                                                       United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                                                               May 25, 2006
                       FOR THE FIFTH CIRCUIT
                                                         Charles R. Fulbruge III
                                                                 Clerk

                           No. 05-60299


     HARTFORD INSURANCE COMPANY OF THE MIDWEST

                     Plaintiff - Counter Defendant - Appellant

     TWIN CITY FIRE INSURANCE COMPANY; HARTFORD ACCIDENT &
     INDEMNITY COMPANY

                     Plaintiffs - Appellants

     v.

     MISSISSIPPI VALLEY GAS COMPANY; ATMOS ENERGY CORPORATION,
     Successor in Interest to and doing business as Mississippi
     Valley Gas Company

                     Defendants - Counter Claimants - Appellees

_________________________________________________________________

           Appeal from the United States District Court
             for the Southern District of Mississippi
                         No. 3:03-CV-1139
_________________________________________________________________

Before KING, SMITH and BENAVIDES, Circuit Judges.

PER CURIAM:*

     Plaintiff-appellant Hartford Insurance Company of the

Midwest appeals the district court’s grant of summary judgment in

favor of defendant-appellee Mississippi Valley Gas Company on its


     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.

                                -1-
coverage claim in the amount of $557,919 under property insurance

policies covering natural gas produced by certain designated

wells.   Hartford Insurance Company of the Midwest also appeals

the district court’s denial of its motion for summary judgment as

well as its motion to strike portions of the affidavit of

Mississippi Valley Gas Company’s petroleum engineering expert,

Wayne Stafford.     We agree fully with the district court that

resolution of this issue is “hardly apparent.”      That said, we

REVERSE the district court’s grant of summary judgment in favor

of Mississippi Valley Gas Company and RENDER judgment for

Hartford Insurance Company of the Midwest.

               I.    FACTUAL AND PROCEDURAL BACKGROUND

     This case concerns an insurance coverage dispute between

plaintiff-appellant Hartford Insurance Company of the Midwest

(“Hartford”) and defendants-appellees Mississippi Valley Gas

Company and its successor in interest Atmos Energy Corporation

(collectively “MVG”).     The basic factual predicate underlying the

instant appeal is undisputed.     In 1982, MVG began purchasing

natural gas produced by the Asa Watson Well in Monroe County,

Mississippi from the well’s owner and operator, Howard G. Nason.

In 1989, MVG entered a separate contract to purchase natural gas

from a different well in Monroe County known as the Catherine

Watson Well from Nason Production Company, Inc., Howard G. Nason,




                                  -2-
Howard F. Nason, and Anice H. Nason.2   The gas produced from each

well flowed through a separate line to a distinct sales meter,

where the volume of gas from the well was compressed, measured,

and ultimately delivered to MVG’s pipeline.   Pursuant to the

contracts between MVG and the Nasons, legal title to the gas

transferred from the Nasons to MVG at the point of the sales

meter.   After the gas was metered, it was transported to MVG’s

facilities and into high-pressure transmission lines for

distribution.

     The district court’s opinion succinctly describes the facts

underlying the coverage claim:

          When the Asa Watson Well stopped producing in March
     or April 1999, the Nasons removed the meter from the Asa
     Watson Well and diverted the gas production being sold to
     MVG from the Catherine Watson Well through the sales
     meter for the Asa Watson Well.
          Thereafter, in September 2000, MVG discovered that
     an underground “tap” had been placed on MVG’s line
     downstream of the meter which diverted gas from MVG’s
     line through an underground pipe back to a point upstream
     of the meter, where the gas was reintroduced or
     reinjected into the gas stream.     As a result of this
     recirculation, gas which had already been metered and
     purchased by MVG was recirculated and hence remetered and
     resold by the Nasons to MVG.

