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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.
1 District Judge of the Southern District of Florida, sitting
by designation.
1

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

the studio's operations. John,
The background facts were
however, still had access to VAS
well stated in the prior panel
and was in the midst of winding
opinion.

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

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

See id. at 804-05.
novo. See Liberty Mut. Fire
Ins. Co. v. Canal Ins. Co., 177
B. Current Issues
F.3d 326, 331 (5th Cir. 1999);
Before the Court
Lubbock County Hosp. Dist. v.
National Union Fire Ins. Co.,
In this second appeal by
143 F.3d 239, 241-42 (5th Cir.
Hattiesburg Coke, Richard
1998).
Thomson, and General Star, the

case returns with little added
II. Mississippi's Rules for
to the record or the district
Interpreting Insurance
court's reasons; however, the
Contracts
parties have provided additional
oral
and
written
arguments
The
law
governing
the
focused on Coverage B. With the
interpretation
of
insurance
benefit of their advocacy, we
contracts is well settled in
address the questions that the
Mississippi. In determining
prior panel pretermitted or did
whether American Guarantee owes
not definitively resolve: (1)
Hattiesburg Coke or its CEO a
whether
the
state
court
duty to defend or indemnify, we
complaints allege viable causes
look to the allegations in the
of action against Hattiesburg
underlying state court
Coke
and
Richard
Thompson
complaints. If the complaints
because of their own negligence
state a claim that is within or
in
not
taking
appropriate
arguably within the scope of
precautions against the alleged
coverage provided by the policy,
tortious
conduct
of
John
American Guarantee is obliged to
Thomson; (2) whether the alleged
defend
and,
if
necessary,
personal injuries arose out of
indemnify Hattiesburg Coke. See
the
conduct
of
Hattiesburg
Centennial Ins. Co. v. Ryder
Coke's business; and (3) if so,
Truck Rental, Inc., 149 F.3d
whether the complainants'
378, 383 (5th Cir. 1998); State
injuries arose out of offenses
Farm Mut. Auto. Ins. Co. v.
for which Coverage B provided
Scitzs, 394 So. 2d 1371, 1373
non-bodily
personal
injury
(Miss. 1981) (both noting that
liability insurance (viz., the
Mississippi
courts
interpret
offense of the invasion of the
terms of insurance policies,
right of private occupancy of a
particularly exclusion clauses,
room that a person occupies by
favorably
to
the
insured
or on behalf of its owner).
wherever reasonably possible);

see also Canal Ins. Co., 177
C. Standard of Review
F.3d at 331 (stating that under
Mississippi law, "any doubt as
In our plenary review of
to the existence of a defense
the district court's granting
obligation is . . . resolved in
and
rejecting
motions
for
favor of the insured"). In
summary judgment, we decide the
comparing the complaints with
foregoing issues of law and
the policy terms, we look not to
insurance policy construction de
the particular legal theories
5

pursued by the state
general rule that "[a]n insurer
complainants,
but
to
the
must bear the entire cost of
allegedly
tortious conduct
defense when `there is no
underlying their suits. See
reasonable means of prorating
Equal Employment Opportunity
the costs of defense between the
Comm'n v. Southern Publ'g Co.,
covered and the not-covered
894 F.2d 785, 790-91 (5th Cir.
items.'") (quoting Insurance Co.
1990)
("Under
Mississippi's
of N. Amer. v. Forty-Eight
`allegations of the complaint'
Insulations, Inc., 633 F.2d
rule if the factual allegations
1212, 1224-25 (6th Cir. 1980),
of the complaint bring the
cert. denied, 454 U.S. 1109
action within coverage of the
(1981)). We must give the
policy, the insurer has a duty
policy language its plain and
to defend."); see also State
ordinary meaning, see Blackledge
Farm Mut. Auto. Ins. Co. v.
v. Omega Insurance Co., 740 So.
Taylor, 233 So. 2d. 805, 808
2d 295, 298 (Miss. 1999) ("terms
(Miss.
1970)
(stating
that
used in an insurance policy
although an insurer normally
should be understood in their
bases its duty to defend on the
plain, ordinary, and popular
facts alleged in the petition,
sense
rather than in a
it may also have a duty to
philosophical
or
scientific
defend if it knows of other
sense"),
and
resolve
any
facts that warrant coverage).
ambiguities or equivocal
American Guarantee is justified
expressions in favor of the
in refusing to defend only if it
insureds,
see
Ryder
Truck
is clear from the face of the
Rental, Inc., 149 F.3d at 382-
state court complaints that the
83, but not create ambiguities
allegations therein are not
where none exist. See Scitzs,
covered.

See
Moeller
v.
394 So. 2d at 1372.
American Guar. & Liab. Ins. Co.,
707 So. 2d 1062, 1069 (Miss.
III. Relevant Coverage B
1996); see also Merchants Co. v.
Provisions; Coverage A
American Motorists Ins. Co., 794
Distinguished
F.Supp. 611, 617 (S.D. Miss.
1992) ("[T]he duty to defend is

Coverage B of the CGL
broader than the insurer's duty
policy that American Guarantee
to indemnify under its policy of
issued to Hattiesburg Coke in
insurance: the insurer has a
1990 provides:
duty to defend when there is any
basis for potential liability
COVERAGE B. PERSONAL
under the policy"). Moreover,
AND ADVERTISING INJURY
because the state suits allege
LIABILITY
multiple grounds for recovery,
American Guarantee must provide
1. Insuring Agreement.
a defense if any ground falls
within the terms of the policy.
a. We will pay those
See Southern Publ'g Co., 894
sums that the insured
F.2d at 790-91 (adopting the
b e c o m e s l e g a l l y
6

obligated to pay
In 1991, American Guarantee
a s d a m a g e s
altered the "wrongful entry"
b e c a u s e o f
provision of the policy as
"personal injury"
follows:
or "advertising
injury" to which
c. Wrongful eviction
this
insurance
from, wrongful entry
applies. . . .
into, or invasion of
We will have the
the right of private
right and duty to
occupancy of a room,
defend any "suit"
dwelling or premises
seeking those
that a person occupies
damages.
by or on behalf of its
owner,
landlord
or
* * *
lessor
b.
This
insurance
(emphasis added).
applies to "personal
Coverage
B
insurance
injury" only if
against personal injury
caused by an offense:
liability is typical of such
(1) Committed in the
provisions
that
have
been
"coverage territory"
included in CGL policies since
during
the
policy
the 1980s. See generally M.
period; and
Jane Goode, Personal Injury

(2) Arising out of the
Liability Coverage, 30-SPG Brief
conduct of your
39 (Spring 2001); Fritz K.
business . . . .
Huszagh & Marisa A. Mancici,
Current Issues Involving
* * *
Insurance of Claims for Personal
Injury, 427 PLI/LIT 483 (1992).
SECTION V�DEFINITIONS
Coverage
B
personal
injury
liability insurance differs from
* * *
Coverage A bodily injury and
property damage insurance in at
10. "Personal injury"
least
two
important
ways.
means injury, other
First,
unlike
Coverage
A,
than "bodily injury",
Coverage B may be triggered
arising out of one or
without proof of an accidental
more of the following
occurrence. Instead, Coverage B
offenses:
is activated by the commission
* * *
of certain specified offenses
c.
Wrongful
entry
during the policy period. Also
into, or eviction of a
unlike
Coverage
A,
which
person from, a room,
excludes coverage for "`[b]odily
dwelling or premises
injury' or `property damage'
that the person
expected or intended from the
occupies.
standpoint of the insured,"
Coverage B expressly extends
7

coverage
to
liability
for
and B coverage; we deal only
"`personal injury' . . . other
with
intrinsic
Coverage
B
than `bodily injury'," caused by
personal liability
insurance
certain defined offenses arising
claims.
out of the insured's business.
American Guar. I, 129 F.3d at
IV. Discussion of Coverage
808. Therefore, under Coverage
Issues
B, the triggering act may be
A. The Insureds' Liability
intentional.
Under State Law
Consequently, cases turning
on the "occurrence" or
Under Coverage B, American
"accident" requirement of
Guarantee agreed to "pay those
Coverage
A
type
liability
sums that the insured becomes
insurance (or its exclusion of
legally obligated to pay as
intentional or expected
damages because of `personal
injuries) are irrelevant to this
injury' . . . to which this
appeal. See, e.g., Sennett v.
insurance applies." "Personal
United States Fid. & Guar. Co.,
injury" is defined by the policy
757 So. 2d 206, 210-13 (Miss.
as "injury, other than `bodily
2000); Ramsay v. Omnibank, 215
injury', arising out of one or
F.3d 502, 503 (5th Cir. 2000);
more of the following offenses .
Audubon Ins. Co. v. Stefancik,
. . ." Thus, the threshold
98 F. Supp.2d 751, 754-55 (S.D.
question is whether, based on
Miss. 1999); United States Fid.
the state court allegations,
& Guar. Co. v. B & B Oil Well
Hattiesburg Coke and Richard
Serv., Inc., 910 F. Supp. 1172,
Thomson can be held liable under
1176-86 (S.D. Miss. 1995) (all
Mississippi law to pay damages
interpreting Coverage A type
for non-bodily personal injury
policies). Also irrelevant to
to the state court plaintiffs.
this appeal are cases in which
We conclude that they can.
the insured seeks Coverage B
The complainants in the
personal injury liability
underlying state court actions
coverage
for
its
pollution
alleged that, as the result of
damage to another person despite
the negligent acts and omissions
the pollution damage exclusion
of Richard Thomson and
contained in the Coverage A
Hattiesburg Coke, they sustained
provision of its policy. See,
personal injuries arising out of
e.g., Gregory v. Tennessee Gas
John Thomson's wrongful
Pipeline Co., 948 F.2d 203, 209
intrusion
into
the
women's
(5th Cir. 1991) (holding that
dressing room and his
"to extend Coverage B to all
clandestine videotaping of their
property
damages,
including
images while they occupied the
damages which would be covered
room to change clothes. In
under Coverage A, would render
particular, the factual
the pollution exclusion
allegations include the
meaningless"). In other words,
following: (1) Hattiesburg Coke
in this appeal we are not faced
and Richard Thomson funded VAS
with a claim for overlapping A
and John Thomson in all aspects
8

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

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

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

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

plaintiffs, and complying with
precludes coverage because John
our Erie duty, we conclude that
Thomson's acts at VAS did not
the Supreme Court of Mississippi
arise out of the conduct of
would decide that (1) John
Hattiesburg Coke. This court in
Thomson committed the torts of
American Guar. I concluded that,
invasion of privacy and extreme
under the facts alleged by the
and outrageous conduct upon the
state court complainants, their
plaintiffs in the underlying
personal injuries were caused by
state lawsuits; and that (2)
the offenses of John Thomson
Richard Thomson and Hattiesburg
which arose out of the conduct
Coke may be held liable for
of VAS's business, as part of
their own negligence in the
Hattiesburg Coke's business, and
state lawsuits under at least
was managed and directed by the
three theories of recovery:(a)
company and its CEO from the
failure
to
take
reasonable
company headquarters on the
precautions
to
protect
the
designated premises. The prior
victims, as invitees, from the
panel said:
foreseeable intentional torts of
[I]n the present case
John Thomson; (b) negligent
the phrase "arising
hiring of John Thomson to
out of" the "use" of
operate VAS although they knew
t h e d e s i g n a t e d
or should have known of John
premises requires that
Thomson's propensity to commit
there be a causal
the intentional torts against
connection between the
the victims; and (c) negligently
injuries to the women
entrusting John Thomson with the
improperly videotaped
VAS studio and equipment highly
by John Thomson and
susceptible to voyeuristic uses
t h e d e s i g n a t e d
although they knew or should
premises located at
have known that he was likely
4501 Harding Street.
because
of
his
history,
We further conclude
character, and propensities to
that such a connection
use them to personally injure
exists.

It
is
the victims.
undisputed that the
decisions to set up
B. Personal Injury "Arising
VAS,
construct its
Out of the Conduct of" the
offices, purchase
Insureds' Business
e q u i p m e n t , a n d ,
eventually, to close
Under Coverage B, American
it down, were all made
Guarantee agreed to indemnify
by Richard Thomson and
Hattiesburg Coke and Richard
other Hattiesburg Coke
Thomson for non-bodily personal
o f f i c i a l s a n d
injury liability caused by an
e m p l o y e e s a t
offense "arising out of the
Hattiesburg Coke
conduct
of"
the
insureds'
h e a d q u a r t e r s , a
business. American Guarantee
designated premises.
argues
that
this
provision
Moreover,
VAS
was
13

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

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

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

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

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

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

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

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

potentially exposed to liability
judgment for American Guarantee
in excess of the CGL policy
and REMAND the case to the
limits.

Because
we
have
district court with instructions
determined
that
the
claims
for it to grant summary judgment
contained allegations covered
in favor of Richard Thomson and
under
Coverage
B,
Moeller
Hattiesburg Coke and against
mandates that Hattiesburg Coke
American Guarantee, decreeing
and Richard Thomson be
that
American
Guarantee
is
reimbursed for the reasonable
obliged to defend, indemnify,
costs of obtaining a separate
and reimburse them in connection
attorney. See id. at 1071
with the underlying state court
("Because [the insureds were]
actions in accordance with this
being defended under the . . .
court's opinion. The case is
claim with a reservation of
remanded for these purposes and
rights, American Guarantee was
for further proceedings
obligated to let them select
consistent herewith.
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
22