Starnet Insurance Company v. Ricetec, Inc.

Opinion issued August 27, 2019
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-18-00536-CV
———————————
STARNET INSURANCE COMPANY, Appellant
V.
RICETEC, INC., Appellee
On Appeal from the 239th District Court
Brazoria County, Texas
Trial Court Case No. 94416-CV
OPINION
In this permissive interlocutory appeal, appellee, RiceTec, Inc., brought
claims for breach of contract and breach of the Prompt Payment Act against
appellant, StarNet Insurance Company, arising out of StarNet’s failure to provide
RiceTec a defense in a property damage lawsuit filed against RiceTec. The parties
filed cross motions for summary judgment on the question of whether the insurance
policy StarNet issued to RiceTec covered the lawsuit filed against RiceTec, such that
StarNet owed RiceTec a duty to defend. The trial court rendered an interlocutory
summary judgment order ruling that StarNet owed RiceTec a duty to defend. The
trial court granted permission for StarNet to file a petition for permissive
interlocutory appeal of the ruling, and this Court granted the petition for permissive
appeal. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(d); TEX. R. APP. P. 28.3.
On appeal, StarNet argues that the trial court erred in granting RiceTec’s
motion for summary judgment and in denying its own motion for summary judgment
on the issue of whether it owed RiceTec a duty to defend. StarNet argues that the
plain language of an endorsement to the policy excludes coverage for the claims at
issue in the property damage lawsuit against RiceTec and therefore StarNet does not
owe a duty to defend RiceTec in that lawsuit.
We reverse and remand.
Background
A. The Insurance Policy
RiceTec is a company that produces and sells rice seeds. StarNet issued a
commercial general liability insurance policy (the Policy) to RiceTec that covered a
period from February 15, 2015, through February 15, 2016. The Policy had a limit
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of $1,000,000 per occurrence and a general aggregate limit of $2,000,000. The
Policy provided:
1. Insuring Agreement
a. We [StarNet] will pay those sums that the insured
[RiceTec] becomes legally obligated to pay as damages
because of “bodily injury” or “property damage” to which
this insurance applies. We will have the right and duty to
defend the insured against any “suit” seeking those
damages. However, we will have no duty to defend the
insured against any “suit” seeking damages for “bodily
injury” or “property damage” to which this insurance does
not apply.
....
b. This insurance applies to “bodily injury” and “property
damage” only if:
(1) The “bodily injury” or “property damage” is
caused by an “occurrence” that takes place in the
“coverage territory”;
(2) The “bodily injury” or “property damage”
occurs during the policy period; and
(3) Prior to the policy period, no insured listed under
Paragraph 1. of Section II – Who Is An Insured and
no “employee” authorized by you to give or receive
notice of an “occurrence” or claim, knew that the
“bodily injury” or “property damage” had occurred
in whole or in part. . . .
The Policy defined “bodily injury” as “bodily injury, sickness or disease sustained
by a person, including death resulting from any of these at any time”; “coverage
territory” as including “the United States of America”; “occurrence” as “an accident,
including continuous or repeated exposure to substantially the same general harmful
3
conditions”; and “suit” as “a civil proceeding in which damages because of ‘bodily
injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this
insurance applies are alleged.” The Policy defined “property damage” as “[p]hysical
injury to tangible property, including all resulting loss of use of that property” or
“[l]oss of use of tangible property that is not physically injured.”
The Policy included multiple exclusions which set out situations in which the
insurance coverage provided by StarNet to RiceTec did not apply. The Policy stated,
in relevant part:
2. Exclusions
This insurance does not apply to:
....
f. Pollution
(1) “Bodily injury” or “property damage” arising out of the
actual, alleged or threatened discharge, dispersal, seepage,
migration, release or escape of “pollutants”:
(a) At or from any premises, site or location which is or
was at any time owned or occupied by, or rented or loaned
to, any insured.
....
(d) At or from any premises, site or location on which any
insured or any contractors or subcontractors working
directly or indirectly on any insured’s behalf are
performing operations if the “pollutants” are brought on or
to the premises, site or location in connection with such
operations by such insured, contractor or subcontractor.
....
j. Damage to Property
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“Property damage” to:
....
(5) That particular part of real property on which you or any
contractors or subcontractors working directly or indirectly on
your behalf are performing operations, if the “property damage”
arises out of those operations;
....
The Policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste.”
The Policy also included numerous endorsements. At issue in this case is the
Agricultural Chemicals Applicator Coverage endorsement (the Endorsement).
Under the Endorsement, the “per occurrence limit” was $25,000, the “annual
aggregate” was $50,000, and the per-occurrence deductible for property damage was
$5,000. The Endorsement then provided:
With respect to the “bodily injury” or “property damage” arising out of
the application of herbicides, pesticides, fertilizers or similar
agricultural chemicals, (1)(d) of Exclusion f. Pollution under Section
I – Coverage A – Bodily Injury and Property Damage Liability and
(5) of Exclusion j. Damage to Property of SECTION I –
COVERAGES, COVERAGE A – BODILY INJURY AND
PROPERTY DAMAGE LIABILITY do not apply.
However, coverage provided by this endorsement is excluded for any
“bodily injury” or “property damage” resulting from:
....
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5. The application of herbicides, pesticides, fertilizers or
similar agricultural chemicals by aircraft owned, operated
by, rented or loaned to you or by any non-owned aircraft.
....
