Materials Evaluation & Technology Corp. v. Mid-Continent Casualty Co.

Case: 12-40186 Document: 00512178313 Page: 1 Date Filed: 03/18/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 18, 2013
No. 12-40186 Lyle W. Cayce
Clerk
MATERIALS EVALUATION AND TECHNOLOGY CORPORATION,
Plaintiff-Appellant,
v.
MID-CONTINENT CASUALTY COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 1:10-CV-740
Before STEWART, Chief Judge, and DAVIS, and CLEMENT, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Materials Evaluation and Technology Corporation
(“METCO”) appeals the district court’s grant of summary judgment in favor of
Defendant-Appellee Mid-Continent Casualty Company (“Mid-Continent”). The
district court ruled that endorsement “ML 1190,” the Employers’ Liability
Exclusion Endorsement, precluded Mid-Continent’s duty to defend under a
commercial general liability insurance policy. For the following reasons, we
AFFIRM the district court’s grant of summary judgment.
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
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I.
A. Insured-Insurer Relationship between METCO and Mid-Continent
METCO first purchased a commercial general liability policy from Mid-
Continent in 1997 and annually renewed its coverage through at least 2004. Of
particular relevance to this case are the 2002 and 2003 policies.
The 2002 policy, which was effective from July 18, 2002 to July 18, 2003,
provided, inter alia, for an Employer’s Liability exclusion (the “Exclusion”). The
Exclusion, which is listed in Section 1, subsection 2(e), of the Coverage A Bodily
Injury and Property Damage Liability of the 2002 policy provide in relevant part:
2. This insurance does not apply to:
(e) Employer’s Liability
“Bodily injury” to:
(1) An “employee” of the insured arising out of
and in the course of:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of
the insured business;
...
This exclusion applies:
(1) Whether the insured may be liable as an
employer or in any other capacity; and
(2) To any obligation to share damages with or
repay someone else who must pay damages
because of the injury.
This exclusion does not apply to liability assumed
by the insured under an “insured contract.”
Therefore, the Exclusion did not apply to a “contract or agreement . . . under
which [METCO] assume[s] tort liability of another party to pay for ‘bodily injury’
. . . .”
The effective dates for the 2003 policy were July 18, 2003 to July 18, 2004.
The coverage for the 2003 policy also contained the same Exclusion as the 2002
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policy. However, the 2003 policy differed from the 2002 policy because the 2003
policy included the Employers’ Liability Exclusion Endorsement (the
“Endorsement”). The Endorsement provides in relevant part:
This endorsement modifies insurance provided under
the following:
COMMERCIAL GENERAL LIABILITY COVERAGE
PART
...
This insurance does not apply:
...
2. To any liability or obligation for which any “insured,”
or any company as its insurer, may be held liable to any
person or entity, including any other “insured,” as a
result of “bodily injury” to any employee sustained in
the course of employment or supervision by an
“insured”; or
...
4. To any liability of any “insured” to defend,
indemnify, share payments or damages with, or repay
anyone on account of any obligation arising out of
“bodily injury” to any employee of the nature specified
in . . . 2 above.
This exclusion shall be effective regardless of whether
the liability or obligation is asserted directly or
indirectly against any “insured” as an employer,
contractor, subcontractor, third party defendant, or in
any other capacity.
...
All Other Terms and Conditions Remain Unchanged.
Accordingly, while the 2002 policy provided for coverage arising from an
employee’s injuries if liability arose from a third-party contractual relationship,
the 2003 policy excluded this liability from coverage.
B. METCO-DuPont Agreement and Bertrands’ Bodily Injury Claims
METCO performs materials testing for clients at various industrial sites
in the Gulf Coast region, which requires METCO employees to work at these
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sites. In February 2003, METCO and E.I. du Pont de Nemours and Company
(“DuPont”) executed an agreement (“DuPont Agreement”) whereby METCO
agreed to provide various testing services at a DuPont facility in Beaumont,
Texas. The DuPont Agreement included an indemnity clause, which required
METCO and DuPont to “indemnify, defend and hold harmless the other Party”
for various types of liability.
In March 2004, two of METCO’s employees, Christopher and Jacqueline
Bertrand, sustained bodily injuries while working at the DuPont facility. The
Bertrands filed suit against DuPont in state court, which DuPont settled.
