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Crum & Forster Specialty Insurance Co. v. Great West Casualty Co.

United States District Court, W.D. Texas, El Paso Division

September 11, 2017

CRUM & FORSTER SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
GREAT WEST CASUALTY COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          DAVID. C. GUADERRAMA UNITED STATES DISTRICT JUDGE

         Presently before the Court are Plaintiff Crum & Forster Specialty Insurance Company's ("Crum & Forster") "Motion for Partial Summary Judgement" (ECF No. 84) and Defendant Great West Casualty Company's ("Great West") "Second Motion for Summary Judgment" (ECF No. 85) each filed on June 28, 2017. For the reasons that follow, the Court GRANTS IN PART AND DENIES IN PART Crum & Forster's motion and GRANTS IN PART AND DENIES IN PART Great West's motion.

         I. BACKGROUND

         This lawsuit arises from a dispute between Crum & Forster and Great West over their respective duties to defend and indemnify MVT Services, LLC ("MVT") in Parada v. MVT Services, LLC, No. 2013-DCV-3852 (Co. Ct. at Law No. 3, El Paso County, Tex. Oct. 10, 2013) ("the Parada lawsuit").[1] Great West issued a Workers' Compensation and Employers' Liability Policy containing a duty to defend, [2] a duty to indemnify, [3] and an "other insurance" clause.[4] Crum & Forster issued an Occupational Shield Policy also containing a duty to defend, [5] a duty to indemnify, [6] and an "other insurance" clause.[7] The instant lawsuit turns on the application of these provisions.

         The Parada lawsuit arose from a single-vehicle, double-fatality accident that occurred on September 15, 2013 and took the lives of passenger, Lawrence Parada, and driver, John Mitchem.[8] MVT alerted both Crum & Forster and Great West, its alleged insurers, to the accident's occurrence.[9] On October 10, 2013, the family of Lawrence Parada filed suit against MVT alleging negligence, gross negligence, and that Parada was an MVT employee.[10] On October 28, 2013, MVT provided Great West with the petition from the Parada lawsuit.[11]

         Subsequently, Great West denied Parada's workers' compensation claim and refused to defend MVT.[12] Great West based its denial of coverage on MVT's request that Great West terminate its workers' compensation coverage on August 13, 2013.[13] On August 14, 2013, Great West filed the notice of termination of MVT's workers' compensation coverage with the Texas Department of Insurance, which resulted in the cancellation of the policy becoming effective 30 days after the date of filing under Texas law.[14]

         Crum & Forster agreed to defend MVT in the Parada lawsuit and provided that defense for nearly two years without Great West's participation.[15] In May 2015, MVT filed a coverage action against Great West contesting the denial of coverage under the workers' compensation policy.[16] On May 22, 2015, Great West retracted its denial of coverage, admitted that its policy covered MVT on the day of the accident, and acknowledged its duty to defend MVT in the Parada lawsuit.[17] Following this change in position, Great West took control of the defense of MVT, and Crum & Forster ceased paying for MVT's defense.[18] In August 2015, Great West and Crum & Forster both paid their respective policy limits of $1, 000, 000 on behalf of MVT to settle the Parada lawsuit.[19]

         On November 4, 2015, Crum & Forster filed the instant lawsuit against Great West seeking declaratory relief and the reimbursement of the defense costs and indemnity it paid on behalf of MVT in the Parada lawsuit.[20] On June 28, 2017, the parties filed the instant motions. Crum & Forster and Great West both filed their responses to the motions on July 12, 2017 and filed their replies on July 19, 2017.

         II. STANDARD

         Summary judgment is appropriate 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." Fed.R.Civ.P. 56(a). "A genuine dispute of fact exists when evidence is sufficient for a reasonable jury to return a verdict for the non-moving party, and a fact is material if it 'might affect the outcome of the suit.'" Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In deciding whether a genuine dispute as to any material fact exists, a trial court considers all of the evidence in the record and "draw[s] all reasonable inferences in favor of the nonmoving party, " but it "refrain[s] from making credibility determinations or weighing the evidence." Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007) (citation and internal quotation marks omitted).

