St Paul Fire & Mrne v. Green Tree Fincl

Revised May 9, 2001
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-10237
ST. PAUL FIRE & MARINE INSURANCE COMPANY;
ST. PAUL MERCURY INSURANCE GROUP,
Plaintiffs-Appellants,
VERSUS
GREEN TREE FINANCIAL CORP.-TEXAS,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
April 23, 2001
Before GARWOOD, PARKER, and DENNIS, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Plaintiff-Appellant St. Paul Fire & Marine Insurance Company
(“St. Paul”) argues that the district court erred by entering
summary judgment in favor of Green Tree Financial Corp.-Texas
(“Green Tree”). The court concluded that St. Paul had a duty to
defend Green Tree in a suit involving Green Tree’s debt collection
1
practices.1 We must determine whether the allegations against
Green Tree potentially state a cause of action covered under St.
Paul’s commercial insurance policies.
I. Facts
On April 1, 1993, Green Tree filed suit against Sylvia Lazo
and Eduardo Saenz to collect a debt that Lazo and Saenz owed after
purchasing a mobile home. Eduardo Saenz and Sylvia Corona, the
occupants of the mobile home, asserted counterclaims against Green
Tree for wrongful debt collection practices, for breach of a retail
installment contract, and for misrepresentations and breach of
warranties. The claimants alleged that Green Tree made frequent
rude and abusive telephone calls from 1986 to 1993 in an attempt to
collect the debt. On October 25, 1993, Green Tree notified St.
Paul of the counterclaims.2
St. Paul assumed Green Tree’s litigation expenses, but
reserved its rights to contest coverage.3 In February of 1995, St.
1
The district court asserted diversity jurisdiction pursuant to
28 U.S.C. § 1332. This Court has appellate jurisdiction over the
appeal pursuant to 28 U.S.C. § 1291.
2
The claimants’ factual allegations remained essentially
unchanged as to each of the amendments beginning with the fourth
amended counterclaim, filed on October 22, 1993, and ending with
the defendants’ eleventh amended counterclaim, dated January 17,
1995.
3
An insurance company may also reserve its rights to recoup its
costs of defense as long as the insurer specifically notifies the
insured of its intent to collect the defense costs in a reservation
of rights letter. See Matagorda County v. Texas Ass’n of Counties
County Gov’t Risk Mgmt. Pool, 975 S.W.2d 782, 785 (Tex. App.–-
Chorpus Christi 1998, writ granted), aff’d, 44 Tex. Sup. Ct. J.
2
Paul settled with Saenz and Corona over Green Tree’s objection.
St. Paul filed for declaratory relief in federal district court
asserting that it had no duty to defend or indemnify Green Tree.
The district court, in two orders granting Green Tree’s motions for
summary judgment, held that St. Paul had a duty to defend Green
Tree under either the personal injury or bodily injury provisions
of the general commercial liability policies in effect at the time
of the alleged wrongful acts.
II. Analysis
We review a district court’s order granting summary judgment
de novo. See Guaranty Nat’l Ins. Co. v. Azrock Indus. Inc., 211
F.3d 239, 242 (5th Cir. 2000). Summary judgment under Rule 56(c)
of the Federal Rules of Civil Procedure is appropriate if there is
no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c);
Canutillo Indep. School Dist. v. National Union Fire Ins. Co., 99
F.3d 695, 700 (5th Cir. 1996).
A. The Duty to Defend Under Texas Law
Texas courts enforce an insurer’s duty to defend even when an
insurer’s duty to indemnify is not yet settled. See St. Paul Ins.
Co., 999 S.W.2d at 887. An insurance company’s duty to defend is
broader than its duty to indemnify. See St. Paul Ins. Co. v. Texas
215, 2000 WL 1867945 (Dec. 21, 2000). The litigants stipulated
that if St. Paul succeeds in this appeal, Green Tree will be liable
for the costs of defense.