B. The Dishman Lawsuit
On September 15, 2015, Zachary Dishman, Josey Dishman, and Dishman
Rice Farms Partnership (collectively, the Dishmans) filed suit against RiceTec and
other defendants in Jefferson County, Texas (the Dishman lawsuit). The Dishmans
alleged that, beginning on April 23, 2015, RiceTec, through its agent, fellow
defendant Twin County Air-AG, Inc., “commenced the aerial spraying of herbicide
on RiceTec-farmed plots of land adjacent to [the Dishmans’] Property” and the
herbicide “was over sprayed, drifted or otherwise came onto” the Dishmans’
property. The Dishmans alleged that the herbicide sprayed on behalf of RiceTec
“killed or damaged” approximately 742 acres of the Dishmans’ rice crop, causing
over $1,000,000 in damages.
The Dishmans asserted causes of action against RiceTec for negligence and
trespass, and they also alleged that the aerial spraying of herbicide constituted an
“inherently or intrinsically dangerous or ultra-hazardous activity” that caused harm
to the Dishmans. The Dishmans later amended their petition to add a cause of action
for gross negligence, alleging that Twin County Air-AG, acting on behalf of
RiceTec, commenced aerial spraying of herbicide on RiceTec’s property on April
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23 and April 25, 2015. The Dishmans alleged that the “herbicide supplied by
RiceTec, Inc. was sprayed, over sprayed, drifted, or was otherwise allowed . . . to
come onto” the Dishmans’ property. They alleged that because RiceTec had sold the
Dishmans the seed used to plant their rice crop, RiceTec had knowledge of the
Dishmans’ farming activities, RiceTec’s decision to use aerial spraying of herbicide
on its property “involved an extreme degree of risk [to the Dishmans] considering
the probability and magnitude of the potential harm to [the Dishmans’] young rice
crop,” and RiceTec commenced aerial spraying with conscious indifference to the
Dishmans’ rights.
RiceTec notified StarNet of the Dishman lawsuit.1 On December 1, 2015,
StarNet denied coverage for the claims asserted against RiceTec. In the letter
informing RiceTec of the denial of coverage, StarNet set out multiple provisions of
the Policy that it believed were relevant to its decision, including the Endorsement.
StarNet stated:
After review of the complaint [in the Dishman lawsuit] we have
determined that the allegations do not meet the coverage terms within
your policy. The allegations address property damage resulting from an
agricultural application performed by Twin County Air-AG.
As we previously discussed, there is an exclusion within an attached
endorsement to your policy. Endorsement – Agricultural Chemicals
Applicator Coverage further states that coverage provided by the
1
Although there is no supporting documentation in the record, both parties note in
their appellate briefs that the parties in the Dishman lawsuit reached a settlement
agreement in January 2019.
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endorsement is excluded relative to the application of herbicides,
pesticides, fertilizers or similar agricultural chemicals by aircraft
owned, operated by, rented or loaned to you or by any non-owned
aircraft.
StarNet declined to make any defense or indemnity payments under the Policy.
On July 31, 2017, counsel for RiceTec requested that StarNet reconsider its
decision to deny coverage. Two months later, StarNet denied the request for
reconsideration, stating that it “remains of the position that there is no coverage
under the StarNet policy for the claims that have been asserted against RiceTec in
the [Dishman] lawsuit.” StarNet stated in this letter:
[The Endorsement] affixed to the StarNet policy does not serve to grant
coverage. Instead, with respect to claims of bodily injury or property
damage arising out of the application of herbicides, pesticides,
fertilizers, or similar agricultural products, the endorsement merely
provides that subsection f.(1)(d) of the Pollution Exclusion set forth in
the StarNet policy shall not serve to negate coverage. The endorsement
then sets forth five situations in which there shall be no coverage for
claims for bodily injury or property damage arising out of the
application of herbicides, pesticides, fertilizers, or similar agricultural
products regardless of whether subsection f.(1)(d) of the Pollution
Exclusion set forth in the StarNet policy is otherwise applicable,
including “[t]he application of herbicides, pesticides, fertilizers or
similar agricultural chemicals by aircraft owned, operated by, rented or
loaned to you or by any non-owned aircraft.” In sum, Exclusion 5. in
the [Endorsement] merely confirms that, although there may be
coverage for some claims for bodily injury or property damage arising
out of the application of herbicides, pesticides, fertilizers, or similar
agricultural products, there can be no such coverage for any such claims
if the application was accomplished by aerial means.
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StarNet stated that its position was that the Endorsement “effectively and
unequivocally serves to negate insurance coverage under the StarNet policy for the
claims that have been asserted against RiceTec” in the Dishman lawsuit.
C. The Underlying Proceedings
On November 30, 2017, RiceTec filed the underlying suit against StarNet in
Brazoria County. RiceTec asserted that the allegations in the Dishman lawsuit did
“not support application of any exclusions or limitations to coverage under the
StarNet Policy” and that, based on the allegations in the Dishman lawsuit and the
unambiguous language of the Policy, “StarNet is obligated to defend RiceTec in the
Dishman Lawsuit and to reimburse RiceTec’s defense costs.” RiceTec brought a
breach of contract claim against StarNet, alleging that, under the Policy, StarNet had
a duty to defend RiceTec in the Dishman lawsuit and breached that duty when it
refused to defend RiceTec. RiceTec also asserted a claim against StarNet under the
Prompt Payment Act—Texas Insurance Code chapter 542—alleging that it was
entitled to payment by StarNet of its defense costs in the Dishman lawsuit and that
StarNet violated Insurance Code section 542.060 by failing to acknowledge that it
owed obligations to RiceTec under the Policy.2 RiceTec also sought declarations that
2
See TEX. INS. CODE ANN. § 542.060(a) (“Except as provided by Subsection (c), if
an insurer that is liable for a claim under an insurance policy is not in compliance
with this subchapter [addressing prompt payment of claims], the insurer is liable to
pay the holder of the policy . . . , in addition to the amount of the claim, interest on
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StarNet had a duty to defend it for the claims asserted in the Dishman lawsuit and a
duty to reimburse it for the defense costs it had incurred.