Pursuant to the DuPont Agreement’s indemnity clause, DuPont demanded
reimbursement from METCO for fees and litigation expenses in defending and
settling the Bertrands’ claims. METCO refused to indemnify DuPont, and on
June 29, 2010, DuPont sued METCO for breach of contract. METCO
subsequently tendered the DuPont suit to its insurance carrier, Mid-Continent,
for defense and indemnity.
C. Mid-Continent’s Denial of Coverage and METCO and Mid-
Continent’s Lawsuit
In July 2010, Mid-Continent denied METCO’s request to defend, claiming
that METCO’s coverage was excluded under the provisions of the Coverage A
Bodily Injury and Property Damage Liability insuring agreement under the 2003
policy. METCO then filed the instant action in state court seeking a declaratory
judgment that Mid-Continent had a duty to defend METCO in the lawsuit
brought by DuPont. METCO also advanced claims for breach of contract, breach
of the duty of good faith and fair dealing, reformation of the insurance policy due
to mutual mistake or fraud, and violations of the Texas Insurance Code and the
Texas Deceptive Trade Practices Act. The action was removed to federal court
on the basis of diversity jurisdiction. Mid-Continent subsequently asserted the
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Endorsement as an additional ground in refusing to defend METCO in an
amended answer.
In the district court, Mid-Continent filed a motion for summary judgment.
METCO filed a cross-motion for partial summary judgment, claiming, inter alia,
that the terms of the 2002 policy, and not the 2003 policy, control
Mid-Continent’s duty to defend because Texas law presumes that a policy
renewal is made on the same terms of the original policy unless there is evidence
of a contrary agreement. The magistrate judge ruled that the 2003 policy
controls because the Bertrands’ injuries occurred during the effective dates of
that policy. The magistrate judge then applied the eight-corners rule1 and
concluded that the Endorsement precluded Mid-Continent’s duty to defend
METCO’s claims and that there was no evidence supporting METCO’s
remaining claims. The district court adopted the magistrate judge’s report and
recommendation and granted summary judgment in favor of Mid-Continent.
METCO now appeals.
II.
We review the district court’s grant of summary judgment de novo.
Admiral Ins. Co. v. Ford, 607 F.3d 420, 422 (5th Cir. 2010) (citation omitted).
Summary judgment is appropriate when “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). We must view all facts and evidence
in the light most favorable to the non-moving party when considering a motion
for summary judgment. Dameware Dev., L.L.C. v. Am. Gen. Life Ins. Co., 688
F.3d 203, 206-07 (5th Cir. 2012) (citation omitted). In this diversity jurisdiction
1
Under Texas’s “eight corners” rule, “the scope of an insurer’s duty to defend against a lawsuit
is determined exclusively by the allegations in the pleadings and the language of the insurance policy.”
Nat’l Cas. Co. v. W. World Ins. Co., 669 F.3d 608, 612 (5th Cir. 2012) (citing Nat’l Union Fire Ins. Co. v.
Merchs. Fast Motor Lines, 939 S.W.2d 139, 141 (Tex. 1997)).
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action, we apply the substantive law of Texas. Coe v. Chesapeake Exploration,
L.L.C., 695 F.3d 311, 316 (5th Cir. 2012) (citation omitted).
III.
A.
On appeal, METCO does not challenge the district court’s conclusion that
the Endorsement bars coverage of the DuPont lawsuit. Rather, METCO argues
that the 2003 policy is on the same terms as the 2002 policy because a policy
renewal is on the same terms as the original; thus, according to METCO, the
Endorsement is not enforceable.
We conclude, however, that the 2003 policy is valid and enforceable as
written. The Bertrands were injured in March 2004, and the 2003 policy was
effective from July 18, 2003 to July 18, 2004. Thus, the 2003 policy is the
relevant one for determining METCO’s coverage. Further, the 2003 policy’s
language, as previously stated, specifically negates Mid-Continent’s duty to
defend METCO.2 Therefore, under general contract principles, we conclude that
METCO is bound by the Endorsement included in the 2003 policy. State Farm
Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010) (noting that the interpretation
of an insurance contract is guided by general contract principles of contract
construction and that the primary goal is to examine the policy language to
ascertain the parties’ intent).
B.
METCO’s asserted bases for relief in reliance on Liverpool & London &
Globe Insurance Co. v. Swann, 382 S.W.2d 521 (Tex. Civ. App.–Beaumont 1964,
no pet.), Harbor Insurance Co. v. Urban Construction Co., 990 F.2d 195 (5th Cir.
