idea of an `occurrence,'" explaining that H u r r ic a n e Katrina was the "occurrence", which inflicted "losses" on m a n y victims, one of which was Imperial Palace. Imperial Palace a s s e r t s that Catlin asks us to interpret the business-interruption p r o v is io n in such a way that the phrase "had no loss occurred" m o r p h s into "had no occurrence occurred." Imperial Palace argues t h a t instead, we should disentangle the loss from the occurrence and d e t e r m in e loss based on a hypothetical in which Hurricane Katrina h it Mississippi, damaged all of Imperial Palace's competitors, but le ft Imperial Palace intact: the occurrence occurred, but the loss did n o t . While we agree with Imperial Palace that the loss is distinct fr o m the occurrence--at least in theory--we also believe that the t w o are inextricably intertwined under the language of the b u s in e s s -in t e r r u p t io n provision. Without language in the policy in s t r u c t in g us to do so, we decline to interpret the b u s in e s s -in t e r r u p t io n provision in such a way that the loss caused b y Hurricane Katrina can be distinguished from the occurrence of H u r r ic a n e Katrina itself. 14 Case: 09-30178 Document: 00511206956 Page: 15 Date Filed: 08/17/2010 No. 09-30178 I d . at 515. In sum, we held that the lost-profit calculation does not involve the c o m p a n y 's business experience after the hurricane. We supported this c o n c lu s io n with a case from Texas involving a similar insurance policy. See F in g e r Furniture Co. v. Commonwealth Ins. Co., 404 F.3d 312, 314 (5th Cir. 2 0 0 5 ) ("The contract language does not suggest that the insurer can look p r o s p e c t iv e ly to what occurred after the loss to determine whether its insured in c u r r e d a business-interruption loss."). C a tlin and Finger Furniture do not directly control because this action a r o s e under Louisiana law. There are not, however, any material differences a m o n g the states' relevant contract-interpretation laws. Compare La. Civ. Code. A n n . art. 2047 ("The words of a contract must be given their generally prevailing m e a n in g ." ) with Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984) (" W h e n there is no ambiguity [in an insurance contract], it is the court's duty to g i v e the words used their plain meaning.") and U.S. Fidelity and Guar. Co. of M is s . v. Martin, 998 So. 2d 956, 963 (Miss. 2008) ("[I]f [an insurance policy] is c le a r and unambiguous, then it must be interpreted as written."). We conclude t h a t Louisiana courts would interpret this policy language in the same way as M is s is s ip p i and Texas courts. p r o v id e d in Catlin. W it h this background, we consider Lexington's contention that Conco did n o t sufficiently prove its damages because it failed to "examine . . . Conco's likely p e r fo r m a n c e after Hurricane Katrina if [Conco's] property had not been d a m a g e d ." The premise is that because economic conditions affecting Conco's c u s t o m e r s post-Katrina were poor, Conco's profits would have been reduced from t h e ir usual level even had there been no damage to Conco. This is effectively the s a m e interpretation rejected in Catlin, namely, that the policy requires Conco t o calculate damages as if Hurricane Katrina "struck but did not damage [C o n c o 's ] facilities," not as if "Hurricane Katrina did not strike at all." See 15 We follow the clear guidance our court has Case: 09-30178 Document: 00511206956 Page: 16 Date Filed: 08/17/2010 No. 09-30178 C a tlin , 600 F.3d at 513. We reject this interpretation for the same reasons we r e je c t e d it in Catlin. See 600 F.3d at 515. The jury was not to look at the realw o r ld opportunities for profit post-Katrina, but instead was to decide the amount o f money required to place Conco "in the same position in which [it] would have b e e n had [Katrina not] occurred.'" Bradley, 606 F.3d at 227. Conco was not required to draw a bright line in its evidence between loss s t e m m in g from property damage and loss stemming from market conditions. Lexington's entire insufficiency contention rests on this incorrect interpretation. Therefore, our review of this issue ends here. C . Statutory Damages and Penalties L e x in g t o n raises several challenges to the district court's imposition of $ 2 .5 million in statutory damages and $5,365,797.50 in statutory penalties. See L a Rev. Stat. 22:1220 (damages), 22:658 (penalties).7 L e x in g t o n contends that the district court erred in allowing both of these s t a t u t o r y awards to be made. Whether the two are mutually exclusive is the e s s e n t ia l issue. S e c t io n 22:1220 states, in relevant part: (A) An insurer . . . owes to his insured a duty of good faith and fair d e a lin g . The insurer has an affirmative duty to adjust claims fairly a n d promptly and to make a reasonable effort to settle claims with t h e insured or the claimant, or both. Any insurer who breaches t h e s e duties shall be liable for any damages sustained as a result of t h e breach . . . . (B ) Any one of the following acts, if knowingly committed or p e r fo r m e d by an insurer, constitutes a breach of the insurer's duties im p o s e d in Subsection A: . . . (5) Failing to pay the amount of any claim due any person in s u r e d by the contract within sixty days after receipt of satisfactory As noted supra, La. Rev. Stat. 22:1220 and 22:658 have been recodified at La. Rev. Stat. 22:1973 and 22:1892, respectively. 