3
Dep’t of Transp., 999 S.W.2d 881, 884 (Tex. App.–-Austin 1999, writ
denied). If coverage exists for any portion of a suit, the insurer
must defend the insured in the entire suit. See id.Texas courts apply the “eight corners” or “complaint
allegation” rule to determine whether an insurer has a duty to
defend. See Potomac Ins. Co. of Illinois v. Jayhawk Medical
Acceptance Corp., 198 F.3d 548, 551 (5th Cir. 2000). Under the
“eight corners” rule, courts must first look to the factual
allegations in the pleadings to ascertain whether the alleged
conduct potentially requires coverage. St. Paul Ins. Co., 999
S.W.2d at 884.
[A]n insurer’s contractual duty to defend must be
determined solely from the face of the pleadings, without
reference to any facts outside the pleadings. The duty
to defend arises when a third party sues the insured on
allegations that, if taken as true, potentially state a
cause of action within the terms of the policy.
Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 155
(Tex. App.–-Houston [1st Dist.] 1990, writ denied)(citations
omitted). The focus of this inquiry is on the facts alleged, not
on the actual legal theories. See Maayeh v. Trinity Lloyds Ins.
Co., 850 S.W.2d 193, 195 (Tex. App.–-Dallas 1992, no writ). “Where
the complaint does not state facts sufficient to clearly bring the
case within or without coverage, the general rule is that the
4
insurer is obligated to defend if there is, potentially, a case
under the complaint within the coverage of the policy.” National
Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d
139, 141 (Tex. 1997). The factual allegations in a third party’s
complaint must be liberally construed in favor of the insured. See
Terra Int’l, Inc. v. Commonwealth Lloyd’s Ins. Co., 829 S.W.2d 270,
272 (Tex. App.–-Dallas 1992, writ denied).
After assessing the potential causes of action in the
pleadings, courts must determine whether the policy covers the
alleged conduct. Any ambiguity in an insurance policy is resolved
in favor of the insured. See National Union Fire Ins. Co. v.
Hudson Energy Co., 811 S.W.2d 552, 554 (Tex. 1991). If the terms
of the policy are not ambiguous, then the words must be given
their plain meaning. See Puckett v. U.S. Fire Ins. Co., 678 S.W.2d
936, 938 (Tex. 1984). “Language in insurance provisions is only
ambiguous if the court is uncertain as to which of two or more
meanings was intended.” Houston Petroleum Co., 830 S.W.2d at 155.
“If multiple interpretations are reasonable, the court must
construe the contract against the insurer . . ..” Travelers
Indemnity Co. v. Citgo Petroleum Corp., 166 F.3d 761, 769 (5th Cir.
1999).
B. The Factual allegations Against Green Tree
The relevant facts set out in Carona and Saenz’ eleventh
amended counterclaim are as follows:
5
. . . The debt collection activities of which Sylvia
Corona and Eduardo Saenz complain include frequent calls
to the homes and workplaces of Sylvia Corona, Eduardo
Saenz, and their families during 1986, 1987, 1988, 1989,
1990, 1991, 1992, and 1993, using abusive and rude
language. The calls were as frequent as three or more
times per week. Many times the callers threatened to
inform the employers of Sylvia Corona and Eduardo Saenz
that they were trying to collect a debt from Sylvia
Corona and Eduardo Saenz. The callers told Eduardo
Saenz’ mother that her son was delinquent in his payments
on a debt to GREEN TREE. The calls continued even after
Sylvia Corona and Eduardo Saenz and his mother told GREEN
TREE that the calls were making them sick and causing
them extreme mental anguish. On at least one occasion
GREEN TREE called and said they were going to go out to
the land and pick up the trailer while nobody was at
home.
Corona and Saenz pleaded causes of action for negligence, statutory
and common law unfair debt collection practices, and claims under
the Deceptive Trade Practices Act. The pleadings requested actual
damages, costs, and any other relief to which the claimants were
legally entitled.
