Amer Guarnt & Liab v. The 1906 Company, et al

1 District Judge of the Southern District of Florida, sitting
by designation.
1
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 99-60758
AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY,
Plaintiff-Counter Defendant-Appellee,
VERSUS
THE 1906 COMPANY, ETC.; ET AL
Defendants
THE 1906 COMPANY (Formerly Known as Hattiesburg Coca-Cola
Bottling Company); RICHARD S. THOMSON;
Defendants-Cross Defendants-Counter Claimants-Appellants,
and
GENERAL STAR NATIONAL INSURANCE COMPANY,
Defendant-Cross Claimant-Counter Claimant-Appellant.
Appeal from the United States District Court
For the Southern District of Mississippi, Jackson Division
November 12, 2001
Before SMITH and DENNIS, Circuit Judges, and ROETTGER,1 District
Judge.

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2
DENNIS, Circuit Judge:
American Guarantee and
Liability Insurance Company
(“American Guarantee”) brought
this diversity suit seeking a
declaratory judgment that the
comprehensive general liability
(“CGL”) insurance policies it
sold to Hattiesburg Coca-Cola
Bottling Company (“Hattiesburg
Coke” or “Coke”) afforded no
coverage or defense for twenty-
one Mississippi lawsuits
alleging that, among other
things, the insured’s male
employee had surreptitiously
videotaped female customers
changing clothes in a women’s
dressing room on the insured’s
premises. The district court,
on American Guarantee’s motion
for summary judgment, ruled that
the insurer had no duty to
defend or indemnify Hattiesburg
Coke, Richard Thomson (Coke’s
chief executive officer), or
John Thomson, (Coke’s alleged
employee-voyeur and Richard
Thomson’s son) under either
Coverage A or Coverage B.
(Generally speaking, Coverage A
insures against accidental
bodily injury and property
damage liability; Coverage B
insures against non-accidental,
non-bodily personal injury
liability). Hattiesburg Coke,
Richard Thomson, and John
Thomson appealed. A prior panel
of this court affirmed in part,
reversed in part, and remanded
in part. See American Guar. &
Liab. Ins. Co. v. The 1906 Co.,
129 F.3d 802, 810 (5th Cir.
1997)(“American Guar. I”).2 That
panel affirmed the district
court’s judgment denying
coverage for any claims against
John Thomson and claims against
Richard Thomson and Hattiesburg
Coke based on their alleged
vicarious liability for John’s
acts. That panel also affirmed
the district court’s ruling that
all claims against Richard
Thomson and Hattiesburg Coke are
excluded from coverage under the
Coverage A portion of the
policies. See id. However,
that panel vacated the district
court’s ruling that the policies
excluded coverage for Richard
Thomson and Hattiesburg Coke
under Coverage B. See id. at
811. The panel remanded the
case for new proceedings on
Coverage B. After remand, on
American Guarantee’s motion for
summary judgment, the district
court ruled that the insurer
also had no duty to defend or
indemnify under Coverage B. All
adversely affected parties
appealed, including Hattiesburg
Coke’s umbrella insurer, General
Star National Insurance Company.
We reverse and grant motions for
summary judgment against
American Guarantee and in favor
of Hattiesburg Coke, Richard
Thomson, and General Star.3
I. Facts and Procedural History
A. Background: American Guar. I
2 After this case was filed,
Hattiesburg Coke changed its
name to “The 1906 Company.” To
avoid confusion, we follow the
first panel’s precedent of
referring to the company’s
original name.
3 John Thomson is not a
party to this appeal.

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3
The background facts were
well stated in the prior panel
opinion. We repeat them
verbatim for easy reference:
“Having recently developed
an interest in photography while
living in Minnesota, John
Thomson returned to Hattiesburg,
Mississippi with a desire to
open his own photography studio.
In early 1990, Richard Thomson,
John's father and CEO of
Hattiesburg Coke, authorized the
use of Hattiesburg Coke funds to
open a photography studio,
Visual Arts Studio (VAS). The
new studio was located at 3820
Hardy Street, Hattiesburg,
Mississippi, more than a mile
from the company's bottling
operation. The studio
concentrated on photographing
and videotaping young women for
modeling portfolios and
advertisements, as well as
‘glamour photography.’ Although
the studio operated under a
different name and was
physically separate from the
bottling company, it was owned
and operated as a division of
Hattiesburg Coke. Moreover, the
VAS employees were considered
employees of Hattiesburg Coke,
and all major business decisions
concerning the studio, from the
purchase of equipment to the
scope and ultimate termination
of the business, were made at
Hattiesburg Coke's corporate
headquarters at 4501 Hardy
Street.
“By the spring of 1991, VAS
was operating in the red and
John Thomson wanted to return to
school. Thus, Hattiesburg Coke
officials decided to terminate
the studio's operations. John,
however, still had access to VAS
and was in the midst of winding
up its affairs when the events
giving rise to the underlying
state court lawsuits came to
light.
“In November 1991, a VAS
client picked up a videotape
which she thought contained her
portfolio photographs. When
she viewed the tape, she
discovered footage of herself
dressing and undressing in the
VAS dressing room. She reported
her discovery to police, who
searched the studio and found
numerous other tapes containing
footage of young women dressing
and undressing in the same room.
The police also discovered a
fiber optic camera concealed
underneath a bench in the
dressing room.
“In the months following
the police investigation,
twenty-one women filed lawsuits
against John Thomson, Richard
Thomson, VAS, and Hattiesburg
Coke. These plaintiffs alleged
various causes of action
including invasion of privacy,
outrage, intentional infliction
of emotional distress, fraud,
negligence, and exploitation of
minors. The complaints included
allegations that Hattiesburg
Coke and Richard Thomson were
vicariously liable for John's
acts because John acted as a
Hattiesburg Coke employee in
making the tapes and because
John served as a director and
officer of Hattiesburg Coke.
The complaints also sought to
visit liability on Hattiesburg
Coke and Richard Thomson for a
host of negligence-based torts,