2
Moreover, we note Mid-Continent does not have a duty to indemnify because the Endorsement
specifically precludes coverage for “any liability of any insured to indemnify . . . anyone on account of any
obligation arising out of ‘bodily injury’ to any employee . . . [sustained in the course of employment].”
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1993), and Indiana & Ohio Live Stock Insurance Co. v. Keiningham, 161 S.W.
384 (Tex. Civ. App.–Dallas 1913, writ ref’d) are unavailing.
In Liverpool, the Texas Court of Appeals addressed whether an insured
could recover under his fire insurance policies for fire damage to his store where
the insurance agent sent a letter to the insured offering to renew the policy
based on the request of the insured’s wife. 382 S.W.2d at 522. However, the
agent failed to issue the renewal policy, and the policy expired one day prior to
the fire. Id. In holding that the insurance agent’s letter constituted a policy
renewal offer on the same terms as the original policy, the Liverpool court first
noted that:
The law is well settled in [Texas] that an insurance
company, through its duly authorized agent, may
contract by parol for the renewal of [an] insurance
policy; and, in the absence of agreement to the contrary,
the presumption is that the renewal is upon the same
terms, conditions, and amount as provided in the
original policy.
Id. (citation and internal quotation marks omitted).
The matter sub judice is distinguishable from Liverpool. Mid-Continent
issued the 2003 policy, which contained the Endorsement, a condition varying
the terms of the 2002 policy. We thus conclude that the 2003 policy was clearly
an “agreement to the contrary,” and Liverpool’s presumption is not applicable
here.
METCO next contends that it was excused from reading the 2003 policy
because “Texas adopted the majority rule that does not require the insured to
examine the delivered policy and permits him to rely upon the assumption that
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[a renewal policy is on the same terms as the original.]” In support of this
argument, METCO cites to Harbor Insurance.3
In Harbor Insurance, we addressed reformation of an insurance policy
under the majority rule where the insurer and insured committed a mutual
mistake. 990 F.2d at 199-200. In that case, the insurer, Harbor Insurance and
the insured, Urban, had a prior agreement to renew the policy on the same
terms as the previous year’s policy, which included a modifying endorsement.
Id. at 197. Due to the parties’ mutual mistake, the modifying endorsement was
not attached to the renewal policy. Id.Several years later, a construction defect action was commenced against
Urban, which resulted in an arbitration award against Urban. Id. at 198.
Urban then demanded indemnification by Harbor Insurance for the award. Id.Harbor Insurance denied the claim and sought a declaratory judgment that it
did not have a duty to indemnify Urban. Id. Harbor Insurance admitted
3
Although not extensively argued by METCO, METCO cites Fireman’s Fund Indemnity Co. v.
Boyle General Tire Co., 392 S.W.2d 352 (Tex. 1965) in support of the proposition that it did not have a
duty to examine the policy. In Boyle, an insurance agent agreed to the insured’s request to provide
coverage for the insured’s employees but the insurance agent did not include the employees under the
policy. Id. at 355. Two employees subsequently stole money from the business. Id. Boyle did not read
the policy until several years after it was issued and sought reformation of the policy. Id. The Texas
Supreme Court explained that “an insured who accepts a policy without dissent, is presumed to know
its contents, but the presumption may be overcome by proof that he did not know its contents when it
was accepted, as by showing that when he received it he put it away without examination, or that he
relied upon the knowledge of the insurer and supposed he had correctly drawn it.” Id. (citation and
internal quotation marks omitted). The Boyle court therefore allowed reformation of the policy. Id. at
358.
Post-Boyle cases have applied Boyle’s presumption where the policy did not comply with a prior
agreement between the insurance agent and the insured. See Colonial Sav. Ass’n v. Taylor, 544 S.W.2d
116, 119 (Tex. 1976) (concluding that an insured overcame the Boyle presumption when a lienholder,
which had a duty similar to an insurance agent, indicated that it would procure fire coverage of the
property and the lienholder failed to fully insure the property); Ins. Network of Tex. v. Kloesel, 266
S.W.3d 456, 479-81 (Tex. App.–Corpus Christi 2008, pet. denied) (concluding that the insured restaurant
owners overcame Boyle’s presumption where the insured informed the agent prior to the agent’s
procurement of the policy that it wanted to be covered for tainted food, and the procured policy contained
a communicable disease exclusion which excluded coverage of customers’ Hepatitis A claims)
These cases are distinguishable from the present matter. Boyle, Colonial Savings, and Kloesel
all involved the insured not examining the policy on the basis that the policies were intended to protect
the insured from the covered risk based on prior communications with an insurance agent or a party that
had a similar duty as an insurance agent.
