     Case: 09-30948     Document: 00511069517          Page: 1    Date Filed: 04/02/2010




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

                                                  FILED
                                                                             April 2, 2010

                                     No. 09-30948                           Lyle W. Cayce
                                   Summary Calendar                              Clerk



MICHAEL S LITTLE,

                                                   Plaintiff - Appellant
v.

USAA CASUALTY INSURANCE CO.,

                                                   Defendant - Appellee




                   Appeal from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 6:08-cv-01021


Before KING, STEWART, and HAYNES, Circuit Judges.
PER CURIAM:*
        Appellant Michael S. Little (“Little”) brought this suit against Appellee
USAA Casualty Insurance Co. (“USAA”), alleging that USAA breached its duties
under various insurance policies he purchased from USAA. Little appeals the
district court’s dismissal of his complaint under Federal Rule of Civil Procedure
(“Rule”) 12(b)(6). We AFFIRM.




        *
         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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
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                    I. FACTS AND PROCEDURAL HISTORY
       Taking Little’s well-pleaded factual allegations as true and viewing them
in the light most favorable to him, the facts are as follows. Little was an
employee of Chevron Corporation (“Chevron”) for nineteen years. After leaving
Chevron, Little sued his former employer in a Venezuelan court for severance
benefits. Chevron responded by filing suit in California (the “Chevron Suit”),
alleging that Little breached his employment contracts with Chevron by filing
suit in Venezuela. The day after Chevron filed suit, Little gave USAA notice of
the suit and requested defense coverage under the personal liability provisions
in certain Homeowners policies and Umbrella policies he purchased from USAA
(collectively, the “Policies”). 1 Little purchased the Policies while he resided in
Arizona in 2003, and the Policies were issued and delivered to him in Arizona.
Little also resided in Arizona at the time this dispute arose.
       After sending his request for coverage, Little spoke with a USAA
representative about his claim. He informed the representative that, even
though he was an attorney and had already prepared an answer to Chevron’s
complaint, he was going to allow the Chevron Suit to go into default if USAA did
not hire an attorney for him. The representative informed Little that he could
choose to file an answer himself, as he was a licensed attorney and had already
prepared an answer, or he could choose to hire an attorney to file an answer for
him. If Little chose the latter course of action, the representative stated that, in
the event the Chevron Suit was covered, USAA would reimburse Little for any
defense costs he incurred. The representative followed-up his conversation with


       1
         In his complaint, Little sought coverage under two specific policies that he purchased
in 2003: (1) Homeowners Policy No. CIC00263868490A; (2) Umbrella Policy No.
CIC00263868470U. On appeal, Little appears to seek for the first time coverage under
Homeowners and Umbrella policies issued after 2003. USAA disputes whether Little may
seek coverage under those policies. We need not resolve this dispute. The terms of the
subsequently issued policies are the same as the 2003 policies, so our affirmation of the district
court’s dismissal moots this dispute.

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Little by sending him a letter restating the substance of their conversation and
the suggestion he gave Little regarding the Chevron Suit (the “representative’s
letter”).
       USAA investigated Little’s claim and determined that it was not covered.
USAA informed Little of its decision in a letter denying his request for defense
coverage (the “declination letter”). The declination letter informed Little that
the Chevron Suit was not covered by the Policies because the suit did not seek
recovery for damages caused by an “occurrence,” as defined by the Policies.2 The
letter also included a number of other reasons why USAA believed that the
Chevron Suit was not covered. The letter, however, did not purport to provide
an exhaustive list of coverage defenses, and USAA expressly reserved the right
to raise any other coverage defenses not mentioned in the letter.
       Little disagreed with USAA’s denial by sending a letter to the Chief
Executive Officer of USAA (the “response letter”). In the response letter, Little
alleged that USAA had misrepresented and misinterpreted the terms of the
Policies in order to mislead him into thinking that the Chevron Suit was not
covered by the Policies, when in fact it was. Little also reiterated his position
that the Chevron Suit was malicious in nature and, therefore, covered by the
Policies.   USAA was unpersuaded by Little’s letter and continued to deny
coverage.
       Because USAA refused to defend the Chevron Suit, Little brought this
action against USAA, alleging that USAA breached its duty to defend and its
duty to act in good faith under the Policies. Little also sought to estop USAA
from denying defense coverage under the “Illinois Rule.” To support his claims,
Little referenced and relied upon the declination letter, the response letter, and


       2
         Under the Policies’ personal liability coverage, USAA agreed to defend any suit
brought against Little if the “suit [was] brought against [him] for damages . . . caused by an
occurrence.”