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including negligent entrustment,
negligent supervision, and
negligent hiring.
“Hattiesburg Coke held
liability insurance policies for
the periods in question.
American Guarantee, their
principal insurer, issued a
c o m b i n e d p r o p e r t y a n d
comprehensive general liability
insurance policy to Hattiesburg
Coke covering the period from
December 31, 1989, through
December 31, 1990. The policy
was renewed for the period from
December 31, 1990, through
December 31, 1991. The policy
provided liability insurance
coverage of $500,000 per
occurrence and $1,000,000 in the
aggregate. Hattiesburg Coke was
also the named insured under an
Umbrella Liability Policy for
the Coca-Cola Bottlers
Association issued by General
Star National Insurance Company
("General Star") for the policy
period January 1, 1990, through
January 1, 1991. Each General
Star policy provided liability
coverage of $5,000,000 per
occurrence and in the aggregate.
“ A f t e r d i s c u s s i o n s
concerning coverage, American
Guarantee agreed to defend
Hattiesburg Coke and Richard
Thomson in the state court suits
under a reservation of rights,
but refused to defend or
indemnify John Thomson. In its
r e s e r v a t i o n o f r i g h t s
c o r r e s p o n d e n c e , A m e r i c a n
Guarantee raised several
coverage questions, including
whether the VAS building was a
designated premises; whether
the conduct alleged constituted
an ‘occurrence’; whether the
damages alleged constituted
‘bodily injury’; and whether
John's conduct fell within a
policy exclusion for criminal
activities. Eventually,
nineteen of the twenty-one suits
were settled,4 with John Thomson
agreeing to contribute
approximately $2,545,000 and
General Star agreeing to pay
approximately $3,774,000 on
behalf of Richard Thomson and
Hattiesburg Coke.
“Once the underlying
lawsuits were settled, American
Guarantee filed this declaratory
judgment action against John
Thomson, the 1906 Company,
Richard Thomson, and General
Star to resolve its coverage
obligations. The district court
found that the insurance policy
unambiguously limited liability
coverage to injuries arising
from certain premises designated
on the declarations page of the
policy and that the VAS property
was not included in that
designation. The court also
concluded that John Thomson's
actions were not within the
scope of his employment and that
the injuries alleged by the
women did not constitute an
‘occurrence’ under the policy
because they were intended or
expected from the standpoint of
the insured. Accordingly, the
district court granted summary
judgment in favor of American
Guarantee. The court also
denied General Star's claim for
indemnification for the payments
it had made on behalf of Richard
Thomson and the 1906 Company.
4 The remaining two suits
were dismissed as time barred.

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5
See id. at 804-05.
B. Current Issues
Before the Court
In this second appeal by
Hattiesburg Coke, Richard
Thomson, and General Star, the
case returns with little added
to the record or the district
court’s reasons; however, the
parties have provided additional
oral and written arguments
focused on Coverage B. With the
benefit of their advocacy, we
address the questions that the
prior panel pretermitted or did
not definitively resolve: (1)
whether the state court
complaints allege viable causes
of action against Hattiesburg
Coke and Richard Thompson
because of their own negligence
in not taking appropriate
precautions against the alleged
tortious conduct of John
Thomson; (2) whether the alleged
personal injuries arose out of
the conduct of Hattiesburg
Coke’s business; and (3) if so,
whether the complainants’
injuries arose out of offenses
for which Coverage B provided
non-bodily personal injury
liability insurance (viz., the
offense of the invasion of the
right of private occupancy of a
room that a person occupies by
or on behalf of its owner).
C. Standard of Review
In our plenary review of
the district court’s granting
and rejecting motions for
summary judgment, we decide the
foregoing issues of law and
insurance policy construction de
novo. See Liberty Mut. Fire
Ins. Co. v. Canal Ins. Co., 177
F.3d 326, 331 (5th Cir. 1999);
Lubbock County Hosp. Dist. v.
National Union Fire Ins. Co.,
143 F.3d 239, 241-42 (5th Cir.
1998).
II. Mississippi’s Rules for
Interpreting Insurance
Contracts
The law governing the
interpretation of insurance
contracts is well settled in
Mississippi. In determining
whether American Guarantee owes
Hattiesburg Coke or its CEO a
duty to defend or indemnify, we
look to the allegations in the
underlying state court
complaints. If the complaints
state a claim that is within or
arguably within the scope of
coverage provided by the policy,
American Guarantee is obliged to
defend and, if necessary,
indemnify Hattiesburg Coke. See
Centennial Ins. Co. v. Ryder
Truck Rental, Inc., 149 F.3d
378, 383 (5th Cir. 1998); State
Farm Mut. Auto. Ins. Co. v.
Scitzs, 394 So. 2d 1371, 1373
(Miss. 1981) (both noting that
Mississippi courts interpret
terms of insurance policies,
particularly exclusion clauses,
favorably to the insured
wherever reasonably possible);
see also Canal Ins. Co., 177
F.3d at 331 (stating that under
Mississippi law, “any doubt as
to the existence of a defense
obligation is . . . resolved in
favor of the insured”). In
comparing the complaints with
the policy terms, we look not to
the particular legal theories

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pursued by the state
complainants, but to the
allegedly tortious conduct
underlying their suits. See
Equal Employment Opportunity
Comm’n v. Southern Publ’g Co.,
894 F.2d 785, 790-91 (5th Cir.
1990) (“Under Mississippi’s
‘allegations of the complaint’
rule if the factual allegations
of the complaint bring the
action within coverage of the
policy, the insurer has a duty
to defend.”); see also State
Farm Mut. Auto. Ins. Co. v.
Taylor, 233 So. 2d. 805, 808
(Miss. 1970) (stating that
although an insurer normally
bases its duty to defend on the
facts alleged in the petition,
it may also have a duty to
defend if it knows of other
facts that warrant coverage).
American Guarantee is justified
in refusing to defend only if it
is clear from the face of the
state court complaints that the
allegations therein are not
covered. See Moeller v.
American Guar. & Liab. Ins. Co.,
707 So. 2d 1062, 1069 (Miss.
1996); see also Merchants Co. v.
American Motorists Ins. Co., 794
F.Supp. 611, 617 (S.D. Miss.
1992) (“[T]he duty to defend is
broader than the insurer's duty
to indemnify under its policy of
insurance: the insurer has a
duty to defend when there is any
basis for potential liability
under the policy”). Moreover,
because the state suits allege
multiple grounds for recovery,
American Guarantee must provide
a defense if any ground falls
within the terms of the policy.
See Southern Publ’g Co., 894
F.2d at 790-91 (adopting the
general rule that “[a]n insurer
must bear the entire cost of
defense when ‘there is no
reasonable means of prorating
the costs of defense between the
covered and the not-covered
items.’”) (quoting Insurance Co.
of N. Amer. v. Forty-Eight
Insulations, Inc., 633 F.2d
1212, 1224-25 (6th Cir. 1980),
cert. denied, 454 U.S. 1109
(1981)). We must give the
policy language its plain and
ordinary meaning, see Blackledge
v. Omega Insurance Co., 740 So.
2d 295, 298 (Miss. 1999) (“terms
used in an insurance policy
should be understood in their
plain, ordinary, and popular
sense rather than in a
philosophical or scientific
sense”), and resolve any
ambiguities or equivocal
expressions in favor of the
insureds, see Ryder Truck
Rental, Inc., 149 F.3d at 382-
83, but not create ambiguities
where none exist. See Scitzs,
394 So. 2d at 1372.
III. Relevant Coverage B
Provisions; Coverage A
Distinguished
Coverage B of the CGL
policy that American Guarantee
issued to Hattiesburg Coke in
1990 provides:
COVERAGE B. PERSONAL
AND ADVERTISING INJURY
LIABILITY
1. Insuring Agreement.
a. We will pay those
sums that the insured
b e c o m e s l e g a l l y

