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HCC Corp., LLC v. Westchester Surplus Lines Insurance Co.

United States District Court, S.D. Texas, Houston Division

July 10, 2017

HCC CORPORATION, LLC, Plaintiff,
v.
WESTCHESTER SURPLUS LINES INSURANCE COMPANY, Defendant.

          MEMORANDUM AND ORDER

          Lee H. Rosenthal, Chief United States District Judge

         HCC Corporation, LLC sued Westchester Surplus Lines Insurance Company, alleging a breach of Westchester's duty to defend in an underlying lawsuit, a breach of Westchester's contractual duty to defend and indemnify, and violations of Westchester's duty under the Texas Insurance Code to promptly pay claims.

         The parties cross-moved for partial summary judgment on the duty-to-defend claim. (Docket Entry Nos. 7, 9). Based on a careful review of the pleadings; the motions, responses, and reply; the record; the arguments of counsel; and the relevant law, the court grants Westchestert's motion for partial summary judgment, (Docket Entry No. 9), and denies HCC Corporation's cross-motion, (Docket Entry No. 7), for the reasons explained in detail below. A status conference is set for July 14, 2017 at 2:00 p.m. in Courtroom 11-B.

         I. Background

         Westchester issued an Employed Lawyers' Professional Liability Policy to Heritage-Crystal Clean, Incorporated. (Docket Entry No. lat¶5). In October 2016, Florida Gas Transmission, LLC filed a second amended petition in Florida Gas Transmission Co., LLC v. FCC Environmental, LLC, et al.; Cause No. 2014-68677, in the 11th Judicial District Court of Harris County, Texas. (Id., Ex. A). Florida Gas Transmission Company had sued FCC Environmental in that action. Heritage Crystal Clean, LLC purchased FCC Environmental and changed the name to HCC Corporation, LLC, which is the plaintiff in this federal insurance coverage suit. (Docket Entry No. 7, Ex. A at ¶ 2). Heritage Crystal Clean, LLC is a wholly owned subsidiary of Heritage-Crystal Clean, Inc., the named insured in the Westchester insurance policy at issue. (Docket Entry No. 14, Ex. 1 at ¶ 3).

         In the underlying lawsuit, Florida Gas Transmission alleged that FCC Environmental breached an agreement to defend and indemnify Florida Gas Transmission in yet another lawsuit. This second lawsuit was filed in state court by Oscar Villegas for work-related personal injuries. (Docket Entry No. 1, Ex. A). Florida Gas Transmission and FCC Environmental had an Environmental Services Agreement, under which FCC Environmental would provide "firac tank cleaning and transportation services" for the 5, 500 miles of Florida Gas Transmissions's natural-gas pipelines. (Id. at ¶¶ 11-13). In May 2012, Florida Gas Transmission asked FCC Environmental to arrange to deliver a firac tank and clean the tank after it was removed from the site. (Id. at ¶¶ 14-15). FCC Environmental hired a subcontractor to help perform the work. (Id. at ¶ 16). Oscar Villegas was an employee of that subcontractor. (Id. at ¶ 17). He was injured in an explosion while he was cleaning a firac tank. (Id.). Villegas sued Florida Gas Transmission and FCC Environmental in the underlying personal-injury suit. (Id.).

         In the underlying suit by Florida Gas Transmission against FCC Environmental at issue, Florida Gas Transmission alleged that the Environmental Services Agreement required FCC Environmental to provide a defense and indemnity for any claims arising out of the work FCC Environmental performed under the Agreement, and that it had refused to do so. (Id. at ¶¶ 18-20).

         Florida Gas Transmission also alleged that FCC Environmental had breached an email agreement to "immediately demand a defense of Florida Gas Transmission from FCC's and [Heritage-Crystal Clean, Inc.]'s insurance carriers in connection with the underlying litigation brought by Mr. Villegas." (Id. at ¶ 28).

         HCC Corporation tendered the underlying suit to Westchester and demanded a defense and indemnity. (Docket Entry No. lat¶7). When Westchester refused, HCC Corporation filed this suit for a declaratory judgment that Westchester has a duty to defend and indemnify it in the underlying suit. (Id. at ¶¶ 13-17). HCC Corporation alleges that Westchester's failure to defend and indemnify breached its contractual duties and violated the Texas Insurance Code. (Id. at ¶¶ 18-31).

         HCC Corporation moved for summary judgment seeking a declaratory judgment on the duty-to-defend claim. (Docket Entry No. 7). Westchester cross-moved for a declaratory judgment that it did not owe a duty to defend. (Docket Entry No. 9). The parties' arguments and the record evidence are analyzed under the applicable legal standards.

         II. The Legal Standards

         A. Summary Judgment

         "Summary judgment is required when '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.'" Trent v. Wade, 776 F.3d 368, 376 (5th Cir. 2015) (quoting FED. R. Civ. P. 56(a)). "A genuine dispute of material fact exists when the ' evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Nola Spice Designs, LLC v. Hayde I Enters., Inc. , 783 F.3d 527, 536 (5th Cir. 2015) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). "The moving party 'bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.'" Id. (quoting EEOC v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         "Where the non-movant bears the burden of proof at trial, the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact warranting trial." Id. (quotation marks omitted); see also Celotex, 477 U.S. at 325. Although the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co.,402 F.3d 536, 540 (5th Cir. 2005). "A fact is 'material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law." Sossamon v. Lone Star State of Texas, 560 F.3d 316, 326 (5th Cir. 2009) (quotation omitted). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be ...


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