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Bedivere Insurance Co. v. Pacific Van & Storage of Texas Inc.

United States District Court, N.D. Texas, Dallas Division

June 14, 2017




         In this action by plaintiff Bedivere Insurance Company f/k/a General Accident Insurance of America (“Bedivere”) seeking a declaratory judgment that it has no duty to defend or indemnify defendant Pacific Van & Storage of Texas, Inc., d/b/a Joyce Moving & Storage Company, Inc. (“Pacific”) concerning a lawsuit filed in state court by Barbara Assouad (“Assouad”), Bedivere moves for summary judgment, Pacific moves for partial summary judgment, and Pacific moves to stay the determination of whether Bedivere has a duty to indemnify Pacific until after a final judgment is rendered in the underlying lawsuit. For the reasons that follow, the court grants Pacific's motion for partial summary judgment, denies in part and declines to reach in part Bedivere's motion for summary judgment, and grants Pacific's motion to stay. The court directs the clerk of court to close this case for statistical purposes during the pendency of the stay.


         Bedivere, an insurer, sues its insured, Pacific, the operator of a storage facility located in Lancaster, Texas, seeking a declaratory judgment that it has no duty to defend or indemnify Pacific in a Texas court lawsuit brought by Assouad individually and as the legal representative of the estate of her late husband Karim.[1]See Assouad v. Pacific Van & Storage, Inc., No. DC-15-10466 (162nd Dist. Ct., Dallas County, Tex.) (the “Underlying Lawsuit”). In the Underlying Lawsuit, Assouad alleges that she and Karim entered into a bailment contract with Pacific under which Pacific agreed to store the Assouads' personal property for a monthly fee; that the Assouads stored their property with Pacific and paid the monthly fee from September 1991 until January 2015; that in May 1999 storms partially destroyed Pacific's facility, allowing water to penetrate into the Assouads' vaults and possessions; that immediately after the storms, Pacific unpacked the Assouads' property, attempted to remediate the water damage, and repacked the Assouads' property into new boxes; that during the attempted remediation, Pacific misplaced some of the Assouads' property; that Pacific either never or inappropriately disclosed the water damage, subsequent remediation and repacking efforts, and loss of the Assouads' property, yet continued to accept the Assouads' monthly payment; and that when Karim died in 2014 and the family decided to remove their goods from storage, they discovered that their property had been destroyed by water and toxic black mold. In her second amended original petition (“Petition”) in the Underlying Lawsuit, Assouad alleges claims against Pacific for common law fraud, negligent misrepresentation, negligence, unconscionable conduct, and violations of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”), Tex. Bus. & Com. Code Ann. § 17.41 et seq. (West 2015).

         At the time of the alleged storm damage in 1999, Bedivere insured Pacific under an insurance policy (“Policy”) that covered Pacific for accidental loss to personal property stored at Pacific's facility. When Pacific requested that Bedivere provide a defense in the Underlying Lawsuit, Bedivere filed the instant declaratory judgment action against Pacific and Assouad, seeking a declaratory judgment that is has no duty to defend or indemnify Pacific.

         Bedivere now moves for summary judgment, seeking a declaration that it has no duty to defend or indemnify Pacific because the Policy contains an exclusion for damage caused by “dishonest . . . act(s).” P. 11/7/16 Br. 13. Pacific opposes Bedivere's motion and also moves for partial summary judgment, seeking a declaration that Bedivere has a duty to defend Pacific for claims arising out of negligent acts that occurred during the Policy period. It separately moves for a stay, requesting that the court stay the determination of whether Bedivere has a duty to indemnify Pacific under the Policy until there is a final judgment in the Underlying Lawsuit.


         The court first considers the parties' cross-motions for summary judgment regarding Bedivere's duty to defend. Because the parties' motions present the same issues, the court will consider them together.