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obligated to pay
a s d a m a g e s
b e c a u s e o f
“personal injury”
or “advertising
injury” to which
this insurance
applies. . . .
We will have the
right and duty to
defend any “suit”
seeking those
damages.
* * *
b. This insurance
applies to “personal
injury” only if
caused by an offense:
(1) Committed in the
“coverage territory”
during the policy
period; and
(2) Arising out of the
conduct of your
business . . . .
* * *
SECTION V–DEFINITIONS
* * *
10. “Personal injury”
means injury, other
than “bodily injury”,
arising out of one or
more of the following
offenses:
* * *
c. Wrongful entry
into, or eviction of a
person from, a room,
dwelling or premises
that the person
occupies.
In 1991, American Guarantee
altered the “wrongful entry”
provision of the policy as
follows:
c. Wrongful eviction
from, wrongful entry
into, or invasion of
the right of private
occupancy of a room,
dwelling or premises
that a person occupies
by or on behalf of its
owner, landlord or
lessor
(emphasis added).
Coverage B insurance
against personal injury
liability is typical of such
provisions that have been
included in CGL policies since
the 1980s. See generally M.
Jane Goode, Personal Injury
Liability Coverage, 30-SPG Brief
39 (Spring 2001); Fritz K.
Huszagh & Marisa A. Mancici,
Current Issues Involving
Insurance of Claims for Personal
Injury, 427 PLI/LIT 483 (1992).
Coverage B personal injury
liability insurance differs from
Coverage A bodily injury and
property damage insurance in at
least two important ways.
First, unlike Coverage A,
Coverage B may be triggered
without proof of an accidental
occurrence. Instead, Coverage B
is activated by the commission
of certain specified offenses
during the policy period. Also
unlike Coverage A, which
excludes coverage for “‘[b]odily
injury’ or ‘property damage’
expected or intended from the
standpoint of the insured,”
Coverage B expressly extends

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coverage to liability for
“‘personal injury’ . . . other
than ‘bodily injury’,” caused by
certain defined offenses arising
out of the insured’s business.
American Guar. I, 129 F.3d at
808. Therefore, under Coverage
B, the triggering act may be
intentional.
Consequently, cases turning
on the “occurrence” or
“accident” requirement of
Coverage A type liability
insurance (or its exclusion of
intentional or expected
injuries) are irrelevant to this
appeal. See, e.g., Sennett v.
United States Fid. & Guar. Co.,
757 So. 2d 206, 210-13 (Miss.
2000); Ramsay v. Omnibank, 215
F.3d 502, 503 (5th Cir. 2000);
Audubon Ins. Co. v. Stefancik,
98 F. Supp.2d 751, 754-55 (S.D.
Miss. 1999); United States Fid.
& Guar. Co. v. B & B Oil Well
Serv., Inc., 910 F. Supp. 1172,
1176-86 (S.D. Miss. 1995) (all
interpreting Coverage A type
policies). Also irrelevant to
this appeal are cases in which
the insured seeks Coverage B
personal injury liability
coverage for its pollution
damage to another person despite
the pollution damage exclusion
contained in the Coverage A
provision of its policy. See,
e.g., Gregory v. Tennessee Gas
Pipeline Co., 948 F.2d 203, 209
(5th Cir. 1991) (holding that
“to extend Coverage B to all
property damages, including
damages which would be covered
under Coverage A, would render
the pollution exclusion
meaningless”). In other words,
in this appeal we are not faced
with a claim for overlapping A
and B coverage; we deal only
with intrinsic Coverage B
personal liability insurance
claims.
IV. Discussion of Coverage
Issues
A. The Insureds’ Liability
Under State Law
Under Coverage B, American
Guarantee agreed to “pay those
sums that the insured becomes
legally obligated to pay as
damages because of ‘personal
injury’ . . . to which this
insurance applies.” “Personal
injury” is defined by the policy
as “injury, other than ‘bodily
injury’, arising out of one or
more of the following offenses .
. . .” Thus, the threshold
question is whether, based on
the state court allegations,
Hattiesburg Coke and Richard
Thomson can be held liable under
Mississippi law to pay damages
for non-bodily personal injury
to the state court plaintiffs.
We conclude that they can.
The complainants in the
underlying state court actions
alleged that, as the result of
the negligent acts and omissions
of Richard Thomson and
Hattiesburg Coke, they sustained
personal injuries arising out of
John Thomson’s wrongful
intrusion into the women’s
dressing room and his
clandestine videotaping of their
images while they occupied the
room to change clothes. In
particular, the factual
allegations include the
following: (1) Hattiesburg Coke
and Richard Thomson funded VAS
and John Thomson in all aspects

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of the VAS business, and that
Hattiesburg Coke owned the
building in which VAS operated;
(2) VAS and John Thomson used
the Hattiesburg Coke trademark
on its letterhead stationary,
holding themselves out to be
official agents and advertising
representatives of Hattiesburg
Coke; (3) VAS and John Thomson
“set themselves out to the
public to be . . . professional
photographers”; (4) Hattiesburg
Coke and Richard Thomson
“induc[ed] the [state court
plaintiffs, some of them
minors,] to submit to the
photograph sessions . . . in the
furtherance of the business
interests of Hattiesburg Coca-
Cola Bottling Company”; (5)
Hattiesburg Coke and Richard
Thomson “solicited clients for
VAS for purposes of its own
advertising”; (6) Hattiesburg
Coke “purchased the special
fiber optic lenses and camera
equipment used by . . . John
Thomson for the secretive and
i l l i c i t d r e s s i n g r o o m
photographs . . . [and] that
[Hattiesburg Coke] knew, or
should have known, that the said
special equipment and lenses
were not necessary to a
legitimate photography business,
and were for an improper and
i l l i c i t p u r p o s e ” ; ( 7 )
Hattiesburg Coke “was negligent
in purchasing for the [VAS]
special ‘spy’ type lenses and
camera equipment that did not
have a legitimate purpose in a
normal photography studio, and
[that Hattiesburg Coke] knew or
should have known that the said
special lenses and camera
equipment were normally used for
furtive, secretive photography,
which had no legitimate place in
a photography studio”; (8) John
Thomson “‘wired’ the changing
room with hidden movie cameras
and secretly recorded by VCR
tape the [state court plaintiff]
in the process of changing
clothes”; (9) “Thomson then
utilized the entire tape of the
[state court plaintiffs, whom
were minors] to add to his
‘composite’ tape of other women,
all in different stages of
nudity”; (10) Thomson shared
copies of the tapes with other
viewers and possibly sold the
copies; (11) John Thomson had a
history of distributing
“illegitimate” nude photography;
(12) Hattiesburg Coke and
Richard Thomson “failed to
properly warn the [state court
plaintiffs] that . . . John
Thomson had the propensity to
commit illegal acts such as
photographing and videotaping
[minors] in various stages of
undress”; (13) Hattiesburg Coke
and Richard Thomson “were
negligent in allowing [John
Thomson] to utilize the
Hattiesburg Coca-Cola Company
staff, equipment, and assets in
his business efforts to induce
the [state court plaintiffs] . .
. to be photographed and
videotaped in various stages of
undress”; (14) Hattiesburg Coke
and Richard Thomson “were
negligent in failing to keep a
proper . . . lookout for safety
and well being of the [state
court plaintiffs] while in the
studios of the defendants” due
to the fact that the state court
plaintiffs were business
invitees of Hattiesburg Coke and