         Procedurally, the party moving for summary judgment "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."[21] EEOC v. LHC Grp., 773 F.3d 688, 694 (5th Cir. 2014) (alterations in original) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). When the nonmoving party will bear the burden of proof at trial, the moving party may satisfy this responsibility by "point[ing] out the absence of evidence supporting the nonmoving party's case." Latimer v. Smithkline & French Lab., 919 F.2d 301, 303 (5th Cir. 1990); see also Boitdreaux v. Swift Transp. Co., 402 F.3d 536, 544-45 (5th Cir. 2005).

         If the moving party succeeds, "the onus shifts to the nonmoving party to go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." E.E.O.C., 773 F.3d at 694 (internal quotation marks omitted) (citing Celotex Corp., 477 U.S. at 324). However, the nonmoving party "cannot defeat summary judgment with conclusory allegations, unsubstantiated assertions, or only a scintilla of evidence." Davis v. Fort Bend Cty., 765 F.3d 480, 484 (5th Cir. 2014) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc) (per curiam)).

         In evaluating whether the parties have met their respective burden, "the Court considers only competent summary judgment evidence." Reeves v. Wells Fargo Bank, NA, No. EP-14-CV-00187-DCG, 2015 WL 11598711, at *1 (W.D. Tex. Sept. 4, 2015) (citing, inter alia, Goodwin v. Johnson, 132 F.3d 162, 186 (5th Cir. 1997)); see also Fed. R. Civ. P. 56(c).

         III. DISCUSSION

         By its motion, Crum & Forster requests that the Court enter partial summary judgment declaring that Great West is obligated to reimburse Crum & Forster for the defense costs paid on behalf of MVT. The theories of subrogation and contribution provide the basis for Crum & Forster's claim to a right of reimbursement. Pl.'s Mot. Partial Summ. J. at 4. Great West, on the other hand, requests that the Court enter summary judgment against Crum & Forster on its claims for declaratory relief[22] and reimbursement.[23] Below, the Court addresses each claim in turn.

         A. Right to Reimbursement

         Great West asserts in its Second Motion for Summary Judgment that the Court should grant it summary judgment on Crum & Forster's allegation that it has a right to reimbursement from Great West for the amounts it paid to defend and indemnify MVT. The Court will analyze Crum & Forster's right to reimbursement for defense costs and indemnity in succession.

         1. Reimbursement of Defense Costs

          The threshold question in determining whether Crum & Forster has a right to reimbursement for the defense costs it paid on behalf of MVT is whether and when Great West had a duty to defend MVT. Great West does not contest that it had a duty to defend MVT, but rather, it argues that duty did not arise until it retracted its denial of coverage and voluntarily undertook MVT's defense. Def.'s Second Mot. Summ. J. at 18-21. Great West provides no case law supporting this proposition. Quite the contrary, under Texas law, the duty to defend arises when '"a petition alleging a potentially covered claim is tendered to the insurer.'" Royal Ins. Co. of Am. v. Hartford Underwriters Ins. Co., 391 F.3d 639, 644 (5th Cir. 2004) (quoting Lafarge Corp v. Hartford Cas. Ins. Co., 61 F.3d 389, 400 (5th Cir. 1995)). A denial of a claim does not sever the contractual obligation to provide a defense. See Cont'l Cas. Co. v. N. Am. Capacity Ins. Co., 683 F.3d 79, 87-88 (5th Cir. 2012) (explaining that the primary insurers each retained their contractual obligations to provide a defense at all times following their wrongful refusals to defend the insured).

         Further, Texas utilizes the eight-corners rule in determining whether the duty to defend is implicated. Colony Ins. Co. v. Peachtree Const., Ltd., 647 F.3d 248, 253 (5th Cir. 2011) (citing Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009)). Practically, this rule establishes that "[w]hen an insured party is sued, an insurer's duty to defend is determined solely by the facts alleged in the petition and the terms of the policy." Id. If the plaintiffs factual allegations even potentially support a claim, the insurer must defend its insured. Trinity Universal Ins. Co. v. Employers Mut. Cas. Co., 592 F.3d 687, 691 (5th Cir. 2010) (quoting GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 310 (Tex. 2006)). This is true because the allegations against the insured are "liberally construed in favor of coverage." Fed. Ins. Co. v. Northfield Ins. Co., 837 F.3d 548, 552 (5th Cir. 2016) (quoting GuideOne Elite Ins. Co., 197 S.W.3d at 308). Indeed, Texas law mandates that courts resolve all doubts regarding coverage in favor of the insured. Trinity Universal Ins. Co., 592 F.3d at 691.