StarNet answered and asserted affirmative defenses. It acknowledged that it
had issued an insurance policy to RiceTec, but it alleged that the Policy “contain[ed]
or incorporate[d] certain provisions, exclusions, and endorsements that preclude or
limit coverage, in whole or in part.” StarNet alleged that several Policy exclusions,
including exclusions f (pollution) and j (damage to property), applied and precluded
coverage of the claims asserted in the Dishman lawsuit. StarNet also alleged that,
under the Endorsement, it had no duty to defend or indemnify RiceTec in the
Dishman lawsuit.
RiceTec moved for traditional summary judgment on all of its claims.
RiceTec argued that it was entitled to judgment as a matter of law because the claims
asserted against it in the Dishman lawsuit were covered under the unambiguous
language of the Policy. Specifically, RiceTec argued that the Policy applied to
property damage—defined as “physical injury to tangible property”—caused by an
“occurrence” that takes place in the “coverage territory”—defined as including the
United States of America—during the policy period. The Dishman lawsuit alleged
that RiceTec damaged the Dishmans’ rice crops by negligently spraying the crops
the amount of the claim at the rate of 18 percent per year as damages, together with
reasonable and necessary attorney’s fees.”).
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with herbicide in April 2015, during the policy period. RiceTec argued that because
the claims asserted against it in the Dishman lawsuit potentially fell within the scope
of coverage provided by the Policy, StarNet owed RiceTec a duty to defend as a
matter of law.
RiceTec also argued that none of the Policy’s exclusions—including the
pollution and the damage to property exclusions—applied to bar coverage under the
Policy. RiceTec further argued that the Endorsement did not preclude coverage of
the claims in the Dishman lawsuit. RiceTec argued that the Endorsement “serves to
provide only certain limited coverage where coverage would otherwise be excluded
by section (1)(d) of exclusion f (Pollution) or section (5) of exclusion j (Damage to
Property),” but neither of those exclusions was applicable to the claims asserted in
the Dishman lawsuit. RiceTec also argued that the Endorsement stated that
“coverage provided by this endorsement is excluded for any ‘bodily injury’ or
property damage’ resulting from [t]he application of herbicides, pesticides,
fertilizers or similar agricultural chemicals by aircraft owned, operated by, rented or
loaned to you or by any non-owned aircraft,” but the Endorsement did not state that
it “negates coverage that the underlying policy already provides,” and the coverage
that RiceTec sought was provided by the Policy, not the Endorsement.
Finally, RiceTec argued that StarNet had a “clear and unqualified duty to
defend” it in the Dishman lawsuit, but had failed to fulfill this duty. RiceTec
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requested that the trial court grant summary judgment, award damages—including
attorney’s fees RiceTec had incurred in the Dishman lawsuit, statutory penalties
under the Prompt Payment Act, and attorney’s fees in the coverage proceeding—
and declare that StarNet owed RiceTec an ongoing duty to defend it in the Dishman
lawsuit.
StarNet also moved for traditional summary judgment on RiceTec’s claims.
StarNet argued that it had no duty to defend RiceTec because the unambiguous
language of the Endorsement excluded coverage for the claims asserted against
RiceTec in the Dishman lawsuit. StarNet argued that the Endorsement modified the
Policy by providing that, for claims for bodily injury or property damage arising out
of the application of herbicides, subsection (1)(d) of the pollution exclusion and
subsection (5) of the damage to property exclusion do not apply, and coverage exists
for these claims under the Policy. However, the next portion of the Endorsement
“operate[d] to limit the coverage provided by the first full paragraph of that
endorsement” by negating the coverage provided by the Endorsement in certain
situations, including in cases involving property damage resulting from the
application of herbicides by aircraft. StarNet argued that, when reading the Policy
and the Endorsement together, “any coverage for ‘property damage arising out of
the application of herbicides’ is excluded if the ‘property damage result[ed]
from . . . [t]he application of herbicides . . . by aircraft owned, operated by, rented or
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loaned to [RiceTec] or by any non-owned aircraft.’” Because the Dishman lawsuit
alleged that the Dishmans’ rice crops were damaged as a result of herbicides aerially
sprayed by RiceTec and its agents, StarNet argued that the claims in the Dishman
lawsuit unambiguously fell within the exclusion set out in the Endorsement, and
StarNet thus had no duty to defend RiceTec in the Dishman lawsuit.
StarNet accordingly argued that RiceTec was not entitled to a declaration that
StarNet had a duty to defend RiceTec in the Dishman lawsuit or that StarNet had a
duty to pay RiceTec’s defense costs. StarNet also argued that because it had no duty
to defend RiceTec, it also had no duty to indemnify RiceTec for any settlement or
judgment that might be obtained in the Dishman lawsuit. StarNet further contended
that it was entitled to summary judgment on all of RiceTec’s claims against it
because all of RiceTec’s claims were predicated on StarNet owing RiceTec a duty
to defend under the Policy.
The trial court granted RiceTec’s motion for summary judgment and denied
StarNet’s motion for summary judgment solely on the question of whether StarNet
owed RiceTec a duty to defend. The trial court’s order on the motions stated:
The Court finds that the underlying petition in the Dishman Lawsuit
alleges facts that potentially bring the alleged injury within the terms of
coverage in the relevant StarNet Policy. Based on this substantive
finding, the Court determines that StarNet has a duty to defend RiceTec
in the Dishman Lawsuit.
It is therefore ORDERED that:
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1. Plaintiff RiceTec, Inc.’s Amended Motion for Traditional
Summary Judgment against StarNet is GRANTED as to
StarNet’s duty to defend only, with the remaining issues in that
motion being held for further consideration.
