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Bitco General Insurance Corporation v. Monroe Guaranty Insurance Co.

United States District Court, W.D. Texas, San Antonio Division

July 31, 2019




         To the Honorable Fred Biery:

         This Report and Recommendation concerns Plaintiff BITCO General Insurance Corporation's Motion for Summary Judgment [#30] and Defendant Monroe Guaranty Insurance Company's Motion for Summary Judgment [#32]. The Honorable Fred Biery referred all pre-trial proceedings in this case to the undersigned for disposition pursuant to Rule 72 of the Federal Rules of Civil Procedure and Rules CV-72 and 1(c) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas [#33]. The undersigned has authority to enter this Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). After considering both motions, the responses and replies thereto [#34, #35, #37], and the Joint Stipulation in Support of Cross-Motions for Summary Judgment [#31], the undersigned recommends that Plaintiff's Motion for Summary Judgment [#30] be GRANTED and that Defendant's Motion for Summary Judgment [#32] be DENIED.

         I. Introduction

         This is an insurance coverage dispute between two insurance companies. In this case, the sole remaining issue, and the issue presented by the cross-motions for summary judgment, is whether Defendant Monroe Guaranty Insurance Company, a Member of the FCCI Insurance Group (“MGIC”), had a duty to defend 5D Drilling and Pump Service, Inc., formerly known as Davenport Drilling & Pump Service, Inc. (“5D”), and its president, Dean Davenport (“Davenport”), in an underlying lawsuit styled David Jones d/b/a J & B Farms of Texas v. Dean Davenport, 5 D Drilling and Pump Service, Inc. f/k/a Davenport Drilling & Pump Service, Inc., Cause No. 2016-CI-10959, filed in the 45th Judicial District Court of Bexar County, Texas (“the Underlying Lawsuit”). MGIC did have a duty to defend.

         II. Undisputed Facts

         In the Underlying Lawsuit, David Jones, doing business as J&B Farms of Texas (“Jones”), sued 5D and Davenport for breach of contract and negligence. Thereafter, Plaintiff BITCO General Insurance Corporation, formerly known as Bituminous Casualty Corporation (“BITCO”), sued MGIC, Davenport, 5D, and Jones in the instant federal lawsuit [#1], seeking declaratory relief against MGIC to establish its duty to defend pursuant to a commercial general liability (“CGL”) insurance policy that MGIC issued to 5D. Specifically, BITCO seeks a declaratory judgment that MGIC had a duty to defend 5D and Davenport against the claims raised by Jones in the Underlying Lawsuit.

         The parties agree that the operative pleading in the Underlying Lawsuit is Jones's Third Amended Petition, which is attached as Exhibit 1 to BITCO's Complaint [#1-1]. In the Underlying Lawsuit, Jones asserted claims for negligence and breach of contract against 5D and Davenport, alleging that they failed to properly drill an irrigation water well on his farm in Frio County, Texas. (3d Am. Pet. [#1-1] at 2-3.) Jones averred that 5D's faulty workmanship damaged his property and the Edwards Aquifer, which flows under his property. (Id. at 3.) During the Underlying Lawsuit, 5D and Davenport asserted that BITCO and MGIC had a duty to defend them against Jones's claims, basing their contention on two different CGL policies.

         BITCO issued a CGL policy to 5D for the period of October 6, 2013 through October 6, 2014, and MGIC issued a CGL policy to 5D for the period of October 6, 2015 through October 6, 2016 (“the MGIC Policy”). (BITCO Policy[1] [#30-1] at 40; MGIC Policy[2] [#32-1] at 1.) Both BITCO and MGIC initially refused to defend 5D or Davenport in the Underlying Lawsuit. (02/22/18 Re-Tender of Defense to FCCI/MGIC[3] [#30-6] at 3.) However, after being served with the Third Amended Petition, BITCO agreed to provide a defense to 5D and Davenport, subject to a reservation of rights. (Id.) But MGIC continued to refuse to defend 5D or Davenport, citing two business-risk exclusions in the MGIC Policy and asserting that the alleged “property damage” occurred outside the policy period. (02/12/18 FCCI/MGIC Attorney Denial of Defense[4] [#30-5] at 4; 02/27/18 FCCI/MGIC Denial of Defense[5] [#30-7] at 2.) The Underlying Lawsuit has since settled and been dismissed.

         This federal case concerns only the MGIC Policy and whether it gave rise to a duty to defend in the Underlying Lawsuit. BITCO contends that MGIC had a duty to defend 5D and Davenport in the Underlying Lawsuit and, therefore, seeks to recover for MGIC's share of their defense, as well as attorney's fees and costs incurred in pursuing this declaratory judgment action.