         Accordingly, the Court finds that Great West, by its own admission, had a duty to defend MVT, and the petition from the Parada lawsuit implicated Great West's duty to defend when it was tendered to Great West on October 28, 2013. This finding is in accordance with the settled principles of Texas insurance law that an insurer must defend when a petition is presented with a claim that is potentially covered under its policy.

         Having determined that Great West had a duty to defend MVT, the Court now addresses whether Crum & Forster can recover the costs spent defending MVT prior to Great West's change in position. Crum & Forster advances two theories upon which it relies: subrogation and contribution. The Court will discuss each claim in turn.

         (a) Subrogation

         Crum & Forster asserts that under the theory of equitable subrogation it is entitled to reimbursement from Great West of all its costs paid to defend M VT in the Parada lawsuit. Great West contends that Crum & Forster "voluntarily" made payments when it accepted the obligation to defend MVT despite there being doubts about whether its policy covered MVT. Def.'s Second Mot. Summ. J. at 11-13.

         "To prevail on a claim of equitable subrogation, a party must show that it involuntarily paid a debt primarily owed by another which in equity should have been paid by the other party." Colony Ins. Co., 647 F.3d at 256 (citing Mid-Continent Ins. Co., 236 S.W.3d at 774 and Frymire Eng'g Co. v. Jomar Int'l, Ltd., 259 S.W.3d 140, 142 (Tex.2008)). However, Texas courts tend to give a lot of latitude to insurers when determining whether payments were made involuntarily. Colony Ins. Co., 647 F.3d at 256 ("Nonetheless, in the context of equitable subrogation, Texas courts have been liberal in their determinations that payments were made involuntarily."). Further, "[a]n insurer who pays a third-party claim against its insured is not a volunteer if the payment is made in good faith and under a reasonable belief that the payment is necessary to its protection." Keck, Mahin & Cate v. Nat'l Union Fire Ins. of Pittsburgh, 20 S.W.3d 692, 702-03 (Tex.2000). In considering a similar argument, Texas Supreme Court rejected Great West's conception of the volunteer doctrine by stating:

KMC's position is contrary to our liberal application of the reasonable belief rule. Adopting it would significantly increase potential conflicts of interest between insureds and their insurers. If an insurance company's right to subrogation could be challenged by the wrongdoer on the grounds that the policy did not actually provide coverage, it would necessarily be in the company's interest to litigate all questionable claims with its insured .... KMC's conception of the volunteer doctrine is bad public policy, and we decline to adopt it.

Id. at 703 (internal citations and quotations omitted). It is a settled principle of Texas insurance law that an insurer should first defend and indemnify the insured before seeking reimbursement for the costs that another insurer should have paid. Cont'l Cas. Co., 683 F.3d at 86 (quoting Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 308 (5th Cir.2010)). Accordingly, Crum & Forster's handling of the Parada lawsuit was consistent with the principles announced by the Texas Supreme Court and Fifth Circuit. Crum & Forster chose to defend the insured after Great West's wrongful denial rather than risk leaving the insured completely unprotected by disputing its policy coverage. Great West cannot now allege that Crum & Forster acted voluntarily by living up to its legal and contractual duties. Thus, the Court finds that Crum & Forster's payments of defense costs on behalf of MVT were involuntary because they were made in good faith and under a reasonable belief that the payments were necessary for its protection.[24]

         The Court already determined that Great West owed a duty to defend MVT starting on October 28, 2013. Based on its analysis above, the Court also finds that Crum & Forster involuntarily paid a debt to defend MVT that Great West was at least partially responsible for paying. Moreover, it is equitable to expect Great ...


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