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however, that the subsequently delivered written policy “did not reflect the
agreement of the parties” because it omitted the modifying endorsement that
was included in the prior policy. Id. at 199. Notwithstanding this admission,
the district court ruled that “as a matter of law an insured is bound by the terms
of a policy when he accepts the policy.” Id. In disagreeing with the district
court, we noted that the majority rule “does not require the insured to examine
the delivered policy and permits him to rely upon the assumption that the
agreement was expressed in the writing.” Id. at 200. Accordingly, we held that
there was a mutual mistake, but we declined to allow for reformation of the
policy because the statute of limitations expired on Urban’s claim. Id. at 201.
We therefore affirmed the district court’s decision. Id. at 202.
Contrary to what METCO argues, Harbor Insurance does not stand for
the blanket proposition that a policyholder has a right to assume that “a renewal
policy is on the same terms as the original.” Harbor Insurance specifically dealt
with the issue of reformation under the majority rule where the parties
committed a mutual mistake based on a prior agreement. Id. at 199-200. In the
instant case, there is no prior agreement supporting the proposition that
METCO and Mid-Continent agreed to not include the Endorsement in the 2003
policy but that the parties, through mutual mistake, subsequently included the
Endorsement in the 2003 policy anyway. Therefore, we conclude that the facts
of this case are misaligned with Harbor Insurance, and we decline to extend our
holding in Harbor Insurance to the facts here.
For similar reasons, METCO’s reliance on Keiningham is misplaced. In
Keiningham, the insured sent an application to his insurer requesting a renewal
of his current livestock insurance policy. 161 S.W. at 384. The insurer
responded by delivering a policy which was “represented to be in compliance
with his application” but which in fact included an additional restrictive
provision. Id. The insured failed to read the policy and did not discover the
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restrictive provision until he attempted to make a claim under the policy. Id. at
384-85. The Keiningham court noted that “the provision in the policy is in
conflict with the application” and held that the insured was not bound by the
restrictive provision. Id. at 385. The court stated, “[t]he application was one
apparently prepared and printed by [the insurer] for its private use and if it
intended to ingraft upon it some new provision after [the insured] had signed
same, some notice of such intention must have been given [to the insured] to
bind him thereto.” Id. at 386.
We also conclude that METCO’s argument under Keiningham is
unpersuasive because there is no evidence in the record that METCO completed
a policy renewal application or otherwise requested that the 2003 renewal policy
be issued on the same terms as the 2002 policy.
Liverpool, Harbor Insurance, and Keiningham are clearly distinguishable
from the instant case, and we decline to view them as supportive of METCO’s
contention.
C.
METCO next contends that Mid-Continent did not provide “actual notice”
that the Endorsement was included in the 2003 policy. By way of several
affidavits submitted by administrative officers and its insurance agent, METCO
avers that it was unaware that Mid-Continent included the Endorsement.
METCO cites Automobile Insurance Co. v. United Electric Service Co., 275
S.W.2d 833 (Tex. Civ. App.–Fort Worth 1955, writ ref’d n.r.e.), and four cases
from other jurisdictions in support of its notice argument.4
The court in Automobile Insurance concluded that an insured did not
receive sufficient notice of a co-insurance endorsement even though the insurer
delivered “ten single page endorsements, three simple credit memoranda and
4
Gov’t Emps. Ins. Co. v. United States, 400 F.2d 172 (10th Cir. 1968), Whiteside v. New Castle
Mut. Ins. Co., 595 F. Supp. 1096 (D. Del. 1984); Campbell v. Ins. Serv. Agency, 424 N.W.2d 785 (Minn.
Ct. App. 1988); N. River Ins. Co. v. Young, 453 S.E.2d 205 (N.C. Ct. App. 1995)
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two renewal policies” to the insured’s office manager. 275 S.W.2d at 836.
Automobile Insurance, however, primarily concerned the reformation of an
insurance policy based on mutual mistake. Here, there is no mutual mistake.
In the instant case, the policy declaration within the 2003 policy contained
the following language with respect to terms and changes made to the policy.