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the representative’s letter in his complaint.      USAA responded to Little’s
complaint by moving to dismiss it under Rule 12(b)(6). USAA attached to its
motion to dismiss copies of the Policies. USAA’s motion to dismiss was referred
to a magistrate judge who recommended that Little’s claims be dismissed. The
district court agreed with the magistrate judge’s recommendation and dismissed
Little’s complaint. This appeal followed.
                        II. STANDARD OF REVIEW
      This court reviews de novo a district court’s dismissal under Rule 12(b)(6).
Jones v. Alcoa, Inc., 339 F.3d 359, 362 (5th Cir. 2003). The court may affirm a
district court’s Rule 12(b)(6) dismissal on any grounds supported by the record.
Hosein v. Gonzales, 452 F.3d 401, 403 (5th Cir. 2006).
      In reviewing the district court’s dismissal, the court must “accept as true
the well-pleaded factual allegations in the [plaintiff’s] complaint,” and “[t]he
complaint must be liberally construed, with all reasonable inferences drawn in
the light most favorable to the plaintiff.” Causey v. Sewell Cadillac-Chevrolet,
Inc., 394 F.3d 285, 288 (5th Cir. 2004). “However, conclusory allegations or legal
conclusions masquerading as factual conclusions will not suffice to prevent a
motion to dismiss.” Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 284
(5th Cir. 1993). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id.
      In reviewing a dismissal under Rule 12(b)(6), the court may consider: (1)
the pleadings and any attachment to the pleadings; (2) documents incorporated
into the complaint by reference; and (3) documents that a defendant attaches to

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its motion to dismiss if those documents are referred to in the plaintiff’s
complaint and are central to the plaintiff’s claim (such as the insurance policies
and underlying complaint in question here). Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007); Collins v. Morgan Stanley Dean Witter,
224 F.3d 496, 498-99 (5th Cir. 2000).
                               III. DISCUSSION
      Little appeals the district court’s dismissal of his claims under Rule
12(b)(6). Little asserts that the district court erred in finding that USAA did not
have a duty to defend the Chevron Suit, and he argues that USAA should be
estopped from denying such a defense. Little also argues that the district court
erred in dismissing his claim that USAA breached the implied covenant of good
faith and fair dealing in the Policies. We find that the district court did not err
in dismissing Little’s claims. Accordingly, we affirm.
A. Choice of Law
      In diversity cases, we apply the law of the forum state to determine which
state’s law applies. Mumblow v. Monroe Broadcasting, Inc., 401 F.3d 616, 620
(5th Cir. 2005) (citing Woodfield v. Bowman, 193 F.3d 354, 359 n. 7 (5th Cir.
1999)).   Here, the forum state is Louisiana, so we apply its choice of law
provisions.
      The Louisiana Civil Code’s generally-applicable choice of law article
specifies that “an issue in a case having contacts with other states is governed
by the law of the state whose policies would be most seriously impaired if its law
were not applied to that issue.” L A. C IV. C ODE art. 3515. Specifically regarding
contracts, the Code instructs courts to assess the strength of the relevant policies
of the involved states in light of the place of negotiation, formation, and
performance of the contract as well as the location of the object of the contract.
L A. C IV. C ODE art. 3537. Applying these principles, Louisiana courts generally
choose “the law of the state where the insurance contract was issued and

