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

                                                                            FILED
                                                                          October 1, 2008

                                       No. 07-30740                   Charles R. Fulbruge III
                                                                              Clerk

TIG INSURANCE COMPANY, as successor to International
Surplus Lines Insurance Company; ET AL

                                                  Plaintiffs
v.

EAGLE INC

                                                  Defendant - Appellee
v.
GRAY INSURANCE COMPANY

                                                  Defendant - Appellant


                   Appeal from the United States District Court
                       for the Eastern District of Louisiana
                                   (05-CV-179)


Before BARKSDALE, BENAVIDES, and DENNIS, Circuit Judges.
PER CURIAM:*
       In this insurance case, we are presented with a contract interpretation
issue regarding an excess insurance policy. The excess insurance policy covers
the Appellee-Insured Eagle, Inc. (“Eagle”) on claims beyond the limits of the


       *
         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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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
insured’s underlying insurance policies. The contract interpretation question
presented is whether the Appellant-Insurer Gray Insurance Company (“Gray”)
is obligated under the policy to pay “up-front” the covered claims and defense
costs or “pay-back” those covered claims and defense costs. The district court
consulted external documents in interpreting the policy and determined that it
was ambiguous. Based on this finding of ambiguity, the district court applied
a presumption in favor of the insured and determined that the policy obligated
the insurer to pay “up-front” the covered claims and defense costs. We disagree.
We find no ambiguity in the policy and agree with the appellant that the policy
unambiguously requires the appellant only to reimburse or “pay-back” paid
claims and defense costs. Accordingly, we REVERSE the district court’s grant
of summary judgment in favor of Eagle, REVERSE the district court’s partial
denial of Gray’s motion for summary judgment, and RENDER judgment in
Gray’s favor.
                               BACKGROUND
      Appellee-insured Eagle holds two insurance policies relevant to this case.
Plaintiff TIG Insurance Company (“TIG”) provided Eagle with a general liability
insurance policy labeled “XSI-9538,” which provides coverage up to a certain
limit. Additionally, Appellant-Insurer Gray provided Eagle with an excess
insurance contract (“Gray policy”) termed an “aggregate excess reimbursement”
policy. Gray and Eagle designed the Gray policy to insure Eagle against loss
incurred by claims (and the defense of claims) that exceeded the limits of Eagle’s
underlying insurance policies, including XSI-9538.
      On January 21, 2005, TIG filed an action against Eagle and Gray seeking
a declaratory judgment as to the extent of its obligations under its policies.
Eagle answered and filed counter-claims against TIG and Gray alleging that
numerous lawsuits were filed against it and that TIG and Gray were obligated

                                        2
to defend those lawsuits under their policies. The only claims relevant to this
appeal are Eagle’s counter-claims against Gray, which calls for an interpretation
of Gray’s payment obligations under its excess insurance policy.
      Thus, the district court was called upon to decide the issue, which it
described as:
      [W]hether [under the Gray policy,] Gray is obligated to pay “up front” for
      claims asserted against Eagle, and for Eagle's defense costs (attorney’s
      fees and expenses), or, instead, whether Gray must only “pay back” Eagle
      for any of these amounts after Eagle provides proof that it actually has
      already paid them.
Before the district court, Gray argued that the Gray policy only obligates the
insurer to “pay back” or reimburse Eagle while Eagle argued that the Gray
policy obligates the insurer to pay “up front” claims and defense costs. Relying
on their contrasting interpretations, both Gray and Eagle filed motions for
summary judgment.
      In deciding the issue, the district court first found the Gray policy
language ambiguous as to whether the policy obligated the insurer to “pay back”
or pay “up-front” claims and defense costs. Even though the Gray policy was
termed a “reimbursement” policy and used the term “reimbursement” when
describing the insurer’s payment obligations, the district court found ambiguity.
Relying on the relationship between XSI-9538 and the Gray policy1 and a
reading of the Gray policy’s incorporation provision, which incorporated the
“Exclusions” and “Conditions” of the underlying policies, the district court
concluded that the Gray policy also incorporated, or must be read in conjunction
with provisions in XSI-9538's “Coverage” section, which requires the insurer to




      1
          Gray is XSI-9538's excess insurance policy.

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pay claims and defense costs up-front.2 Therefore, the district court concluded
that one could reasonably read the Gray policy as similarly requiring Gray to
pay claims and defense costs up-front. After finding an ambiguity, the district
court applied Louisiana law’s presumption against the insurer and for coverage.
Accordingly, the district court ruled for Eagle in summary judgment. The
district court therefore partially denied Gray’s motion of summary judgment as
to the issue at question in this case.3 On the basis of the summary judgment
decision, which resolved the dispositive legal issues in the case, the district court
entered final judgment for Eagle. Gray now timely appeals the district court’s
summary judgment decision.
                              STANDARD OF REVIEW
       This court reviews a district court’s grant of summary judgment de novo,
applying the same standards as the district court. Millennium Petrochems., Inc.
v. Brown & Root Holdings, Inc., 390 F.3d 336, 339 (5th Cir. 2004). Summary
judgment “should be rendered if the pleadings, the discovery and disclosure



       2
         Policy XSI-9538 is composed of one generic insuring agreement with only an
“Exclusions” but no “Conditions” section and several attached endorsements with sections that
are labeled specifically as “Exclusions” and “Conditions.” The underlying policy’s insuring
agreement has a generic “Coverage” section that provides Eagle with general liability
insurance and imposes on the insurer a duty to defend:

       The [insurer] company shall pay on behalf of the insured all sums which the insured
       shall become legally obligated to pay as damages because of personal injury or
       advertising injury to which this insurance applies . . . and the company shall have the
       right and duty to defend any suit against the insured seeking damages on account of
       such injury . . . .

Under these terms, the insurer is obligated to pay up-front any covered claims “on behalf of the
insured” and has a duty to defend, i.e., pay up-front and be responsible for the defense of
claims.
       3
         The district court granted Gray summary judgment on “bad faith” claims that are not
part of this appeal.

                                               4
materials on file, and any affidavits show that there is no genuine issue as to
any material fact and that the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(c). The only issue presented is a matter of contract
interpretation, which is an issue of law under Louisiana law. See Gebreyesus v.
F.C. Schaffer & Associates, Inc., 204 F.3d 639, 642 (5th Cir. 2000). “Contract
interpretation, including the question of whether a contract is ambiguous, is a
question of law subject to de novo review.” Millennium Petrochems., 390 F.3d at
339.
                               ANALYSIS
       Louisiana law applies in this case because the insurance policy was issued
in Louisiana for a Louisiana corporation. See In re Katrina Canal Breaches
Litig. 495 F.3d 191, 206 (5th Cir. 2007). Under Louisiana law, the rules of
interpretation for insurance contracts are as follows:
       An insurance policy is a contract between the parties and should be
       construed employing the general rules of interpretation of contracts set
       forth in the Louisiana Civil Code. The parties’ intent, as reflected by the
       words of the policy, determine the extent of coverage. Words and phrases
       used in a policy are to be construed using their plain, ordinary and
       generally prevailing meaning, unless the words have acquired a technical
       meaning. An insurance policy should not be interpreted in an
       unreasonable or a strained manner so as to enlarge or to restrict its
       provisions beyond what is reasonably contemplated by its terms or so as
       to achieve an absurd conclusion. Where the language in the policy is clear,
       unambiguous, and expressive of the intent of the parties, the agreement
       must be enforced as written. However, if after applying the other rules of
       construction an ambiguity remains, the ambiguous provision is to be
       construed against the drafter and in favor of the insured.
Reynolds v. Select Properties, Ltd., 634 So.2d 1180, 1183 (La. 1994) (citations
omitted).
       The district court found the contract language ambiguous and then relied
on external documents and legal presumptions to construe the contract language


                                        5
in favor of Eagle. In accordance with Louisiana law, we must first determine
whether an ambiguity exists before relying on legal presumptions and external
sources to construe the policy. See Sher v. Lafayette Ins. Co., 988 So.2d 186, 193-
95 (La. 2008); Shocklee v. Mass. Mut. Life Ins. Co., 369 F.3d 437, 441 (5th Cir.
2004) (rejecting the use of the company’s representations to discern an
ambiguity when construing the four corners of an insurance policy) (interpreting
Louisiana law). When a provision is subject to two reasonable interpretations,
it is ambiguous. See, e.g., Am. Bank and Trust Co. v. Continental Cas. Co., 476
So.2d 453, 457 (La. Ct. App. 1985). For the following reasons, we agree with
Gray that the Gray policy is clear and unambiguous and does not provide
coverage as Eagle contends.
A. The Gray Policy Is Clear and Unambiguous
      The policy’s plain language is clear and unambiguous. The Gray policy’s
“Coverage” section plainly limits Gray’s payment obligations to “aggregate
reimbursements to the insured.”       The first provision in the Gray policy’s
“Coverage” section states:
      To pay promptly when due aggregate reimbursements to the insured that
      are excess of the aggregate limit of the underlying policies scheduled in
      the Declarations.

This provision plainly means Gray is only responsible for “reimbursing” or
“paying back” Eagle, the insured. The dictionary defines “reimbursement” as
“repayment” or “indemnification.” BLACK’S LAW DICTIONARY 1312 (8th ed. 2004);
see, e.g., Cottle v. Conagra Poultry Co., 954 So.2d 255, 259 (La. Ct. App. 2007)
(using this definition to interpret a contract and concluding that “reimbursement
requires one to put forth something in order to be paid something back.”).
Therefore, by operation of the phrase “reimbursement to the insured,” Gray is
only obligated, under the plain language of the policy, to repay Eagle after Eagle


                                        6
pays a claim or defense expense, i.e., “discharges a liability,” that is beyond the
limits of the underlying policy.4 Accord Grefer v. Travelers Ins. Co., 919 So.2d
758, 764 (La. Ct. App. 2005) (interpreting a similar Gray policy). In respect to
the issue presented, we agree with Gray that the policy is unambiguous.
B. The Incorporation Provision Does Not Render the Policy Ambiguous
       In response, Eagle, relying on the district court’s reading of the policy,
contends that the “reimbursement” provision must be ambiguous, because, as
the district court concluded, “when considered together with the underlying
[policies] . . . [they] create ambiguity regarding the intended nature and scope
of Gray’s payment obligations under its policy.” According to Eagle, the policy
is ambiguous because while the Gray policy has “reimbursement” language, the
underlying policy in its “Coverage” section obligates insurers to pay “up-front.”
       To justify reading the Gray policy in conjunction with the entire
underlying policy, Eagle and the district court point to the Gray policy provision
that incorporates the “Conditions and Exclusions” sections of the underlying
policy. The district court stated: “[A]s a starting point, the [underlying policy’s]
coverage and defense language must be considered in conjunction with the Gray
policy’s ‘Insuring Agreements’ and ‘Coverage’ provisions set forth above, as well
as Gray policy’s statement that it, ‘except as to limits, shall be subject to all the
Exclusions and Conditions of the underlying policies.’” However, this reading
contravenes the plain language of the incorporation provision and is therefore
unreasonable.



       4
        A Gray policy provision in the “Conditions” section describes the need to exhaust
the underlying policy’s limits before payment is due:

       No payment shall be due under [the “Coverage” section] of this policy until the
       aggregate limit of the underlying policies has been exhausted by the payment of
       claims.

                                             7
       The relevant Gray policy provision states:
      This policy, except as to limits, shall be subject to all the Exclusions and
      Conditions of the underlying policies.
According to the district court and Eagle, this provision, in effect, incorporates
the entire underlying policy, including its “Coverage” provision, which obligates
the insurer to pay claimants directly “on behalf” of Eagle and imposes upon the
insurer a duty to defend.      Such a reading is inconsistent with the policy
language. The incorporation provision plainly states that the Gray policy only
incorporates the “Conditions” and “Exclusions” sections of the underlying policy
and it does not refer to the “Coverage” section of the underlying policy. First, the
incorporation provision specifically refers only to “Conditions” and “Exclusions,”
and capitalizes both terms. See Garrell v. Good Citizens Mut. Ben. Ass’n, 16
So.2d 463, 466 (La. 1943) (noting that capitalization signals an intent to refer to
a specific provision or clause).       Second, the Gray policy itself clearly
differentiates between its “Coverage” section and its “Conditions” and
“Exclusions” sections. Reading the Gray policy as a whole, the incorporation
provision also differentiates between these types of sections; it incorporates only
the “Conditions”and “Exclusions” sections on the one hand and does not
incorporate “Coverage” sections on the other. See LA. CIVIL CODE ART. 2050
(“Each provision in a contract must be interpreted in light of the other provisions
so that each is given the meaning suggested by the contract as a whole.”).
Accordingly, the incorporation provision is plainly limited to the incorporation
of only the “Conditions” and “Exclusions” sections of the underlying policy.
      Thus, because the incorporation provision does not include the “Coverage”
section, the district court erred as a matter of Louisiana law in incorporating the
“Coverage” section and finding ambiguity. Apart from the Gray policy’s
incorporation provision, Eagle and the district court provide no other textual or


                                         8
legal basis to read the Gray policy in conjunction with the entire underlying
policy in order to find an ambiguity. Any assumption, without a textual basis,
that a policy incorporates another contract or should be read in reference to
another contract contravenes Louisiana law. Louisiana law only recognizes the
incorporation of other contracts if the contract in question specifically refers to
other contracts in writing. See LA. REVISED STATUTES § 22:628 (“No agreement
in conflict with, modifying, or extending the coverage of any contract of
insurance shall be valid unless it is in writing and physically made a part of the
policy or other written evidence of insurance, or it is incorporated in the policy
or other written evidence of insurance by specific reference to another policy or
written evidence of insurance.”). Without a specific reference to the wholesale
incorporation of the underlying policy in the Gray policy’s text, one cannot
incorporate de facto or use the entire underlying policy to interpret the Gray
policy so as to create an ambiguity in the policy. See LA. CIVIL CODE Art. 2046
(“When the words of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of the parties’
intent.”); Sher, 988 So.2d at 193-95; Shocklee, 369 F.3d at 441. Because the
district court consulted the whole underlying policy and specifically its
“Coverage” section to find an ambiguity without any specific incorporation of the
underlying policy or the “Coverage” section, it erred under Louisiana’s rules for
contract interpretation. As a result, it committed further error by effectively
ignoring the import of the contract’s plain and unambiguous use of the word
“reimbursement” when defining payment obligations before consulting external
sources to create an ambiguity. See LA. CIVIL CODE Art. 2047 (“The words of a
contract must be given their generally prevailing meaning.”). For the same
reasons, the district court’s conclusion that a duty to defend found in the
underlying policy can apply by default to the Gray policy (without specific

                                        9
incorporation or any textual basis) simply because the Gray policy does not
expressly exclude a duty to defend is contrary to Louisiana law.
       In sum, we do not find any ambiguity in the incorporation provision. See
La. Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 630 So.2d 759, 770 (La. 1994);
Gulf Fleet Marine Operations, Inc. v. Wartsila Power, Inc., 797 F.2d 257, 261 (5th
Cir. 1986); Am. Bank and Trust Co. v. Cont’l Cas. Co., 476 So.2d 453, 457 (La.
Ct. App. 1985). We reject Eagle’s attempt to create ambiguity in the text by
referencing, contrary to Louisiana law, sections in the underlying policy not
specifically incorporated into the Gray policy.
C. No Other Provision Renders the Policy Ambiguous
       The district court also suggested that condition (7), which appears in the
“Conditions” section of the underlying policy,5 supports an interpretation of the
Gray policy that would obligate Gray to pay up-front all covered claims and
defense expenses that exceed the limits of the underlying policy. Again, based
on the plain language of the policy, we find this argument unavailing.
       Condition (7) states:
       When it has been determined that the Company is liable under Limits of
       Liability (B) of this Policy, the Company will, thereafter promptly
       reimburse the Assured, (or, when the Assured is legally obligated to pay
       or by final judgment has been adjudged to pay any person or persons as
       damages, the Company shall pay on behalf of the Assured) for all sums
       upon receipt of a monthly or quarterly statement from Gray & Company,
       Inc., . . . .

The referenced provision, “Limits of Liability” (B), is in another part of the
underlying policy and it states that:
       Amount of limit: . . . In respect of up to $35,000 ultimate net loss in respect

       5
         Gray does not dispute that condition (7) is incorporated into the Gray policy by virtue
of the incorporation provision, but Gray disagrees with the district court’s (and Eagle’s) reading
of condition (7).

                                               10
       to each and every accident . . . .

(emphasis added). Further, “ultimate net loss” is defined by the underlying policy
to include loss associated with covered claims and defense expenses:
      Under Limits of Liability (B), the words “Ultimate Net Loss” shall be
      understood to mean the sums paid in settlement of losses for which the
      Assured is liable . . . and shall include allocated legal fees and expenses
      including legal expenses in connection with litigation . . . .
Reading all of these pertinent provisions together, condition (7) plainly allows
Gray to reimburse “ultimate net loss” only after Eagle or a third party has
already paid the sums, including defense costs, in settlement of claims. Reading
this provision in conjunction with the fact that Gray policy’s “Coverage” section
only uses “reimbursement” language, the contract as a whole plainly provides
that Gray is only obligated to reimburse or “pay back” Eagle after Eagle or a third
party has already paid a claim or defense costs. See LA. CIVIL CODE ART. 2050
(“Each provision in a contract must be interpreted in light of the other provisions
so that each is given the meaning suggested by the contract as a whole.”).
      Finally, the district court highlights the fact that the claims handling
provision in the Gray policy requires Gray to provide specified assistance to the
attorney handling the claim for the underlying insurer.6 However, this provision
neither authorizes nor requires Gray to hire, supervise or compensate that
attorney, all of which further makes clear that Gray is not obligated to act as a
liability insurer for Eagle in respect to claims covered by the underlying policy.
Because this provision does not specifically discuss Gray’s payment obligations,

       6
           The relevant provision in the Gray policy states that Gray shall:

                Investigate all claims arising under this policy and the underlying policies and
                secure witnesses thereof and endeavor to secure all available information
                pertaining to such claims for the use of the Attorney in the adjustment of any
                such claim and for the information, study and use of the Safety Engineers in
                reduction of accident hazards.

                                               11
this provision cannot render the specific “reimbursement” language in the Gray
policy ambiguous.
                                 CONCLUSION
      We agree with Gray that, in respect to the issue in this case, the words of
the Gray policy are clear and unambiguous and lead to no absurd consequences;
that under the plain meaning of those words, the Gray policy is a “pay-back” or
reimbursement policy, not a liability policy; and that under its policy Gray is only
required to reimburse Eagle for claims and expenses paid by Eagle or for it by a
third party. See LA. CIVIL CODE Art. 2046 (“When the words of a contract are
clear and explicit and lead to no absurd consequences, no further interpretation
may be made in search of the parties’ intent.”). The district court, however, made
further interpretation of the contract and found ambiguity by reading the policy
in conjunction with extraneous documents. This approach contravenes Louisiana
rules for contract interpretation, which provide that no further interpretation
may be made if the contract clearly and unambiguously resolves the issue
presented without absurd consequences. Id. Other provisions of the Gray policy
cited by the district court also do not provide a contrasting reasonable reading of
the policy so as to render the policy ambiguous. We now REVERSE the district
court’s grant of summary judgment in favor of appellee Eagle, REVERSE the
district court’s partial denial of Gray’s motion for summary judgment, and
RENDER summary judgment in Gray’s favor.




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