C. The General Commercial Liability Policies
Green Tree was insured under numerous policies with St. Paul
during the eight years during which the alleged conduct occurred.
With a few exceptions, the language in the policies remained the
same.
ST. PAUL COMMERCIAL GENERAL LIABILITY POLICY CK06303193: JUNE
30, 1989 THROUGH JUNE 30, 1990
What This Agreement Covers
Personal injury and advertising injury liability. We’ll
pay amounts any protected person is legally required to
pay as damages for covered personal injury or advertising
injury that’s caused by an offense committed while this
6
agreement is in effect.
Personal Injury means injury, other than bodily injury,
caused by any of the following offenses that result from
your business activities, other than advertising,
broadcasting, publishing or telecasting done by of for
you:
-false arrest, detention, or imprisonment;
-malicious prosecution;
-wrongful entry or wrongful eviction;
-libel or slander;
-written or spoken material made public which belittles
the products or work of others;
-written or spoken material made public which violates an
individual’s right of privacy.
Right and duty to defend. We’ll have the right and duty
to defend any claim or suit for covered injury or damage
made or brought against any protected person . . ..
Claim means a demand in which damages are alleged.
Suit means a civil proceeding in which damages are
alleged. And it includes an arbitration proceeding for
such damages to which you must submit or submit with our
consent.
Injury or damage means bodily injury, personal injury,
advertising injury or property damage or fire damage.
Exclusions - What This Agreement Won’t Cover
Deliberately breaking the law. We won’t cover personal
injury or advertising injury that results if the
protected person knowingly breaks any criminal law.
Green Tree was also covered under an Umbrella Policy with St. Paul
through June of 1987. The Umbrella Policy contains the same
language as the above policy with two relevant exceptions. First,
the Umbrella Policy does not limit coverage for invasion of privacy
to “written or spoken material made public.” Second, the Umbrella
Policy does not have an exclusion from coverage for personal injury
7
that results from the insured’s deliberate unlawful conduct.
D. St. Paul’s Duty to Defend
St. Paul argues that it was not obligated to defend Green Tree
because the claimants’ pleadings did not specifically allege an
offense covered by the personal injury terms of its policies. St.
Paul contends that its use of the word “offense” in the definition
of personal injury raises the level of pleading specificity that is
generally required to precipitate its duty to defend. According to
St. Paul, a third party’s pleadings must name a specific offense
listed in the personal injury definition before it has a duty to
pay the costs of the insured’s defense.
Under Texas law, a third party’s pleadings need not allege a
specific offense to evoke an insurer’s duty to defend. See St.
Paul Ins. Co., 999 S.W.2d at 886. The duty arises if the factual
allegations in a third party’s pleading potentially state a cause
of action covered under the insurance policy. See Houston
Petroleum Co., 830 S.W.2d at 155. St. Paul’s choice of the word
“offense” does not require a different standard. The term simply
refers to the causes of action listed under the personal injury
definition.4 Therefore, St. Paul had a duty to defend Green Tree
4
In context, the word “offense” is subject to only one reasonable
interpretation. If the literal definition of “offense” were
applied to the basic insurance policy, the insured would not have
coverage for personal injury. “Offense” means “a violation of law;
crime, often a minor one.” BLACK’S LAW DICTIONARY 1108 (7th ed. 1999).
St. Paul’s basic insurance policies exclude all personal injuries
resulting from the violation of criminal statutes. Because the
8
if the factual allegations potentially stated a cause of action
listed under the policy’s definition of personal injury.
