H R Management Co v. Zurich Insurance Co ( 1998 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-11537
H R MANAGEMENT COMPANY,
Plaintiff-Appellant
VERSUS
ZURICH INSURANCE COMPANY, ET AL,
Defendants
ZURICH INSURANCE COMPANY,
Defendant-Counter Claimant-Appellee
VERSUS
ATLANTIC LLOYDS INSURANCE COMPANY OF TEXAS, INC.,
Counter Defendant-Appellant
_____________________________
No. 96-10987
_____________________________
H R MANAGEMENT COMPANY,
Plaintiff-Appellant-Cross Appellee
VERSUS
ZURICH INSURANCE COMPANY, ET AL,
Defendants
ZURICH INSURANCE COMPANY,
Defendant-Counter Claimant-Appellee
Cross Appellant
VERSUS
ATLANTIC LLOYDS INSURANCE COMPANY OF TEXAS, INC.,
Counter Defendant-Appellant
-Cross Appellee
Appeal from the United States District Court
For the Northern District of Texas
(3:93-CV-2059-T)
February 10, 1998
Before JOLLY, DUHÉ, and PARKER, Circuit Judges.
JOHN M. DUHÉ, JR., Circuit Judge:1
H R Management (“HRM”) sued Zurich Insurance (“Zurich”) for
settling claims against two of its co-insureds and thereby
exhausting the policy limit of liability. HRM claimed breach of
contract and the duty of good faith and fair dealing, deceptive
trade practices under the Texas Deceptive Trade Practices Act
(“DTPA”), Texas Insurance Code violations, tortious interference
with contract, and civil conspiracy. The district court granted
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
summary judgment in Zurich’s favor. HRM appeals.
I.
Westwood Savings and Loan Association (“Westwood”) owned
Fondren Green Apartments in Houston, Texas. Westwood hired HRM to
manage the apartments which HRM did until January 1987. On that
date, Westwood hired RFG Management (“RFG”) to manage the
apartments.
Westwood had an insurance policy with Zurich which provided
Westwood with comprehensive general liability coverage from April
1, 1986 to April 1, 1987. The policy included a provision adding
as an insured any person or organization who acted as Westwood’s
real estate manager. In addition, HRM had an excess insurance
policy with Atlantic Lloyd’s Insurance (“Atlantic”).
In 1988, former Fondren Green tenants and employees sued
Westwood, HRM, and RFG for damages allegedly caused by spraying
chlordane, a toxic chemical, in the apartments. In 1991, Zurich
accepted the Fondren Green plaintiffs’ offer to settle completely
their claims against Westwood and RFG. Zurich paid the plaintiffs
$1 million, the limit of liability stated in the policy. After
Zurich settled, it withdrew from participating further in HRM’s
defense; however, Atlantic continued to defend HRM. HRM later
settled with the Fondren Green plaintiffs for $10.3 million which
Atlantic paid.
In 1993, HRM sued Zurich claiming that Zurich breached its
3
contract with HRM by paying all policy benefits on behalf of RFG
and Westwood. Zurich counterclaimed against HRM and added Atlantic
as a third party. Zurich also sought a declaratory judgment as to
the rights and duties of the parties under Zurich and Atlantic’s
policies as well as subrogation, contribution, and indemnity from
Atlantic.
HRM moved for partial summary judgment on the breach of
contract claim to which Zurich responded by filing a cross-motion
for summary judgment. HRM then moved for partial summary judgment
a second time arguing that Zurich had not exhausted the policy’s
limit before it withdrew from defending HRM. Zurich responded by
moving for summary judgment on the breach of contract and duty of
good faith and fair dealing claims as well as the insurance code
violations, tortious interference, and civil conspiracy claims.
Zurich also filed a cross motion for summary judgment responding to
the second motion for partial summary judgment. There, Zurich
successfully argued that the pollution exclusion clause precluded
coverage. The court dismissed Zurich’s counterclaim for
declaratory judgment without prejudice and dismissed as moot
Zurich’s counterclaim for subrogation, contribution, and indemnity.
HRM and Atlantic appealed, and the cases were consolidated.
II.
A. STANDARD OF REVIEW
4
Although both parties failed to include in their briefs this
required information, we review a grant of summary judgment de
novo. Lulirama Ltd, Inc. v. Axcess Broad. Serv., Inc., 128 F.3d
872, 876 (5th Cir. 1997); Texas Manufactured Hous. Ass’n v. City of
Nederland, 101 F.3d 1095, 1099 (5th Cir. 1996), cert. denied, 117
S. Ct. 2497 (1997). A court will grant summary judgment if “the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits. . . show that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” FED. R. CIV. PRO. 56(c).
B. ANALYSIS
Although the district court granted summary judgment based on
the Zurich policy’s pollution exclusion clause, we affirm on other
grounds. Therefore, we assume arguendo that the pollution
exclusion clause does not apply.
