      Case: 12-30010          Document: 00512131701              Page: 1      Date Filed: 01/31/2013




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                                        FILED
                                                                                     January 31, 2013

                                            No. 12–30010                              Lyle W. Cayce
                                                                                           Clerk

LEVY GARDENS PARTNERS 2007, L.P.,

                                                  Plaintiff – Appellant
v.

COMMONWEALTH LAND TITLE INSURANCE COMPANY,

                                                  Defendant – Appellee
------------------------------------------------------------------------------------------------------------
LEVY GARDENS PARTNERS 2007, L.P.,

                                                  Plaintiff – Appellant Cross-Appellee

COMMONWEALTH LAND TITLE INSURANCE COMPANY,

                                                  Defendant – Appellee Cross-Appellant


                     Appeals from the United States District Court
                         for the Eastern District of Louisiana


Before STEWART, Chief Judge, and GARZA and ELROD, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
        Levy Gardens Partners 2007, L.P. (“Levy Gardens”) appeals the district
court’s decision following a bench trial ordering Commonwealth Land Title
Insurance Company (“Commonwealth”) to pay Levy Gardens $605,000 pursuant
to Levy Gardens’s title insurance policy with Commonwealth. Levy Gardens
asserts it is entitled to over $7 million under the insurance policy.
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Commonwealth cross-appeals the district court’s grant of any relief to Levy
Gardens, asserting the insurance policy does not insure against any of Levy
Gardens’s losses. We AFFIRM.
                                        I
      This case arises out of a failed Levy Gardens multi-family housing project
in New Orleans. In November of 2007, the City of New Orleans, Department of
Safety and Permits sent Levy Gardens a letter stating the zoning determination
of its property was “R.O.,” which permits multi-family housing. The City then
issued Levy Gardens four building permits for the property. The City’s law
department subsequently sent Levy Gardens an opinion letter originally
prepared for a city councilmember, advising that its proper zoning designation
was R.O.      Afterward, Levy Gardens purchased title insurance from
Commonwealth in connection with this project on October 7, 2008. Section 8
under the “Conditions” heading in this insurance policy reads in relevant part:
            8. DETERMINATION AND EXTENT OF LIABILITY
            This policy is a contract of indemnity against actual
            monetary loss or damage sustained or incurred by the
            Insured Claimant who has suffered loss or damage by
            reason of matters insured against by this policy.
            (a) The extent of liability of the Company for loss or
            damage under this policy shall not exceed the least of
                  (i) the Amount of Insurance
                  ...
                  (iii) the difference between the value of the Title
                  as insured and the value of the Title subject to
                  the risk insured against by this policy
                  ...
Section 3 under the same heading requires the insured to give the insurer notice
of claims, stating:
            3. NOTICE OF CLAIM TO BE GIVEN BY INSURED
            CLAIMANT
            The insured shall notify the Company promptly in
            writing . . . in case of any litigation as set forth in

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           Section 5(A) of these Conditions. . . . If the Company is
           prejudiced by the failure of the Insured Claimant to
           provide prompt notice, the Company’s liability to the
           Insured Claimant under the policy shall be reduced to
           the extent of the prejudice.
This insurance policy also includes a “zoning endorsement” that reads:
           1.     The Company insures against loss or damage
                  sustained by the insured in the event that, at the
                  Date of Policy,
                  a.    According to applicable zoning ordinances
                        and amendments, the Land is not classified
                        Zone RO (as to that portion of Lot L that
                        was Lot 3A-6-1A-1) & B2 (as to that portion
                        of Lot L that was Lot 3A-6-1A-2C);
                  b.    The following use or uses are not allowed
                        under that classification: multifamily
                        housing (as to that portion of Lot L that
                        was Lot 3A-6-1A01); parking (as to that
                        portion of Lot L that was Lot 3A-6-1A-2C).
           2.     There shall be no liability under this
                  endorsement based on
                  a.    Lack of compliance with any conditions,
                        restrictions, or requirements contained in
                        the zoning ordinances and amendments,
                        including but not limited to the failure to
                        secure necessary consents or
                        authorizations as a prerequisite to the use
                        or uses. This paragraph 2.a. does not
                        modify or limit the coverage provided in
                        Covered Risk 5.
                  b.    The invalidity of the zoning ordinances and
                        amendments until after a final decree of a
                        court of competent jurisdiction adjudicating
                        the invalidity, the effect of which is to
                        prohibit the use or uses.
                  c.    The refusal of any person to purchase,
                        lease or lend money on the Title covered by
                        this policy.
           This endorsement is issued as part of the policy. Except
           as it expressly states, it does not (i) modify any of the


