JANIS GRAHAM JACK, District Judge.
On this day came on to be considered Plaintiff's Motion for Partial Summary Judgment (D.E. 19) and Defendant's Cross-Motion for Summary Judgment (D.E. 20). For the reasons stated here, Plaintiff's Motion for Partial Summary Judgment is DENIED (D.E. 19) and Defendant's Cross-Motion for Summary Judgment is GRANTED (D.E. 20).
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(1) because the parties are citizens of different states, and the amount in controversy exceeds $75,000, exclusive of interest and costs.
This action was filed on July 29, 2010. (D.E. 1.) On February 4, 2011, the parties entered a Revised Joint Stipulation of Facts, Pleadings, and Policies. (D.E. 18.) The following factual and procedural background is derived from that stipulation.
Plaintiff Ewing Construction Company, Inc. ("Ewing" or "Plaintiff") is the named insured under a package insurance policy, including Commercial General Liability ("CGL") coverage, issued by Defendant Amerisure Insurance Company ("Amerisure" or "Defendant"), bearing policy number CPP2037436-02 and effective June 1, 2007 to June 1, 2008. The 2007-2008 Policy was renewed for the past three years under policy numbers CPP2037436-03, which was effective June 1, 2008 to June 1, 2009, CPP2037436-04, effective June 1, 2009 to June 1, 2010, and CPP2037436-05, effective June 1, 2010 to June 1, 2011 (collectively, including the 2007-2008 Policy, the "Policies"). (D.E. 18-1-D.E. 18-15.)
On February 25, 2010, Ewing was sued in a lawsuit styled Tuloso-Midway Independent School District v. Liberty Mutual Insurance Company, et al., Cause No. 10-603421, in County Court at Law No. 1 of Nueces County, Texas (the "Underlying Lawsuit"). The plaintiff in the Underlying Lawsuit, Tuloso-Midway Independent School District ("Tuloso-Midway"), seeks damages from Ewing with regard to allegedly deficient construction of a tennis facility in Corpus Christi, Texas pursuant to a contract between Ewing and Tuloso-Midway (the "Contract").
After the Underlying Lawsuit was filed, Ewing timely tendered Tuloso-Midway's Original Petition to Amerisure for defense. On March 4, 2010, Amerisure denied that it owed a duty to defend based on the allegations in the Original Petition. Amerisure reiterated its denial of coverage on June 21, 2010. On July 26, 2010, Amerisure denied coverage based on the allegations in the First Amended Original Petition filed in the Underlying Lawsuit. Amerisure continues to deny coverage with respect to the Underlying Lawsuit, in which a Second Amended Original Petition has now been filed.
Due to Amerisure's denials, Ewing filed this action on July 29, 2010. (D.E. 1.) In its complaint, Ewing seeks declaratory relief that "Amerisure is obligated to provide a defense to Ewing in the Underlying Lawsuit." (D.E. 1 at 4.) Ewing also states a claim for breach of the insurance contract between the parties and violation of the Texas Prompt Payment of Claims Statute, Tex. Ins.Code § 542.051 et seq. (D.E. 1 at 4-5.) Amerisure filed a counterclaim on August 13, 2010, requesting "a declaration that it owes no duty to defend nor indemnify Ewing from the claims in the Underlying Lawsuit." (D.E. 7 at 2.) An actual controversy exists between Ewing and Amerisure with respect to their rights and obligations under one or more of the Policies in connection with the Underlying Lawsuit, and this controversy is ripe for adjudication.
Plaintiff filed its Motion for Partial Summary Judgment on February 4, 2011 (D.E. 19), and Defendant filed its Cross-Motion on February 21, 2011 (D.E. 20). The briefing is now fully submitted. (D.E. 22; 29; 30.)
Under Federal Rule of Civil Procedure 56, summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The substantive law identifies which facts are material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Ellison v. Software Spectrum, Inc., 85 F.3d 187, 189 (5th Cir.1996). A dispute about a material fact is genuine only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; Judwin Props., Inc., v. U.S. Fire Ins. Co., 973 F.2d 432, 435 (5th Cir.1992).
