Texas Molecular Ltd. Partnership v. American International Specialty Lines Insurance

Case: 10-40722 Document: 00511469101 Page: 1 Date Filed: 05/06/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 6, 2011
No. 10-40722 Lyle W. Cayce
Summary Calendar Clerk
TEXAS MOLECULAR LIMITED PARTNERSHIP; TM CORPUS CHRISTI
SERVICES LIMITED PARTNERSHIP; TM CORPUS CHRISTI SERVICES
MANAGEMENT, L.L.C; TM DEER PARK SERVICES MANAGEMENT,
L.L.C.; TM DEER PARK SERVICES, L.P.; TEXAS MOLECULAR
MANAGEMENT, L.L.C.,
Plaintiffs - Appellants
v.
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE
COMPANY; AMERICAN INTERNATIONAL GROUP INC., also known as
AIG Casualty Company,
Defendants - Appellees
Appeals from the United States District Court
for the Southern District of Texas
USDC No. 2:08-CV-7
Before DAVIS, SMITH, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Texas Molecular LP and its related entities filed suit against American
International Specialty Lines Insurance Company and AIG Domestic Claims
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
Case: 10-40722 Document: 00511469101 Page: 2 Date Filed: 05/06/2011
No. 10-40722
seeking to enforce two insurance policies. The district court granted the
defendants’ motion for summary judgment, concluding that the relevant policies
contained exclusions that excused the insurers from paying the insureds. The
Texas Molecular plaintiffs appealed. We AFFIRM.
BACKGROUND
The plaintiffs are six separate but related entities that operate hazardous
waste underground injection wells in Texas. The entities are Texas Molecular
LP, Texas Molecular Management L.L.C., TM Corpus Christi Services LP, TM
Corpus Christi Services, L.L.C., TM Deer Park Services, L.P., and TM Deer Park
Management, L.L.C. (collectively the “Texas Molecular Entities”). All of the
Texas Molecular Entities except TM Corpus Christi Services LP list the same
address as their official address with the Texas Secretary of State.
The entities share a number of characteristics. Texas Molecular LP
provides human resources and payroll services to all of the Texas Molecular
Entities. TM Corpus Christi Services, L.L.C. serves as the general partner to
TM Corpus Christi Services LP and TM Deer Park Management, L.L.C. is the
general partner of TM Deer Park Services, L.P. Texas Molecular Management
and Texas Molecular LP partially own TM Corpus Christi Services LP and TM
Deer Park Services, L.P., and other entities have ownership shares in the limited
partnerships. The entities also have several officers in common. For example,
in 2006 three of the entities shared a president, vice president, and treasurer.
Other people have served simultaneously as managers or employees of more
than one of the Texas Molecular Entities.
At issue are insurance policies the Texas Molecular Entities purchased
from American International Specialty Lines Insurance Company (“AISLIC”) for
which AIG Domestic Claims was the authorized claims handling agent. The first
policy was a Comprehensive General Liability and Pollution Legal Liability
Policy (“Primary Policy”) and the second was a Commercial Umbrella Policy
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(“Umbrella Policy”). Under both policies, the Texas Molecular Entities were
individually listed as “Named Insureds.”
The Primary Policy provided that AISLIC would pay sums that the Texas
Molecular Entities became obligated to pay for claims relating to “bodily injury
which takes place while the person injured is on the insured property[.]” The
Primary Policy, however, excluded coverage for claims “[a]rising from bodily
injury to an employee of the insured or its parent, subsidiary, or affiliate arising
out of and in the course of employment by the insured or its parent, subsidiary
or affiliate.”
The Umbrella Policy provided supplemental insurance above the policy
limits of the Texas Molecular Entities’ other insurance policies. The Umbrella
Policy had another exclusion to the coverage at issue here. The policy did not
apply to “[b]odily injury . . . arising out of the actual, alleged or threatened
discharge, seepage, migration, release or escape of pollutants at any time[.]”
In 2006, two employees of TM Corpus Christi Services LP died when they
were exposed to a lethal amount of hydrogen sulfide. The families of the
deceased filed wrongful death and survival claims against the six Texas
Molecular Entities, among other defendants. The Texas Molecular Entities
requested coverage from AISLIC to defend against the wrongful death suits,
which AISLIC accepted, subject to a reservation of the right to later rely on the
policy exclusions.
AISLIC eventually denied coverage under the Primary Policy based on the
exclusion to coverage for bodily injury to employees of the insured or its
affiliates. It also denied coverage under the Umbrella Policy based on the
pollution exclusion. The Texas Molecular Entities settled the wrongful death
claims, and filed a breach of contract suit in state court against AISLIC to
recover on their Umbrella and General Policies. AISLIC removed the case to
federal court on the basis of diversity jurisdiction. The defendants filed for
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summary judgment, arguing that they were not obligated to pay on either policy
due to these two exclusions. The district court determined that the exclusions
barred coverage and granted the motion. The district court ordered the plaintiffs
to pay the defendants’ costs for defending the lawsuit and dismissed the claim
that the insurers were negligent in declining to settle third-party claims within
the policy limits. The Texas Molecular Entities timely appealed.
DISCUSSION
We review a district court’s decision to grant a motion for summary
judgment de novo. Offshore Drilling Co. v. Gulf Copper & Mfg. Corp., 604 F.3d
221, 225 (5th Cir. 2010). “The court shall grant summary judgment 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). When
jurisdiction is based on diversity, we apply the law of the forum state. Holt v.