Numerous policies in effect during the period of the alleged
wrongful conduct define personal injury coverage as including
injuries resulting from an invasion of privacy. The factual
allegations in Corona and Saenz’ pleadings state that Green Tree
placed numerous telephone calls to Corona, Saenz, and Saenz’ mother
over a period of eight years. The pleadings alleged that the calls
were rude and abusive. In Donnel v. Lara, 703 S.W.2d 257, 259
(Tex. App.–-San Antonio, 1985, writ ref’d n.r.e.), the court of
appeals recognized that invasion of privacy included telephone
harassment.5 The plaintiffs in Donnel alleged that the defendant
“willfully . . . placed repeated phone calls to their residence at
unreasonable hours and in such a manner as would highly offend a
reasonable person of ordinary sensibilities.” Id. at 258. The
factual allegations in Corona and Saenz’ pleadings described
similar abusive telephone calls.6
definition of personal injury requires an offense, a literal
translation would preclude personal injury coverage. Therefore,
the only reasonable interpretation of “offense” in the context of
the policy is simply that the term refers to the acts listed in the
policy’s personal injury definition.
5
The Donnel decision was superseded on grounds that are not
relevant to this case. See Harkins v. Crews, 907 S.W.2d 51, 61
(Tex. App.–-San Antonio 1995, writ denied).
6
St. Paul argues that because the pleadings do not specifically
request damages for invasion of privacy, there is no injury for the
policy to cover. In Feed Store, Inc. v. Reliance Ins. Co., 774
9
St. Paul contends that these allegations essentially support
a claim for unfair debt collection practices and should not be
construed to substantiate a cause of action for invasion of
privacy. According to St. Paul, finding a potential cause of
action for invasion of privacy would overextend its duty to defend.
While courts may liberally interpret the allegations in a pleading
to determine whether the facts could potentially support a cause of
action, courts “may not read facts into the pleadings, may not look
outside the pleadings, and may not ‘imagine factual scenarios which
might trigger coverage.’” St. Paul Ins. Co., 999 S.W.2d at 885(quoting National Union Fire Ins. Co. v. Merchants Fast Motor
Lines, Inc., 939 S.W.2d 139, 142 (Tex. 1997)). There is no need in
this case to imagine or invent a factual scenario that would evoke
coverage under St. Paul’s policy. The factual allegations in this
case clearly support a cause of action for invasion of privacy
under Texas law. Just because factual allegations may favor one
cause of action over another does not alleviate an insurer’s duty
to defend if the facts potentially state a cause of action covered
under the policy.
S.W.2d 73, 74-75 (Tex. App.–-Beaumont 1989, writ denied) the court
of appeals held that an insurer’s duty to defend did not arise when
a plaintiff sought only injunctive relief. The court concluded
that the phrase “for such other and further relief” in the
complaint did not change the suit in equity to a suit for damages.
The claimants in this case did not seek injunctive relief. St.
Paul’s duty to defend was not impeded by the absence of a specific
request for damages resulting from invasion of privacy.
10
St. Paul argues in the alternative that Green Tree knowingly
violated a criminal law.7 St. Paul’s basic commercial liability
policies exclude coverage for injuries arising from knowing
violations of penal statutes. The Umbrella Policy, however, does
not contain such an exclusion. The Umbrella Policy covers any
claim named in the policy that is not covered under the insured’s
basic insurance. Because there is no penal exclusion in the
Umbrella Policy, St. Paul had a duty to defend Green Tree in the
lawsuit.
III. Conclusion
If an insurer has a duty to defend any portion of a suit, the
insurer must defend the entire suit. See St. Paul Ins. Co., 999
S.W.2d at 884. Since St. Paul has a duty to defend Green Tree
based on personal injury coverage, there is no need to assess
whether the duty arose under the bodily injury provisions of the
policy. We therefore affirm the district court’s orders granting
Green Tree summary judgment.
AFFIRMED
7
Under Texas statute, a “person commits an offense if, with
intent to harass, annoy, alarm, abuse, torment, or embarrass
another, he . . . causes the telephone of another to ring
repeatedly or makes repeated telephone communications anonymously
or in a manner reasonably likely to harass, annoy, alarm, abuse,
torment, embarrass, or offend another.” TEX. PEN. CODE ANN. §
42.07(a)(4) (Vernon 1999).
11