On summary judgment, "[t]he moving party has the burden of proving there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law." Rivera v. Houston Indep. Sch. Dist., 349 F.3d 244, 246 (5th Cir.2003); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this burden, "the non-moving party must show that summary judgment is inappropriate by setting forth specific facts showing the existence of a genuine issue concerning every essential component of its case." Rivera, 349 F.3d at 247. The nonmovant's burden "is not satisfied with some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence." Willis v. Roche Biomedical Labs., Inc., 61 F.3d 313, 315 (5th Cir.1995); see also Brown v. Houston, 337 F.3d 539, 541 (5th Cir.2003) (stating that "improbable inferences and unsupported speculation are not sufficient to [avoid] summary judgment").
Summary judgment is not appropriate unless, viewing the evidence in the light most favorable to the non-moving party, no reasonable jury could return a verdict for that party. Rubinstein v. Adm'rs of the Tulane Educ. Fund, 218 F.3d 392, 399 (5th Cir.2000). As this case involves issues of law, not fact, it is appropriate for resolution on summary judgment.
Title 28 U.S.C. § 2201(a), the Declaratory Judgment Act, provides, "[i]n a case of actual controversy within its jurisdiction,... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such."
The Declaratory Judgment Act does not confer federal jurisdiction; rather, the parties must provide an independent basis for jurisdiction. Comstock Oil & Gas Inc. v. Ala. & Coushatta Indian Tribes of Tex., 261 F.3d 567, 573 n. 5 (5th Cir.2001). The Act "has been understood to confer on federal courts unique and substantial discretion in deciding whether
Here, both parties seek declaratory judgment with respect to their rights and obligations under the Policies. (D.E. 1, D.E. 7.)
As the Texas Supreme Court has explained, "[i]n liability insurance policies generally, an insurer assumes both the duty to indemnify the insured, that is, to pay all covered claims and judgments against an insured, and the duty to defend any lawsuit brought against the insured that alleges and seeks damages for an event potentially covered by the policy, even if groundless, false or fraudulent, subject to the terms of the policy. However, the duty to defend and the duty to indemnify are distinct and separate duties." D.R. Horton-Texas, Ltd. v. Markel Int'l Ins. Co. Ltd., 300 S.W.3d 740, 743 (Tex.2009); Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 490 (Tex. 2008).
To determine whether the insurer owes a duty to defend, a court must apply the "eight corners rule." Under this rule, "[a]n insurer's duty to defend is determined solely by the allegations in the pleadings and the language of the insurance policy." King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002). "Resort to evidence outside the four corners of these two documents is generally prohibited." Mid-Continent Cas. Co. v. JHP Development, Inc., 557 F.3d 207, 212 (5th Cir. 2009); see also Liberty Mut. Ins. Co. v. Graham, 473 F.3d 596, 599-600 (5th Cir. 2006) ("[O]nly two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the underlying claimant. Facts outside the pleadings, even those easily ascertained, are ordinarily not material to the determination and allegations against the insured are liberally construed in favor of coverage."). Thus, "[i]f the four corners of a petition allege facts stating a cause of action which potentially falls within the four corners of the policy's scope of coverage, the insurer has a duty to defend." Liberty, 473 F.3d at 600.
When the insurer refuses to defend based on a policy exclusion, the insurer bears the burden of showing that the complaint's allegations trigger the exclusion. See Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir.2001). All doubts as to the duty to defend are resolved in favor of the insured. King, 85 S.W.3d at 187; see Empire Indem. Ins. Co. v. Allstate County Mut. Ins. Co., 319 Fed.Appx. 336, 340 (5th Cir.2009). However, "[i]f the insurer proves that an exclusion applies, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage." Gilbert Texas Const., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 124 (Tex.2010). The duty to defend does not depend upon the truth or falsity of the allegations; a plaintiff's factual allegations that potentially support a covered claim are all that is needed to invoke the insurer's duty to defend. JHP Development, Inc., 557 F.3d at 212.
Defendant here also moves for summary judgment on the duty to indemnify, should
In analyzing this case, the Court must first determine whether the claims fall within the broad scope of the Policy. If the Court makes this determination, it must then decide whether a Policy exclusion is applicable. Finally, if it decides that a Policy exclusion applies, it must ascertain whether an exception to the Policy exclusion also applies, thus bringing the claim back within coverage.
The Court first considers whether the allegations covered in the Underlying Lawsuit are covered by the policy. Defendant appears to concede that the Underlying Lawsuit falls within the general coverage of the policy (as it does not respond to Plaintiff's arguments on this issue), but rather argues that certain exclusions preclude coverage. The Court briefly considers the coverage of the policy, and then turns to the exclusions.
