Essex Insurance Co v. Jackie Hines

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 4, 2010
No. 09-40374
Summary Calendar Charles R. Fulbruge III
Clerk
ESSEX INSURANCE COMPANY
Plaintiff-Appellant-Cross-Appellee
v.
JACKIE HINES
Defendant-Appellee-Cross-Appellant
Appeals from the United States District Court
for the Southern District of Texas
No. C-08-125
Before HIGGINBOTHAM, CLEMENT, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
We have occasion once again to take up the “seemingly simple task” of
determining whether an insurance company owes a duty to defend an underlying
liability lawsuit, and because the insurer in this case indeed has such a duty, it
is also an occasion to again remind: “When in doubt, defend.” 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
1
Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 369 (5th Cir.
2008)
No. 09-40374
I
Jackie Hines purchased an insurance policy from Essex Insurance
Company to cover a house she had purchased in Corpus Christi, Texas. Hines
paid a $325.00 premium for “Commercial General Liability Coverage” and a
$437.00 premium for “Commercial Property Coverage.” The policy ran three
months, from November 4, 2004 through February 4, 2005.
During the policy period, Hines renovated the house. She then sold it to
Robert and Kathryn Childers in August 2005. A few months later, the Childers
sued Hines for negligence and other wrongs, alleging that Hines improperly
installed new foundation piers, “failed to locate and remove wood rot in the
flooring, failed to repair the sub-flooring of the house and failed to properly
ventilate the foundation of the residence.” Hines requested that Essex defend
her in the Childers’ lawsuit, limiting her request for defense to the claim of
negligence. Essex declined and brought suit for a declaratory judgment. The
district court found summary judgment in favor of Hines, requiring that Essex
defend Hines. Essex appeals that judgment, which we now affirm.
Under Texas law, which applies here, an insurer has a duty to defend a
policyholder in actions brought by a third party who asserts claims potentially
covered by the insurance policy.2 When determining whether an insurer owes a
duty to defend its insured, Texas courts follow the “eight corners” or “complaint
allegation” rule,3 which directs a court to examine only “the allegations in the
pleadings and the language of the insurance policy.” 4 The “latest amended
pleading upon which the insurer based its refusal to defend the action” is the one
2
See St. Paul Guardian Ins. Co., 283 F.3d 709, 712 (5th Cir. 2002).
3
Gore, 538 F.3d at 368; Canutillo Indep. Sch. Dist. v. Nat’l Union Fire Ins. Co., 99 F.3d
695, 701 (5th Cir. 1996).
4
King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002).
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No. 09-40374
to be analyzed. 5 It is the factual allegations in this pleading that matter;6 the
duty to defend is not affected by facts ascertained before or during the
underlying litigation, or by the ultimate outcome of the underlying case.7
Allegations are read liberally in favor of the insured and all doubts are
resolved in the insured’s favor.8 “Courts may not, however, (1) read facts into
the pleadings, (2) look outside the pleadings, or (3) imagine factual scenarios
which might trigger coverage.” 9 Yet, “we may draw inferences from the petition
that may lead to a finding of coverage.” 10 So long as the complaint alleges at
least one cause of action within the policy’s coverage, the insurer must defend
the insured.”11
On appeal, Essex argues that the Childers’ claim of negligence against
Hines is barred from coverage under the policy because (1) construction work is
not covered, and (2) even if construction work is covered, this particular claim
of negligence is excluded.
II
Essex urges that the policy does not cover Hines for construction work. In
support, Essex points first to a form in the policy entitled “Commercial General
Liability Coverage Part Supplemental Declarations,” which states that the
5
Canutillo, 99 F.3d at 701.
6
GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 310 (Tex.
2006).
7
Canutillo, 99 F.3d at 701.
8
Gore, 538 F.3d at 368–69 (citing Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997)).
9
Id. at 369 (quoting Guar. Nat’l Ins. Co. v. Azrock Indus., 211 F.3d 239, 243 (5th Cir.
2000) (internal quotation marks omitted)).
10
Id.
11
Canutillo, 99 F.3d 695, 701 (5th Cir. 1996).
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No. 09-40374
Description of Hazard/Insured Classification” is “DWELLING-SINGLE
FAMILY-LESSOR’S RISK ONLY.” Because of the reference to “lessor’s risk
only,” Essex argues that Hines was not covered for construction work; the policy
apparently does not define the term.
Second, Essex directs us to a form entitled “Classification Limitation
Endorsement,” which limits coverage to “only . . . those operations specified in
the application for insurance on file with the company and described under the
‘description’ or ‘classification’ on the declarations policy.” Third, the “Limitation
of Coverage to Designated Premises or Project” section of the policy states that
“[t]his insurance applies only to ‘bodily injury[,] ‘property damage,’ . . . arising
out of (1) the ownership, maintenance, or use of the premises shown in the
Schedule and operations necessary or incidental to those premises; or (2) the
project shown in the Schedule.”
Together, Essex pushes that this language precludes coverage for
construction work. Such a conclusion would not be completely implausible.
Nonetheless, the “Renovated Property Endorsement” suggests just the opposite:
“This policy covers a renovation project. This policy will cover the usable
existing structure which predates the renovation project as insured property.”12
Where, as here, “the language used is subject to two or more reasonable
interpretations, the construction which affords coverage will be adopted. The
policy of strict construction against the insurer is especially strong when the
court is dealing with exceptions and words of limitation.” 13 So long as it is not
12
Essex argues that because the endorsement concerns only the “usable existing
structure which predates the renovation project,” the endorsement was not contemplated to
cover completed or defective construction work. More likely, however, the language is
concerned with limiting coverage to existing structures as opposed to new ones, a conclusion
that squares neatly in the context of a “renovation project.”
13
Blaylock v. Am. Guarantee Bank Liability Ins., 632 S.W.2d 719, 721 (Tex. 1982)
(citations omitted).
4
No. 09-40374
unreasonable, an interpretation favoring coverage will be adopted even if an
interpretation militating against coverage is more reasonable.14
For its part, Essex does not posit what the insurance policy does cover,
other than implicitly suggesting that the policy covered Hines as a landlord of
an admittedly vacant house, one that Essex knew was being renovated. We will
not labor to imagine in its stead. Suffice to say, that if a “Commercial General
Liability Coverage” policy taken out by a contractor is not generally intended to
cover “construction,” it might surprise the Texas Supreme Court; it seems to
treat this conclusion as axiom.15 In any event, Essex does not urge that this
particular Commercial General Liability Coverage policy was designed to do
something fundamentally different than the innumerable Commercial General
Liability policies based on the same “standard form developed by the Insurance
Services Office, Inc.” and “used throughout the United States.”16
III
Even if the policy does cover construction work, Essex contends that it
specifically excludes the negligent work alleged by the Childers. “[W]hen the
plaintiff’s petition makes allegations which, if proved, would place the plaintiff’s
claim within an exclusion from coverage, there is no duty to defend.” 17 “Texas
14
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 668 (Tex. 2008)
(“When interpreting an insurance contract, we must adopt the construction of an exclusionary
clause urged by the insured as long as that construction is not unreasonable, even if the
construction urged by the insurer appears to be more reasonable or a more accurate reflection
of the parties’ intent. Exceptions or limitations on liability are strictly construed against he
insurer in favor of the insured, and an intent to exclude coverage must be express in clear and
unambiguous language.”) (citations omitted and emphasis added).
15
See, e.g., Pine Oak Builders, Inc. v. Great American Lloyds Ins. Co., 279 S.W.3d 650,
651 (Tex. 2009) (citing Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1, 4–5,
16 (2007)).
16
Lamar Homes, 242 S.W.3d at 5 (citing 2 JEFFREY W. STEM PEL , STEMPEL ON
INSURANCE CONTRACTS § 14.01 (3d ed 2007).