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            terms and provisions of the policy, (ii) modify any prior
            endorsements, (iii) extend the Date of Policy, or
            (iv) increase the Amount of Insurance. To the extent a
            provision of the policy or a previous endorsement is
            inconsistent with an express provision of this
            endorsement, this endorsement controls. Otherwise,
            this endorsement is subject to all of the terms and
            provisions of the policy and of any prior endorsements.
The insurance policy limit is $18,323,070.
      The East New Orleans Neighborhood Advisory Commission (“ENONAC”),
a state body, filed suit in state court seeking a writ of mandamus, and on
November 12, 2008 the state civil district court ordered the City to determine
which parts of Levy Gardens’s property were properly designated R.O. (the “2008
judgment”). The City complied with the mandamus order by filing an affidavit
from the director of the Department of Safety and Permits that found all of Levy
Gardens’s property was properly designated R.O.
      After the 2008 judgment, the City Council of New Orleans passed an
ordinance that required enforcement of the most restrictive regulations that
apply to Levy Gardens’s property (the “2008 ordinance”).          ENONAC then
brought another suit in state civil district court seeking a preliminary injunction
based on the 2008 ordinance. The state court held Levy Gardens’s desired use
was prohibited under an ordinance passed in 1985 (the “1985 ordinance”). The
state court held the 1985 ordinance was not overridden by the Comprehensive
Zoning Ordinance passed in 1995 (the “1995 CZO”), which, were it not for the
1985 ordinance, would have allowed Levy Gardens’s desired use. The state court
applied the 1985 ordinance over the 1995 CZO for two reasons. First, the 1995
CZO states in part, “Whenever these regulations contain an actual, implied, or
apparent conflict, the more restrictive regulation shall apply unless specified
otherwise.” Second, the 2008 ordinance, like the 1995 CZO, requires application
of the most restrictive regulations to Levy Gardens’s property. Because the 1985


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                                  No. 12–30010

ordinance is more restrictive than the 1995 CZO, and because the 1995 CZO
does not expressly repeal the 1985 ordinance, the state court held the 1995 CZO
and the 2008 ordinance require application of the 1985 ordinance to Levy
Gardens’s property. Therefore, the state court issued a preliminary injunction
enjoining Levy Gardens from building unless Levy Gardens successfully
underwent a “conditional use process” to secure special permission from the city
council to be exempt from zoning regulations (the “2009 judgment”).
      Levy Gardens then notified Commonwealth of the litigation, but
referenced the incorrect policy number in its letter. Levy Gardens appealed the
decision, and the Louisiana Fourth Circuit Court of Appeal affirmed the trial
court. The Louisiana Supreme Court denied certiorari.
      Levy Gardens then resumed contacting Commonwealth, at first using the
incorrect policy number again. Levy Gardens and Commonwealth exchanged
many letters, mostly sent by Levy Gardens, but Levy Gardens did not actually
review the policy until later. Levy Gardens ultimately instituted the instant
action in state court, then, after a non-diverse defendant was dismissed,
removed it to federal district court. The district court first granted summary
judgment to Levy Gardens, finding the insurance policy provided Levy Gardens
with coverage. The district court then held a bench trial on the amount of
damages. The district court issued its judgment in an oral decision, making five
findings: (1) Levy Gardens is entitled to only the diminution in value of the
property as a result of the application of the 1985 ordinance; (2) the meaning of
“loss or damage” in the zoning endorsement is defined by Section 8 of the policy
to mean loss in value of the title because the policy is not ambiguous in this
regard;   (3)   the   zoning   endorsement     is    not      stand-alone   coverage;
(4) Commonwealth’s conduct does not warrant statutory penalties; and (5) Levy
Gardens is entitled to $605,000, which is the difference in value between the title