2. Defendant StarNet’s Traditional Motion for Summary
Judgment is DENIED as to StarNet’s duty to defend only, with
the remaining issues in that motion being held for further
consideration.
3. StarNet owes RiceTec an ongoing duty to defend RiceTec
from the claims against RiceTec in the Dishman Lawsuit.
The Court further finds that there is a controlling question of law as to
which there is a substantial ground for difference of opinion regarding
whether StarNet has a duty to defend RiceTec in the underlying
Dishman Lawsuit. An immediate appeal from this order may materially
advance the ultimate termination of this litigation because RiceTec’s
remaining damage claim for attorney’s fees, expenses and penalty
interest against StarNet is based upon StarNet’s duty to defend.
It is therefore further ORDERED that the parties are granted permission
to appeal this Order to the court of appeals as a permissive interlocutory
appeal pursuant to Rule 168 of the Texas Rules of Civil Procedure and
Section 51.014(d) of the Texas Civil Practice and Remedies Code.
This Court granted StarNet’s petition for permissive interlocutory appeal.
Duty to Defend
StarNet argues that the trial court erred in granting RiceTec’s motion for
summary judgment and in denying its own motion for summary judgment because,
under the plain language of the Policy and the Endorsement, StarNet did not owe
RiceTec a duty to defend in the Dishman lawsuit.
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A. Standard of Review
We review a trial court’s ruling on a summary judgment motion de novo. City
of Richardson v. Oncor Elec. Delivery Co., 539 S.W.3d 252, 258 (Tex. 2018). To
prevail on a traditional summary judgment motion, the movant bears the burden of
proving that no genuine issues of material fact exist and that it is entitled to judgment
as a matter of law. TEX. R. CIV. P. 166a(c); City of Richardson, 539 S.W.3d at 258–
59. When a party moves for summary judgment on its own claim, it must establish
each essential element of its cause of action as a matter of law. Lawyers Title Co. v.
J.G. Cooper Dev., Inc., 424 S.W.3d 713, 717 (Tex. App.—Dallas 2014, pet. denied).
For a defendant to be entitled to traditional summary judgment, the defendant must
conclusively negate at least one essential element of each of the plaintiff’s causes of
action or conclusively establish each element of an affirmative defense. Williams v.
Bell, 402 S.W.3d 28, 35 (Tex. App.—Houston [14th Dist.] 2013, pet. denied); see
also Cmty. Health Sys. Prof’l Servs. Corp. v. Hansen, 525 S.W.3d 671, 681 (Tex.
2017) (stating that matter is conclusively established if reasonable people could not
differ as to conclusion to be drawn from evidence).
On cross-motions for summary judgment, each party bears the burden of
establishing that it is entitled to judgment as a matter of law. City of Garland v.
Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000). When the trial court grants
one summary judgment motion and denies the other, the reviewing court should
15
review both parties’ summary judgment evidence, determine all questions presented,
and render the judgment the trial court should have rendered. S. Crushed Concrete,
LLC v. City of Houston, 398 S.W.3d 676, 678 (Tex. 2013); City of Garland, 22
S.W.3d at 356.
B. Determining Whether Duty to Defend Exists
Generally, in liability insurance policies, an insurer “assumes both the duty to
indemnify the insured, that is, to pay all covered claims and judgments against an
insured, and the duty to defend any lawsuit brought against the insured that alleges
and seeks damages for an event potentially covered by the policy, even if groundless,
false or fraudulent,” subject to the terms of the insurance policy. D.R. Horton-Tex.,
Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009). However, the duty
to defend and the duty to indemnify “are distinct and separate duties,” and one duty
may exist without the other. Id. (quoting Utica Nat’l Ins. Co. v. Am. Indem. Co., 141
S.W.3d 198, 203 (Tex. 2004)); Farmers Tex. Cty. Mut. Ins. Co. v. Griffin, 955
S.W.2d 81, 82 (Tex. 1997) (per curiam) (“[A]n insurer may have a duty to defend
but, eventually, no duty to indemnify.”). An insurer’s duty to indemnify is controlled
by the “facts actually established in the underlying suit” against the insured and
“whether the damages caused by the actions or omissions proven are covered by the
terms of the policy.” D.R. Horton-Tex., 300 S.W.3d at 744. In this case, the trial
court’s summary judgment order states that the court granted RiceTec’s summary
16
judgment motion and denied StarNet’s motion “as to StarNet’s duty to defend only,
with the remaining issues in [the] motion[s] being held for further consideration.”
We therefore only address whether StarNet has a duty to defend RiceTec in the
Dishman lawsuit, and we do not address StarNet’s duty to indemnify.
In determining whether an insurer has a duty to defend, Texas courts follow
the “eight corners” rule. Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30,
33 (Tex. 2014); Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex.
2012). Under the eight corners rule, we look to the facts alleged within the four
corners of the pleadings, measure the facts alleged against the language within the
four corners of the insurance policy, and determine if the facts alleged “present a
matter that could potentially be covered by the insurance policy.” Ewing Constr.,
420 S.W.3d at 33; Evanston Ins., 370 S.W.3d at 380. We will not read facts into the
pleadings, nor will we look outside the pleadings or imagine factual scenarios that
might trigger coverage. Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279
S.W.3d 650, 655 (Tex. 2009) (quoting Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.
v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 142 (Tex. 1997) (per curiam)).
We consider the factual allegations without regard to their truth or falsity, and
we resolve all doubts regarding the duty to defend in the insured’s favor. Ewing
Constr., 420 S.W.3d at 33; see Evanston Ins., 370 S.W.3d at 380 (“Our precedent
favors insureds when examining both the complaint and the policy.”); Zurich Am.