The Policy at issue provides in relevant part, "[t]his insurance applies to ... `property damage' only if: (1) The ... `property damage' is caused by an `occurrence' that takes place in the `coverage territory,' [and] (2) The ... `property damage' occurs during the policy period." (D.E. 18-3 at 8.)
"Property damage" is defined as "(a) Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or (b) Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the `occurrence' that caused it." (D.E. 18-3 at 21-22; see also Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8-9 (Tex.2007) ("`Property damage' consists of physical injury to tangible property and includes the loss of use of tangible property.").) The property damage element is clearly satisfied here, as the Underlying Lawsuit alleges "serious tennis court cracking and flaking problems," starting in April 2009, "[c]hunks of the course surfaces are coming loose" and "[f]laking, crumbling, and cracking" making the courts unusable for competitive events. (D.E. 18-16 at 5.) There is no dispute that these allegations cover "[p]hysical injury to tangible property." (D.E. 19 at 15-16.)
"Occurrence" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (D.E. 18-3 at 21.) The Underlying
Finally, there is no dispute that the allegations in the Underlying Lawsuit relate to conduct occurring during the policy period. The underlying petitions make clear that the damages at issue occurred while the Policy was in effect. (D.E. 19 at 18.)
The Court thus concludes that the allegations in the Underlying Lawsuit are sufficient to come within the coverage of the Policy. The Court now turns to the more contentious issue, the application of certain Policy Exclusions.
Defendant argues that a CGL Policy "is designed to cover fortuitous events that are beyond the insured's control," and it does not cover "contractual liability that the insured voluntarily assumes." (D.E. 20 at 11.) Defendant relies upon certain "Business Risk" exclusions in the Policy that limit coverage for contractual liability, specifically the Contractual Liability Exclusion. (D.E. 20 at 12-13.) Plaintiff argues that the exclusion does not bar coverage, as there is no "assumption" of liability, and in any event, liability in the Underlying Lawsuit is alleged in tort, in addition to contract. (D.E. 22 at 12-22.)
With respect to "business risk" exclusions and CGL policies, the Texas Supreme Court has explained:
Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 500 (Tex.2008) (emphasis added); see also Lamar Homes, Inc., 242 S.W.3d at 10 ("More often ... faulty workmanship will be excluded from coverage by specific exclusions because that is the
The Contractual Liability Exclusion to the Policy provides, in relevant part:
(D.E. 18-3 at 9.) The Texas Supreme Court has explained that such an exclusion "[c]onsidered as a whole, ... provide[s] that the policy does not apply to bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement, except for enumerated, specific types of contracts called `insured contracts' and except for instances in which the insured would have liability apart from the contract." Gilbert Texas Const., L.P, 327 S.W.3d at 126.
With respect to the "assumption of liability" part of the exclusion, the Texas Supreme Court in Gilbert explained that the exclusion is not limited to situations where "the insured assumes the liability of another, such as in an indemnity or hold-harmless agreement," but rather "the exclusion's language applies without qualification to liability assumed by contract [with two exceptions.]" Id. at 128-29. The court concluded that the contractual liability exclusion "means what it says," and "applies when the insured assumes liability for bodily injuries or property damages by means of contract, unless an exception to the exclusion brings a claim back into coverage or unless the insured would have liability in the absence of the contract or agreement." Id. at 132.
In its opinion, the Texas Supreme Court cited several cases around that nation that interpret the exclusion "as we do," namely not limiting its scope "to only those situations in which the insured has assumed the liability of another." Id. at 130 & n. 9. For example, in CIM Insurance Corporation v. Midpac Auto Center, Inc., the court confronted a policy that did "not apply to liability assumed under any contract or agreement." 108 F.Supp.2d 1092, 1099 (D.Hawai'i 2000). The court interpreted this language to mean that "any claim that is dependent upon the existence of an underlying contract is not covered by insurance polices." Id. at 1099-1100. Similarly, in TGA Development, Inc. v. Northern Ins. Co. of New York, 62 F.3d 1089 (8th Cir.1995), which the Gilbert Court also cited favorably, the court rejected a claim that the contractual liability exclusion "bars coverage only when the insured has expressly agreed by contract `to save harmless or indemnify' a third party," and stated, "[w]e think that the language [of the exclusion] plainly excludes coverage for contractual claims made for [the contractor's]
Here, the eight corners rule requires the Court to look only at the Policy and the allegations in the underlying petition to determine whether there is an assumption of liability. See, e.g., GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 307 (Tex.2006) ("The eight-corners rule provides that when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from terms of the policy and the pleadings of the third-party claimant. Resort to evidence outside the four corners of these two documents is generally prohibited."). Texas courts generally do not recognize exceptions to that rule. See, e.g., AccuFleet, Inc. v. Hartford Fire Ins. Co., 322 S.W.3d 264, 273 (Tex.App.-Houston [1 Dist.], 2009) (declining to recognize exception and stating, "in cases in which the Texas Supreme Court has been asked to acknowledge exceptions to the rule, it has declined to do so").