State Farm Fire and Cas. Co., 627 F.3d 188, 191 (5th Cir. 2010). Absent a
controlling state court opinion, we analyze how the highest state court would
interpret state law. See Beavers v. Metro. Life Ins. Co., 566 F.3d 436, 439 (5th
Cir. 2009).
Insurance contracts are interpreted “according to settled rules of
construction” applied to all written contracts. Nat’l Union Fire Ins. Co. of
Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008). Words in the
policies, if not defined, are accorded their plain and ordinary meaning. Certain
Underwriters of Lloyds, London v. Law, 570 F.3d 574, 577 (5th Cir. 2009).
“Where, as here, the disputed provision is an exclusion, the insurer bears the
burden of establishing that the exclusion applies.” Am. Int’l Specialty Lines Ins.
Co. v. Rentech Steel LLC, 620 F.3d 558, 562 (5th Cir. 2010) (citation omitted).
I. Primary Policy Coverage
The Texas Molecular Entities argue the district court erred when it found
the employee exclusion precluded coverage under the Primary Policy. They
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maintain the language relating to that exclusion “establishes that there must be
an employment connection between the injured employee and the employer or
its parent, subsidiary or affiliate for the exclusion to apply.” Thus, because the
two deceased workers worked only for TM Corpus Christi Services LP, they had
no relationship with the other Texas Molecular Entities and the exclusion should
not apply to them.1 They contend in the alternative that the defendants failed
to meet their summary judgment burden to show that the exclusion applied.
The Texas Molecular Entities argue they were separate businesses, and the
defendants failed to show they were “affiliates” under the Primary Policy. These
arguments fail.
The relevant exclusion in the Primary Policy is clear. It states AISLIC
does not provide coverage for injuries to “an employee of the insured, or its
parent, subsidiary, or affiliate” in the course of employment “by the insured or
its parent, subsidiary or affiliate.” The plain language of the policy does not
require an “employment connection” between the injured employee and the
insured for the exclusion to apply. Rather, the Primary Policy states that an
entity may not apply the policy’s coverage when the employee of its affiliate is
injured in the course of employment with that affiliate.
Additionally, the defendants demonstrated that all of the Texas Molecular
Entities were “affiliates.” The Primary Policy does not define the term
“affiliate”; therefore, we apply its “plain, ordinary, and generally accepted
meaning . . . .” Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121
(Tex. 1996) (citation omitted). One Texas court defined affiliate as a “‘company
effectively controlled by another or associated with others under common
ownership or control.’” Eckland Consultants, Inc. v. Ryder, Stilwell Inc., 176
1
There is no dispute that the Primary Policy exclusion precludes coverage for TM
Corpus Christi Services LP.
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S.W.3d 80, 88 (Tex. App.–Houston [1st Dist.] 2004, no pet.) (quoting Webster’s
Third New International Dictionary 35 (1971)).
The defendants presented evidence that showed the Texas Molecular
Entities met this definition. Some of the Texas Molecular Entities owned shares
of and controlled the other entities. They also demonstrated that several entities
shared officers and that Texas Molecular LP provided administrative services
for all the other entities. Further, the plaintiffs failed to argue to the district
court that the entities were not affiliates. Arguments not made “before the
district court are waived and will not be considered on appeal . . . .” AG
Acceptance Corp. v. Veigel, 564 F.3d 695, 700 (5th Cir. 2009). Thus, the Texas
Molecular Entities were affiliates. As affiliates, they were excluded from the
Primary Policy’s coverage as to the claims brought by the families of TM Corpus
Christi Services LP’s employees. Therefore, the district court did not err when
it granted the defendants’ motion for summary judgment on the Primary Policy.
II. Umbrella Policy Coverage
The plaintiffs contend the district court mistakenly applied the exclusion
in the Umbrella Policy that precludes recovery for bodily injuries. They argue
that the Umbrella Policy uses the term “bodily injury” while their workers
compensation policy specifically provides coverage for “bodily injury by accident”
and “bodily injury by disease.” They maintain the latter terms in the workers
compensation policy have a distinct meaning from “bodily injury” and therefore,
the Umbrella Policy does not exclude coverage for a bodily injury sustained in
an accident.
This logic is unpersuasive. The Umbrella Policy excludes coverage for
“bodily injury” caused by the escape of pollutants. A plain reading of this
exclusion indicates it includes a broad category of bodily injuries, including those
caused by accidents. The bodily injury in this case was caused by the escape of
a pollutant, hydrogen sulfide. Therefore, the district court did not err in its
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decision to grant the defendants’ summary judgment motion on the Umbrella
Policy.
The plaintiffs also argue that they should not be required to pay defense
costs and the district court should not have dismissed the so-called Stowers
claim that the insurers were negligent in declining to settle a third-party claim
within the policy limits. See Kelly H. Thompson, Comment, Bad Faith: Limiting
Insurers’ Extra-contractual Liability in Texas, 41 Sw. L.J. 719, 722 (1987)
(discussing Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex.
Comm’n App. 1929, holding approved)). This alleged error is based on the
premise that the policies actually provided coverage. Having upheld the district
court’s holding to the contrary, we need not address these issues based on what
we have determined to be a false premise.
AFFIRMED.
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