R. at 234-35.   Based on reports from MVG’s petroleum engineering

expert Wayne Stafford’s investigation, the recirculation scheme

caused an estimated total monetary loss to MVG of $1,804,125




     2
        After Howard G. Nason died in 1995, his interest in the
wells passed to his wife, Anice.

                                 -3-
between 1986 and September 2000.3

     In January 2003, MVG submitted a proof of loss claim in the

amount of $557,919 to recoup a portion of this loss under the

Hartford policies covering the period between September 1, 1994

and January 31, 1999.4   More specifically, MVG’s “theft” claim

was for the value of 226,742 Mcf of recirculated natural gas,

which represented the difference between the volume of gas

actually produced by and delivered to MVG from the wells during

this period (17,285 Mcf) and that same volume of gas recirculated

through the meter more than fourteen times (244,027 Mcf).    MVG

did not, however, include the small volume of gas consumed to

execute the recirculation scheme itself in its claim under the

Hartford policies.5



     3
        Immediately after discovering the recirculation scheme,
MVG began to withhold payments for natural gas purchases from
another well owned by Anice Nason called the Simmons Well,
claiming it was entitled to offset the unjust enrichment from the
overpayment with respect to the two Watson Wells. On or about
March 1, 2004, MVG reached a settlement with the Nasons and
repaid $100,000 of the $747,000 it had previously withheld.
     4
        MVG stipulated that it had withdrawn its claim on the
policies issued between July 14, 1988 and September 1, 1994, and
after January 31, 1999. We therefore limit our focus on this
appeal to the Hartford policies covering the period between
September 1, 1994 and January 31, 1999.
     5
        During oral argument, Hartford stated that the
recirculation scheme was basically equivalent to tampering with
the meter itself. For example, recirculating the same volume of
gas ten times through a properly calibrated meter would
overcharge by the same amount as manipulating the meter to price
at ten times the proper rate upon the first pass through the
meter.

                                -4-
     On September 30, 2003, Hartford filed a diversity action in

the Southern District of Mississippi seeking a declaratory

judgment that Hartford was not obligated to pay MVG’s claim for

loss of natural gas under the applicable property insurance

policies.   MVG filed an answer and counterclaim for declaratory

relief on October 30, 2003, seeking an adjudication that the

Hartford policies did indeed provide coverage for the claim.     The

parties submitted cross-motions for summary judgment on July 15,

2004.

     The parties did not dispute before the district court that a

“theft” that results in a loss of or damage to the covered

property is covered under the relevant Hartford policies.    They

differed, however, in their characterization of the scheme and

the precise nature of the alleged loss.   MVG asserted that the

recirculation scheme amounted to repeatedly stealing and

reselling the same volume of gas and therefore constitutes a

covered “theft” under the policies.   Hartford contended, however,

that the insurance policies at issue do not provide coverage to

MVG under these circumstances because: (1) the only property lost

was “money” from overpaying for the volume of gas actually

received, and purely monetary losses are expressly excluded from

the definition of covered property; and (2) any loss of covered

property was otherwise excluded from coverage under the

“voluntary parting” exclusion or “missing property” limitation in

the policies.   On August 31, 2004, while the summary judgment

                                -5-
motions were still pending, Hartford also moved to strike the

affidavit of Wayne Stafford because it allegedly failed to

comport with the formal requirements of FED. R. CIV. P. 56(e) and

because certain portions allegedly contained inadmissible legal

conclusions.

      On January 18, 2005, the district court denied Hartford’s

motion for summary judgment and granted MVG’s motion for summary

judgment, “conclud[ing], albeit not with certainty, that MVG

sustained a loss that falls within the coverage of Hartford’s

policies.”   R. at 233.   With respect to the contested issue of

whether the recirculation scheme constituted a “direct physical

loss” of covered property under the Hartford policy, the court

acknowledged that “there are compelling arguments on both sides

of the issue.”   Id. at 236.    The court rejected Hartford’s

characterization of MVG’s claim as a “loss of money” from

overpayment and found that “the facts readily support[ed] the

conclusion that a theft occurred when the Nasons siphoned natural

gas from MVG’s pipeline.”      Id. at 237.

      In the court’s view, the fact that the Nasons resold the
      natural gas they had stolen from MVG to MVG, so that MVG
      thus ended up acquiring all the natural gas produced by
      the wells because the gas was recirculated through the
      meter rather than simply being siphoned off and sold to
      another buyer, does not change the fact that there was a
      dispossession, or “direct physical loss” of the natural
      gas, for a period of time.

Id.

      After rejecting Hartford’s contention that MVG suffered only


                                   -6-
a loss of money, the court summarily disposed of Hartford’s

alternative arguments that the policies’ “voluntary parting”

exclusion and “missing property” limitation applied to deny

coverage.    More specifically, the court found that (1) MVG did

not “voluntarily part” with the gas that was siphoned off through

the underground tap to fall within that exclusion; and (2) the

“missing property” limitation did not apply given the physical

evidence showing how the gas was diverted and remetered.