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executed.” See Am. Elec. Power Co. Inc. v. Affiliated FM Ins. Co., 556 F.3d 282,
286 n.2 (5th Cir. 2009); Woodfield v. Bowman, 193 F.3d 354, 360 (5th Cir. 1999)
(“Louisiana courts generally choose the law of the state in which the insurance
policy in question was issued to govern the interpretation of the terms of the
policy.”) (citing Anderson v. Oliver, 705 So. 2d 301, 305-06 (La. Ct. App. 1998);
Holcomb v. Universal Ins. Co., 640 So. 2d 718, 722 (La. Ct. App. 1994)).
      The Policies here were issued and delivered to Little in Arizona, where he
resided at the time this dispute arose, and both Little and USAA agree that
Arizona law governs this dispute. Accordingly, we conclude that Arizona law
governs.
B. Duty to Defend
      Little argues that the district court erred in finding that USAA had no
duty to defend the Chevron Suit under the Policies’ personal liability coverage
because the Chevron Suit allegedly constitutes a claim for “malicious
prosecution.” Under Arizona law, an insurance policy’s “‘language controls the
scope and extent of an insurer’s duty to defend,’” Lennar Corp. v. Auto-Owners
Ins. Co., 151 P.3d 538, 543 (Ariz. Ct. App. 2007) (quoting Cal. Cas. Ins. Co. v.
State Farm Mut. Auto. Ins. Co., 913 P.2d 505, 508 (Ariz. Ct. App. 1996)), and the
policy’s language must be given its “plain and ordinary meaning,” Nat’l Bank of
Ariz. v. St. Paul Fire & Marine Ins. Co., 975 P.2d 711, 713-14 (Ariz. Ct. App.
1999). “When the policy language is clear, [the court] may not invent ambiguity
and then resolve it to find coverage where none exists under the policy.” Id.
After reviewing the terms of the Policies at issue, we find that the district court
did not err in dismissing Little’s duty to defend claim.




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      Under the Homeowners policies’3 and the Umbrella policies’4 personal
liability coverage, USAA only had a duty to defend the Chevron Suit if the suit
alleged facts, or USAA was made aware of facts, that showed that the suit was
against Little for damages because of “personal injury” or for damages caused
by an “occurrence.” See U.S. Fid. & Guar. Corp. v. Advance Roofing & Supply
Co., 788 P.2d 1227, 1231 (Ariz. Ct. App. 1989) (stating that an insurer must
determine whether a complaint ostensibly falls within the coverage terms of an
insurance policy, thereby triggering its duty to defend, by considering the
allegations in the complaint and any facts that its insured has come forward
with regarding the complaint). The Policies define “personal injury,” in relevant
part, as “malicious prosecution.”5 Similarly, the Policies define “occurrence,” in
relevant part, as “an event or series of events . . . caused by an act or omission
of [Little], which results . . . in [malicious prosecution] . . . .” These definitions
show that USAA had only a duty to defend Little if the Chevron Suit sought


      3
          The Homeowners policies’ defense language is as follows:

      COVERAGE E - Personal Liability

      If a claim is made or a suit is brought against any insured for damages because of
      bodily injury, property damage or personal injury caused by an occurrence to which this
      coverage applies, we will:

      ...

      2. provide a defense at our expense by counsel of our choice, even if the suit is
      groundless, false or fraudulent.
      4
          The Umbrellas policies’ defense language is as follows:

      If a claim is made or a suit is brought against any insured for damages caused by an
      occurrence to which Liability Coverage applies, we will provide a defense at our
      expense by counsel of our choice, even if the suit is groundless, false or fraudulent.
      However, we will not provide this coverage if the occurrence is covered by underlying
      insurance or any other liability insurance available to any insured.
      5
          The Homeowners policies and the Umbrella policies, in relevant part, contain
identical definitions of “occurrence” and “personal injury.”

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either: (1) damages because of a malicious prosecution by Little; or (2) damages
for a malicious prosecution resulting from an act or omission of Little. The
Chevron Suit sought damages for neither. Instead, the Chevron Suit sought
damages for Little’s alleged breach of his employment contracts.                As a
consequence, the Chevron Suit did not fall under the Policies’ personal liability
coverage and, therefore, USAA had no duty to defend the suit.
      As the clear and unambiguous terms of the Policies show, Little cannot
prove that USAA had a duty to defend the Chevron Suit, and Little’s
characterization of the suit itself as a “malicious prosecution” is irrelevant to
determining whether the suit is covered by the Policies. Accordingly, we find
that the district court did not err in dismissing Little’s duty to defend claim.
C. Illinois Rule
      Little also argues that the district court erred in dismissing his claim that
USAA should be estopped from denying coverage under the “Illinois Rule.”
Under the “Illinois Rule,” if a court determines that an insurer violated its duty
to defend, the insurer is estopped from denying coverage. See, e.g., Solo Cup Co.
v. Fed. Ins. Co., 619 F.2d 1178, 1184 (7th Cir. 1980) (“If, however, we determine
that the duty of defense was violated, the applicable Illinois law holds that the
insurer is estopped to deny coverage.”); Hirst v. St. Paul Fire & Marine Ins. Co.,
683 P.2d 440, 447 (Idaho Ct. App. 1984) (stating that the “‘Illinois Rule’ . . . holds
that where the insurer violates its duty to defend, the insurer is estopped to deny
coverage”). Assuming arguendo that Arizona recognizes the Illinois Rule, Little
cannot prove that the rule is applicable in this case because he cannot prove that
USAA violated its duty to defend.         The district court, therefore, properly
dismissed Little’s estoppel claim.
D. Covenant of Good Faith and Fair Dealing
       In his complaint, Little also alleges that USAA is liable in tort for
breaching the Policies’ implied covenant of good faith and fair dealing. Little

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alleges that USAA breached the implied covenant by: (1) misrepresenting the
Policies’ terms in the declination letter; (2) “callously” suggesting in the
representative’s letter that he represent himself in the Chevron Suit; and (3)
failing to retract the alleged misrepresentations and erroneous coverage position
found in the declination letter.6
       The parties dispute whether Arizona law permits a claim for bad faith if
the insurer correctly denied coverage. Even assuming, however, that there could
be cases where a breach of the duty of good faith and fair dealing could be found
in the absence of coverage, this case is not among them.                    Here, the same
undisputed facts that defeat Little’s coverage claim also defeat his bad faith
claim. The declination letter and the representative’s letter provide the only
factual content for Little’s claims. Little essentially contends that, because the
Chevron Suit was covered, these letters misrepresent coverage by contending
that it is not covered. Of course, we have determined that the district court
correctly dismissed his claim for coverage against USAA, so any claim based
upon these alleged misrepresentations fails.7
       In addition, Little claims that USAA flagrantly and falsely misrepresented
the extent of the Homeowners policies’ breach of contract coverage. To support
his claim, Little isolates the following two sentences from the declination letter:


       6
          After the briefing in this case was complete, Little made an additional argument in
a Rule 28(j) letter to support his claim for bad faith; specifically, Little alleged that USAA
should be held liable for bad faith because its lawyers misrepresented to the district court that
his policies with USAA had expired. Little did not make this argument in his initial appellate
brief. Accordingly, we find it waived and do not address it. See Webb v. Investacorp, Inc., 89
F.3d 252, 257 n.2 (5th Cir. 1996) (finding waived and refusing to consider an argument not
made in an appellant’s initial brief).
       7
           To the extent that Little is alleging a claim for bad faith based solely on USAA’s
denial of his claim, the court’s finding that USAA had no duty to defend means that such a
claim fails as a matter of law. See Manterola v. Farmers Ins. Exch., 30 P.3d 639, 646 (Ariz.
Ct. App. 2001) (“We agree that a bad faith claim based solely on a carrier’s denial of coverage
will fail on the merits if a final determination of noncoverage ultimately is made.”). The
court’s finding also shows that USAA’s coverage position was not “erroneous” as Little alleges.

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“The Homeowners Policy protects the insured from liability claims arising in tort
. . . . Liability arising from breach of contract is not afforded coverage under the
policy.”8 In order to allege bad faith, Little had to allege facts showing that
USAA made its statements knowing that it lacked any reasonable basis for
them. See Deese v. State Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz.
1992) (stating that an insurer can only be held liable for the tort of bad faith if
“the insurer knew that its conduct was unreasonable”); Rawlings v. Apodaca,
726 P.2d 565, 576 (Ariz. 1986) (“[T]he insurer must intend the act or omission
and must form that intent without reasonable or fairly debatable grounds.”).
Little has failed to allege such facts, and, instead of doing so, he merely directs
the court to the declination letter. The letter, however, does not contain any
facts that would allow the court to infer that USAA acted in bad faith. To the
contrary, the letter only contains facts showing that USAA acted knowing that
it had a reasonable basis for its statements.
       In alleging that USAA misrepresented the Homeowners policies’ breach
of contract coverage, Little omits the fact that USAA quoted in full the
Homeowners policies’ contractual liability exclusion (the “Contract Exclusion”),
even the exclusion’s two exceptions, which are both inapplicable to Little’s
claim.9 The letter also shows that USAA’s general statements mirrored the


