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Payless Shoesource, Inc. v. Travelers Companies

November 10, 2009


Appeal from the United States District Court for the District of Kansas, (D.C. No. 07-CV-4075-JAR).

The opinion of the court was delivered by: Gorsuch, Circuit Judge.


Before O'BRIEN, SEYMOUR, and GORSUCH, Circuit Judges.

This is a dispute over the meaning of a misplaced modifier. Travelers doesn't disagree that a critical modifying clause in the insurance policy it issued may be misplaced as a matter of good grammar. It argues, though, that the meaning of the document remains clear and clearly excludes coverage for Payless's claim. Payless replies that the (mis)placement of the modifying clause precludes Travelers' interpretation, or at least renders the insurance policy's meaning ambiguous. At summary judgment, the district court rejected Payless's arguments and entered judgment for Travelers. Payless now seeks to have that ruling undone. But while misplaced modifiers are syntactical sins righteously condemned by English teachers everywhere, our job is not to critique the parties' grammar, but only, if possible, to adduce and enforce their contract's meaning. Here, a punctuation peccadillo notwithstanding, the meaning of the parties' contract is unambiguous. By operation of the plain terms of the agreement, Payless has no claim for coverage against Travelers, and so we affirm.


This insurance coverage dispute is the offspring of an earlier state class action lawsuit, and some appreciation of that earlier lawsuit is essential to understanding the one now before us. In 2003, a group of present and former Payless employees filed a class action against the company in California state court. Known for the lead plaintiff, Lorena Delgado, the class action suit charged that Payless unlawfully required hourly employees to work "off the clock" without compensation and did various other things proscribed by the California Labor Code, the California Business & Professions Code, and state common law. When Payless learned of the Delgado suit, it notified its insurer, Travelers, and asked the company to cover its litigation costs, as well as any eventual liability Payless might incur. Travelers responded by denying coverage, asserting that the violations of law alleged in Delgado fell outside the bounds of the policy's terms.

It is this denial of coverage that gives rise to our current case. After some wrangling, Payless settled with the Delgado plaintiffs for approximately $2.45 million, including roughly $1.3 million for class members and $900,000 for their attorneys. Payless then sued Travelers in Kansas state court seeking to recoup these costs and its costs of defending the suit. Travelers removed the case to federal court, noting the parties' diversity of citizenship, and each party eventually filed for summary judgment. In a thorough opinion, the district court granted Travelers' motion, denied Payless's, and entered a final judgment for Travelers. Payless now appeals that judgment, asking us to hold that the parties' insurance contract requires judgment in its favor, or at least precludes entry of judgment for Travelers.


We review appeals from a district court's decision to grant summary judgment de novo, and will affirm only if, viewing the facts in the light most favorable to the non-movant, we discern no genuine dispute of material fact in need of resolution by a factfinder and conclude that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In making our Rule 56 assessment in this diversity suit, the parties agree that the substantive law we must apply is Kansas law.

The central battleground on which the parties pitch this appeal is Exclusion A.3 of Payless's Employment Practices Liability Policy. That exclusion states that:

The Insurer shall not be liable for Loss on account of any Claim made against any Insured... for an actual or alleged violation of the Fair Labor Standards Act (except the Equal Pay Act), the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health Act, the Employee Retirement Security Act of 1974, any workers' compensation, unemployment insurance, social security, or disability benefits law, other similar provisions of any federal, state, or local statutory or common law or any amendments, rules or regulations promulgated under any of the foregoing; provided, however, this exclusion shall not apply to any Claim for any actual or alleged retaliatory treatment on account of the exercise of rights pursuant to any such law, rule or regulation.

J.A. at 24-25 (emphasis added).

Travelers' argument for summary judgment proceeds in two movements. First, it submits that the language of this exclusion unambiguously precludes coverage not just for claims arising under the FLSA, as discussed in the exclusion's first clause, but also for claims involving violations of state laws that are "similar" to the FLSA, pursuant to the exclusion's final clause. Second, Travelers contends that the provisions of state law at issue in the Delgado suit are essentially state analogs to the FLSA and thus excluded from coverage because they are "similar." Payless, of ...

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