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Richard Thomson; and (15) the
actions of Hattiesburg Coke “in
purchasing for [VAS] the special
‘spy’ type camera lenses and
other special camera equipment,
when the officers and directors
of the said company knew or
should have known that such
equipment did not have a
legitimate purpose in a
photography studio, was grossly
negligent.”
Based on the allegations of
the state court complainants,
the insureds are potentially
liable under three theories of
negligence. First, Richard
Thomson and Hattiesburg Coke
failed to maintain reasonably
safe conditions for their
business invitees. “Mississippi
imposes on business owners ‘the
duty to maintain the premises in
a reasonably secure or safe
condition’ for business patrons
or invitees.” Whitehead v. Food
Max, Inc., 163 F.3d 265, 271
(5th Cir. 1998) (quoting Lyle v.
Mladinich, 584 So. 2d 397, 399
(Miss. 1991); see also id.
(further quoting Lyle: “[A]ny
business which invites the
company of the public must take
reasonably necessary acts to
guard against the predictable
risk of assaults. A business
proprietor owes a duty to those
entering its premises to provide
a reasonably safe place.”
(internal quotations omitted)).
This duty owed by business
owners includes the protection
of patrons or invitees from the
foreseeable wrongful acts of
employees and third persons on
the premises. See id.; L.T. v.
City of Jackson, 145 F. Supp. 2d
756, 759 (S.D. Miss. 2000)
(citing Little by Little v.
Bell, 719 So. 2d 757, 760 (Miss.
1998); Steele v. Inn of
Vicksburg, Inc., 697 So. 2d 373,
377 (Miss. 1997)). “‘[A]n
invitee is a person who goes
upon the premises of another in
answer to the express or implied
invitation of the owner or
occupant for their mutual
advantage.’” Little by Little,
719 So. 2d at 760 (quoting
Hoffman v. Planters Gin Co., 358
So. 2d 1008, 1011 (Miss. 1978));
Steele, 697 So. 2d at 377
(quoting Skelton v. Twin County
Rural Elec. Ass’n, 611 So. 2d
931, 936 (Miss. 1992)).
Second, the insureds were
potentially liable for
negligently hiring John Thomson.
Under Mississippi law, an
employer may be held liable for
negligently hiring an employee
who intentionally injures
another if, prior to the injury,
the employer knew or should have
known of the employee’s
propensity for the conduct in
question. Thatcher v. Brennan,
657 F. Supp. 6, 10 (S.D. Miss.
1986) (citing Jones v. Toy, 476
So. 2d 30, 31 (Miss. 1985));
Freeman v. Lester Coggins
Trucking, Inc., 771 F.2d 860,
861 n.1 (5th Cir. 1985); Schultz
v. Evelyn Jewell, Inc., 476 F.2d
630, 631 (5th Cir. 1973));
Tichenor v. Roman Catholic
Church, 32 F.3d 953, 960 (5th
Cir. 1994); cf. Restatement
(Second) of Torts § 307 (1965)
(“It is negligence to use an
instrumentality, whether a human
being or a thing, which the
actor knows or should know to be
so incompetent, inappropriate,
or defective, that its use

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11
involves an unreasonable risk of
harm to others.”).
Third, Hattiesburg Coke and
Richard Thomson are potentially
liable for their entrustment of
the VAS facilities and equipment
to John Thomson. Mississippi
has adopted the doctrine of
negligent entrustment as defined
by the Restatement (Second) of
Torts § 390 (1965):
One who supplies
directly or through a
third person a chattel
for use of another
whom the supplier
knows or has reason to
know to be likely
because of his youth,
inexperience, or
otherwise, to use it
in a manner involving
unreasonable risk of
physical harm to
himself and others
whom the supplier
should expect to share
in or be endangered by
its use, is subject to
liability for physical
harm resulting to
them.
See Sligh v. First Nat’l Bank,
735 So. 2d 963, 968 (Miss. 1999)
(quoting section 390); Tillman
v. Singletary, No. 1999-CA-
00686-COA, 2001 WL 268246, *3
(Miss. Ct. App. March 20, 2001)
(same).5
A d d i t i o n a l l y , J o h n
Thomson’s voyeuristic acts fall
squarely within two of
Mississippi’s intentional torts:
(a) invasion of privacy and (b)
outrageous conduct causing
severe emotional distress. In
each instance, the state’s
courts have expressly or
5 We believe that the
Mississippi courts would also
follow the closely related
Restatement (Second) of Torts §
308 (1965) (providing a more
general definition of negligent
entrustment: “It is negligence
to permit a third person to use
a thing or to engage in an
activity which is under the
control of the actor, if the
actor knows or should know that
such person intends or is likely
to use the thing or to conduct
himself in the activity in such
a manner as to create an
unreasonable risk of harm to
others.”). See also id. § 7
(“‘[I]njury’ . . . denote[s] the
invasion of any legally
protected interest[;] ‘harm’
denote[s] the existence of loss
or detriment in fact of any kind
to a person[;] ‘physical harm’ .
. . denote[s] the physical
impairment of the human body, or
of land or tangible chattels.”).
Under the Restatement (Second)
of Torts § 46, liability may
result from extreme and
outrageous conduct intentionally
or recklessly causing severe
emotional distress even without
bodily contact or harm. See,
e . g . , A d a m s v . U . S .
Homecrafters, Inc., 744 So. 2d
736, 742-43 (Miss. 1999) Smith
v. Malouf, 722 So. 2d 490, 497-
98 (Miss. 1998) (both
recognizing a right to recover
for mental anguish in the
absence of bodily injury).