7 16 Case: 09-30178 Document: 00511206956 Page: 17 Date Filed: 08/17/2010 No. 09-30178 p r o o f of loss from the claimant when such failure is arbitrary, c a p r ic io u s , or without probable cause. (C ) In addition to any general or special damages to which a c la im a n t is entitled for breach of the imposed duty, the claimant m a y be awarded penalties assessed against the insurer in an a m o u n t not to exceed two times the damages sustained or five t h o u s a n d dollars, whichever is greater. Such penalties, if awarded, s h a ll not be used by the insurer in computing either past or p r o s p e c tiv e loss experience for the purpose of setting rates or m a k in g rate filings. (e m p h a s is added), Section 22:658 says this: A . (1) All insurers issuing any type of contract . . . shall pay the a m o u n t of any claim due any insured within thirty days after r e c e ip t of satisfactory proofs of loss from the insured or any party in in te re s t . . . . B . (1) Failure to make such payment within thirty days after receipt o f such satisfactory written proofs and demand therefor or failure to m a k e a written offer to settle any property damage claim . . . within t h ir ty days after receipt of satisfactory proofs of loss of that claim . . . or failure to make such payment within thirty days after written a g r e e m e n t or settlement . . . when such failure is found to be a r b itr a r y , capricious, or without probable cause, shall subject the in s u r e r to a penalty, in addition to the amount of the loss, of [t w e n t y -fiv e ] percent damages on the amount found to be due from t h e insurer to the insured, or one thousand dollars, whichever is g rea ter . . . . (e m p h a s is added).8 L e x in g t o n argues that the Supreme Court of Louisiana has already d e c id e d that awards under both sections cannot be made. See Calogero v. S a fe w a y Ins. Co. of La., 753 So. 2d 170 (La. 2000). There, the court held that a p la in t iff may not recover penalties both under Section 22:1220 and under Section A recodified and revised version of this statute increases the amount of the penalty from twenty-five percent of damages to fifty percent of damages. See La. Rev. Stat. 22:1892. 8 17 Case: 09-30178 Document: 00511206956 Page: 18 Date Filed: 08/17/2010 No. 09-30178 2 2 :6 5 8 . Id. at 174. The court did, however, allow Calogero to recover attorney fe e s under Section 22:658 in addition to penalties under Section 22:1220. Id. The court explained that, unlike the permissive language in Section 22:1220(C), t h e language in Section 22:658(B)(1) requires the payment of attorney fees. Id. Therefore, because Section 22:1220 did not also provide for the recovery of a t t o r n e y fees, Calogero's recovery of statutory damages under Section 22:1220 d id not preclude its recovering attorney fees under Section 22:658. Id. C o n c o was awarded $2,500,000 statutory damages under Section 2 2 :1 2 2 0 (A ) in addition to $5,365,797.50 in penalties under Section 22:658(B)(1). Like the attorney-fee language in Section 22:658(B)(1), which was at issue in C a lo g e r o , the language in Section 22:1220(A) is mandatory: "Any insurer who b r e a c h e s these duties shall be liable for any damages sustained as a result of the b r e a c h ." La. Rev. Stat. 22:1220(A) (emphasis added). Further, Section 22:658 d o e s not provide for a similar recovery of statutory damages based on the in s u r e r 's breach. Therefore Calogero's reasoning supports the award of both the d a m a g e s and the penalties. M o r e o v e r , it is consistent with the statutory scheme to award damages u n d e r Section 22:1220(A) and at the same time assess penalties under S ection 22:658(B)(1). Damages are awarded to compensate the insured for losses c a u s e d by the insurer's refusal to pay. Penalties, on the other hand, are assessed t o punish the insurer for its bad faith. The fact that both require the same fin d in g of bad faith does not render this distinction irrelevant, nor does it render r e d u n d a n t awarding statutory damages along with assessing statutory p e n a lt ie s . In sum, statutory damages under Section 22:1220(A) may be awarded c o n c u r r e n t with statutory penalties under Section 22:658(B)(1). As is clear from the language we have quoted from each statute, these d a m a g e s and penalties require jurors to decide whether an insurance company h a s been arbitrary, capricious, or has otherwise acted in bad faith. Very much 18 Case: 09-30178 Document: 00511206956 Page: 19 Date Filed: 08/17/2010 No. 09-30178 p a r t of the evidence and the law announced by the district court was that L e x in g t o n has improperly refused to pay the approximate $12 million in charges a n d expenses. That amount is a large percentage of the overall award by the ju r y . It was an amount jurors had to find was owed and was not paid by the in s u r a n c e company. Also not paid was what the jury accepted was about $7 million in lost p r o fit s . We have no way of knowing whether jurors might have viewed the d e n ia l of the validity of the figure on lost profits to be less egregious conduct, e v e n good faith conduct, than the denial of the charges and expenses. I n a s m u c h as we have disagreed with the district court as to the charges a n d expenses, we also conclude that the two statutory awards based on a r b it r a r in e s s or bad faith must be reversed and reconsidered on remand in light o f the remaining sums that Lexington failed properly to pay. D . Conco's cross-appeal concerning remittitur of $3 million 9 C o n c o asserts the district court erred by entering a remittitur to correct t h e jury's failure to deduct the $3 million advance Lexington initially paid to C o n c o . "The decision to grant or deny a motion for new trial or remittitur rests in the sound discretion of the trial judge; that exercise of discretion can be set a s id e only upon a clear showing of abuse." Eiland v. Westinghouse Elec. Corp., 5 8 F.3d 176, 183 (5th Cir. 1995). " W h e n a damage award is merely excessive or so large as to appear c o n t r a r y to right reason, remittitur is the appropriate remedy." Laxton v. Gap I n c ., 333 F.3d 572, 586 (5th Cir. 2003). When the district court deems a jury a w a r d "excessive" it may remit the award rather than order a new trial, so long Conco also asserts on cross-appeal that the district court should have applied a more recent, amended version of La. Rev. Stat. 22:658 based on the date Conco provided Lexington with proof of loss (Conco would receive a greater penalty under the amended statute). We do not reach this issue because our holding on business-interruption loss necessitates a remand for determination of the statutory damages and penalties. 9 19 Case: 09-30178 Document: 00511206956 Page: 20 Date Filed: 08/17/2010 No. 09-30178 a s the award does not result from "passion or prejudice" on the part of the jury. Polanco v. City of Austin, Tex., 78 F.3d 968, 981 (5th Cir. 1996). Although the S e v e n t h Amendment prohibits remittitur without offering the plaintiffs a new t r ia l, there is an exception for situations where "it is apparent as a matter of law t h a t certain identifiable sums included in the verdict should not have been t h e r e ." Foradori v. Harris, 523 F.3d 477, 503 (5th Cir. 2008). A s the district court explained in its post-trial order, the jury's award of $ 2 4 ,6 6 9 ,7 8 7 (including $19,586,239 in business-interruption loss) is exactly the s a m e as the "entire amount of Conco's claim of $24,970,551, less $300,764 for r e p a ir s attributable to rusted metal decking on the roof, and does not consider t h e advance." Accordingly, the district court found that "the jury's failure to s u b tr a c t $3,000,000 from the award [was] obvious and an oversight, and the c o r r e c t io n of the error is mechanical." C o n c o contends that because it presented the jury with two businessin t e r r u p tio n figures ($19,379,642 and $24,174,527), "it is plausible (if not likely)" t h a t the jury's finding that the business-interruption loss fell between those two fig u r e s represents a compromise among jurors who properly subtracted the $3 m illio n advance. In effect, Conco's argument rests on its presumption that the j u r y did as it was instructed and subtracted the $3 million, despite the jury's a w a r d in g the precise amount it would have awarded had it accepted Conco's c a lc u la t io n but failed to subtract the $3 million. A review of the jury's award reveals the district court was correct. First, ju r o r s awarded $617,178 for inventory: Conco's requested $823,775, less Second, jurors awarded $ 1 2 4 ,4 7 5 for mark-ups and $82,122 for discounts. $ 1 ,5 7 8 ,6 8 2 for losses for physical damage to Conco's warehouse: the $1,879,446 C o n c o requested, less $300,764 for metal decking that was previously rusted. Third, it awarded Conco's entire requested $2,887,688 in losses for extra e x p e n s e s . Finally, jurors awarded $19,586,239 for business-interruption loss, 20 Case: 09-30178 Document: 00511206956 Page: 21 Date Filed: 08/17/2010 No. 09-30178 rep resen tin g the entire amount Conco requested ($19,379,642), plus the mark-up a n d discounts that were subtracted from the inventory award. These figures show that the jury's $24,669,787 award is, exactly, the entire a m o u n t Conco requested, except for the $300,764 for the rusted metal decking. Contrary to Conco's contention that this represents a compromise by jurors, "it is apparent from the exact figures used that the jury failed to take into account [t h e already paid $3 million]." See Shingleton v. Armor Velvet Corp., 621 F.2d 1 8 0 , 182 (5th Cir. 1980). This is the type of error where the "oversight is patent a n d the correction mechanical." Id.; see also Smith v. Lightning Bolt Prods., Inc., 8 6 1 F.2d 363, 371 (2d Cir. 1988) (ordering a remittitur because "there was an e r r o r in the jury's calculation of compensatory damages" that was "easily id e n tifia b le " ). Therefore the district court did not abuse its discretion in g r a n t in g Lexington's motion to enter a remittitur adjusting the verdict d o w n w a r d by $3 million. C O N C L U S IO N W e AFFIRM Conco's damage award except for the $12,308,522 for charges a n d expenses, which we VACATE and REMAND for entry of judgment denying th a t recovery. For the statutory damages and statutory penalties, we REVERSE a n d REMAND for further proceedings consistent with this opinion. We AFFIRM t h e judgment in all other respects, including the district court's remittitur of $3 m illio n of damages. 21

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