17
Gulf States Ins. Co. v. Alamo Carriage, Serv., 22 F.3d 88, 91 (5th Cir. 1994).
5
No. 09-40374
law places the burden of proving that an exclusion applies on the insurance
company.”18 We narrowly construe exclusions, and draw all reasonable
inferences in the insured’s favor.19 Here, Essex puts forth two exclusions.
The first excludes from coverage property damage that is “expected or
intended from the viewpoint of the insured.” This exclusion does not apply to the
current case because the Childers sued Hines primarily for negligence, which
does not involve an expected or intended act.20
The second excludes from coverage “property damage to . . . that particular
part of any property that must be restored, repaired or replaced because ‘your
work’ was incorrectly performed on it.” This exclusion further provides that it
“does not apply to ‘property damage’ to ‘your work’ arising out of it or any part
of it and included in the Products/Completed Operations Hazard.” The policy
defines “your work” to mean “work or operations performed by you or on your
behalf and materials, parts or equipment furnished in connection with such
work or operations” including “warranties or representations made at any time
with respect to the fitness, quality, durability, performance or use of ‘your
work.’” Our precedent makes plain that the “that particular part” language of
exclusion “limits the scope of the exclusion to damage to parts of the property
that were actually worked on by the insured.”21 “If work on any part of a
property would leave an insured exposed for damages to the entire property, the
exclusion should state: ‘Property damage to property that must be restored,
18
Gore, 538 F.3d at 370 (citing TEX . INS . CODE . ANN . § 554.002 (Vernon 2005)).
19
Id. (citing Gen. Star Indem. Co. v. Gulf Coast Marine Assocs., 252 S.W.3d 450, 458–59
(Tex. App.–Houston [14th Dist.] 2008, pet. denied)).
20
Essex Ins. Co. v. Greenville Convalescent Home, Inc., 236 Fed. App’x 49, 53 (5th Cir.
2007) (affirming the district court’s holding that an “‘expected or intended injury’ exclusion .
. . did not apply to . . . claims primarily sounded in negligence and medical malpractice, which
do not involve intentional acts”).
21
Mid-Continent Casualty Co. v. JHP Development, Inc., 557 F.3d 207, 214 (5th Cir.
2009) (citing Gore, 538 F.3d 365, 372–73).
6
No. 09-40374
repaired or replaced because your work was incorrectly performed on any part
of it.’” Here, reading the factual allegations liberally in favor of coverage—as we
must22 —the Childers seek damages beyond that of repairing Hines’s renovation
work, i.e. portions of the house which Hines did not replace or renovate, or did
not claim she replaced or renovated.23
IV
Finally, Hines filed a counterclaim seeking attorney’s fees and other
damages against Essex for failing to undertake her defense and prosecuting this
declaratory judgment action. Neither party addressed this counterclaim in their
motions for summary judgment and the district court entered a final judgment
in favor of Hines without noting it. We do not read the district court’s final
judgment as reaching the merits of Hines’s counterclaim; we instead leave it to
the district court’s authority and discretion.24
V
We AFFIRM the district court’s summary judgment on the question of
whether Essex has a duty to defend Hines under Texas law: it does.
22
Merchs. Fast Motor Lines, 939 S.W.2d at 141.
23
Among other things, the Childers allege that, due to Hines’s negligence, they “have
suffered property damage to the house, been forced to move out of the house and incur
additional living expenses and have suffered a diminished value of the residence.” “These
damages are far removed from ‘damage to the that particular part of [the] property.’” Gore, 538
F.3d at 372 & n.9 (holding that damages that grounded an aircraft as unairworthy and
inoperable, resulting in substantial loss of use damages, permanent value diminution, and
debt service payments while inoperable, were “extensive damages beyond that of repairing”
the aircraft’s in-flight entertainment and electrical systems).
24
Harris v. United States Fidelity & Guaranty Co., 569 F.2d 850, 852 (5th Cir. 1978).
7