The Policy Declaration provided: “IN RETURN FOR THE PAYMENT OF THE
PREMIUM, AND SUBJECT TO ALL THE TERMS OF THIS POLICY, WE
AGREE WITH YOU TO PROVIDE THE INSURANCE AS STATED IN THIS
POLICY.” Shortly after this language, the Endorsement (ML 1190) is listed
under the heading of “Form(s) and Endorsement(s) made a part of this policy at
this time.” Additionally, the page in which the Endorsement is discussed
conspicuously states, “THIS ENDORSEMENT CHANGES THE POLICY.
PLEASE READ IT CAREFULLY,” and “[t]his endorsement modifies insurance
provided under the following: COMMERCIAL GENERAL LIABILITY
COVERAGE PART. . . .”
By receiving the proposed 2003 policy which included notification of the
inclusion of the Endorsement, METCO had sufficient notice that the
Endorsement was included in the 2003 policy.
D.
METCO further asserts there is evidence of fraud in this case. METCO
argues that Mid-Continent committed fraud by claiming that the 2003 policy
was a “renewal,” thereby misrepresenting the terms of the 2003 policy when it
included the Endorsement because, by definition, a renewal is on the same terms
as the original policy.
Under Texas law, the party asserting fraud is required to prove:
(1) that a material representation was made; (2) the
representation was false; (3) when the representation
was made, the speaker knew it was false or made it
recklessly without any knowledge of the truth and as a
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positive assertion; (4) the speaker made the
representation with the intent that the other party
should act upon it; (5) the party acted in reliance on the
representation; and (6) the party thereby suffered
injury.
In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001) (citation omitted).
To support this claim, METCO specifically argues that: (1) Mid-
Continent’s representation was material; (2) Mid-Continent knew the
representation to be false; (3) Mid-Continent intended METCO to sign the 2003
policy on the belief that it was a renewal of the 2002 policy terms; (4) METCO
purchased the renewal policy; (5) METCO relied on Mid-Continent’s
representation; and (6) METCO was injured when Mid-Continent denied
coverage based on the Endorsement. In the alternative, METCO avers that
there is a conflict between the terms of the Endorsement and the Exclusion, and
that the Exclusion controls.
The district court did not address METCO’s reformation claim on the basis
of fraud because METCO failed to object to the magistrate’s report; therefore,
our review is limited to plain error. See Douglass v. United Servs. Auto. Ass’n,
79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc), superceded by statute on other
grounds, 28 U.S.C. § 636(b)(1) (extending the time to file objections from ten to
fourteen days).
Under plain error review, the appellant must show (1) an error; (2) that
is clear or obvious; and (3) that affected the appellant’s substantial rights.
Baisden v. I’m Ready Prods. Inc., 693 F.3d 491, 506 (5th Cir. 2012) (citation
omitted).
Although the 2003 policy is a renewal policy, it cannot be characterized as
a renewal on the same terms as the 2002 policy when considered in light of other
language in the 2003 policy. See State Farm Lloyds, 315 S.W.3d at 527 (“[The
court] must read all parts of the contract together, giving effect to each word,
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clause, and sentence, and avoid making any provision within the policy
inoperative.”). The policy declaration page and the Endorsement page explicitly
provide language notifying the insured that the Endorsement changed the terms
of the 2002 policy. Accordingly, Mid-Continent did not make a material
representation that the 2003 policy was on the same terms as the 2002 policy as
argued by METCO. Therefore, METCO has not demonstrated any error, plain
or otherwise. Furthermore, there is no conflict between the Endorsement and
the Exclusion because the Endorsement controls. TIG Ins. Co. v. N. Am. Van
Lines, Inc., 170 S.W.3d 264, 271 (Tex. App.–Dallas 2005) (noting that when there
is a conflict between an endorsement and the policy the endorsement generally
supersedes conflicting printed terms contained in the general policy.)
Accordingly, the Endorsement contained in the 2003 policy is enforceable,
and METCO’s attempts to attack the Endorsement fail.
IV.
METCO finally contends that the district court erred in dismissing its
claims relating to breach of contract, breach of the duty of good faith and fair
dealing, and violations of the Texas Deceptive and Trade Practices Act and the
Texas Insurance Code. Because we have concluded that Mid-Continent did not
have a duty to defend or indemnify METCO, these claims fail.
V.
For the foregoing reasons, we AFFIRM the district court’s grant of
summary judgment.
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