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Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008) (“We resolve all doubts
regarding the duty to defend in favor of the duty, and we construe the pleadings
liberally.”). In reviewing the pleadings, we “look to the factual allegations showing
the origin of the damages claimed, not to the legal theories or conclusions alleged.”
Ewing Constr., 420 S.W.3d at 33; see Evanston Ins., 370 S.W.3d at 380 (“[W]e only
defer to a complaint’s characterization of factual allegations, not legal theories or
conclusions.”). If the pleadings contain even one covered claim, the insurer must
defend the entire suit. Evanston Ins., 370 S.W.3d at 380; Zurich Am. Ins., 268
S.W.3d at 491.
The insured has the initial burden to establish coverage under the insurance
policy. Ewing Constr., 420 S.W.3d at 33; Gilbert Tex. Constr., L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010). If the insured establishes
coverage, then, to avoid liability, the insurer must prove that one of the policy’s
exclusions applies. Ewing Constr., 420 S.W.3d at 33; Gilbert Tex. Constr., 327
S.W.3d at 124. If the insurer proves the applicability of an exclusion, the burden
shifts back to the insured to establish that an exception to the exclusion restores
coverage. Ewing Constr., 420 S.W.3d at 33; Gilbert Tex. Constr., 327 S.W.3d at
124. If a petition does not allege facts within the scope of coverage under the
insurance policy, the insurer is not legally required to defend a suit against its
insured. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002) (quoting
18
Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821 (Tex. 1997)); see Pine
Oak Builders, 279 S.W.3d at 654; Gen. Star Indem. Co. v. Gulf Coast Marine
Assocs., Inc., 252 S.W.3d 450, 454 (Tex. App.—Houston [14th Dist.] 2008, pet.
denied).
We construe insurance policies “using ordinary rules of contract
interpretation.” Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 257 (Tex.
2017) (per curiam). When doing so, we must determine the parties’ intent “as
reflected in the terms of the policy itself.” Id. at 257–58 (quoting Tanner v.
Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828, 831 (Tex. 2009)). We must
“examine the entire agreement and seek to harmonize and give effect to all
provisions so that none will be meaningless.” Id. at 258 (quoting Gilbert Tex.
Constr., 327 S.W.3d at 126). No phrase, sentence, or section should be isolated from
its setting and considered apart from other contractual provisions. Id. (quoting
Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994)). Unless the policy
itself dictates otherwise, we “give words and phrases their ordinary and generally
accepted meaning, reading them in context and in light of the rules of grammar and
common usage.” Id. (quoting RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113,
118 (Tex. 2015)).
If we determine that only one party’s interpretation of the policy is reasonable,
the policy is unambiguous and the reasonable interpretation should be adopted. Id.
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If, however, we determine that both parties’ interpretations are reasonable, the policy
is ambiguous. Id. The Texas Supreme Court has held:
In that event, “we must resolve the uncertainty by adopting the
construction that most favors the insured,” and because we are
construing a limitation on coverage, we must do so “even if the
construction urged by the insurer appears to be more reasonable or a
more accurate reflection of the parties’ intent.”
RSUI Indem. Co., 466 S.W.3d at 118 (quoting Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)); see also
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 668 (Tex.
2008) (“‘Exceptions or limitations on liability are strictly construed against the
insurer and in favor of the insured,’ and ‘[a]n intent to exclude coverage must be
expressed in clear and unambiguous language.’”) (quoting Nat’l Union Fire Ins. Co.
of Pittsburgh, Pa., 811 S.W.2d at 555).
“‘[A]mbiguous’ means more than simply ‘denoting a lack of clarity in
language,’” and an insurance policy is not ambiguous simply because the parties
offer conflicting interpretations of the policy’s provisions. Nassar, 508 S.W.3d at
258 (quoting RSUI Indem. Co., 466 S.W.3d at 119). “A policy is ambiguous if it is
genuinely subject to more than one meaning after applying the pertinent rules of
contract interpretation.” Id. When interpreting language in an insurance policy, we
must determine whether the insured’s interpretation is reasonable. Id. If it is, then
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we must adopt the insured’s interpretation, even if the insurer’s interpretation is also,
or more, reasonable. Id.; RSUI Indem. Co., 466 S.W.3d at 119.
When construing an insurance policy, we should read the policy and its
endorsements together “unless they are so much in conflict they cannot be
reconciled.” TIG Ins. Co. v. N. Am. Van Lines, Inc., 170 S.W.3d 264, 271 (Tex.
App.—Dallas 2005, no pet.). In the case of an irreconcilable conflict, endorsements
to a policy generally supersede and control over conflicting printed terms contained
within the main policy. Id.; see also TIG Ins. Co. v. San Antonio YMCA, 172 S.W.3d
652, 658 (Tex. App.—San Antonio 2005, no pet.) (stating that endorsements “often
are issued to add coverages that otherwise would be excluded,” but noting that
endorsements “cannot be read apart from the main policy” and that added provisions
in endorsements only supersede previous policy terms “to the extent they are truly
in conflict”).
C. Whether StarNet Owes RiceTec a Duty to Defend in the Dishman Lawsuit
The Policy issued by StarNet to RiceTec provided that StarNet “will pay those
sums that [RiceTec] becomes legally obligated to pay as damages because of ‘bodily
injury’ or ‘property damage’ to which this insurance applies” and that StarNet had
the “duty to defend [RiceTec] against any ‘suit’ seeking those damages.” The Policy
further provided that “[t]his insurance applies to ‘bodily injury’ and ‘property
damage’” only if three conditions were met: (1) the bodily injury or property damage
21
was caused by an occurrence—defined in the Policy as an “accident”—that took
place in the coverage territory, which included the United States; (2) the bodily
injury or property damage occured during the policy period of February 15, 2015,
through February 15, 2016; and (3) prior to the policy period, no insured knew that
bodily injury or property damage had occurred, in whole or in part. The Policy
defined “property damage” as including “[p]hysical injury to tangible property,
including all resulting loss of use of that property.”