       8
          Little also alleges that this statement misrepresents the Umbrella policies’
contractual liability coverage. The declination letter, however, shows that these statements
were only made in regard to the Homeowners policies. Moreover, these statements could not
have misrepresented the Umbrella policies’ contractual liability coverage, because the
Umbrella policies state in relevant part, that “[l]iability arising out of any contract or
agreement” is excluded from coverage.
       9
          The Contract Exclusion in the Homeowners policies states: “Coverage E - Personal
Liability does not apply to . . . liability . . . under any contract or agreement.” There are only
two exceptions to this exclusion: (1) written contracts “that directly relate to the ownership,
maintenance, or use of an insured location;” and (2) written contracts “where the liability of
others is assumed by the insured prior to an occurrence.” Although neither of the exceptions
is conceivably applicable to the Chevron Suit, Little asserts in his brief that the second
exception applied to the Chevron Suit. According to Little, the Chevron Suit was based on a

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terms of the Contract Exclusion, which excludes from coverage all “liability . . .
under any contract or agreement.” Moreover, the letter shows that the
statements isolated by Little were found in a paragraph explaining to Little that
the Chevron Suit was excluded from coverage under the Homeowners policies
because the suit sought to impose liability under Little’s employment contracts.10
Because Little has failed to allege any facts showing that USAA knew that it had
no reasonable basis for its description of the Homeowners policies’ contractual
liability coverage, the court cannot reasonably infer that USAA acted in bad
faith.
         Little’s final allegation of misrepresentation is that USAA misrepresented
the applicability of the Policies’ intentional acts and business pursuits
exclusions. However, a review of the complaint and the documents that Little
cites in support of his complaint shows that the USAA did not misrepresent the
exclusions.
         In summary, a review of Little’s complaint, the Policies, and the
declination letter shows that USAA did not misrepresent coverage under the
Policies or misrepresent the Policies’ intentional acts or business pursuits
exclusions. To the extent USAA misrepresented the Policies’ breach of contract
coverage, Little has failed to allege any facts showing that USAA made such a




“purported waiver of Venezuelan labor benefits” that he signed. The second exception,
however, only applies to contracts “where the liability of others is assumed by the insured . .
. .” (emphasis added). Little does not allege that his waiver included any assumption of any
other party’s liability; therefore, his assertion that the second exception applied to the Chevron
Suit is without merit.
         10
           To support his allegation of bad faith, Little also relies on language in the
Homeowners policies delineating USAA’s defense obligation, as well as cases interpreting that
language to include both tort and contract liability. While USAA’s defense obligation is
written broadly, it is subject to the Homeowners policies’ exclusions, including the Contract
Exclusion, so the fact that USAA’s defense obligation is written broadly does not mean that
USAA misrepresented the policies’ contractual liability coverage.

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misrepresentations in bad faith.11 Accordingly, Little’s mere allegation that
USAA made misrepresentations, and failed to retract them, does not provide the
court with a reasonable basis for inferring that USAA is liable for bad faith. See
Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 390 (5th Cir.
2010) (affirming the dismissal of a plaintiff’s misrepresentation claim after a
review of the relevant document showed that the defendant did not make any
misrepresentations).
                                   IV. CONCLUSION
       Little’s complaint and the relevant documents he cites in support of his
complaint do not contain sufficient factual content to allow the court to
reasonably infer the following: (1) that USAA breached its duty to defend, (2)
that USAA should be estopped from denying defense coverage, or (3) that USAA
was liable in tort for breaching its duty of good faith and fair dealing.
Accordingly, we AFFIRM the district court’s Rule 12(b)(6) dismissal of Little’s
claims.




       11
          Similarly, Little’s contention that USAA’s suggestion that he file an answer to the
lawsuit was “callous” does not support a claim for bad faith because Little has failed to allege
any facts showing that USAA lacked any reasonable basis for making its suggestion.

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