Zurich argues that even if the policy covers HRM, it owes HRM
nothing because it properly exhausted the policy’s $1 million limit
when it settled all claims against RFG and Westwood. Moreover,
Texas law does not require it to divide the policy limit among
multiple insureds. See Texas Farmers Ins. Co. v. Soriano, 881
S.W.2d 312 (Tex. 1994). There the Texas Supreme Court held that an
insured may enter into a reasonable settlement with one of several
claimants even though the settlement exhausts the proceeds
available to satisfy other claims. Id. at 315.
5
HRM argues that Soriano is distinguishable because that case
dealt with multiple claimants not multiple insureds. Moreover, it
argues, Zurich had a contractual duty to treat all three insureds
equally. Thus, by settling only claims against RFG and Westwood,
Zurich breached its contract. In support of that argument, HRM
cites the following policy provision:
“‘Insured’ means any person or organization
qualifying as an insured in the ‘person insured’
provision of the applicable insurance coverage. The
insurance afforded applies separately to each
insured against whom claim is made or suit is
brought, except with respect to the limits to the
company’s liability. . . Except with respect to the
Limits of Insurance and any rights or duties
specifically assigned in this policy to the first
‘Named Insured’, this insurance applies: (1) As if
each ‘Named Insured’ were the only ‘Named Insured’;
(2) Separately to each ‘Insured’ against whom the
claim is made or ‘suit’ is brought.” [emphasis
added]
HRM asks this Court to interpret this language to mean that Zurich
had to divide the $1 million coverage equally among its insureds.
We disagree.
First, the policy specifically states that the insurance
afforded applies to each insured separately, but only to the limits
of the policy. Therefore, if $1 million is the limit of the
policy2, then Zurich had a contractual duty to treat HRM, RFG, and
Westwood separately but only until it paid the policy limit.
2
HRM argues that the policy was not exhausted because the million
dollar limit is per occurrence and there were two occurrences.
Thus, the policy limit is two million dollars. We address that
argument below.
6
However, we do not look only to the language of the policy itself.
As Zurich argues, HRM’s attempts to distinguish Soriano from
this case fails. The fact that here there are multiple insureds
while Soriano involved multiple claimants is a difference without
a distinction. In Soriano, the Texas Supreme Court held that the
insurer was not negligent or acting in bad faith when it settled
with one claimant which then reduced the amount it could pay the
other, more seriously injured claimant. Soriano, 881 S.W.2d at
314. As the Court pointed out, under Texas law an insurer must
settle with a claimant if the settlement demand is 1) within the
scope of coverage; 2) within policy limits; and 3) reasonable such
that an ordinarily prudent insurer would accept it, considering the
likelihood and degree of the insured’s potential exposure to an
excess judgment. Id., citing American Physicians Ins. Exchange v.
Garcia, 876 S.W.2d 842, 848-49 (Tex. 1994), and G.A. Stowers
Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n
App. 1929, holding approved). Thus, under Texas law Zurich had to
settle with RFG and Westwood’s claimants as long as the settlement
fit the American Physicians criteria. We hold that the RFG and
Westwood settlement fit those criteria. First, the demand was
within the scope of coverage. While arguably the pollution
exclusion clause could preclude coverage, the defense is for Zurich
to assert. Since it did not assert that defense, Zurich
acknowledged that the claim was within the scope of coverage.
Second, the demand of $1 million was within the policy limit.
7
Finally, the demand was reasonable. HRM settled its claims for
$10.3 million; therefore, settling similar claims for only $1
million is eminently reasonable. Because the settlement demands
fall within the criteria, Zurich had a duty under Texas law to
settle with the RFG and Westwood claimants for $1 million. As the
Texas Supreme Court stated, “an insurer may enter into a reasonable
settlement with one of the several claimants even though such
settlement exhausts . . . the proceeds available to satisfy other
claims.” Soriano, 881 S.W.2d at 315. We are persuaded that the
same holds true with multiple insureds.
HRM’s next argument is that even if the above is true, Zurich
still breached its contract because the policy limit was not
exhausted. HRM contends that the policy limit was $1 million per
occurrence. Because HRM and RFG each sprayed chlordane in the
Fondren Apartments once, there were two occurrences. Thus, the
policy limit is $2 million. However, this argument ignores the
clear language of the policy. The policy schedule clearly states
that the aggregate limit of the policy is $1 million. Therefore,
we hold that once Zurich settled RFG and Westwood’s claims for $1
million it exhausted its policy limits.
HRM claims damages in the form of attorney’s fees incurred by
reason of Zurich’s failure to defend. HRM, however, suffered no
damages because its defense costs were paid by its other insurer,
Atlantic.
We affirm the district court’s grant of summary judgment in
8
favor of Zurich. We also affirm the district court’s holding that
Zurich prevailed in this proceeding, hence is entitled to recover
its court costs. As a result, the district court’s dismissal
without prejudice of Zurich declaratory judgment as well as its
dismissal of Zurich’s counterclaims is also affirmed.
As for the motions filed with this Court, we grant the motions
to supplement the record and to file exhibits under seal, but we
deny Zurich’s motion for sanctions.
AFFIRMED.
9