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                                  No. 12–30010

of its insured property with and without the 1985 ordinance zoning
encumbrance.
      Levy Gardens appealed, asserting the policy covers all of its losses
resulting from the application of the 1985 ordinance, including the money it
spent on preparing for development. Levy Gardens also asserts the district court
should have imposed penalties on Commonwealth.              Commonwealth cross-
appealed, asserting Levy Gardens is not entitled to any coverage under the
policy.
                                        II
      We review grants of summary judgment de novo on appeal, applying the
same standards as the district court. Burge v. Parish of St. Tammany, 187 F.3d
452, 464 (5th Cir. 1999). “[T]he party moving for summary judgment must
‘demonstrate the absence of a genuine issue of material fact . . . .’” Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (quoting Celotex v. Catrett,
477 U.S. 317, 323 (1986)). A dispute is “genuine” if the evidence is sufficient for
a reasonable jury to return a verdict for the non-moving party. Hamilton v.
Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000). A fact issue is “material”
if its resolution could affect the outcome of the action. Id. When reviewing
summary judgment decisions, we construe all facts and inferences in the light
most favorable to the non-moving party. Cooper Tire & Rubber Co. v. Farese,
423 F.3d 446, 454 (5th Cir. 2005). We review bench trial findings of fact for clear
error. Water Craft Management LLC v. Mercury Marine, 457 F.3d 484, 488 (5th
Cir. 2006).
      We review interpretations of state law de novo, Bayou Steel Corp. v. Nat’l
Union Fire Ins. Co. Of Pittsburgh, Pa., 642 F.3d 506, 509 (5th Cir. 2011),
“resolving questions of Louisiana law the way the Louisiana Supreme Court
would interpret the statute based upon prior precedent, legislation, and relevant
commentary.” Commerce & Indus. Inc. Co. v. Grinnell Corp., 280 F.3d 566, 570

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                                  No. 12–30010

(5th Cir. 2002) (internal quotation marks and citation omitted).            Under
Louisiana law, we read insurance policies as a whole, construing them strictly
in favor of the insured. Coleman v. Sch. Bd. of Richland Parish, 418 F.3d 511,
517–18 (5th Cir. 2005). Where there is ambiguity, we construe insurance
policies according to what a reasonable policy purchaser would expect at the
time of purchase, and where the policy is clear, we interpret it as written. Id.
                                       III
        Commonwealth asserts Levy Gardens’s losses are not covered by its title
insurance policy primarily because at the date of the policy, October 7, 2008, the
land was zoned to allow multi-family housing, and the insurance policy only
covers adverse zoning on the date of the policy. In support, Commonwealth
asserts the adverse 2009 judgment by the state court does not mean the property
was not favorably zoned on October 7, 2008, despite the 2009 judgment’s
application of the 1985 ordinance that was in effect before the date of the policy.
Commonwealth concludes zoning was favorable on the date of the policy, October
7, 2008, because the state court judgment came later.          The district court
disagreed and, citing the reasoning of the state court, held the 1985 ordinance
prohibited multi-family housing on the property on October 7, 2008 despite the
fact that the 1985 ordinance was overlooked by the City and the parties on that
date. The district court’s conclusion is correct because the state court judgment
applied the 1985 ordinance and the 1995 CZO, in effect long before October 7,
2008.
        In addition, Commonwealth makes two state law arguments. First,
Commonwealth asserts the 1985 ordinance does not apply to Levy Gardens’s
property and is superceded by the 1995 CZO, despite the holdings of the state
court in the 2009 judgment and the district court in the instant case. Second,
Commonwealth asserts the City of New Orleans is the only entity with state
statutory authority to make zoning determinations, and therefore the letters

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                                   No. 12–30010

from City employees and the building permits issued by the City prior to October
7, 2008 conclusively establish that the property was zoned favorably on that
date.
        The principle that state courts are the final arbiters of state law is
well-settled. See, e.g., Bell v. State of Md., 378 U.S. 226, 237 (1964) (“It is not for
us, however, to decide this question of Maryland law, or to reach a conclusion as
to how the Maryland Court of Appeals would decide it. Such a course would be
inconsistent with our tradition of deference to state courts on questions of state
law.”). Commonwealth’s state-law contentions have already been addressed by
the Louisiana courts. East New Orleans Neighborhood Advisory Comm’n v. Levy
Gardens Partners 2008, LLC, 20 So.3d 1131 (La. App. Ct. 2009) (“ENONAC”),
cert. denied, 22 So.3d 169 (La. 2009). Commonwealth is mistaken to think the
role of this federal court is to make an independent determination of state law
where state courts have already decided the matter. The state courts already
determined the 1985 ordinance applies to Levy Gardens’s property and is not
superceded by the 1995 CZO. Id. The Louisiana Fourth Circuit Court of Appeal
affirmed the state trial court holding, and the Louisiana Supreme Court denied
certiorari. Id. Although not necessary, the district court found the reasoning of
the state courts persuasive and made the same holding independently on
summary judgment. The district court reasoned that it was not bound by the
state court judgment, presumably because the state court judgment determined
a zoning matter, not coverage under the insurance policy. Because the district
court also determined the 1985 ordinance prevented multi-family housing on the
property, it found Levy Gardens had coverage under the policy. The district
court did not need to make an independent holding that the 1985 ordinance
applies to Levy Gardens’s property, however, because the state courts had
already decided on the applicability of that particular state law to that particular
property. Id. Neither do we need to make an independent holding to the same