         II. Summary-Judgment Standard

         Summary judgment is appropriate under Rule 56(c) of the Federal Rules of Civil Procedure only “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine dispute of material fact means that the evidence is such that a reasonable jury could return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The party moving for summary judgment bears the initial burden of informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp., 477 U.S. at 323; Wise v. E.I. DuPont de Nemours & Co., 58 F.3d 193, 195 (5th Cir. 1995). Once the movant carries its initial burden, however, the burden shifts to the non-movant to show that summary judgment is inappropriate. See Bayle v. Allstate Ins. Co., 615 F.3d 350, 355 (5th Cir. 2010); Fields v. City of S. Hous., 922 F.2d 1183, 1187 (5th Cir. 1991). The non-movant “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Nor may the non-movant “rely on mere allegations in the pleadings; rather, the non-movant must respond to the motion for summary judgment by setting forth particular facts indicating that there is a genuine issue for trial.” Miss. River Basin All. v. Westphal, 230 F.3d 170, 174 (5th Cir. 2000). The non-movant can satisfy its burden by tendering depositions, affidavits, and other competent evidence to buttress its claim. See Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992); Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263 (5th Cir. 1991). The district court must view the evidence in the light most favorable to the non-moving party, drawing all justifiable inferences in the non-movant's favor. See Envtl. Conservation Org. v. City of Dall., 529 F.3d 519, 524 (5th Cir. 2008); Rosado v. Deters, 5 F.3d 119, 123 (5th Cir. 1993).

         “After the non-movant has been given the opportunity to raise a genuine factual issue, if no reasonable juror could find for the non-movant, summary judgment will be granted.” Byers v. Dall. Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). However, if the moving party fails to satisfy its initial burden, the motion for summary judgment must be denied, regardless of the non-movant's response. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).

         III. Analysis

         BITCO seeks a declaratory judgment that MGIC had a duty to defend 5D and Davenport in the Underlying Litigation. MGIC argues that it did not have such a duty for two reasons: (1) the alleged “property damage” occurred outside the policy period; and (2) two business-risk exclusions apply and exclude Jones's claims from coverage. After considering the pleadings and the MGIC Policy language, as is required by the “eight-corners rule, ” the undersigned finds that neither reason is persuasive. Because the Third Amended Petition alleges “property damage” caused by an “occurrence” that could have occurred during the policy period, and because the business-risk exclusions cited by MGIC bar coverage for some, but not all, of the alleged “property damage, ” MGIC's duty to defend was triggered under the MGIC Policy. Thus, Plaintiff's Motion for Summary Judgment should be granted, and Defendant's Motion for Summary Judgment should be denied.

         A. The eight-corners rule applies.

         Under Texas law, “an insurer's duty to defend is determined by the allegations in the pleadings and the language of the insurance policy.” Nat'l Union Fire Ins. Co. of Pittsburgh v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997) (per curiam); see also Dall. Nat. Ins. Co. v. Sabic Ams., Inc., 355 S.W.3d 111, 117 (Tex. App.-Houston [1st Dist.] 2011, pet. denied) (“The insurer's duty to defend arises when pleadings raise allegations that, if taken as true, potentially state a cause of action within the terms of the policy.”). This is known as the “eight-corners” or “complaint-allegation rule.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006).

         “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.” Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848 (Tex. 1994). However, in the event of an ambiguity, courts “construe the pleadings liberally, resolving any doubt in favor of coverage.” Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 643 (Tex. 2005). At the same time, courts “may not read facts into the pleadings, look outside the pleadings, or speculate as to factual scenarios that might trigger coverage or create an ambiguity.” Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 596 (5th Cir. 2011). And, while “[t]he factual allegations are considered without regard to their truth or falsity, ” Ewing Const. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014), courts “only defer to a complaint's characterization of factual allegations, not legal theories or conclusions, ” Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex. 2012).

         “Where the complaint does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy.” Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008) (quoting Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965)). “The duty to defend is not affected by facts ascertained before suit, developed in the process of litigation, or by the ultimate outcome of the suit.” Am. All. Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 154 (Tex. App.-Dallas 1990, writ dism'd w.o.j.). “If a complaint potentially includes a covered claim, the insurer must defend the entire suit.” Nokia, 268 S.W.3d at 491.

         B. The relevant allegations are contained in Jones's Third Amended Petition.

         Applying the eight-corners rule, the relevant pleading is the Third Amended Petition, which contains the following factual allegations:

         VI. ...

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