Whiddon v. Federated Mutual Ins

United States Court of Appeals
Fifth Circuit
F I L E D
July 7, 2005
Charles R. Fulbruge III
Clerk
REVISED JULY 8, 2005
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 04-60707
_______________
ANGELA WHIDDON,
MINOR BY AND THROUGH ANGELA WHIDDON, MOTHER AND GENERAL GUARDIAN,
Plaintiff-Appellee,
VERSUS
FEDERATED MUTUAL INSURANCE COMPANY, ET AL.,
Defendants,
FEDERATED MUTUAL INSURANCE COMPANY,
Defendant-Appellant.
_________________________
Appeal from the United States District Court
for the Southern District of Mississippi
m 2:03-CV-435
__________________

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Before SMITH, DENNIS, and PRADO,
Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Federated Mutual Insurance Company
(“Federated”) appeals a summary judgment in
favor of Kassie Orr, through her legal repre-
sentative Angela Whiddon, in this declaratory
judgment action involving disputed issues of
insurance coverage. Finding no error, we
affirm.
I.
Catron Oil, Inc. (“Catron”), the insured,
owns and operates a gas station and conven-
ience store in Hattiesburg, Mississippi, and
sold beer to two minors in violation of state
law.1 While a passenger in a vehicle driven by
one of those minors, Orr was severely injured
when the driver, under the influence of alco-
hol, lost control and crashed into a tree. Orr,
through her legal representative, sued Catron
in Mississippi state court, asserting dram shop
liability.
On behalf of its insured, Federated executed
a settlement with Orr pursuant to which it paid
the per-occurrence policy limit under Catron’s
liquor liability policy and further agreed to pay
any sums ultimately determined, in a parallel
declaratory judgment action in federal court,
to be covered by either or both of Catron’s
other two insurance policies underwritten by
Federated, which were a primary commercial
liability policy and an umbrella liability policy.2
In the instant federal declaratory judgment
action, the parties filed cross-motions for sum-
mary judgment. Federated maintained that
neither the primary commercial liability policy
nor the umbrella liability policy issued to the
insured provided coverage for Orr’s injuries;
Orr claimed that both policies provided cover-
age.
The district court entered partial summary
judgment in favor of Federated on the ground
that damages for Orr’s injuries did not come
within its coverage obligation under the pri-
mary commercial liability policy; but the dis-
trict court also granted a partial summary
judgment in favor of Orr on the ground that
damages for her injuries did come within Feder-
ated’s coverage obligation under the additional
liability coverage provisions of the umbrella
policy. Federated appeals the summary judg-
ment in favor of Orr.
II.
We review a summary judgment and a
district court’s interpretation of the relevant
* Pursuant to 5TH CIR. R. 47.5, the court has de-
termined that this opinion should not be published
and is not precedent except under the limited cir-
cumstances set forth in 5TH CIR. R. 47.5.4.
1 See MISS. CODE ANN. § 67-3-53 (Rev. 2001).
2 Orr filed the declaratory judgment action
against Federated and Catron in state court, seek-
ing a declaration that the damages owed by Catron
for her injuries were covered by its two additional
insurance policies. Federated removed the action
to federal district court on the basis of diversity
jurisdiction and, in support of which, maintained
that Catron, a Mississippi corporation, had been
improperly joined as a defendant, and thus moved
the district court to realign Catron as a plaintiff,
thereby creating complete diversity of citizenship.
Orr initially opposed the motion and moved for
remand but, as part of the settlement of the
underlying tort suit, agreed to confess the re-
alignment issue, thereby enabling the declaratory
judgment action to proceed in federal court.

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insurance policies de novo, applying the same
standards as did the district court. Am. Guar.
& Liab. Ins. Co. v. 1906 Co., 129 F.3d 802,
805 (5th Cir. 1997); Am. States Ins. Co. v.
Nethery, 79 F.3d 473, 475 (5th Cir. 1996).
“Under Mississippi law, courts interpret insur-
ance policies according to contract law. This
interpretation is limited to the written terms of
the policy. If the policy is unambiguous, its
terms must be given their plain meaning and
enforced as written.” Nethery, 79 F.3d at 475
(citations omitted).3
III.
At the time Orr sustained her injuries, Ca-
tron had three insurance policies underwritten
by Federated: (1) a liquor liability policy; (2) a
primary commercial liability policy; and (3) an
umbrella liability policy. In the underlying tort
suit, as we explained, Orr, and Federated on
behalf of Catron, settled for the per-occur-
rence limit on the liquor liability policy. In this
declaratory judgment action, then, the question
before the district court was whether there is
additional coverage for Orr’s injuries under
either or both the primary commercial liability
policy and the umbrella liability policy.
A.
The district court concluded that Orr’s in-
juries were not covered by the insured’s pri-
mary commercial liability policy because that
policy contains an exclusion for bodily injury
for which the insured may be held liable by
reason of the sale of alcohol to a minor. Orr
does not cross-appeal this holding.
B.
The district court then turned its attention
to whether there is additional coverage for
Orr’s injuries under the umbrella policy, which
provides two distinct types of coverage: (1)
“excess liability coverage” and (2) “additional
liability coverage.” The umbrella policy de-
fines the insurer’s obligation for “excess liabil-
ity coverage” as follows:
Except as excluded under the underlying in-
surance, we will pay on behalf of the in-
sured those sums that the insured becomes
legally obligated to pay as damages that are
covered under the underlying insurance:
(a) because of bodily injury . . . (b) which
are in excess of the applicable insurance
limit.
In contrast, the umbrella policy defines the
insurer’s obligation for “additional liability
coverage” as follows:
Except as excluded in Section II, we will
pay on behalf of the insured those sums that
the insured becomes legally obligated to
pay as damages from an occurrence during
the policy period arising from . . . the
“products-completed operations hazard”
anywhere in the world.
Critically, in section II, captioned “Exclu-
sions,” the umbrella liability policy treats these
two types of coverageSSexcess liability and
additional liabilitySSdifferently. As to excess
coverage, the umbrella policy provides that
“the exclusions in the underlying insurance
apply.” Thus, the exclusions in the other
policies limit Federated’s coverage obligation
for excess liability. As to additional liability
coverage, however, there are thirteen enum-
erated exclusions, none of which is applicable
here or claimed to be by Federated.
3 See also Aero Int’l, Inc. v. United States Fire
Ins. Co., 713 F.2d 1106, 1109 (5th Cir. 1983) (ap-
plying Mississippi law); J & W Foods Corp. v.
State Farm Mut. Auto Ins. Co., 723 So. 2d 550,
552 (Miss. 1998).