The pleadings in the Underlying Lawsuit demonstrate that Ewing assumed liability with respect to its own work on the subject matter of the contract, the tennis courts, such that it would be liable for failure to perform under the contract if that work was deficient. The original petition explained that, "[p]rior to the execution of the contract, Plaintiff's Superintendent, Dr. Cornelio Gonzales met with Ewing several times and, on one or more occasions, told them that Plaintiff wanted quality tennis courts that should last at least twenty-five years. Ewing's representative never demurred and impliedly represented that they would meet that standard." (D.E. 18-16 at 4.) The original petition states, in its breach of contract claim, that "[t]he construction is not in accordance with the contract plans and specifications," that Ewing "breached its implied duty of ordinary care," "breached its implied warranty of good workmanship," "breached its implied warranty that the tennis courts in question would be of merchantable quality," "breached its implied warranty that the tennis courts in question would be suitable for their intended purpose," and "breached its express warranty that it would fully execute the work described in the Contract Documents." (D.E. 18-16 at 5-6.) The first and second amended petitions make similar claims, alleging that Ewing breached its contract with Tuloso-Midway in the following respects: "(a) [f]ailing to complete
Upon review, the Court concludes that the allegations in the underlying petitions sufficiently demonstrate that Ewing assumed liability for its own construction work pursuant to the parties' contract. In other words, by entering into the contract with Tuloso-Midway, Ewing is liable if the work it agreed to perform under that contract is defective. This finding is consistent with Gilbert and the case law relied upon therein. See, e.g., TGA Development, Inc. 62 F.3d at 1091-92 (stating that policy excluded coverage of injuries "[f]or which the insured has assumed liability in a contract or agreement," and finding that this "language plainly excludes coverage for contractual claims made for [insured's] failure to provide [third party] with a condominium unit free from defects.") (cited in Gilbert, 327 S.W.3d at 130 n. 9); Monticello Ins. Co., 1998 WL 1969611, at *2 ("Liability under a contract does not arise only when a party assumes the liability for another party. Any party to a contract assumes potential liability under the agreement."). Applying Gilbert, the Court concludes that Ewing assumed liability for its own defective work when it entered into the contract with Tuloso-Midway for construction of the tennis courts at issue.
While Plaintiff relies heavily upon the Texas Supreme Court's decision in Lamar Homes, going so far as to state that "the instant case is more in line with Lamar Homes ... than Gilbert," (D.E. 22 at 16) this is not so. As the court in Gilbert recognized, the contractual liability exclusion was not even at issue in Lamar Homes, and rather that case considered "whether property damage to a house that resulted from construction defects could nevertheless come within the general terms of liability coverage because the damage resulted from an occurrence as defined by the CGL policy." 327 S.W.3d at 132.
In light of the above, the Court concludes that the contractual liability exclusion applies in the circumstances of this case.
Having determined that the contractual liability exclusion is applicable, the
Once again, the Court's decision is directed by recent precedent. In Century Surety Co. v. Hardscape Construction Specialties, Inc., 578 F.3d 262 (5th Cir. 2009), the Fifth Circuit confronted a situation similar to the one presently before the Court. In that case, Hardscape had entered into a contract with Hillwood Residential Services to construct a swimming pool facility for Hillwood at one of its residential developments. The contract included an indemnity provision, under which Hardscape agreed to hold Hillwood harmless against "any damage, liability or cause of action arising directly or indirectly out of or in connection with the performance of Contractor's services." 578 F.3d at 264. Hardscape later subcontracted with Elite to construct the swimming facility pools, and the subcontractor agreement applied the same terms and conditions as the contractor-owner agreement. Elite held an insurance policy issued by Century Surety Company that covered certain "occurrences." The insurance contract contained the same contractual liability exclusion as exists here. 578 F.3d at 264-65.