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12
implicitly adopted the pertinent
sections of the Restatement
(Second) of Torts.
Sections 652B and 652C of
the Restatement (Second) of
Torts, in pertinent parts, state
the elements of invasion of
privacy: “One who intentionally
intrudes, physically or
otherwise, upon the solitude or
seclusion of another or his
private affairs or concerns, is
subject to liability to the
other for invasion of his
privacy, if the intrusion would
be highly offensive to a
reasonable person.” Restatement
(Second) of Torts § 652B (1977).
“One who appropriates to his own
use or benefit the name or
likeness of another is subject
to liability to the other for
invasion of his privacy.” Id. §
652C. The Mississippi Supreme
Court has held that a person is
liable if there has been
“interference with plaintiff’s
seclusion . . . that would be
highly offensive to the ordinary
reasonable man, as the result of
conduct to which the reasonable
man would strongly object.”
Candebat v. Flanagan, 487 So. 2d
207, 209 (Miss. 1986) (quoting
id. § 652B cmt. d). Although
the Mississippi Supreme Court
has not expressly adopted
section 652C, we think that it
would if it were presented with
a case falling within its ambit.6
Finally, the Mississippi
Supreme Court has recognized the
tort of intentional or reckless
infliction of emotional distress
by extreme and outrageous
conduct. The Restatement
(Second) of Torts § 46 (1965)
provides: “One who by extreme
and outrageous conduct
intentionally or recklessly
causes severe emotional distress
to another is subject to
liability for such emotional
distress, and if bodily harm to
the other results from it, for
such bodily harm.” See Speed v.
Scott, 787 So. 2d 626, 629 n.1
(Miss. 2001) (acknowledging the
existence under Mississippi law
of the cause of action detailed
by Restatement (Second) of Torts
§ 46); Donald v. Amoco Prod.
Co., 735 So. 2d 161, 178-79
(Miss. 1999) (same).
Considering the facts
alleged by the plaintiffs in the
underlying state court lawsuits,
taken as true and construed in
the light most favorable to the
6 Mississippi has expressly
adopted several of the
Restatement’s invasion of
privacy provisions. See, e.g.,
Plaxico v. Michael, 735 So. 2d
1036, 1039 (Miss. 1999) (quoting
§ 652B); Young v. Jackson, 572
So. 2d 378, 382 (Miss.
1990)(adopting § 652D); Candebat
v. Flanagan, 487 So. 207, 212
(Miss. 1986) (adopting § 652H);
Prescott v. Bay St. Louis
Newspapers, Inc., 497 So. 2d 77,
79 (Miss. 1986) (adopting §
652E). Furthermore, the
Mississippi Supreme Court has
made clear that it has not yet
defined the outer limits of the
state’s invasion of privacy law.
See Young, 786 So. 2d at 381
(“We have made no effort to
identify the outer limits of a
person’s right of privacy and
certainly make none here”).

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13
plaintiffs, and complying with
our Erie duty, we conclude that
the Supreme Court of Mississippi
would decide that (1) John
Thomson committed the torts of
invasion of privacy and extreme
and outrageous conduct upon the
plaintiffs in the underlying
state lawsuits; and that (2)
Richard Thomson and Hattiesburg
Coke may be held liable for
their own negligence in the
state lawsuits under at least
three theories of recovery:(a)
failure to take reasonable
precautions to protect the
victims, as invitees, from the
foreseeable intentional torts of
John Thomson; (b) negligent
hiring of John Thomson to
operate VAS although they knew
or should have known of John
Thomson’s propensity to commit
the intentional torts against
the victims; and (c) negligently
entrusting John Thomson with the
VAS studio and equipment highly
susceptible to voyeuristic uses
although they knew or should
have known that he was likely
because of his history,
character, and propensities to
use them to personally injure
the victims.
B. Personal Injury “Arising
Out of the Conduct of” the
Insureds’ Business
Under Coverage B, American
Guarantee agreed to indemnify
Hattiesburg Coke and Richard
Thomson for non-bodily personal
injury liability caused by an
offense “arising out of the
conduct of” the insureds’
business. American Guarantee
argues that this provision
precludes coverage because John
Thomson’s acts at VAS did not
arise out of the conduct of
Hattiesburg Coke. This court in
American Guar. I concluded that,
under the facts alleged by the
state court complainants, their
personal injuries were caused by
the offenses of John Thomson
which arose out of the conduct
of VAS’s business, as part of
Hattiesburg Coke’s business, and
was managed and directed by the
company and its CEO from the
company headquarters on the
designated premises. The prior
panel said:
[I]n the present case
the phrase “arising
out of” the “use” of
t h e d e s i g n a t e d
premises requires that
there be a causal
connection between the
injuries to the women
improperly videotaped
by John Thomson and
t h e d e s i g n a t e d
premises located at
4501 Harding Street.
We further conclude
that such a connection
exists. It is
undisputed that the
decisions to set up
VAS, construct its
offices, purchase
e q u i p m e n t , a n d ,
eventually, to close
it down, were all made
by Richard Thomson and
other Hattiesburg Coke
o f f i c i a l s a n d
e m p l o y e e s a t
Hattiesburg Coke
h e a d q u a r t e r s , a
designated premises.
Moreover, VAS was

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14
operated as a
formal division
of Hattiesburg
Coke, with John
Thomson assigned
the title of vice
president of
H a t t i e s b u r g
Coke’s “Visual
Arts Division.”
In addition,
Richard Thomson
testified in his
deposition that
a l l o f
H a t t i e s b u r g
Coke’s divisions
shared the same
general checking
account and that
all of VAS’s
expenses were
paid from this
account. John
T h o m s o n w a s
required to pay
all VAS expenses
from a rolling
p e t t y c a s h
account and then
s u b m i t h i s
expenses and
r e c e i p t s t o
Hattiesburg Coke,
which would then
remit these sums
back into the
account. U n d e r
t h e
circumstances, a
factfinder could
find a causal
c o n n e c t i o n
b e t w e e n
Hattiesburg Coke
a n d R i c h a r d
T h o m s o n ’ s
s u p e r v i s o r y
activities, the
operation of the
d e s i g n a t e d
premises, and the
injuries that
resulted from
John Thomson’s
intentional and
tortious actions
at VAS. . . .
Were we confined
to finding a
causal connection
b e t w e e n t h e
injuries stemming
from the improper
videotaping at
VAS and use of
H a t t i e s b u r g
Coke’s premises
at 4501 Hardy
Street as a
building, we
doubt we would
reach the same
c o n c l u s i o n .
However, a CGL
p o l i c y i s
d e s i g n e d t o
insure its holder
from more than
just injuries
arising from the
condition or use
of its buildings
as buildings.
For the reasons
described above,
we conclude that
the requisite
causal connection
exists between
the injuries
alleged in the
underlying state
court lawsuits
and the use of
the company’s