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The umbrella policy defines “products-
completed operations hazard,” for which
Federated owes additional liability coverage to
Catron, as follows:
[A]ll bodily injury and property damage oc-
curring away from premises you own or
rent and arising out of “your product” or
“your work” except (a) products that are
still in your physical possession; or
(b) work that has not yet been completed
or abandoned.
And the umbrella policy defines “your prod-
uct” as “any goods or products, other than real
property, manufactured, sold, handled, distrib-
uted or disposed by you”; “your work,” is de-
fined, in part, as “work or operations per-
formed by you or on your behalf.”
1.
The district court first considered whether
the umbrella policy provides coverage for
Orr’s injuries under its excess liability cover-
age provision. The court correctly concluded
that it does not: Because the umbrella policy
provides that, as far as excess liability is con-
cerned, the exclusions in the underlying insur-
ance apply, the umbrella policy incorporates
the exclusion in the primary commercial lia-
bility policy for injuries sustained as a result of
liquor sales to a minor; and thus there is no
excess liability coverage for Orr’s injuries.
2.
In contrast to Federated’s excess liability
coverage obligation, however, its obligation
for additional liability coverage under the um-
brella policy is not subject to the exclusions in
the underlying policies—including, therefore,
the dram-shop liability exclusion in the com-
mercial liability policy. Instead, as we indi-
cated, the only applicable exclusions are spe-
cifically enumerated, and none applies here.
Thus, as the district court properly recognized,
the outcome-determinative question of policy
interpretation is whether the injuries sustained
by Orr, for which Catron owes damages, come
within the umbrella policy’s additional liability
coverage for “products-completed operations
hazard”SSi.e., whether the accident and result-
ing injuries “aris[e] out of” the insured’s
“work” or “product” as those terms are de-
fined in the policy.
a.
The district court properly answered this
question in favor of coverage. As a threshold
matter, there is no dispute that Orr’s personal
injuries constitute the requisite “bodily injury”
or that those injuries were sustained “away
from premises” owned or rented by the in-
sured. Nor is there any genuine dispute that
the alcohol sold at the convenience store qual-
ifies as “your product,” which the policy de-
fines to include “any goods or products . . .
sold by” the insured. Similarly, the policy de-
fines “your work” as “work or operations per-
formed by you or on your behalf,” thus plainly
encompassing the sale of regularly-stocked
products such as beer. And the injuries sus-
tained by Orr “aris[e] out of” the sale of beer
in typical but-for causation terms, as is the
case with ordinary dram-shop liability.4
b.
In fact, Federated does not dispute that the
4 Cf. Am. Guar. & Liab. Co., 129 F.3d at 807
(“The phrase ‘arising out of’ is ordinarily under-
stood to mean ‘originating from,’ ‘having its origin
in,’ ‘growing out of,’ or ‘flowing from.’”); id.
(noting that in the insurance context Mississippi
law interprets the phrase “arising out of” to require
a “causal connection” between the injuries alleged
and the objects made subject to the phrase”).

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damages owed by Catron for Orr’s injuries
“aris[e] out of” the sale of the insured’s prod-
uct. Rather, Federated maintains that “[t]he
mere fact that a claim can be said to ‘arise out
of’ the sale of an insured’s ‘product’ in terms
of a but-for causation tort analysis, does not
result in the application of ‘Products Hazard’
provision to afford the Claimant with a right of
recovery in this case.” Instead, Federated
argues that the umbrella policy’s grant of ad-
ditional liability coverage for products-com-
pleted operation hazards should be read as
granting coverage only for claims based on a
defective products theory of liability; Feder-
ated cites various cases from jurisdictions oth-
er than Mississippi in support of this construc-
tion.5
In rejecting this contention, the district rea-
soned as follows:
While the terms of the “product-completed
operations hazard” coverage is certainly
broad enough to include strict liability
claims based on the sale of defective prod-
ucts, the question is whether that coverage
is restricted to claims based on that theory
of liability. The coverage might certainly
have contained such a limitation, but I see
nothing in the terms of the policy itself that
limits the operation of this provision to
strict liability in tort for the sale of a defec-
tive product. As written, the “product
completed operations hazard” affords cov-
erage, up to the limits of the policy, for
“those sums that insured becomes legally
obligated to pay as damages,” without re-
gard to the theory of recovery upon which
an injured party may rely.
We agree: Nothing in the terms of the
umbrella policy limits its grant of additional
liability coverage to claims based on a
defective-products theory of recovery. To the
contrary, the policy grants coverage in plain
and unambiguous terms: “all bodily injury and
property damage occurring away from pre-
5 Like the district court, we find the cases cited
by Federated from jurisdictions other than Mis-
sissippi to be of limited utility. First, though Fed-
erated is correct that courts in other jurisdictions
indeed have adopted, in some form, the position it
urges here, those courts have done so in the context
of interpreting products-completed operations
hazard exclusions (as opposed to an affirmative
grant of coverage as is the case here) and thus were
generally bound to construe the exclusions
narrowly. See, e.g., Lessak v. Metro. Cas. Ins.
Co., 151 N.E.2d 730, 735 (Ohio 1958); Gen. Ins.
Co. of Am. v. Crawford, 635 S.W.2d 98, 102-03
(Tenn. 1982); Farm Bureau Mut. Ins. Co. v. Lyon,
528 S.W.2d 932, 937 (Ark. 1975).
Second, there is contrary authority from various
other jurisdictions that squarely rejects the de-
fective-products limitation as beyond the text of the
typical products-completed operations hazard
exclusions. See, e.g., Brazas Sporting Arms, Inc.
v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1,
5-6 & n.2 (1st Cir. 2000) (collecting cases); Cob-
bins v. Gen. Accident Fire & Life Assurance
Corp., 290 N.E.2d 873, 877 (Ill. 1972); Hagen
Supply Corp. v. Iowa Nat. Mut. Ins. Co., 331 F.2d
199, 200-04 (8th Cir. 1964).
Third, each court tasked with interpreting an
insurance policy must consider the specific policy
language at issue, and thus reported cases cited by
litigants for general propositions often turn out to
involve materially different policy language. See
Brazas, 220 F.3d at 6. Thus, for example, al-
though Federated relies heavily on Scarborough v.
N. Assurance Co. of Am., 718 F.2d 130 (5th Cir.
1983) (in which we held, applying Louisiana law,
that a products hazard exclusion did not exclude
coverage of a claim based on a negligent failure to
warn theory), the specific exclusionary provision
we construed included language directed squarely
at defective products claims. See id. at 133.

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mises you own or rent and arising out of ‘your
product’ or ‘your work.’”
Limiting this affirmative grant of coverage
to injuries based on defective products would
thus require importing terms into the policy
that are plainly not there.6 We reject Fed-
erated’s invitation to do so, for it is fundamen-
tally inconsistent with our duty faithfully to ap-
ply the governing principles of Mississippi
contract law, first among them being the rule
that the terms of an insurance policy “must be
given their plain meaning and enforced as writ-
ten.” Nethery, 79 F.3d at 475 (citations omit-
ted) (emphasis added).7 Thus, although Feder-
ated may well have intended to limit its cover-
age obligation for additional liability to third-
party claims based on a defective-products
theory of recovery, the granting provision in
the umbrella policy does not do so.
c.
Federated suggests that because Orr’s dam-
ages claim is the type of claim the insured’s
liquor liability policy was “specifically de-
signed to cover,” coverage should not also be
found under the additional liability coverage
grant in the umbrella policy. But in the context
of an umbrella insurance policy, the very pur-
pose of which is to provide coverage beyond
that provided by underlying insurance policies,
it makes little sense to point to another policy
that provides coverage as a reason for why
there cannot be additional coverage under the
plain terms of the umbrella policy.
In sum, the terms of the additional liability
grant of coverage in the umbrella policy, when
given their plain and ordinary meaning, do not
admit of any limitation of coverage (and thus
ultimately of indemnity) for claims based only
on a defective-products theory of liability. Ac-
cordingly, the judgment is AFFIRMED.
6 Federated practically admitted as much at oral
argument when its counsel repeatedly admonished
the panel not “slavishly [to] follow the text.” Cf.
Brazas, 220 F.3d at 6 (“[I]n order to limit the . . .
exclusion provision to defective products, we
would need to read into the text a requirement that
is simply not there. . . . Where, as here, the
language of the exclusion provision is unambig-
uous, the text should be given its plain meaning. In
this case, the plain meaning of the exclusion is that
it applies to all product-related injuries.”).
7 This is especially so where, as here, the in-
surer demonstrated elsewhere that it knew how to
exclude the disputed damages if it so desired.

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