         In Texas, [2] “[t]he duty to defend arises when a third party sues the insured on allegations that, if taken as true, potentially state a cause of action within the terms of the policy.” St. Paul Guardian Ins. Co. v. Centrum GS Ltd., 283 F.3d 709, 713 (5th Cir. 2002) (citation omitted). “Texas follows the ‘eight-corners' rule, under which the court looks only to the third-party plaintiff's pleadings and the provisions of the insurance policy in determining whether an insurer has a duty to defend.” Trammell Crow Residential Co. v. Va. Sur. Co., 643 F.Supp.2d 844, 849 (N.D. Tex. 2008) (Fitzwater, C.J.) (citing GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006)). “Neither facts outside the pleadings nor the truth or falsity of the allegations should be considered, and the allegations against the insured should be ‘liberally construed in favor of coverage.'” Id. (quoting GuideOne Elite, 197 S.W.3d at 308); see also Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 597 (5th Cir. 2011) (“[W]e may not infer additional facts that are not in the pleadings.”). The court must “resolve all doubts regarding the duty to defend in favor of the duty.” Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008) (citing King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)). Under the “eight-corners” rule,

[i]f the four corners of a petition allege facts stating a cause of action which potentially falls within the four corners of the policy's scope of coverage, the insurer has a duty to defend. If all the facts alleged in the underlying petition fall outside the scope of coverage, then there is no duty to defend, but we resolve all doubts regarding duty to defend in favor of the duty.

Liberty Mut. Ins. Co. v. Graham, 473 F.3d 596, 600 (5th Cir. 2006) (footnotes omitted). “If an insurer has a duty to defend any portion of a suit, the insurer must defend the entire suit.” St. Paul Fire & Marine Ins. Co. v. Green Tree Fin. Corp.-Tex., 249 F.3d 389, 395 (5th Cir. 2001).

         The insured has the initial burden of showing that a claim is potentially within the scope of policy coverage, and, once the insured's burden is met, “the insurer bears the burden of showing that the plain language of a policy exclusion or limitation allows the insurer to avoid coverage of all claims, also within the confines of the eight corners rule.” Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir. 2004) (citing Tex. Ins. Code Ann. art. 21.58(b) (Vernon Supp. 1997)) (citing Texas cases). “If the insurer proves that an exclusion applies, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage.” Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 124 (Tex. 2010) (citations omitted).

         Each party's summary judgment burden depends on whether it is addressing a claim or defense for which it will have the burden of proof at trial. To be entitled to summary judgment on a matter for which it will have the burden of proof, a party “must establish ‘beyond peradventure all of the essential elements of the claim or defense.'” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878 F.Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)). When the summary judgment movant will not have the burden of proof at trial, it need only point the court to the absence of evidence of any essential element of the opposing party's claim or defense. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once it does so, the nonmovant must go beyond its pleadings and designate specific facts demonstrating that there is a genuine issue for trial. See Id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). An issue is genuine if the evidence is such that a reasonable jury could return a verdict for the party with the burden of proof. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The nonmovant's failure to produce proof as to any essential element renders all other facts immaterial. TruGreen Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex. 2007) (Fitzwater, J.). Summary judgment is mandatory where the nonmoving party fails to meet this burden. Little, 37 F.3d at 1076.


         Pacific maintains that the Petition states a claim that falls within the Policy's coverage for negligent acts that occurred during the Policy period. It contends that Assouad's allegations of negligence are claims of accidental occurrences resulting in a loss of property that clearly trigger the duty to defend Pacific in the Underlying Lawsuit: Assouad has alleged that Pacific was negligent in failing to allow the stored items to dry thoroughly before repacking them, and that Pacific was negligent in the method and manner that it communicated or attempted to communicate the storm damage to Assouad. Pacific also contends that the Policy's exclusion for dishonest or criminal acts does not apply to Pacific's alleged negligent acts, and that because the Petition alleges both intentional conduct and negligence, there is a duty to defend.

         Bedivere contends that all of Assouad's damages stem from the allegedly fraudulent conduct of Pacific, which is expressly excluded as a cause of loss under the Policy; that in determining whether there is a duty to defend, the court must focus on the factual allegations that show the origin of damages, and that, in the Underlying Lawsuit, all of the damages claimed by Assouad arose from the fact that Pacific did not reveal and/or concealed the storm damage to Assouad's property; and that Assouad's negligence claims are related to, interdependent to, and inseparable from the fraud and fraudulent concealment engaged in by Pacific, and, under Fifth Circuit authority, there is no duty to defend if the covered cause is related to, and interdependent to, the excluded cause of injury.