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15
headquarter
s b y
R i c h a r d
Thomson and
Hattiesburg
C o k e t o
s u p e r v i s e
J o h n
T h o m s o n ’ s
activities
at VAS, a
wholly-owne
d division
o f t h e
c o m p a n y .
Thus, the
negligence
c l a i m s
a g a i n s t
Hattiesburg
Coke and
R i c h a r d
Thomson are
n o t
e x c l u d e d
f r o m
coverage by
t h e
designated
p r e m i s e s
endorsement
.
American Guar. I, 129 F.3d at
807-08 (emphasis added). The
first panel, in reaching the
decision that there was the
requisite causal connection
between the alleged personal
injuries and the corporate
headquarters premises, expressly
stated that it did so because
the VAS operations from which
the actionable offenses arose
were conducted by Hattiesburg
Coke as part of its business at
its headquarters, and not
because of a physical connection
between the personal injuries
and the company headquarters
building. Consequently, the
prior panel necessarily decided
that the alleged injuries arose
out of the conduct of the
insured’s business. For
virtually the same reasons, we
conclude that John Thomson’s
acts arose out of the conduct of
Hattiesburg Coke’s business.
C. The Offense of
Invasion of the Right of
Private Occupancy of a Room
by or on Behalf of Its Owner
American Guarantee was
obligated to defend and
indemnify Hattiesburg Coke and
Richard Thomson against all of
the state court complainants’
actions because (1) Coverage B
of the 1991 policy may be
reasonably interpreted to insure
against offenses, i.e., torts,
that accrued in 1991; (2) the
alleged torts of invasion of
privacy committed by John
Thomson all accrued in 1991; and
(3) the alleged personal
liability of Hattiesburg Coke
and Richard Thomson reasonably
may be found to have arisen out
of offenses of invasions of
private occupancy of a room that
persons occupied by or on behalf
of its owner.
1. “Offense committed during .
. . the policy period.”
Coverage B of the 1991
insurance policy “applies to . .
. ‘[p]ersonal injury’ caused by
an offense arising out of your
business . . . but only if the
offense was committed . . .

-- 15 of 22 --

16
during the policy period.”
Coverage under the 1991 policy
began on December 31, 1990 and
ended on December 31, 1991. The
policy does not define “offense”
or “committed.”
The ordinary meaning of
“offense” is “a breach of a
moral or social code” or “an
infraction of law.” Merriam
Webster’s Collegiate Dictionary
806 (10th ed. 1997). Because
the policy insures against
liability arising out of certain
“offenses,” the word in this
context conveys the same meaning
as “tort.” “Tort” has the same
meaning in the ordinary and
legal senses. Compare id. at
1245 (“a wrongful act other than
a breach of contract for which
relief may be obtained”), with
Black’s Law Dictionary 1496 (7th
ed. 1999)(“A civil wrong for
which a remedy may be
obtained”), and 1 Dan B. Dobbs,
The Law of Torts § 1, at 1
(2001)(“a legal wrong . . . that
causes harm for which courts
will impose civil liability”).
Consequently, “a wrong is called
a tort only if the harm which
has resulted, or is about to
result from it, is capable of
being compensated in an action
at law for damages.” W. Page
Keeton et al., Prosser & Keeton
on the Law of Torts § 1, at 4
(5th ed. 1984). In ordinary
parlance, “commit” means “to
carry into action deliberately:
perpetrate a crime.” Merriam
Webster’s Collegiate Dictionary
231 (10th ed. 1997). Thus, in
both legal and ordinary
language, to commit an offense
that results in liability (i.e.,
a tort), means to engage in
conduct that amounts to a legal
wrong and that causes harm for
which courts will impose civil
liability. Taken in this sense,
an offense, or tort, is not
committed unless and until the
injury that results from it
amounts to a harm for which
courts will impose civil
liability.
C o r r e l a t i v e l y , t h e
Mississippi Supreme Court has
held that “[a] tort is not
complete until an injury
occurs.” McMillan v. Puckett,
678 So. 2d 652, 654 (Miss.
1996)(en banc). The McMillan
court also held that “‘[a] cause
of action accrues only when it
comes into existence as an
enforceable claim; that is when
the right to sue becomes
vested.’” Id. (quoting Owens-
Illinois, Inc. v. Edwards, 573
So. 2d 704, 706 (Miss. 1990)).7
7 In interpreting a venue
statute authorizing the
commencement of a civil action
in the county “where the cause
of action may occur or accrue”
the McMillan court explained the
difference between “occur” and
“accrue”:
We read accrual in its
formalistic sense. A
cause of action
accrues when it comes
into existence as an
enforceable claim,
that is, when the
right to sue becomes
vested. This may well
mean the moment injury
is inflicted, that
point in space and
time when the last

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17
Consequently, we believe the
Mississippi Supreme Court,
reading the policy from the
standpoint of a reasonable
purchaser of insurance, would
either (1) interpret “offense .
. . committed . . . during the
policy period” to include an
accrued or completed tort, or
(2) conclude that the phrase is
ambiguous and should be
construed in favor of coverage.
See Great N. Nekoosa Corp. v.
Aetna Cas. & Sur. Co., 921 F.
Supp. 401, 419 (N.D. Miss. 1996)
(holding that it is unclear
whether the “offense” of
emotional distress occurs at the
time of the causative act or at
the time that the plaintiff
learned of the act, and
therefore interpreting the term
to allow for coverage).
Under Mississippi law, the
tort of invasion of privacy
accrues when the plaintiff
discovers or through exercise of
reasonable diligence should have
discovered the invasion. See
McCorkle v. McCorkle, No. 1999-
CA-01711-COA, 2001 WL 19727, at
*5-*6 (Miss. Ct. App. Jan. 9,
2001); see also Tichenor v.
Roman Catholic Church, 32 F.3d
953, 962 (5th Cir. 1994)
(acknowledging Mississippi’s
application of the discovery
rule to invasions of privacy
i n v o l v i n g “ i n h e r e n t l y
undiscoverable” injury). All of
the original twenty-one state
court claimants first discovered
in November 1991 that John
Thomson had invaded the young
women’s rights of privacy.
Eighteen of them alleged that
Thomson videotaped them in 1991.
The remaining state claimants
alleged that he taped them in
1990 but that they had not
learned of the incidents until
1991. American Guarantee does
not contend that any of the
claimants failed to exercise
reasonable diligence. Thus, the
torts of invasion of privacy
alleged in all of the state
court actions accrued in 1991.
Accordingly, if the alleged
liability of Hattiesburg Coke
and Richard Thomson arose out of
the offense of “invasion of the
right of private occupancy of a
room . . . that a person
occupies by or on behalf of its
owner,” American Guarantee is
obliged to defend and indemnify
the insureds in all of the state
cases under Coverage B of its
1991 policy.
2. “Invasion of the right of
private occupancy of a room”
The “invasion of the
private right of occupancy”
phrase is not defined in the
l e g a l l y
significant fact
i s f o u n d .
"Occur" is a less
formalistic term.
It is event
oriented to its
c o r e . I t
connotes conduct
and phenomena and
i m p o r t s n o
preference among
all of those
necessary that a
plaintiff may
sue.
678 So. 2d at 655 (internal
citations and emphases omitted).

