HARTFORD INSURANCE COMPANY OF the MIDWEST, Plaintiff-Counter Defendant-Appellant v. Twin City Fire Insurance Company; Hartford Accident & Indemnity Company, Plaintiffs-Appellants v. MISSISSIPPI VALLEY GAS COMPANY; Atmos Energy Corporation, Successor in Interest to and doing business as Mississippi Valley Gas Company, Defendants-Counter Claimants-Appellees.
No. 05-60299.
United States Court of Appeals, Fifth Circuit.
May 25, 2006.
465
Mary Ellen G. Patton, Dale G. Russell, Copeland, Cook, Taylor & Bush, Ridgeland, MS, for Defendants-Counter Claimants-Appellees.
Before KING, SMITH and BENAVIDES, Circuit Judges.
PER CURIAM:*
Plaintiff-appellant Hartford Insurance Company of the Midwest appeals the district court‘s grant of summary judgment in favor of defendant-appellee Mississippi Valley Gas Company on its coverage claim in the amount of $557,919 under property insurance policies covering natural gas produced by certain designated wells. Hartford Insurance Company of the Midwest also appeals the district court‘s denial of its motion for summary judgment as well as its motion to strike portions of the affidavit of Mississippi Valley Gas Company‘s petroleum engineering expert, Wayne Stafford. We agree fully with the district court that resolution of this issue is “hardly apparent.” That said, we REVERSE
I. FACTUAL AND PROCEDURAL BACKGROUND
This case concerns an insurance coverage dispute between plaintiff-appellant Hartford Insurance Company of the Midwest (“Hartford“) and defendants-appellees Mississippi Valley Gas Company and its successor in interest Atmos Energy Corporation (collectively “MVG“). The basic factual predicate underlying the instant appeal is undisputed. In 1982, MVG began purchasing natural gas produced by the Asa Watson Well in Monroe County, Mississippi from the well‘s owner and operator, Howard G. Nason. In 1989, MVG entered a separate contract to purchase natural gas from a different well in Monroe County known as the Catherine Watson Well from Nason Production Company, Inc., Howard G. Nason, Howard F. Nason, and Anice H. Nason.1 The gas produced from each well flowed through a separate line to a distinct sales meter, where the volume of gas from the well was compressed, measured, and ultimately delivered to MVG‘s pipeline. Pursuant to the contracts between MVG and the Nasons, legal title to the gas transferred from the Nasons to MVG at the point of the sales meter. After the gas was metered, it was transported to MVG‘s facilities and into high-pressure transmission lines for distribution.
The district court‘s opinion succinctly describes the facts underlying the coverage claim:
When the Asa Watson Well stopped producing in March or April 1999, the Nasons removed the meter from the Asa Watson Well and diverted the gas production being sold to MVG from the Catherine Watson Well through the sales meter for the Asa Watson Well.
Thereafter, in September 2000, MVG discovered that an underground “tap” had been placed on MVG‘s line downstream of the meter which diverted gas from MVG‘s line through an underground pipe back to a point upstream of the meter, where the gas was reintroduced or reinjected into the gas stream. As a result of this recirculation, gas which had already been metered and purchased by MVG was recirculated and hence remetered and resold by the Nasons to MVG.
R. at 234-35. Based on reports from MVG‘s petroleum engineering expert Wayne Stafford‘s investigation, the recirculation scheme caused an estimated total monetary loss to MVG of $1,804,125 between 1986 and September 2000.2
In January 2003, MVG submitted a proof of loss claim in the amount of $557,919 to recoup a portion of this loss under the Hartford policies covering the period between September 1, 1994 and January 31, 1999.3 More specifically,
On September 30, 2003, Hartford filed a diversity action in the Southern District of Mississippi seeking a declaratory judgment that Hartford was not obligated to pay MVG‘s claim for loss of natural gas under the applicable property insurance policies. MVG filed an answer and counterclaim for declaratory relief on October 30, 2003, seeking an adjudication that the Hartford policies did indeed provide coverage for the claim. The parties submitted cross-motions for summary judgment on July 15, 2004.
The parties did not dispute before the district court that a “theft” that results in a loss of or damage to the covered property is covered under the relevant Hartford policies. They differed, however, in their characterization of the scheme and the precise nature of the alleged loss. MVG asserted that the recirculation scheme amounted to repeatedly stealing and re-
On January 18, 2005, the district court denied Hartford‘s motion for summary judgment and granted MVG‘s motion for summary judgment, “conclud[ing], albeit not with certainty, that MVG sustained a loss that falls within the coverage of Hartford‘s policies.” R. at 233. With respect to the contested issue of whether the recirculation scheme constituted a “direct physical loss” of covered property under the Hartford policy, the court acknowledged that “there are compelling arguments on both sides of the issue.” Id. at 236. The court rejected Hartford‘s characterization of MVG‘s claim as a “loss of money” from overpayment and found that “the facts readily support[ed] the conclusion that a theft occurred when the Nasons siphoned natural gas from MVG‘s pipeline.” Id. at 237.
In the court‘s view, the fact that the Nasons resold the natural gas they had stolen from MVG to MVG, so that MVG thus ended up acquiring all the natural gas produced by the wells because the gas was recirculated through the meter rather than simply being siphoned off and sold to another buyer, does not change the fact that there was a dispossession, or “direct physical loss” of the natural gas, for a period of time. Id.
After rejecting Hartford‘s contention that MVG suffered only a loss of money, the court summarily disposed of Hartford‘s alternative arguments that the policies’ “voluntary parting” exclusion and “missing property” limitation applied to deny coverage. More specifically, the court found that (1) MVG did not “voluntarily part” with the gas that was siphoned off through the underground tap to fall within that exclusion; and (2) the “missing property” limitation did not apply given the physical evidence showing how the gas was diverted and remetered.
Because the district court‘s summary judgment order decided only the issue of coverage under the policies and not the precise extent of liability, Hartford submitted a motion for clarification accompanied by a request for certification of the coverage question for interlocutory appeal pursuant to
We review a grant of summary judgment de novo, applying the same standards as the district court. Fed. Ins. Co. v. Ace Prop. & Cas. Co., 429 F.3d 120, 122 (5th Cir. 2005). Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”
III. DISCUSSION
In resolving this coverage dispute, we must first examine the relevant provisions in the property insurance policies at issue. Interpretation of an unambiguous insurance contract is a question of law, which this court reviews de novo. Am. States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998). The parties further agree that Mississippi law governs this diversity action. “Under Mississippi law, an insurance policy is a contract subject to the general rules of contract interpretation.” ACS Constr. Co. of Miss. v. CGU, 332 F.3d 885, 888 (5th Cir. 2003) (citing Clark v. State Farm Mut. Auto. Ins. Co., 725 So. 2d 779, 781 (Miss. 1998)). “Although ambiguities in an insurance policy are construed against the insurer, a court must refrain from altering or changing a policy where terms are unambiguous, despite resulting hardship on the insured.” Titan Indem. Co. v. Estes, 825 So. 2d 651, 656 (Miss. 2002).
The Special Property Coverage Form provides coverage for “direct physical loss of or damage to Covered Property caused by or resulting from any Covered Cause of Loss.” The parties agree that the “Covered Property” at issue under the policies is the natural gas produced by the designated Watson Wells. Under the policies, “Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS unless the loss is” otherwise excluded or limited by the operation of certain enumerated conditions in the policy, including the “voluntary parting” exclusion and “missing property” limitation.5 The policies also provide that “theft” and “attempted theft” that result in loss of or damage to covered property constitute “specified causes of loss” under the policies. The policies, however, expressly exclude mere monetary losses from the definition of “covered property.”6
As a general matter, property insurance coverage is triggered by some threshold concept of physical loss or damage to the covered property. See 10A COUCH ON INS. § 148:46 (3d ed. 2005).
The requirement that the loss be “physical,” given the ordinary definition of that term is widely held to exclude alleged losses that are intangible or incorporeal, and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.
Id. We have previously stated that “[t]he language ‘physical loss or damage’ strongly implies that there was an initial satisfactory state that was changed by some external event into an unsatisfactory state—for example, the car was undamaged before the collision dented the bumper.” Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 270–71 (5th Cir. 1990). Consistent with these general principles, absent some physical manifestation of loss or damage to the gas itself, the property insurance policies issued by Hartford in this case expressly exclude mere monetary losses from coverage.
The fundamental difficulty with MVG‘s position is that, except for the unclaimed de minimis portion of gas consumed to carry out the recirculation scheme, MVG actually received all of the available gas produced by the two Watson Wells. MVG cites National Fire Insurance Co. of Hartford v. Slayden, 227 Miss. 285, 85 So. 2d 916, 917 (1956), for the proposition that even a temporary deprivation of property would be covered under an insurance policy that covered against “theft” losses. The holding in Slayden was actually considerably narrower than this and consistent with our disposition of the instant case. In Slayden, the Supreme Court of Mississippi affirmed in part a jury verdict assessing liability under an insurance policy where a third party had damaged the engine of a “bulldozer equipped tractor“—the covered property under the insurance policy—by improperly operating it without water. Id. Even though the damaged tractor itself was returned to the insured party, the court concluded that the damage resulting from temporary “theft” of the property was covered under the insurance policy.
To the contrary, here the gas from the Watson Wells was not physically lost or damaged in any way before it was eventually returned to MVG after multiple passes through the meter. In this sense, unlike the situation in Slayden, the covered property was not returned to the insured party in a damaged state. Therefore, MVG‘s proof of loss claim lacked the requisite “direct physical loss of or damage to” the
After careful examination of the relevant provisions in the Hartford policies, we conclude that MVG‘s overpayment for the recirculated gas from the Watson Wells is more accurately described as a loss of “money,” rather than covered property. Accordingly, the district court erred in finding a covered loss under the insurance policies issued by Hartford. Because we reverse and render judgment in favor of Hartford based solely on our conclusion that the recirculation scheme merely resulted in an uncovered loss of money, we expressly decline to reach the portions of the district court‘s decision concerning the application of the “voluntary parting” exclusion and “missing property” limitation under the policies. We also need not reach the issue of whether the district court erred in denying Hartford‘s motion to strike Wayne Stafford‘s affidavit.
IV. CONCLUSION
For the foregoing reasons, we REVERSE the district court‘s grant of summary judgment in favor of Mississippi Valley Gas Company on both the coverage and liability issues and RENDER judgment for Hartford Insurance Company of the Midwest. Costs shall be borne by Mississippi Valley Gas Company.