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                                 No. 12–30010

effect. Bell, 378 U.S. at 237. Though we decide whether Levy Gardens has
coverage under the insurance policy, coverage that is affected by the state law
zoning determination, as a federal court we should not hold state law provides
a favorable zoning determination where state courts have held state law
provides an unfavorable zoning determination. Id. Rather, we need determine
only whether the property was zoned for multi-family housing on the date of the
policy, October 7, 2008. As discussed above, the state courts applied the 1985
ordinance and the 1995 CZO, in effect long before the date of the policy;
therefore, the property was not zoned for multi-family housing on the date of the
policy.
      Whether state law requires the City to make zoning determinations is
likewise a matter for the state courts. Id. We do not hold the City’s zoning
determination is given precedence under state law where the state courts have
concluded otherwise. Id. Whether we agree with the reasoning of the 2009
judgment is irrelevant: a state appellate court affirmed a trial court decision
holding that the 1985 ordinance prevents multi-family housing on Levy
Gardens’s property. ENONAC, 22 So.3d at 1137. The state court did not
determine the previous City decisions should be given precedence under state
law. Id. Commonwealth is mistaken to assert this federal court should make
a contrary determination. See generally Bell, 378 U.S. at 237.
      Next, Commonwealth asserts there is no coverage because the failure of
Levy Gardens’s project was not caused by the zoning determination. This
conclusion is incorrect.    The basis for the insured-against loss in the
endorsement is the reduction in value of the property’s title due to unfavorable
zoning.    This reduction occurred because of the unfavorable zoning
determination. Commonwealth may be correct that not all the losses of the
project were caused by the zoning determination, but certainly the reduction in
the title’s value due to zoning was caused by the zoning determination. See 15

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AM. JUR. TRIALS 467 (1968–date) (“Title insurance may be briefly defined as an
agreement whereby the insurer, for a valuable consideration, agrees to
indemnify the insured in a specified amount against loss of, or defect in, title to
real estate . . . .”) (emphasis added).
      Lastly, Commonwealth asserts Levy Gardens is not entitled to coverage
because Levy Gardens did not comply with three policy conditions. First, the
zoning endorsement requires “a final decree of a court of competent jurisdiction
adjudicating the invalidity, the effect of which is to prohibit the use or uses.”
Commonwealth asserts the issuance of the preliminary injunction by the state
courts cannot be a “final decree;” rather, a permanent injunction is required to
fulfill this condition. This is a plausible assertion. The plain reading of the
condition, however, only requires a “final decree,” which ordinarily means an
appealable as opposed to interlocutory decree. See, e.g., Gloria S. S. Co. v.
Smith, 376 F.2d 46, 47 (5th Cir. 1967) (“Gloria had the choice of appealing from
that order within fifteen days or of awaiting a final decree, for all interlocutory
orders are reviewable on appeal from the final decree.”); accord Loa-Herrera v.
Trominski, 231 F.3d 984, 991 (5th Cir. 2000). Construing the policy in favor of
the insured, Coleman, 418 F.3d at 517–18, we hold the Louisiana Fourth Circuit
Court of Appeal decision affirming the trial court judgment and the denial of
certiorari by the Louisiana Supreme Court satisfy the “final decree”
requirement.
      Second, Commonwealth asserts Levy Gardens did not comply with the
Section 3 notice requirement of the insurance policy, which reduces liability to
the extent of prejudice caused by Levy Gardens’s failure to notify
Commonwealth of litigation. Unlike the other issues that determine whether
Commonwealth owes Levy Gardens any coverage at all, the district court did not
decide this issue on summary judgment; rather, it decided this issue after the
bench trial. Therefore, unlike the de novo standard we use in reviewing the

