United States District Court, S.D. Texas, Houston Division
AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY and SATTERFIELD & PONTIKES CONSTRUCTION, INC. Plaintiffs,
UNITED STATES FIRE INSURANCE COMPANY Defendant.
MEMORANDUM AND OPINION
Rosenthal, Chief United States District Judge
& Pontikes Construction, Inc. (S&P) contracted to
build a courthouse in Zapata County, Texas. Various problems
came to light in the years following the building's
completion, culminating in a roughly $8 million arbitration
award against S&P and in favor of Zapata County. The
current lawsuit is about who will be left holding the bag as
between S&P, two primary insurers-American Guarantee and
Amerisure-and an excess insurer-US Fire. The parties filed
cross-motions for summary judgment, responses, and replies,
(Docket Entries No. 47, 51, 57, 84, 86, 87, 89, 90, 91, 92),
and the court heard oral argument on the motions. At oral
argument, the court told the parties its tentative rulings on
each issue and encouraged the parties to explore settlement
before the court made final rulings. American Guarantee
(AGLIC) filed a supplemental brief, to which U.S. Fire
responded. (Docket Entries No. 103, 107). The court heard
additional argument after the parties advised the court that
they had not been able to settle.
summary judgment motions present two core disputes. One
dispute pits S&P and its primary insurers against the
excess insurer, U.S. Fire. The other is a dispute between
Amerisure and AGLIC over how to allocate costs within the
primary insurance layer.
on the briefs, the summary judgment record, the arguments,
and the applicable law, the court rules as follows:
(1) in the dispute between S&P, AGLIC, and Amerisure on
the one hand and U.S. Fire on the other, U.S. Fire prevails
and S&P takes nothing; and
(2) in the dispute between AGLIC and Amerisure, AGLIC's
motion is granted in substantial part and Amerisure's
motion is denied in substantial part.
The reasons for these rulings are explained in detail below.
was the prime contractor for the construction of a courthouse
for Zapata County, Texas. AGLIC wrote S&P's
commercial general liability policy in 2006-2007, and
Amerisure wrote S&P's commercial general liability
for 2007-2011. (Docket Entry No. 47 at 8). Both policies had
a per-occurrence limit of $1, 000, 000 and an aggregate limit
of $2, 000, 000. (Id.). U.S. Fire wrote
S&P's excess policy, which had a $25, 000, 000 per
occurrence and aggregate limit. (Id. at
8-9). The U.S. Fire policy contained a “Fungi and
Bacteria Exclusion” barring coverage for any
“property damage” resulting from exposure to
fungi, including mold, or bacteria. (Docket Entry No. 47-15,
Ex. C-1 at 35).
County was dissatisfied with S&P's construction work
on the courthouse, and it eventually sued. S&P invoked
AGLIC's 2006-07 commercial general liability policy to
provide coverage. (Docket Entry No. 47 at 7). AGLIC provided
a defense. (Docket Entry No. 47-5, Ex. A at 1 ¶ 3). The
suit went to arbitration. The arbitration panel found in
favor of the County. The panel found
that S&P failed to build the courthouse in a good and
workmanlike manner, in accordance with the proper standards
of care and in accordance with the plans and specifications.
S&P also failed to properly supervise its subcontractors.
S&P's failures to perform resulted in monetary
damages to Zapata as set forth below. The Panel further finds
that the courthouse suffered physical harm and damage as a
result of S&P's failures to perform.
(Docket Entry No. 47-10, Ex. B-1 at 8). The total award,
including postjudgment interest, was $8, 063, 641.78. The
arbitration award was set out in categories based on the
“phases” of remedial work the County had to do to
repair the courthouse's problems. The award was as
- $2, 800, 000 for Phase I (primarily reconstruction of the
courthouse dome and mold remediation throughout the
- $855, 000 for Phase II (primarily replacement of the
courthouse roof and repairs to the roof flashing);
- $2, 417, 000 for Phase III, subdivided as follows:
$1, 000, 000 for fireproofing replacement;
$150, 000 for repair and replacement of terrazzo flooring;
$563, 000 for window repairs;
$30, 000 for HVAC cleaning and sealing;
$100, 000 for professional services associated with the Phase
$574, 000 for “Mark ups” related to professional
services to carry out the repairs.
- $1, 500, 000 in attorney's fees;
- $430, 458 in prejudgment interest; and
- $29, 909.74 in administrative costs
relating to the arbitration.
(Id. at 9-12). The County secured a judgment to
enforce the arbitration award. (Docket Entry No. 47-11, Ex.
subcontractors were parties to the arbitration until S&P
entered into settlement agreements with those subcontractors.
(Docket Entry No. 47-10, Ex. B-1 at 2-3). The total value of
those settlements was $4, 492, 500. (Docket Entry No. 87 at
10; Docket Entry No. 47 at 7).
also sought coverage from its insurers. U.S. Fire refused to
issue coverage. In a letter to the interested parties, U.S.
Fire outlined its positions that: (1) the Fungi and Bacteria
Exclusion barred coverage for a large portion of all three
phases of the award, which, it claimed, flowed primarily from
mold damage; and (2) the assessments above the approximately
$6 million in actual damages-including for attorney's
fees, prejudgment interest, arbitration expenses, and the
like-were “supplemental payments” under the
policy terms of the primary layer of insurance, and did not
count against the primary policy limits. (Docket Entry No.
87-1, Ex. A-8 at 31-38). Therefore, U.S. Fire argued, the
value of claims potentially covered under its policy was
significantly lower than the combined value of the $4.5
million in subcontractor settlements and $1.5 million of the
primary layer. (Id. at 38-39). U.S. Fire also argued
that the arbitrators had found that there were multiple
“occurrences” within the meanings of the primary
policies, and so the primary layer of insurance was not
exhausted even if the full property damage award was covered.
(Id. at 39-41).
satisfied the arbitration-award judgment with a combination
of: the $4, 492, 500 in subcontractor settlements,
approximately $2 million from AGLIC, approximately $1.1
million from Amerisure, and approximately $440, 000 from
S&P itself. (Docket Entry No. 87 at 10, Docket Entry No.
47 at 7).
paid subject to a reservation of rights that emphasized that
it was involuntarily paying amounts greater than its
per-occurrence limit in order to protect S&P's
interests. AGLIC left open its asserted right to recoup the
overpayment. (Docket Entry No. 47-4, Ex. A-2) (AGLIC
Amerisure characterized its payment as a “loan”
to S&P, it made the loan on the condition that it would
not seek repayment from S&P. Instead, it could only seek
payment from insurance companies that insured S&P but had
not paid anything toward the judgment-which appears to mean
only U.S. Fire. (Docket Entry No. 76-15, Ex. E-19) (loan
action was administratively closed pending the outcome of the
arbitration. (Docket Entry No. 14). After the award was paid,
it was reopened. (Docket Entry No. 19). AGLIC and S&P
filed an amended complaint seeking reimbursement or
contribution from U.S. Fire for their payments. (Docket Entry
No. 22). The allegations include: (1) a request for
declaratory judgment that the arbitration award concerned
only one “occurrence” and therefore AGLIC owed
$1, 000, 000 and U.S. Fire owed the rest; (2) a breach of
contract claim based on U.S. Fire's failure to pay under
its excess policy; and (3) a bad-faith claim under § 541
of the Texas Insurance Code. AGLIC alternatively alleges that
it is entitled to reimbursement from Amerisure for part of
the amount that it paid for the judgment. AGLIC asks only for
a ruling that reallocation is possible, not for a specific
amount. AGLIC concedes that the specific amount of damage
properly allocated to each policy period is a disputed fact
filed a complaint in intervention. (Docket Entry No. 31). The
Amerisure complaint alleges that its policy was not triggered
at all, because S&P selected the AGLIC and U.S. Fire
policies for 2006 to 2007 to provide coverage and those
amounts together cover the final award. Amerisure also
alleges that the damage to the courthouse was a “known
loss” excluded from policy coverage because S&P
knew about the problems with the courthouse when Amerisure
issued the policy. Amerisure argues that it is entitled to
contractual and equitable ...