The Policy then set out numerous exclusions, or instances in which insurance
coverage did not apply. Exclusion f, the “Pollution” exclusion, contained
subparagraph (1)(d), which provided that the Policy did not cover property damage
arising out of the actual, alleged or threatened discharge, dispersal,
seepage, migration, release or escape of “pollutants” . . . [a]t or from
any premises, site or location on which any insured or any contractors
or subcontractors working directly or indirectly on any insured’s behalf
are performing operations if the “pollutants” are brought on or to the
premises, site or location in connection with such operations by such
insured, contractor or subcontractor.
The Policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste.” Exclusion j, the “Damage to Property” exclusion, contained subparagraph
(5), providing that the Policy did not cover property damage to “[t]hat particular part
of real property on which you or any contractors or subcontractors working directly
22
or indirectly on your behalf are performing operations, if the ‘property damage’
arises out of those operations.”
The Policy also contained multiple endorsements, including the “Agricultural
Chemicals Applicator Coverage” endorsement. The Endorsement stated, in bold
letters and in all caps, “THIS ENDORSEMENT CHANGES THE POLICY.”
The Endorsement then stated that it “modifies insurance provided under
the . . . COMMERCIAL GENERAL LIABILITY COVERAGE PART” of the
Policy, and it set out a schedule providing a $25,000 “Per Occurrence Limit,” a
$50,000 “Annual Aggregate,” and a $5,000 per-occurrence “Combined Bodily
Injury and/or Property Damage Liability Deductible.” Paragraph 1 of the
Endorsement provided:
With respect to the “bodily injury” or “property damage” arising out of
the application of herbicides, pesticides, fertilizers or similar
agricultural chemicals, (1)(d) of Exclusion f. Pollution . . . and (5) of
Exclusion j. Damage to Property . . . do not apply.
Immediately after this provision, paragraph 2 of the Endorsement stated: “However,
coverage provided by this endorsement is excluded for any ‘bodily injury’ or
‘property damage’ resulting from . . . 5. The application of herbicides, pesticides,
fertilizers or similar agricultural chemicals by aircraft owned, operated by, rented or
loaned to you or by any non-owned aircraft.”
The parties differ in their interpretations of the Endorsement. StarNet argues
that paragraph 1 of the Endorsement modifies the Policy “by rendering subsection
23
f.(1)(d) of the Pollution Exclusion and subsection j.(5) of the Damage to Property
Exclusion inapplicable with respect to claims for bodily injury or property damage
arising out of the application of herbicides, pesticides, fertilizers or similar
agricultural chemicals.” StarNet argues that this paragraph of the Endorsement does
not modify any other portion of the Policy, and therefore the terms of the Policy
“otherwise continue to apply.” StarNet argues that, when reading the Policy and the
Endorsement together, for claims of bodily injury or property damage arising out of
the application of herbicides, pesticides, fertilizers, or similar agricultural chemicals,
coverage consists of (1) the original coverage under the Policy, and (2) coverage that
would otherwise be excluded under subsection f.(1)(d) of the Pollution Exclusion
and subsection j.(5) of the Damage to Property Exclusion.
However, StarNet argues, the next portion of the Endorsement, paragraph 2,
limits the coverage provided in paragraph 1 of the Endorsement. Specifically,
StarNet argues that
When the plain meaning of the phrase “coverage provided by this
endorsement” is applied to this exclusion, Exclusion no. 5
unambiguously excludes any coverage for bodily injury or property
damage arising out of the application of herbicides, pesticides,
fertilizers or similar agricultural chemicals—regardless of whether
subsection f.(1)(d) of the Pollution Exclusion or subsection j.(5) of the
Damage to Property Exclusion would otherwise apply—if the bodily
injury or property damage results from the application of herbicides,
pesticides, fertilizers or similar agricultural chemicals by aircraft
owned, operated by, rented or loaned to RiceTec or by any non-owned
aircraft.
24
StarNet contends that Exclusion (5) in the Endorsement “applies if the ‘property
damage’ results from the application of herbicides by any aircraft.”
RiceTec disagrees with StarNet’s contention that the Endorsement “purports
to provide all of the coverage provided by the main coverage part” and instead argues
that, under its plain language, the Endorsement “only provides coverage by
nullifying f.(1)(d) of the pollution exclusion and j(5) of the damage to property
exclusion for certain injuries when those exclusions would otherwise apply.”
RiceTec argues that the Endorsement’s exclusion 5 does not apply in this case
because the claims asserted against RiceTec in the Dishman lawsuit do not fall
within subsection (1)(d) of the Pollution Exclusion or subsection (5) of the Damage
to Property Exclusion.
If a claim for bodily injury or property damage falls within the terms of (1)(d)
of the Pollution Exclusion or (5) of the Damage to Property Exclusion, coverage for
that claim is excluded under the plain language of the main part of the Policy. If,
however, the claim is for bodily injury or property damage “arising out of the
application of herbicides, pesticides, fertilizers or similar agricultural chemicals,”
then, under the plain language of the Endorsement, neither of those specific
exclusions apply, and the claim, which would be otherwise excluded under the
Policy, is covered by the Endorsement. But the Endorsement contains its own
exclusions. The next section of the Endorsement states: “However, coverage
25
provided by this endorsement is excluded for any ‘bodily injury’ or ‘property
damage’ resulting from” five specific situations, including the application of
herbicides by aircraft “owned, operated by, rented or loaned to [RiceTec] or by any
non-owned aircraft.” (Emphasis added.) The only coverage that the Endorsement
provides is coverage for claims for bodily injury or property damage arising out of
the application of herbicides, pesticides, fertilizers, or similar agricultural chemicals
that would otherwise fall within (1)(d) of the Pollution Exclusion or (5) of the
Damage to Property Exclusion and therefore would otherwise be excluded by those
provisions.