-- 17 of 22 --

18
policy and has not been
interpreted by the Mississippi
courts. Therefore, according
to Mississippi rules of
i n s u r a n c e c o n t r a c t
interpretation, we must give it
its plain, ordinary, and popular
meaning.
The Mississippi Supreme
Court often consults leading
dictionaries to determine the
ordinary meaning of insurance
contracts. See, e.g., Bank of
Mississippi v. Mississippi Life
& Health Ins. Guar. Ass’n, 730
So. 2d 49, 57 (Miss. 1999);
Merrimack Mut. Fire Ins. Co. v.
McDill, 674 So. 2d 4, 9 (Miss.
1996); Allstate Ins. Co. v.
Moulton, 464 So. 2d 507, 509
(Miss. 1985); Blackledge, 740
So. 2d at 301 (McRae, J.,
dissenting). The mainstream
dictionary definition of
“invasion” is “an act of . . .
encroachment or trespassing.”
Webster’s New World Dictionary
740 (1976); Webster’s Deluxe
Unabridged Dictionary 965
(1979); American Heritage
Dictionary 688 (1979).
Similarly, “invade” means “to
encroach upon” or “to affect
injuriously and progressively.”
Merriam Webster’s Collegiate
Dictionary 615 (10th ed. 1997).
“Private” commonly means
“intended for or restricted to
the use of a particular person,
group, or class” or “[w]ithdrawn
from company or observation.”
Id. at 927. A thing is
"private" if it is "[s]ecluded
from the sight, presence, or
intrusion of others." American
Heritage Collegiate Dictionary
1089 (3d ed. 1993). In its
ordinary sense, a “right”
includes “something due to a
person . . . by law.” Id. at
1175. The common-place meaning
of “occupancy” is “[t]he period
during which one owns, rents, or
uses certain premises.” Id. at
944. “Occupy” means “to fill up
(time or space).” Id.
It is apparent from the
above definitions that an
average purchaser of insurance
could reasonably understand the
phrase "invasion of the right of
private occupancy of a room" to
include the invasion of a room
that is secluded from the sight,
presence, or intrusion of
others. John Thomson’s invasion
by hidden camera of the young
women’s right to occupy and
change clothes in the women’s
dressing room reasonably falls
within this definition.
The United States Supreme
Court has recognized that a
person has a constitutional
right to privacy whenever he or
she has a reasonable expectation
of privacy. See Kyllo v. United
States, 121 S.Ct. 2038, 2043
(2001) (reaffirming the rule
that a person has a
constitutional “expectation of
privacy” when “society is
prepared to recognize [that
expectation] as reasonable”).
Mississippi has emphatically
recognized the tort of invasion
of privacy and in doing so has
taken notice of an individual’s
right to privacy under state
law. Mississippi also requires
of commercial property owners
the highest duty to protect
their business invitees from
unreasonable risks of harm while
visiting their premises. Hence,
we conclude that the Mississippi

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19
Supreme Court would find that
John Thomson, by secretly
videotaping the young women in
VAS’s dressing room, invaded
their “right of private
occupancy” of that room.
Related Mississippi case
law supports our anticipation of
this conclusion. See Candebat,
487 So. 2d at 209 (finding a
person liable if there has been
“interference with plaintiff’s
seclusion . . . that would be
highly offensive to the ordinary
reasonable man, as the result of
conduct to which the reasonable
man would strongly object.”);
Plaxico, 735 So. 2d at 1038-39
(recognizing that the defendant
violated the plaintiff’s
reasonable expectation of
privacy when he took voyeuristic
nude photographs of her while
she was in her bedroom); see
also Malloy v. Sears, Roebuck &
Co., No. 4:96CV157-EMB, 1997 WL
170313, at *1 (N.D. Miss. Mar.
4, 1997) (recognizing a business
invitee’s state law cause of
action for “unreasonable
intrusion upon the seclusion of
another” where the defendant’s
employee peeped on the invitee
while she was using the restroom
on the defendant’s premises).
Considering Mississippi’s
vigorous protection of the right
of privacy, it is reasonable to
anticipate that an “invasion of
the right of private occupancy
of a room” would be interpreted
by the state’s courts as
including John Thomson’s
surreptitious videotaping of
female business invitees
disrobing while occupying a
private dressing room.
Alternatively, if the
Mississippi Supreme Court does
not adopt this meaning outright,
we believe that it would find
that the phrase is ambiguous,
recognize that the foregoing
interpretation is reasonable,
and, in accord with its
precedents, apply it in the
present case in favor of
coverage. Well reasoned
opinions of other courts have
found the same policy language
highly ambiguous and susceptible
to providing coverage in a wide
array of circumstances.
In New Castle County v.
National Union Fire Ins. Co.,
243 F.3d 744 (3d Cir. 2001)
(“New Castle III”) the Third
Circuit, after a comprehensive
survey of cases nationwide,
concluded that the phrase
“invasion of the right of
private occupancy” is ambiguous
as a matter of law. See id. at
756 (“A single phrase, which
insurance companies have
consistently refused to define,
and that has generated literally
hundreds of lawsuits, with
widely varying results, cannot,
under our application of
commonsense, be termed
unambiguous”). Moreover, as the
New Castle III court points out,
the courts which claim to have
divined one true meaning of the
phrase have ended up espousing
three different and inconsistent
interpretations. See id. at
750-753; see also Goode, supra,
at 41-43 & nn. 21-35 (citing and
discussing a wide spectrum of
case law regarding the meaning
of the phrase “right of private

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20
occupancy”).8 This wide variance
in interpretations is itself
evidence that the phrase is
ambiguous. See id. at 756.
New Castle III also
illustrates the breadth of
meaning that reasonably may be
attributed to the phrase “right
of private occupancy.” At issue
in that case was whether a
county’s failure to award a
building permit in violation of
the applicant’s due process
rights qualified as an invasion
of the applicant’s private right
of occupancy of the property.
Id. at 749. Employing rules of
i n s u r a n c e c o n t r a c t
interpretation similar to
Mississippi’s, the court found
the phrase to be ambiguous and
liberally construed it in favor
of coverage.
Other courts finding the
phrase to be ambiguous have also
found coverage under far-
reaching circumstances. See
Titan Holdings Syndicate, Inc.
v. City of Keene, 898 F.2d 265,
272-73 (1st Cir. 1990) (holding
that a similar phrase included
the interference in the quiet
use of property resulting from
“noxious odors, noise and
light”); Beltway Mgmt. Co. v.
Lexington-Landmark Ins. Co., 746
F.Supp. 1145, 1156 (D.D.C. 1990)
(holding that the phrase
encompasses liability for a
breach of the implied warranty
of habitability of an
apartment); Town of Goshen v.
Grange Mut. Ins. Co., 424 A.2d
822, 825 (N.H. 1980) (finding
coverage under the phrase where
a town planning board refused to
allow a property owner to
develop a subdivision in
violation of his civil rights).
In light of the
comprehensive studies undertaken
by New Castle III and other
courts, we are convinced that
the present case is simple by
comparison and falls well within
the ambit of a reasonable
interpretation of the phrase.
Consequently, in view of the
Mississippi rules of insurance
policy construction, the
ordinary meanings of the words
involved, and the persuasive
reasoning of New Castle III, we
conclude that the Mississippi
Supreme Court would construe the
clause in favor of coverage in
the present case.
3. “[B]y or on behalf of its
owner, landlord, or lessor”
Of the many ordinary usages
of the word “by,” several lend
cogent meaning to the policy
clause: “through or through the
medium of”; “through the agency
or instrumentality of”; in
conformity with”; “according
to”; “on behalf of”; or “with
respect to.” Merriam Webster’s
Collegiate Dictionary 157 (10th
8 In her article, Jane Goode
collects various cases and finds
that the term “right of private
occupancy” has been interpreted
to require a range of activity,
from as much as a physical
trespass upon a real property
interest to lesser intrusions
and impairments of the use and
enjoyment of property, such as
an invasion of privacy or a mere
legal encroachment upon an
economic interest. See Goode,
supra, at 41-43 & nn.21-35.

-- 20 of 22 --

21
ed. 1997). “On behalf of” is
commonly thought to mean “in the
interest of” and “as a
representative of.” Id. at 103.
Therefore, the phrase reasonably
may be interpreted to mean that,
in order for there to be
coverage, the victim must be
occupying the room “through,”
“through the medium of,”
“through the agency or
instrumentality of,” “by the
authority of,” “according to,”
“in relation to,” or “in the
interest of” the owner of the
room. Thus, in the ordinary
sense of the words, the young
women in the underlying
litigation were occupying the
dressing room “through,” “by the
authority of,” and “in the
interests of” its owner,
Hattiesburg Coke, when John
Thomson violated their rights of
private occupancy of a room.
Consequently, we think the
Mississippi courts would apply
that reasonable meaning in favor
of coverage, either as their own
interpretation or in accordance
with Mississippi law governing
the construction of ambiguous
insurance contracts. The Third
and Eighth Circuits have held
that the effect of the phrase is
ambiguous and that it must be
construed in favor of coverage.
See New Castle County v.
National Union Fire Ins. Co.,
174 F.3d 338 (3d Cir. 1999)
(“New Castle I”); Royal Ins. Co.
of America v. Kirksville College
of Osteopathic Med., 191 F.3d
959, 963 (8th Cir. 1999)
(following the New Castle I
holding that the phrase is
ambiguous).
Accordingly, we conclude
that American Guarantee was
obliged to defend and indemnify
Richard Thomson and Hattiesburg
Coke under Coverage B of the
1991 CGL policy in the
underlying state court actions.
V. Reimbursement of
Attorney’s Fees
Hattiesburg Coke and
R i c h a r d T h o m s o n s e e k
reimbursement for attorney’s
fees and expenses incurred in
hiring separate and independent
counsel. In Moeller v. American
Guarantee and Liability
Insurance Company, 707 So. 2d
1062, 1069 (Miss. 1996), the
Mississippi Supreme Court
stated:
When defending under a
reservation of rights,
. . . a special
obligation is placed
upon the insurance
carrier. . . . [N]ot
only must the insured
b e g i v e n t h e
opportunity to select
his own counsel to
defend the claim, the
carrier must also pay
the legal fees
reasonably incurred in
the defense.
We are bound by the
Mississippi Supreme Court’s
decision in Moeller. The
insureds hired separate counsel
because American Guarantee only
agreed to defend Hattiesburg
Coke and Richard Thomson under a
reservation of rights and
because the insureds were

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potentially exposed to liability
in excess of the CGL policy
limits. Because we have
determined that the claims
contained allegations covered
under Coverage B, Moeller
mandates that Hattiesburg Coke
and Richard Thomson be
reimbursed for the reasonable
costs of obtaining a separate
attorney. See id. at 1071
(“Because [the insureds were]
being defended under the . . .
claim with a reservation of
rights, American Guarantee was
obligated to let them select
their own attorney at American
Guarantee’s cost”).
Although American Guarantee
acknowledges the Moeller
decision, the company argues
that we should not retroactively
apply its holding. We reject
American Guarantee’s argument.
The Mississippi Supreme Court
has clearly held that its
rulings apply retroactively
except in cases involving
government action or public
monetary resources. See Ales v.
Ales, 650 So. 2d 482, 484-85
(Miss. 1995). Because Moeller
involves neither of those
exceptions, its holding controls
this case, which was pending
when the Mississippi Supreme
Court issued the opinion.
VI. Conclusion
Accordingly, we conclude
that American Guarantee is
obligated to defend and
indemnify Hattiesburg Coke and
Richard Thomson in the
underlying state lawsuits. We
REVERSE the grant of summary
judgment for American Guarantee
and REMAND the case to the
district court with instructions
for it to grant summary judgment
in favor of Richard Thomson and
Hattiesburg Coke and against
American Guarantee, decreeing
that American Guarantee is
obliged to defend, indemnify,
and reimburse them in connection
with the underlying state court
actions in accordance with this
court’s opinion. The case is
remanded for these purposes and
for further proceedings
consistent herewith.

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