     Because the district court’s summary judgment order decided

only the issue of coverage under the policies and not the precise

extent of liability, Hartford submitted a motion for

clarification accompanied by a request for certification of the

coverage question for interlocutory appeal pursuant to 28 U.S.C.

§ 1292(b).    In essence, Hartford contended that if coverage

exists at all under the policies, it extended only to a single

instance of recirculation.    Consistent with its previous order,

the court concluded that “the property at issue was repeatedly

lost” and accordingly granted summary judgment in favor of MVG on

the liability issue in the amount of $557,919.    R. at 259.

Having granted MVG’s motion for summary judgment as to both the

coverage and liability issues, the court found the request for

discretionary interlocutory appeal pursuant to § 1292(b) to be

moot and entered a final judgment in favor of MVG on March 3,

2005.   Hartford timely filed its notice of appeal on March 29,

2005.

                                 -7-
                       II.    STANDARD OF REVIEW

     We review a grant of summary judgment de novo, applying the

same standards as the district court.        Fed. Ins. Co. v. Ace Prop.

& Cas. Co., 429 F.3d 120, 122 (5th Cir. 2005).        Summary judgment

is appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment

as a matter of law.”   FED. R. CIV. P. 56(c); see also Celotex

Corp. v. Catrett, 477 U.S. 317, 327 (1986).        “An issue is

‘genuine’ if the evidence is sufficient for a reasonable jury to

return a verdict for the nonmoving party.”         Hamilton v. Segue

Software Inc., 232 F.3d 473, 477 (5th Cir. 2000) (citation

omitted).   A fact is “material” if “its resolution could affect

the action’s outcome.”       Minter v. Great Am. Ins. Co. of N.Y., 423

F.3d 460, 465 (5th Cir. 2005).        The evidence and inferences from

the summary judgment record must be viewed in the light most

favorable to the nonmovant.         Id.

                             III.    DISCUSSION

     In resolving this coverage dispute, we must first examine

the relevant provisions in the property insurance policies at

issue.   Interpretation of an unambiguous insurance contract is a

question of law, which this court reviews de novo.         Am. States

Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998).        The


                                      -8-
parties further agree that Mississippi law governs this diversity

action.   “Under Mississippi law, an insurance policy is a

contract subject to the general rules of contract

interpretation.”   ACS Constr. Co. of Miss. v. CGU, 332 F.3d 885,

888 (5th Cir. 2003) (citing Clark v. State Farm Mut. Auto. Ins.

Co., 725 So.2d 779, 781 (Miss. 1998)).   “Although ambiguities in

an insurance policy are construed against the insurer, a court

must refrain from altering or changing a policy where terms are

unambiguous, despite resulting hardship on the insured.”     Titan

Indem. Co. v. Estes, 825 So. 2d 651, 656 (Miss. 2002).

     The Special Property Coverage Form provides coverage for

“direct physical loss of or damage to Covered Property caused by

or resulting from any Covered Cause of Loss.”   The parties agree

that the “Covered Property” at issue under the policies is the

natural gas produced by the designated Watson Wells.   Under the

policies, “Covered Causes of Loss means RISKS OF DIRECT PHYSICAL

LOSS unless the loss is” otherwise excluded or limited by the

operation of certain enumerated conditions in the policy,

including the “voluntary parting” exclusion and “missing

property” limitation.6   The policies also provide that “theft”

     6
        The “voluntary parting” exclusion expressly denies
coverage for any loss or damage caused directly or indirectly by:
     i.    Voluntary parting with any property whether or not
           induced to do so by any fraudulent scheme, trick,
           device or false pretense.
The “missing property” limitation denies coverage for loss or
damage to:
     c.    Missing Property

                                -9-
and “attempted theft” that result in loss of or damage to covered

property constitute “specified causes of loss” under the

policies.   The policies, however, expressly exclude mere monetary

losses from the definition of “covered property.”7

     Given the unambiguous language in the relevant insurance

policies, the primary source of disagreement between the parties

is how the loss suffered by MVG from the recirculation scheme

should be characterized.   Hartford contends that there was no

actual deprivation of the covered property that would constitute

a “theft” because MVG eventually received all of the natural gas

produced from both Watson Wells pursuant to its contracts with

the Nasons.   In essence, Hartford contends that the only result

of the recirculation scheme was to cause MVG to unwittingly

overpay for the gas--i.e., MVG experienced only a loss of “money”

that would not be covered under the clear terms of the relevant

policies.   On the other hand, MVG maintains that the district

court correctly characterized the recirculation scheme as

multiple, albeit temporary, “thefts” of the natural gas from the

Catherine Watson Well that are covered under the policies.