We therefore conclude that under the plain language of the Endorsement, the
five exclusions contained within the Endorsement only apply and exclude from
coverage certain classes of claims for bodily injury or property damage arising out
of the application of herbicides, pesticides, fertilizers, or similar agricultural
chemicals that would otherwise fall within (1)(d) of the Pollution Exclusion or (5)
of the Damage to Property Exclusion. See Nasser, 508 S.W.3d at 257–58 (stating
that, when construing insurance policies, courts must determine parties’ intent “as
reflected in the terms of the policy itself” and that courts must “examine the entire
agreement and seek to harmonize and give effect to all provisions so that none will
be meaningless”); Gilbert Tex. Constr., 327 S.W.3d at 126 (“Courts strive to honor
the parties’ agreement and not remake their contract by reading additional provisions
26
into it.”); Fiess v. State Farm Lloyds, 202 S.W.3d 744, 753 (Tex. 2006) (“[I]n
construing insurance policies ‘where the language is plain and unambiguous, courts
must enforce the contract as made by the parties, and cannot make a new contract
for them, nor change that which they have made under the guise of construction.’”).
Here, the Dishmans asserted claims against RiceTec and other defendants for
gross negligence and trespass, and they alleged that the defendants engaged in “an
inherently or intrinsically dangerous or ultra-hazardous activity.” Specifically, the
Dishmans alleged that on April 23 and 25, 2015, RiceTec, through the conduct of its
agent Twin County Air-AG, Inc., “commenced and continued the aerial spraying of
herbicide on RiceTec-farmed plots of land adjacent to [the Dishmans’] Property.”
The Dishmans alleged that the herbicide supplied by RiceTec and sprayed by Twin
County Air-AG “was sprayed, over sprayed, drifted, or was otherwise allowed . . . to
come onto” the Dishmans’ property, damaging the Dishmans’ 742-acre rice crop.
RiceTec, as the insured, bore the initial burden of establishing coverage under
the Policy. See Ewing Constr., 420 S.W.3d at 33; Gilbert Tex. Constr., 327 S.W.3d
at 124. The Policy applies to property damage caused by an occurrence—defined as
“an accident”—that takes place in the coverage territory—defined as including the
United States—during the policy period if, prior to the policy period, no insured
knew that property damage had occurred. The Dishmans alleged that the aerial
spraying of herbicides on RiceTec’s property occurred on April 23 and 25, 2015,
27
which was within the policy period of February 15, 2015, through February 15,
2016. The Dishmans also alleged that RiceTec and its agents negligently sprayed,
over sprayed, or allowed herbicides to come onto the Dishmans’ property, damaging
the Dishmans’ young rice crop. The Dishmans thus alleged an “occurrence” that
caused “property damage,” defined in the Policy as including “physical injury to
tangible property.” The Dishman lawsuit contained no allegation that, before the
policy period, RiceTec knew that property damage had occurred. RiceTec thus
initially established that the claims asserted against it in the Dishman lawsuit were
covered by the Policy.
The burden thus shifted to StarNet to prove that an exclusion to the Policy
applied. See Ewing Constr., 420 S.W.3d at 33; Gilbert Tex. Constr., 327 S.W.3d at
124. StarNet argued that the Endorsement applied and precluded coverage of the
claims asserted against RiceTec in the Dishman lawsuit. StarNet argued, as it does
on appeal, that it had no duty to defend RiceTec because the Endorsement applied
to exclude coverage for the claims asserted in the Dishman lawsuit, and it argued
that the exclusions set out in the Endorsement apply to all claims for property
damage arising out of the application of herbicides regardless of whether the claim
would otherwise fall within (1)(d) of the Pollution Exclusion or (5) of the Damage
to Property Exclusion and that the claims asserted in the Dishman lawsuit fell within
exclusion (5) of the Endorsement.
28
RiceTec argues that the claims asserted in the Dishman lawsuit do not fall
within either section (1)(d) of the Pollution Exclusion or section (5) of the Damage
to Property Exclusion, and, therefore, the Endorsement does not apply and coverage
for the claims asserted against RiceTec exists under the terms of the Policy. We do
not agree. Section (1)(d) of the Pollution Exclusion excludes from coverage property
damage
arising out of the actual, alleged or threatened discharge, dispersal,
seepage, migration, release or escape of “pollutants” . . . [a]t or from
any premises, site or location on which any insured or any contractors
or subcontractors working directly or indirectly on any insured’s behalf
are performing operations if the “pollutants” are brought on or to the
premises, site or location in connection with such operations by such
insured, contractor or subcontractor.