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                                  No. 12–30010

other issues in this section, we review the factual findings of the district court
in this issue for clear error. Water Craft Mgmt. LLC, 457 F.3d at 488.
      After the bench trial, the district court found, “Levy Gardens did not
comply with the notice requirements set forth in [Section] 3.” The district court
chose not to reduce Levy Gardens’s damages, however, implying any prejudice
caused by Levy Gardens’s non-compliance was insignificant. The evidence in the
record shows the district court did not clearly err in finding the prejudice to
Commonwealth did not warrant any reduction in damages. The district court
found Commonwealth prejudiced by not being able to choose its own counsel to
represent Levy Gardens in the state court litigation, but also found the ability
of the counsel who did represent Levy Gardens “considerable.” Furthermore,
Levy Gardens did notify Commonwealth of the adverse 2009 judgment, but
Commonwealth chose not to participate in either the appeal to the Louisiana
Fourth Circuit Court of Appeal or the application for a writ of certiorari from the
Louisiana Supreme Court. Therefore, the district court’s finding that any
prejudice to Commonwealth should not reduce Levy Gardens’s damages is not
clearly erroneous.
      Third, Commonwealth asserts the failure of Levy Gardens to complete the
conditional use process ordered by the 2009 judgment precludes liability because
the zoning endorsement specifically voids liability where there is a “[l]ack of
compliance with any conditions, restrictions, or requirements contained in the
zoning ordinances and amendments, including but not limited to the failure to
secure necessary consents or authorizations as a prerequisite to the use or uses.”
The conditional use process ordered by the 2009 judgment cannot, however, be
what is contemplated by the endorsement’s requirement to “secure necessary
consents.” Otherwise, Commonwealth would be shielded from paying out for
insurance coverage every time there is an adverse zoning determination before
or as a result of the conditional use process. Levy Gardens did at first “secure

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                                   No. 12–30010

necessary consents” by obtaining building permits from the City, but the adverse
2009 judgment voided those consents. As the district court found:
               The entire point of [Levy Gardens] purchasing title
               insurance and paying extra for a zoning endorsement
               was so it would not have to go through the conditional
               use process. It was assured and insured that multi-
               family housing was a permitted use, making the need
               to undergo the conditional use permit process
               unnecessary.
We do not disturb this finding because undergoing the conditional use process
does not guarantee “secur[ing] necessary consents.” Following Commonwealth’s
logic, on one hand Commonwealth would not have to pay insurance proceeds to
Levy Gardens had Levy Gardens undergone the conditional use process but
nevertheless been denied “necessary consents.” The endorsement states Levy
Gardens must “secure necessary consents,” not only “try to secure necessary
consents,” so undergoing the conditional use process unsuccessfully would not
satisfy the requirement. On the other hand, had Levy Gardens successfully
undergone the conditional use process and received an exemption from the city
council for the property, the property would not have been encumbered by zoning
regulations.     In other words, under Commonwealth’s reading of “secure
necessary consents,” Commonwealth would never be liable. In any event, the
purpose of purchasing title insurance is to avoid such processes that allow for
special exemptions from zoning regulations. Therefore, reading the insurance
policy in favor of Levy Gardens, we hold the insurance policy does not require
Levy Gardens to undergo the conditional use process.
      Therefore, we hold the district court did not err in concluding Levy
Gardens has coverage under the insurance policy. Furthermore, we hold the
district court did not err in concluding Levy Gardens did not violate the
conditions of the policy in a manner prejudicial to Commonwealth.



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                                       IV
      Turning to damages, Levy Gardens asserts it is entitled to all losses
derived from preparing the property for development, not only the reduction in
value of the title to the property that resulted from the zoning encumbrance.
Commonwealth asserts Section 8 of the policy unambiguously restricts liability
to the difference in the value of the title with and without the zoning
encumbrance. Levy Gardens counters in three primary ways: 1) Commonwealth
waived any use of Section 8 because it did not specifically include that section
in its answer to Levy Gardens’s complaint; 2) Section 8 is ambiguous and
therefore must be construed to include all losses resulting from use of the
property, not only loss in the value of the title; and 3) the zoning endorsement
is stand-alone coverage that insures use of the property regardless of any other
language in the insurance policy.      Levy Gardens is mistaken in all three
contentions. The title insurance policy insures against only the diminution in
value of the property’s title.
      First, Levy Gardens contends that Commonwealth failed to allege
Section 8 as an affirmative defense. Federal Rule of Civil Procedure 8(c) does
require a defendant to “affirmatively state any avoidance or affirmative defense.”
“Louisiana appellate courts have for decades required that exclusions to
insurance contracts be specifically pleaded as affirmative defenses.” Sher v.
Lafayette Ins. Co., 988 So. 2d 186, 204 (La. 2008). “[A]n affirmative defense
raises a new matter, which assuming the allegations in the petition are true,
constitutes a defense to the action.” Id.
      Commonwealth did not, however, waive the contention that Section 8
defines the losses Levy Gardens is entitled to. Levy Gardens relies on Aunt
Sally’s Praline Shop, Inc. v. United Fire & Cas. Co., Inc., 418 F. App’x 327, 330
(5th Cir. 2011), for the proposition that “[m]erely pleading the terms and
conditions of an insurance policy is not sufficient to raise affirmative defenses

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                                  No. 12–30010

under the policy.” Unlike here, Aunt Sally’s addressed a failure to plead specific
policy exclusions. Levy Gardens asserts Section 8 is an affirmative defense, and
therefore should be treated as an exclusion. It is mistaken, however, because
Section 8 is the only section available for determining the extent of liability—it
is not an affirmative defense in the way an exclusion is an affirmative defense.
It does not “raise[] a new matter, which assuming the allegations in the petition
are true, constitutes a defense to the action.” Sher, 988 So. 2d at 204. It is not
a defense to liability; rather, it is a description of the extent of liability, as
defined in the policy, for the loss or damage once liability is found.
      Furthermore, “a technical failure to comply precisely with Rule 8(c) is not
fatal.” Aunt Sally’s, 418 F. App’x at 330 (citing Allied Chemical Corp. v. Mackay,
695 F.2d 854, 855 (5th Cir. 1983)). “Rather, it is left up to the discretion of the
trial court to determine whether the party against whom the unpleaded
affirmative defense has been raised has suffered prejudice or unfair surprise.
[Allied Chemical Corp., 695 F. 2d at 855]. Thus, we review the district court’s
decision . . . for abuse of discretion.” Aunt Sally’s, 418 F. App’x at 330. Even if
Section 8 were an “affirmative defense,” the district court could not have abused
its discretion because, the entire principal policy being only four pages long,
Levy Gardens could not have been prejudiced or unfairly surprised. Section 8,
the only section describing the extent of liability, could not be hidden away only
to be pulled out later in a surprising or prejudicial manner. Therefore, Levy
Gardens could not have “suffered prejudice or unfair surprise” when
Commonwealth used Section 8 to determine the extent of liability. Id.
      Second, Levy Gardens asserts Section 8 is ambiguous, so we should
construe the section to include all loss or damage arising from the failed housing
project. Levy Gardens relies on our opinion in First American Bank v. First
American Transport Title Ins. Co., 585 F.3d 833 (5th Cir. 2009), for the
proposition that “title insurers take different approaches to the application of

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                                  No. 12–30010

Section 8(a),” concluding the section must be ambiguous. This reliance is
misplaced. First American Bank held the same language that is used in Levy
Gardens’s insurance policy limits the insurer’s liability to “the difference
between the value . . . when unencumbered and the value . . . subject to the
[encumbrance].” First American Bank, 585 F. 3d at 838. First American Bank
recognized the difference between those values cannot be determined only by
looking at the price resulting from a foreclosure sale. Id. That is clearly
different from holding the language itself is ambiguous. In First American
Bank, we remanded for proper valuation, asking the district court to take into
account market data other than the foreclosure price; we did not rely on
ambiguity to expand coverage beyond anything other than the value of title. Id.
      Levy Gardens asserts the phrase “loss or damage” in Section 8 is also
ambiguous, citing a number of out-of-state cases. It does not, however, present
any alternative way to read the phrase “loss or damage.” Section 8 is very clear
in defining “loss or damage” as the lesser of the amount of insurance or the
difference in value between the title with and without the zoning encumbrance.
There is no reason to interpret “loss or damage” other than with the clear
definition in Section 8. Section 8 is simply unambiguous: the loss or damage is
the difference in value; neither the phrase “loss or damage” nor the word “value”
is subject to any competing definition.
      Third, Levy Gardens asserts the zoning endorsement is stand-alone
coverage that should be read without the benefit of Section 8. Levy Gardens
asserts that because the endorsement provides coverage in the event certain
“use” of the land is prohibited, it must insure the use of the property, not the
value. It also cites commentators who describe zoning endorsements as insuring
against loss in the event property is “not zoned for a specified use or uses.” This
logic is misguided because the zoning endorsement insures the value of the title
in the event certain use is not allowed (here, multi-family housing), therefore the

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                                 No. 12–30010

word “use” is a necessary term in describing the coverage it provides. That does
not transform it into stand-alone coverage insuring against any loss related to
any use of the property apart from the value of the property’s title.
      In addition, Levy Gardens asserts the zoning endorsement is stand-alone
coverage because it modifies and conflicts with the policy. The endorsement does
modify, or conflict with, the policy: it simply excepts the policy’s exclusion for
zoning, but no more. Levy Gardens relies on Bozeman v. Commonwealth Land
Title Ins. Co., 470 So. 2d 465 (La. App. Ct. 1985), for the proposition that an
insurer cannot use an endorsement to insure for a known risk and then rely on
a contrary exclusion to avoid liability. Commonwealth, however, is not relying
on any zoning exclusion in the policy. Bozeman does not transform zoning
endorsements into stand-alone coverage; it only prevents insurers from using
exclusions to disregard endorsements they issue. 470 So. 2d at 467 (“[A]n
exclusion may not be used to defeat coverage where the insurer was informed of
the defect in the title and agreed to insure against loss occasioned by such
defect.”). Therefore, Levy Gardens cannot show the zoning endorsement is
stand-alone coverage based on the fact that the endorsement modifies or
conflicts with the policy’s zoning exclusion.
      Lastly, Levy Gardens asserts the zoning endorsement is stand-alone
coverage because enforcing the terms of Section 8 would subvert the coverage
provided by the endorsement. This reasoning simply assumes the answer.
Section 8 would limit the coverage provided by the endorsement if the
endorsement were stand-alone coverage, but this does not mean the
endorsement is in fact stand-alone coverage. When the insurance policy is read
as a whole, it is clear that Section 8 describes the extent of liability and the
zoning endorsement excepts the zoning exclusion in the principal policy in order
to cover loss to the value of the title in the event of a zoning encumbrance. It
does not, contrary to Levy Gardens’s assertions, transform this title insurance

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                                  No. 12–30010

policy into one that covers all losses, whether or not they are related to the value
of the title. Therefore, we hold the district court did not err in concluding the
insurance policy provides coverage for only the diminution in value of title to the
property resulting from the zoning encumbrance.
                                         V
      Levy Gardens asserts the district court committed manifest error by
declining to impose penalties on Commonwealth. Louisiana law provides for
penalties in LA. REV. STAT. 22:1892 and 22:1973. Section 22:1892 reads in
relevant part:
            A. (1) All insurers . . . shall pay the amount on any
            claim due any insured within thirty days after receipt
            of satisfactory proofs of loss from the insured or any
            party in interest. . . .
            ...
            (4) All insurers shall make a written offer to settle any
            property damage claim . . . within thirty days after
            receipt of satisfactory proofs of loss of that claim.
            B. (1) Failure to make such payment within thirty days
            after receipt of such satisfactory written proofs and
            demand therefor or failure to make a written offer to
            settle any property damage claim . . . , when such
            failure is found to be arbitrary, capricious, or without
            probable cause, shall subject the insurer to a penalty
            ....
LA. REV. STAT. 22:1892(A)(1), (A)(2), (B)(1). 22:1973 reads in relevant part:
            A. An insurer . . . owes to his insured a duty of good
            faith and fair dealing. The insurer has an affirmative
            duty to adjust claims fairly and promptly and to make
            a reasonable effort to settle claims with the insured or
            the claimant, or both. Any insurer who breaches these
            duties shall be liable for any damages sustained as a
            result of the breach.
            ...
            C. In addition to any general or special damages to
            which a claimant is entitled for breach of the imposed


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                                   No. 12–30010

             duty, the claimant may be awarded penalties assessed
             against the insurer . . . .
LA. REV. STAT. 22:1973(A), (C).
      “A cause of action for penalties . . . requires a showing that (1) an insurer
has received satisfactory proof of loss, (2) the insurer fails to tender payment
within thirty days of receipt thereof, and (3) the insurer’s failure to pay is
arbitrary, capricious or without probable cause.” Louisiana Bag Co., Inc. v.
Audubon Indem. Co., 999 So. 2d 1104, 1112–13 (La. 2008).               “The phrase
‘arbitrary, capricious, or without probable cause’ . . . describe[s] an insurer whose
willful refusal of a claim is not based on a good-faith defense.” Id. at 1114.
Under Louisiana law, “penalties should be imposed only when the facts negate
probable cause for nonpayment,” not “when the insurer has a reasonable basis
to defend the claim and acts in good-faith reliance on that defense.”            Id.
(quotation marks and citation omitted).          “[W]hen there are substantial,
reasonable and legitimate questions as to the extent of an insurer’s liability or
an insured’s loss, failure to pay within the statutory time period is not arbitrary,
capricious or without probable cause.” Id. On the other hand, “an insurer
cannot stonewall an insured simply because the insured is unable to prove the
exact extent of his damages. Where the exact extent of the damages is unclear,
an insurer must tender the reasonable amount which is due.” Id. at 1115
(quotation marks and citation omitted).        In Louisiana Bag, the Louisiana
Supreme Court found the trial court committed manifest error when it did not
impose penalties where the insurer did not dispute that it received proof of loss
and delayed making payment on the undisputed portion of the claim to the
insured. Id. at 1114–15, 1122.
      “Whether or not a refusal to pay is arbitrary, capricious, or without
probable cause depends on the facts known to the insurer at the time of its
action . . . . Because the question is essentially a factual issue, the trial court’s


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                                 No. 12–30010

finding should not be disturbed on appeal absent manifest error.” Reed v. State
Farm Mut. Auto. Ins. Co., 857 So. 2d 1012, 1021 (La. 2003).
      Levy Gardens asserts the district court manifestly erred in declining to
impose penalties on Commonwealth because Commonwealth “stonewalled” Levy
Gardens. Commonwealth responds that its position, asserting Levy Gardens did
not have any coverage, was taken in good faith, even if ultimately wrong. The
district court made five findings related to penalties: (1) Levy Gardens hampered
negotiations by refusing to entertain questions about coverage and not reading
the policy; (2) Levy Gardens did not provide Commonwealth sufficient proof of
loss or notice of the claim because it used the incorrect policy number;
(3) Commonwealth should have been clearer in its communications to Levy
Gardens about its position; (4) Commonwealth’s position on coverage was taken
in good faith; and (5) Commonwealth’s actions were not “so” arbitrary and
capricious as to warrant penalties.
      Levy Gardens places much emphasis on the word “so,” asserting that any
arbitrary and capricious action by Commonwealth would mandate the
imposition of penalties. This disregards the discretion of the trial court to
determine whether conduct by Commonwealth is “arbitrary and capricious”
under the statute. The use of the word “so” by the trial court—in an oral ruling,
no less—cannot be given so much weight as to hold the district court committed
manifest error by declining to impose penalties. Rather, the district court simply
did not find Commonwealth’s conduct arbitrary and capricious under the penalty
statutes. See Guillory v. Lee, 16 So.3d 1104, 1127 (La. 2009) (“[T]he question of
arbitrary and capricious behavior [under the penalty statutes] is essentially a
factual issue, and the trial court’s finding should not be disturbed on appeal
absent manifest error.”). The record is replete with evidence supporting both
positions. Levy Gardens used the incorrect policy number and did not provide
proof of loss or notice, and Commonwealth was not clear in its communications

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                                No. 12–30010

with Levy Gardens. Neither party acted perfectly, but Commonwealth did
assert in good faith that there was no coverage at all, so it should not be
penalized for not paying anything because there was no undisputed amount of
damages. Louisiana Bag, 999 So. 2d at 1114-15. The district court’s findings
that Commonwealth’s actions were not arbitrary and capricious and
Commonwealth made its assertions in good faith are reasonable and supported
by the record. Therefore, we hold the district court did not manifestly err by
declining to impose penalties on Commonwealth.
                                     VI
      For these reasons, we AFFIRM.




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