            Property that is missing, if there is no physical
            evidence to show what happened to it. An example
            is a shortage disclosed on taking inventory.
     7
        Specifically, the policy excludes:
     2.   Property Not Covered
          Covered Property does not include:
          a.   Accounts, bills, currency, deeds, evidences of
               debt, money, notes or securities.

                                -10-
      As a general matter, property insurance coverage is

triggered by some threshold concept of physical loss or damage to

the covered property.   See 10A COUCH   ON   INS. § 148:46 (3d ed.

2005).

      The requirement that the loss be “physical,” given the
      ordinary definition of that term is widely held to
      exclude   alleged   losses   that  are   intangible   or
      incorporeal, and, thereby, to preclude any claim against
      the property insurer when the insured merely suffers a
      detrimental economic impact unaccompanied by a distinct,
      demonstrable, physical alteration of the property.

Id.   We have previously stated that “[t]he language ‘physical

loss or damage’ strongly implies that there was an initial

satisfactory state that was changed by some external event into

an unsatisfactory state--for example, the car was undamaged

before the collision dented the bumper.”        Trinity Indus., Inc. v.

Ins. Co. of N. Am., 916 F.2d 267, 270-71 (5th Cir. 1990).

Consistent with these general principles, absent some physical

manifestation of loss or damage to the gas itself, the property

insurance policies issued by Hartford in this case expressly

exclude mere monetary losses from coverage.

      The fundamental difficulty with MVG’s position is that,

except for the unclaimed de minimis portion of gas consumed to

carry out the recirculation scheme, MVG actually received all of

the available gas produced by the two Watson Wells.         MVG cites

National Fire Insurance Co. of Hartford v. Slayden, 85 So. 2d

916, 917 (Miss. 1956), for the proposition that even a temporary

deprivation of property would be covered under an insurance

                                -11-
policy that covered against “theft” losses.   The holding in

Slayden was actually considerably narrower than this and

consistent with our disposition of the instant case.    In Slayden,

the Supreme Court of Mississippi affirmed in part a jury verdict

assessing liability under an insurance policy where a third party

had damaged the engine of a “bulldozer equipped tractor”--the

covered property under the insurance policy--by improperly

operating it without water.   Id.   Even though the damaged tractor

itself was returned to the insured party, the court concluded

that the damage resulting from temporary “theft” of the property

was covered under the insurance policy.

     To the contrary, here the gas from the Watson Wells was not

physically lost or damaged in any way before it was eventually

returned to MVG after multiple passes through the meter.    In this

sense, unlike the situation in Slayden, the covered property was

not returned to the insured party in a damaged state.   Therefore,

MVG’s proof of loss claim lacked the requisite “direct physical

loss of or damage to” the covered property under the insurance

policies.

     After careful examination of the relevant provisions in the

Hartford policies, we conclude that MVG’s overpayment for the

recirculated gas from the Watson Wells is more accurately

described as a loss of “money,” rather than covered property.

Accordingly, the district court erred in finding a covered loss

under the insurance policies issued by Hartford.   Because we

                               -12-
reverse and render judgment in favor of Hartford based solely on

our conclusion that the recirculation scheme merely resulted in

an uncovered loss of money, we expressly decline to reach the

portions of the district court’s decision concerning the

application of the “voluntary parting” exclusion and “missing

property” limitation under the policies.    We also need not reach

the issue of whether the district court erred in denying

Hartford’s motion to strike Wayne Stafford’s affidavit.

                         IV.   CONCLUSION

     For the foregoing reasons, we REVERSE the district court’s

grant of summary judgment in favor of Mississippi Valley Gas

Company on both the coverage and liability issues and RENDER

judgment for Hartford Insurance Company of the Midwest.    Costs

shall be borne by Mississippi Valley Gas Company.




                               -13-