After the subcontractors completed construction, Hillwood sued Hardscape and Elite alleging that faulty design and construction had caused physical and aesthetic damage to the pool and its surroundings. Relevant here, the petition asserted claims for breach of contract as well as negligence and gross negligence. Id. at 265. Hardscape demanded indemnification from Elite, and Elite forwarded the demand to Century, who did not respond. Century later sued in federal court, seeking a declaratory judgment that it was not obligated to defend or indemnify Elite or Hardscape. Id.
The Fifth Circuit considered whether the "insured contract" exception to the contractual liability exclusion applied.
Id. at 267 (internal citations omitted; emphasis added).
Id. (emphasis added). With respect to allegations regarding damage to the decking, the court stated that "[t]he decking portion of the Hillwood petition's allegations sound in contract because the damage occurred only to the subject matter of the Hillwood-Hardscape contract, and because any liability arising from damage to the decking exists only as a result of the contract.
The district court in David Lewis Builders, Inc. v. Mid-Continent Cas. Co., 720 F.Supp.2d 781, recently applied Hardscape's principles. In David Lewis, a contractor (Lewis) was sued by property owners (the Blakes) for damage to a home that the contractor had constructed pursuant to a contract between the parties. The property owner brought suit alleging breach of contract, negligence, and breach of warranties. The court applied Hardscape and concluded that the claims in the underlying suit sounded only in contract. The court explained:
Id. at 786-87 (emphasis added).
Applying Hardscape here, Tuloso-Midway alleges in the underlying suit that the tennis courts, the subject matter of the contract between Tuloso-Midway and Ewing, began to crack and show other structural defects soon after construction was completed. The damage alleged is damage to the subject matter of the contract, nothing else. Tuloso-Midway's original petition states that it wanted "quality tennis courts that should last at least twenty-five years," that Ewing represented that it could perform the work, and based upon
The recovery sought is also limited to the subject matter of the contract. Specifically, Tuloso-Midway seeks in its original petition: (a) out-of-pocket expenses, (b) loss of use of the tennis courts because of the construction defects and consequent delays, (c) loss of the benefit of the bargain, (d) costs of repairs and remediation or completion resulting from construction or design defects, (e) the difference between the value of the tennis courts in question as promised and contracted for and as actually delivered, (f) the cost of letting another contract and beginning construction anew so as to provide the same quality of courts as those promised and contracted for, and (g) reasonable and necessary engineering, consulting or other expert fees. (D.E. 18-16 at 9.) The first and second amended petitions state the same damages, but delete damages for "loss of the benefit of the bargain." (D.E. 18-17 at 10; D.E. 18-18 at 8.) Tuloso-Midway does not claim damages to, nor seek recovery for, any other property on the school grounds not covered by the contract.
This analysis necessarily leads to the conclusion that Tuloso-Midway's claims against Ewing in the Underlying Lawsuit sound only in contract, not tort, consistent with Hardscape. As such, the Court must conclude that the exception to the contractual liability exclusion, providing for coverage for liability that "the insured would have in the absence of the contract or agreement," is not applicable. Hardscape, 578 F.3d at 269-70.
Thus, because the Court concludes that the contractual liability exclusion is applicable, and no exception to that exclusion brings the claim back within the scope of coverage, Defendant Amerisure has no duty to defend in this case.
Because Amerisure has no duty to defend, it also has no duty to indemnify for the same reason. As noted above, "the duty to indemnify is justiciable before the insured's liability is determined in the liability
As the Court has ruled that Amerisure has no duty to defend or indemnify Ewing in the Underlying Lawsuit, there is no violation of the Prompt Payment of Claims Act, Tex. Ins.Code. § 542.060.
Plaintiff's Prompt Payment of Claims Act cause of action is therefore dismissed.
For the reasons stated above, the Court hereby GRANTS Defendant's Cross-Motion for Summary Judgment (D.E. 20) and DENIES Plaintiff's Motion for Partial Summary Judgment (D.E. 19). The Court enters the following declaratory judgments:
