Bourbon Heat, LLC v. Liberty Surplus Insurance Corporation
Filing
31
ORDER AND REASONS - regarding Liberty's MOTION 8 for summary judgment on the pleadings, or, in the alternative, summary judgment and MOTION 25 to continue - Because the Court may decide Liberty's motion for judgment on the pleadings on the pleadings alone, Liberty's motion to continue is DENIED. For the reasons set forth in the document, Liberty has a duty to defend Bourbon Heat, LLC ("Bourbon Heat"), the question of whether Liberty owes a duty to indemnify is premature, and the question of whether Liberty acted in bad faith cannot be resolved on the present record. Signed by Chief Judge Sarah S. Vance on 10/15/13.(jjs, ) Modified on 10/15/2013 (jjs, ).
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
BOURBON HEAT, LLC
CIVIL ACTION
VERSUS
NO: 13-2623
LIBERTY SURPLUS INSURANCE
CORP.
SECTION: R(1)
ORDER AND REASONS
Before the Court are Liberty Surplus Insurance Corp.'s
("Liberty") motion for judgment on the pleadings, or, in the
alternative, summary judgment;1 and motion to continue the
hearing on that motion.2 Because the Court may decide Liberty's
motion for judgment on the pleadings on the pleadings alone,
Liberty's motion to continue is DENIED. For the following
reasons, Liberty has a duty to defend Bourbon Heat, LLC ("Bourbon
Heat"), the question of whether Liberty owes a duty to indemnify
is premature, and the question of whether Liberty acted in bad
faith cannot be resolved on the present record.
1
R. Doc. 8.
2
R. Doc. 25.
I.
Background
Bourbon Heat operates a nightclub in New Orleans.3 M.
Chadwick Pellerin, who resides less than 200 feet from Bourbon
Heat's nightclub, intervened in state court proceedings between
Bourbon Heat and the City of New Orleans.4 Pellerin alleges that
the noises emanating from Bourbon Heat's nightclub are too loud
and seeks damages.5 She alleges that "[t]he noises are sufficient
to cause physical discomfort and annoyance to Ms Pellerin, and
any person of ordinary sensibilities, and constitute a
nuisance."6 She alleges that she has suffered diminished property
value, inconvenience, mental distress, pain and suffering, and
the loss of use of her property.7 She alleges that Bourbon Heat
"knew or should have known that the noises emanating from its
business establishment constituted the nuisance complained
herein."8 Her intervention asserts claims under Louisiana law.9
3
R. Doc. 1-1 at 1.
4
R. Doc. 1-4.
5
Id. at 3-5.
6
Id.
7
Id. at 4.
8
Id.
9
Id. at 6.
2
Bourbon Heat asked Liberty, its general liability insurer,
to defend and indemnify it against Pellerin's petition.10 Liberty
refused to do so.11 Bourbon Heat filed this action against
Liberty in state court, alleging breach of contract and breach of
the contractual duty of good faith and fair dealing.12 Liberty
removed the suit to this Court on grounds of diversity
jurisdiction.13 It then filed its motion for judgment on the
pleadings, or, alternatively, summary judgment. Eight weeks
later, it moved to continue that motion, asserting that the
motion for judgment on the pleadings or, alternatively, summary
judgment "is not ripe for decision at this time."14
II.
Judgment on the Pleadings
Liberty has moved for judgment on the pleadings under Fed.
R. Civ. P. 12(c). Judgment on the pleadings is appropriate if the
matter can be adjudicated by deciding questions of law rather
than factual disputes. Brittan Commc'ns Int'l Corp. v. Sw. Bell
Tel. Co., 313 F.3d 899, 904 (5th Cir. 2002). As it does when
deciding a motion to dismiss under Rule 12(b)(6), the Court must
10
R. Doc. 1-1 at 2.
11
Id.
12
Id. at 3-4.
13
R. Doc. 1.
14
R. Doc. 25.
3
consider the facts in the light most favorable to the non-moving
party and will accept as true the plausible factual allegations
in the non-moving party's pleadings. Doe v. MySpace, Inc., 528
F.3d 413, 418 (5th Cir. 2008); see generally 5C Charles Alan
Wright & Arthur R. Miller, Federal Practice & Procedure: Civil §
1368 (3d ed.). In deciding this motion, the Court must look only
to the pleadings, Brittan Commc'ns, 313 F.3d at 904, but the
pleadings include exhibits attached to the pleadings, Great
Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d
305, 313-14 (5th Cir. 2002); Voest-Alpine Trading USA Corp. v.
Bank of China, 142 F.3d 887, 891 n.4 (5th Cir. 1998).
Bourbon Heat's state court pleadings attach the insurance
policy and the underlying petition for damages.15 These are the
only documents relevant to Liberty's duty to defend. See Martco
Ltd. P'ship v. Wellons, Inc., 588 F.3d 864, 872 (5th Cir. 2009)
("Under Louisiana's 'Eight Corners Rule,' we must assess whether
there is a duty to defend by applying the allegations of the
complaint to the underlying policy without resort to extrinsic
evidence."). Accordingly, the question of whether Liberty owes a
duty to defend is ripe for decision and can be decided on the
pleadings alone. For this reason, the Court denies Liberty's
motion to continue. Although Liberty contends that resolution of
its motion for judgment on the pleadings or, alternatively,
15
R. Doc. 1-1 at 1, 2.
4
summary judgment requires additional discovery, no discovery is
necessary to determine Liberty's duty to defend.
III. Liberty Has a Duty to Defend Bourbon Heat.
An insurer’s duty to defend suits against its insured is
broader than its obligation to indemnify for damage claims. Hardy
v. Hartford Ins. Co., 236 F.3d 287, 290 (5th Cir. 2001); Suire v.
Lafayette City-Parish Consol. Gov't, 907 So. 2d 37, 51-52 (La.
2005); Yount v. Maisano, 627 So. 2d 148, 153 (La. 1993). Under
Louisiana law, an insurer's duty to defend is determined by
comparing the language of the insurance policy with the
allegations in the complaint. See Martco, 588 F.3d at 872;
Louisiana Stadium & Exposition Dist. v. BFS Diversified Prods.,
LLC, 49 So. 3d 49, 51 (La. Ct. App. 2010) ("The duty to defend is
determined solely from the plaintiff’s pleadings and the face of
the policy without consideration of extraneous evidence.")
(quoting Bryant v. Motwani, 683 So. 2d 880, 884 (La. Ct. App.
1996)) (quotation marks removed). The insurer has a duty to
defend unless the allegations "unambiguously preclude coverage."
Martco, 588 F.3d at 872 (citing Elliot v. Cont'l Cas. Co., 949
So. 2d 1247, 1250 (La. 2007)). The duty to defend "arises
whenever the pleadings against the insured disclose a possibility
of liability under the policy." Id. at 872-73 (citing Meloy v.
Conoco, Inc., 504 So. 2d 833, 839 (La. 1987)). See also
5
Holzenthal v. Sewerage & Water Bd. of New Orleans, 950 So. 2d 55,
84 (La. Ct. App. 2007)("An insurer must provide a defense to an
insured if, assuming all of the allegations to be true, there
would be both coverage under the policy and liability to the
plaintiff.") (citing Am. Home Assur. Co. v. Czarniecki, 230 So.
2d 253, 259 (La. 1969)). "The allegations . . . must be liberally
interpreted in determining whether the claim falls within the
scope of the insurer's duty to defend." Hardy, 236 F.3d at 290
(citing Yount, 627 So. 2d at 153).
Here, Pellerin's petition discloses a possibility of
liability under the policy. The policy provides that it covers
"bodily injury" and "property damage" if, among other things, the
"bodily injury" or "property damage" is caused by an
"occurrence."16 Liberty argues that Pellerin's petition does not
allege "property damage" or an "occurrence" under the terms of
the policy. Accordingly, it contends that it has no duty to
defend Bourbon Heat.
A.
Pellerin's petition alleges property damage not excluded
from coverage.
The insurance policy defines property damage, in pertinent
part, as follows:
a. Physical injury to tangible property, including all
resulting loss of use of that property. All such loss
16
R. Doc. 8-6 at 8.
6
of use shall be deemed to occur at the time of the
physical injury that caused it; or
b. Loss of use of tangible property that is not
physically injured. All such loss of use shall be
deemed to occur at the time of the "occurrence" that
caused it.17
Pellerin alleges that she has suffered "diminishment of her
property value . . . and the loss of use of her property, as well
as inability to sleep, entertain, and take solace in the privacy
of her residence."18 By alleging that she has lost the use of her
property, Pellerin has alleged "loss of use of tangible property
that is not physically injured." Accordingly, she alleges
property damage under the terms of the policy.
Liberty argues that the alleged property damage is not
covered because the policy excludes property damage "expected or
intended from the standpoint of the insured."19 Liberty's
position is that Bourbon Heat expected or intended the alleged
harm to Pellerin by purposefully operating a noisy establishment.
Under Louisiana law, "[a]n injury is intentional . . . only
when the person who acts either consciously desires the physical
result of his act, whatever the likelihood of that result
happening from his conduct; or knows that that result is
substantially certain to follow from his conduct, whatever his
17
Id. at 21.
18
R. Doc. 1-4 at 4.
19
R. Doc. 8-6 at 8.
7
desire may be as to the result." Pique v. Saia, 450 So. 2d 654,
655 (La. 1984). "The subjective intent of the insured, as well as
his reasonable expectations as to the scope of his insurance
coverage, will determine whether an act is intentional." Great
Am. Ins. Co. v. Gaspard, 608 So. 2d 981, 985 (La. 1992).
Under this formulation, it is possible that Bourbon Heat
neither expected nor intended the alleged harm to Pellerin.
First, it appears unlikely that Bourbon Heat consciously desired
that Pellerin should suffer harm. The allegations in the petition
indicate that the offending noise was the result of Bourbon Heat
operating its business heedless of its neighbors, not the result
of any specific animus.
Second, it is possible that Bourbon Heat did not know that
property damage was substantially certain to follow from its
conduct. Pellerin's allegation that she and other neighbors "made
repeated requests" to Bourbon Heat to abate the noise suggests
that Bourbon Heat was made aware of the consequences of its
conduct only after such conduct was underway, and only after
Pellerin had already suffered some portion of her alleged
injuries.20 Similarly, Pellerin's assertion that Bourbon Heat
"knew or should have known that the noises emanating from its
business establishment constituted the nuisance complained
herein" leaves open the possibility that Bourbon Heat in fact did
20
R. Doc. 1-4 at 4.
8
not know that its conduct constituted a nuisance. Thus, it is
possible on the facts alleged that Bourbon Heat did not desire to
harm Pellerin and did not believe that Pellerin's injuries were
substantially certain to result from its conduct.
Further, Bourbon Heat could reasonably have expected Liberty
to cover the damages alleged in the underlying case. The
allegations in Pellerin's petition do not suggest that Bourbon
Heat intended any injury. It is reasonable for Bourbon Heat to
expect coverage for unintentional damage caused to third parties.
Accordingly, the "expected or intended injury" exclusion does not
aid Liberty.
B.
Pellerin's petition alleges an occurrence.
Liberty argues that Pellerin has not alleged an "occurrence"
as required by the insurance policy. An "occurrence" is defined
as "an accident, including continuous or repeated exposure to
substantially the same general harmful conditions."21 Although
the policy does not define "accident," the Fifth Circuit has
stated that "when the word 'occurrence' is defined as an
'accident', the occurrence of an unforeseen and unexpected loss
constitutes an 'accident' and therefore an 'occurrence.'"
Freeport-McMoRan Energy, LLC v. Mullen, 233 F. App'x 341, 345
(5th Cir. 2007) (quoting N. Am. Treatment Sys., Inc. v.
21
R. Doc. 8-6 at 20.
9
Scottsdale Ins. Co., 943 So. 2d 429, 444 (La. Ct. App. 2006))
(quotation marks removed); see also Adams v. Unione Mediterranea
Di Sicurta, 220 F.3d 659, 678 (5th Cir. 2000).
Under Louisiana law, courts interpret whether an event is an
"accident" from the viewpoint of the victim; losses that the
victim could not expect are the result of an accident. See, e.g.,
Freeport-McMoRan Energy, 233 F. App'x at 345; Jernigan v.
Allstate Ins. Co., 269 F.2d 353, 356-57 (5th Cir. 1959);
Tsolainos v. Tsolainos, 59 F. Supp. 2d 592, 596 (E.D. La. 1999);
N. Am. Treatment Sys., Inc., 943 So. 2d at 444; Gaylord Chem.
Corp. v. ProPump, Inc., 753 So. 2d 349, 354 (La. Ct. App. 2000)
("Accident is defined from the viewpoint of the victim."); see
also 15 William Shelby McKenzie and H. Alston Johnson III,
Louisiana Civil Law Treatise: Insurance Law and Practice § 6:7
(4th ed.).
The question, then, is whether Pellerin expected her alleged
damages. There is no indication that she did. The damages claimed
are not due to the usual operation of a nightclub. Instead, they
allegedly arise from Bourbon Heat's generating noise at levels in
violation of local ordinances and state law.22 It is entirely
plausible that Pellerin did not expect Bourbon Heat to produce
noise at unlawful volumes and to cause her damage. Thus, the
complaint alleges facts that would fall within coverage, and
22
R. Doc. 1-1 at 2.
10
Liberty has a duty to defend Bourbon Heat against Pellerin's
petition.
IV.
Judgment on Liberty's Duty to Indemnify and Bad Faith Claims
Is Premature.
A. Duty to Indemnify
Bourbon Heat alleges that Liberty is obligated to indemnify,
as well as to defend, it in the underlying action.23 In
determining an insurer's duty to indemnify, the Court is not
limited to the allegations in the complaint, but rather "must
apply the Policy to the actual evidence adduced at the underlying
liability trial together with any evidence introduced in the
coverage case." Martco, 588 F.3d at 877. Although the
interpretation of an insurance contract presents a question of
law rather than of fact, the Court must apply the policy to the
evidence presented to determine whether there is coverage under
the insuring clause and whether a policy exclusion applies. See
id. at 878–84 (applying Louisiana law to determine whether "[a]
review of the evidence adduced at trial, the resulting verdict
and judgment, and the applicable Louisiana law reveals that [the
insured] clearly carried its burden of establishing coverage
under the insuring clause"); Meloy, 504 So. 2d at 839 (liability
"can only be determined after trial on the merits"). Accordingly,
while a duty to defend is justiciable before the underlying issue
23
Id.
11
of liability is resolved, the duty of indemnity generally is not.
See Coregis Ins. Co. v. School Bd. Of Allen Parish, No. 07-30844,
2008 WL 2325632, at *2-3 (5th Cir. June 6, 2008) (per curiam).
Because liability in the underlying case has not yet been
determined, the Court cannot determine, as a matter of law,
whether Liberty is obligated to indemnify Bourbon Heat.
B. Bad Faith Claims
Liberty also seeks judgment on the pleadings or,
alternatively, summary judgment on Bourbon Heat's bad faith
claims, asserting that since there is no duty to defend, there is
no bad faith.24 Bourbon Heat alleges that Liberty "arbitrarily
and capriciously declined to provide coverage or legal defense"
and is subject to statutory penalties for bad faith under
Louisiana Revised Statutes §§ 22:1973 and 22:1892.25 For two
reasons, Liberty is not entitled to summary judgment on these
claims.
First, as discussed supra at III, Liberty has a duty to
defend Bourbon Heat. Thus, it is possible that Liberty acted in
bad faith when it refused Bourbon Heat's request for defense and
indemnification. Second, whether Liberty acted in bad faith "is
essentially a fact issue." Jouve v. State Farm Fire and Cas. Co.,
24
R. Doc. 8-1 at 10.
25
R. Doc. 1-1 at 3.
12
74 So. 3d 220, 226 (La. Ct. App. 2011); see Reed v. State Farm
Mut. Auto. Ins. Co., 857 So. 2d 1012, 1021 (La. 2003) ("The
sanctions of penalties and attorney fees are not assessed unless
a plaintiff's proof is clear that the insurer was in fact
arbitrary, capricious, or without probable cause in refusing to
pay."). Because the bad faith claims involve issues of fact,
rather than questions of law, Liberty is not entitled to summary
judgment at this time. See Fed. R. Civ. P. 56(a).
V.
Conclusion
For the above stated reasons, Liberty has a duty to defend
Bourbon Heat, the question of whether Liberty owes a duty to
indemnify Bourbon Heat is premature, and the question of whether
Liberty acted in bad faith cannot be resolved on the present
record.
15th
New Orleans, Louisiana, this _____ day of October, 2013.
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
13
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