         The Policy provides coverage for “‘loss' to personal property of others accepted for storage . . . arising out of an ‘occurrence' while such property is located at” Pacific's premises. P. 11/7/16 App. 9. “Occurrence” is defined to include “an accident that takes place during the policy period.” Id. at 16. Pacific has shown that at least one of Assouad's claims in the Underlying Lawsuit is potentially within the Policy. For example, Pacific has demonstrated that Assouad's negligence claim based on Pacific's failure to appropriately remediate the water damage caused by the 1999 storm and failure to take appropriate steps to notify the Assouads that their possessions had been infiltrated with water from the storm is potentially covered under the Policy. Because Pacific has met this burden, for Bedivere to establish that it has no duty to defend, it must show that the plain language of one or more policy exclusions bars coverage of all claims. See Northfield, 363 F.3d at 528.

         Bedivere relies on the following policy exclusion to argue that it has no duty to defend:

This insurance does not apply to any loss, damage or expense for loss or damage: . . . caused by any dishonest or criminal act(s) by you, any of your partners, employees, or any other person in your service whether or not such an act or acts occur during the regular hours of employment or service.

         P. 11/7/16 App. 10. Bedivere contends that the court must focus on the factual allegations that show the origin of damages in determining the duty to defend, and that “[h]ere, the origin of Assouad's damages is clearly the dishonest acts of Pacific, ” as demonstrated by the Petition, in which Assouad “alleges that her damages were caused by the fraudulent concealment of Pacific.” P. 12/27/16 Br. 7.

         The court disagrees that all of Assouad's claims fall within the Policy's “dishonest acts” exclusion. Although the Petition clearly alleges damages arising from Pacific's intentional conduct, see, e.g., P. 11/7/16 App. 48-49, [3] she also alleges that she has incurred damages as a result of Pacific's negligence, see id. at 50.[4] The Supreme Court of Texas has held that when a complaint alleges both intentional conduct and negligence, the insurer has a duty to defend. See Zurich Am. Ins. Co., 268 S.W.3d at 495 (“[T]he factual allegations here support a duty [to defend]. The pleadings allege both intentional conduct (Nokia knew of RFR's harmful effects and nonetheless intentionally sold its products to consumers) and negligence (Nokia should have known of RFR's harmful effects.”). This is true even when the plaintiff pleads her negligence claim in the alternative. See, e.g., Harken Expl. Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 474 (5th Cir. 2001) (“[T]he [insurer] must defend [the insured] against the entire suit including causes of action that would not alone trigger the duty to defend, regardless whether the complaint is pled in the alternative or not because the Rices's factual allegations of negligence are sufficient to trigger the duty to defend.” (citing St. Paul Ins. Co. v. Tex. Dep't of Transp., 999 S.W.2d 881, 884 (Tex. App. 1999, pet. denied)); Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983) (“Whether a complaint pleads in the alternative or alleges more than one cause of action, the insurer is obligated to defend, as long as the complaint alleges at least one cause of action within the coverage of the policy.”); Gehan Homes, Ltd. v. Emp'rs Mut. Cas. Co., 146 S.W.3d 833, 843 (Tex. App. 2004, pet. denied) (“Alternative allegations of intentional or malicious conduct will not defeat the duty to defend if combined with allegations that would trigger coverage.”).

         To determine whether a duty to defend exists, the court focuses on the facts alleged in the underlying lawsuit, not the legal theories pleaded. See, e.g., Fed. Ins. Co. v. Northfield Ins. Co., 837 F.3d 548, 553 (5th Cir. 2016) (“The facts alleged in the claim against the insured, not legal theories, control.”); Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014) (“In reviewing the pleadings and [determining whether there is a duty to defend], courts look to the factual allegations showing the origin of the damages claimed, not to the legal theories or conclusions alleged.” (citing cases)); St. Paul Ins. Co., 999 S.W.2d at 887 (“Although the plaintiffs also allege gross negligence and intentional torts, this is not controlling because we must focus on the facts alleged, not the legal theories pleaded . . . that coverage may not be available for some of the causes of action pleaded does not relieve St. Paul of its duty to defend.”). In the Petition, Assouad asserts that Pacific breached its duty to exercise reasonable care when it attempted to remediate the water damage caused by the 1999 storm. In support, Assouad alleges the following facts:

Defendant unpacked the Assouads' possession[s] and undertook steps to dry and remediate the water infiltration caused by the storm. Defendant only briefly allowed the Assouads' possession[s] to air dry. Defendant did not take any steps to determine whether the Assouads' possessions were appropriately and thorougly dry before repacking them. Along with other ...

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