The Dishman lawsuit alleged that herbicide RiceTec, through its agent Twin County
Air-AG, aerially sprayed on its own property “was sprayed, over sprayed, drifted, or
was otherwise allowed . . . to come onto” the Dishmans’ property, causing damage
to the Dishmans’ rice crop. On appeal, RiceTec argues that the allegations in the
Dishman lawsuit were “not limited to the theory that the herbicide seeped, migrated,
escaped or was otherwise discharged, dispersed or released from RiceTec’s
property,” but were instead “sufficiently broad to include the theory that the
herbicide was sprayed directly upon the Dishmans’ rice crops, possibly from above
the Dishmans’ own property.” However, even construing the Dishman lawsuit as
alleging that herbicide was sprayed directly onto the Dishmans’ rice crops from the
29
RiceTec property—in addition to alleging the drifting of herbicides sprayed onto the
RiceTec property to the Dishmans’ property—this action still constitutes an actual
“discharge” or “release” of pollutants.3
Subsection (1)(d) excludes from coverage property damage arising out of the
actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or
escape of pollutants “[a]t or from any premises, site or location on which any insured
or any contractors or subcontractors working directly or indirectly on any insured’s
behalf are performing operations if the ‘pollutants’ are brought on or to the premises,
site or location in connection with such operations by such insured, contractor, or
subcontractor.” The Dishman lawsuit alleged that Twin County Air-AG, acting on
behalf of RiceTec, aerially sprayed herbicide supplied by RiceTec onto RiceTec’s
property, and the herbicide—whether sprayed directly onto the Dishman property or
sprayed onto the RiceTec property and then traveled to the Dishman property—
damaged the Dishmans’ rice crop.
RiceTec argues that the facts alleged in the Dishman lawsuit do not fall within
subsection (1)(d) because the Dishmans alleged that RiceTec and its agents acted
negligently when the herbicide was sprayed onto the Dishmans’ property; the
Dishmans did not allege that RiceTec “requested or authorized” Twin County Air-
3
The Policy broadly defines “pollutants” as “any solid, liquid, gaseous or thermal
irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.”
30
AG to spray the Dishmans’ crops. RiceTec argues that, as a result, Twin County Air-
AG was not acting on RiceTec’s behalf. We disagree with this contention. The
Dishman lawsuit repeatedly refers to Twin County Air-AG as RiceTec’s agent,
responsible for actually conducting the aerial spraying of herbicides on RiceTec’s
property. It is immaterial that the Dishman lawsuit does not allege that RiceTec
requested or authorized Twin County Air-AG to spray the Dishmans’ crops; what is
material is that the Dishman lawsuit alleged that RiceTec engaged Twin County Air-
AG to spray its own crops and that, in the course of this activity, the Dishmans’
crops were damaged. The Dishman lawsuit thus alleged facts that property damage
arose out of the actual “discharge, dispersal, seepage, migration, release, or escape”
of pollutants—herbicides—at or from a premises, site, or location, on which Twin
County Air-AG, a contractor working on RiceTec’s behalf, performed operations—
the aerial spraying of cops with herbicides—and the pollutants were brought to the
premises in connection with the operations by the insured, RiceTec. The Dishman
lawsuit thus alleged facts that fall within subsection (1)(d) of the Pollution
Exclusion.4
4
On appeal, RiceTec also argues that subsection (1)(d) of the Pollution Exclusion is
inapplicable because neither RiceTec nor Twin County Air-AG was performing
operations on the Dishmans’ property, and therefore any release of pollutants on
that premises does not implicate (1)(d). The Dishman lawsuit does not contain any
allegations that RiceTec or Twin County Air-AG conducted any operations on—or
over—the Dishmans’ property. Instead, the Dishmans alleged that the aerial
spraying of herbicide occurred on “RiceTec farmed plots of land adjacent to [the
31
Under paragraph one of the Endorsement, subsection (1)(d) of the Pollution
Exclusion does not apply to claims of property damage arising out of the application
of herbicides, pesticides, fertilizers, or similar agricultural chemicals. This paragraph
thus brings the claims asserted against RiceTec in the Dishman lawsuit back within
the scope of coverage under the Policy. The Endorsement then states, however, that
coverage provided by the endorsement is excluded for property damage resulting
from “[t]he application of herbicides, pesticides, fertilizers or similar agricultural
chemicals by aircraft owned, operated by, rented or loaned to [RiceTec] or by any
non-owned aircraft.” The language of this exclusion in the Endorsement is broad
enough to encompass application of herbicides by aircraft that is owned, or not
owned, by RiceTec. The Dishman lawsuit contained no allegations concerning the
ownership of the aircraft used in the herbicide-spraying incident, but it undisputedly
alleged that the herbicides that damaged the Dishmans’ rice crops were applied
Dishmans’] property,” and the herbicides were “sprayed, over sprayed, drifted, or
[were] otherwise allowed . . . to come onto” the Dishmans’ property. However, to
the extent the Dishman lawsuit can be read as including an allegation that aerial
spraying occurred over the Dishmans’ property, leading to herbicides being sprayed
directly onto the Dishmans’ rice crop, subsection (1)(d) excludes from coverage
property damage arising out of the actual “discharge, dispersal, seepage, migration,
release or escape” of pollutants at or from any premises, site, or location on which
the insured or its contractors working on the insured’s behalf are performing
operations. The Dishmans’ property constitutes “any premises, site, or location” on
which Twin County Air-AG, RiceTec’s contractor working on its behalf, performed
the operation of aerial spraying of herbicides.
32
aerially. The allegations in the Dishman lawsuit thus fall within exclusion 5 in the
Endorsement.
We conclude that exclusion 5 contained within the Endorsement operates to
preclude coverage of the claims asserted against RiceTec in the Dishman lawsuit.
Because the claims in the Dishman lawsuit fall within an exclusion of coverage, as
a matter of law, StarNet does not owe RiceTec a duty to defend in the Dishman
lawsuit. See King, 85 S.W.3d at 187 (“If a petition does not allege facts within the
scope of coverage, an insurer is not legally required to defend a suit against its
insured.”). We therefore hold that the trial court erroneously granted RiceTec’s
motion for summary judgment and denied StarNet’s motion for summary judgment.
We sustain StarNet’s issues on appeal.
Conclusion
We reverse the trial court’s summary judgment ruling that StarNet owed
RiceTec a duty to defend in the Dishman lawsuit, and we remand this case for further
proceedings consistent with this opinion.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Higley, and Landau.
33