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Princeton Excess and Surplus Lines Insurance Co. v. US Global Security Inc.

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

September 24, 2019

PRINCETON EXCESS AND SURPLUS LINES INSURANCE CO., Plaintiff,
v.
US GLOBAL SECURITY INCORPORATED, et al., Defendants.

          MEMORANDUM AND ORDER

          NANCY F. ATLAS, UNITED STATES DISTRICT JUDGE

         By Order [Doc. # 32] entered March 5, 2019, the Court referred all potentially dispositive motions to United States Magistrate Judge Dena Palermo for a Report and Recommendation. On August 5, 2019, Magistrate Judge Palermo issued her Report and Recommendation (“R&R”) [Doc. # 38], addressing the Rule 12(c) Motion for Judgment on the Pleadings [Doc. # 19] filed by Plaintiff Princeton Excess and Surplus Lines Insurance Company (“Princeton”), the Motion for Summary Judgment [Doc. # 22] filed by Defendant Maxum Indemnity Company (“Maxum”), and Maxum’s Motion for Summary Judgment on U.S. Global Security, Inc.’s Crossclaims [Doc. # 24]. The Magistrate Judge recommended that this Court hold that Treasures and Brannen are additional insureds under Maxum’s insurance policy, and that the “Designated Operations Exclusion” (“Exclusion”) in Maxum’s policy applies. The Magistrate Judge recommended further that an exception to the Exclusion applies because the allegation that the plaintiff in the underlying state court lawsuit was taken “outside” created a reasonable inference that he was taken to a parking lot where security operations occurred. The Magistrate Judge recommended also that Princeton is entitled to contribution from Maxum for the defense costs in the underlying state court lawsuit. Regarding the crossclaims asserted against Maxum by U.S. Global Security Inc. (“Global”), the Magistrate Judge recommended a ruling that Maxum owes a duty to defend Princeton’s insureds in the underlying state court lawsuit, and that Maxum owes no duty to defend Global against Princeton’s claims against it in this lawsuit. Lastly, the Magistrate Judge recommended denying Maxum’s motion for summary judgment on Global’s crossclaim for indemnity as premature, citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 529 (5th Cir. 2004).

         Maxum filed timely Objections [Doc. # 41] to the R&R. Maxum objects to the Magistrate Judge’s recommendation that Maxum owes a duty to defend Princeton’s insureds in the underlying state court lawsuit, and to the recommendations that flow from the duty to defend recommendation. Princeton filed a Response [Doc. # 42], and Maxum filed a Reply [Doc. # 43]. No. other objections to the R&R were filed.

         The Court has reviewed the R&R, as well as Maxum’s Objections. The Court has applied relevant legal authorities, and has made a de novo review of those portions of the report or specified proposed findings or recommendations to which Maxum objected. See Fed. R. Civ. P. 72(b); 28 U.S.C. § 636(b)(1); Funeral Consumers Alliance, Inc. v. Serv. Corp. Int’l, 695 F.3d 330, 347 (5th Cir. 2012). The Court has not conducted a complete de novo review of those recommendations to which no objection was filed, but has verified that the recommendations are legally and factually sound. See 28 U.S.C. § 636(b)(1).

         The Court adopts the R&R in part. The Court applies the well-established “eight-corners” rule, [1] sustains Maxum’s Objections, and does not adopt the recommended ruling that Maxum has a duty to defend in the underlying state court lawsuit.[2] Because this Court holds that Maxum does not owe a duty to defend in the underlying state court lawsuit, Princeton is not entitled to judgment on its contribution claim, and Maxum is entitled to summary judgment on Princeton’s claims against it. Maxum is also entitled to summary judgment on the crossclaim by Global asserting that Maxum owes it a duty to defend in this federal lawsuit. The Magistrate Judge correctly concluded that Maxum’s request for summary judgment on the crossclaim for indemnity is premature.

         I. BACKGROUND

         The Magistrate Judge accurately set forth the background of this dispute in her R&R. See R&R [Doc. # 38], pp. 2-7. Princeton issued a Commercial General Liability insurance policy (“Princeton Policy”) to D. Texas Investments, Inc. The Princeton Policy provides insurance coverage to the men’s club Treasures and its employees, including its manager, Jason Brannen. See Princeton Policy, Exh. 3 to Complaint [Doc. # 1]. Princeton’s Policy provides insurance that is excess over any other primary insurance policy available to Princeton’s insureds covering liability for damages arising out of the premises or operations for which they are additional insureds through an endorsement to the other policy. See Id . at ECF p. 58. The dispute in this case involves whether the Princeton Policy is the primary insurance or is excess insurance for the underlying state court lawsuit.

         D. Houston, Inc. d/b/a Treasures entered into a Security Service Contract (“Service Contract”) with Global for “security guard protection services” for Treasures and its parking lot areas. See Security Contract, Exh. 2 to Complaint, p. 1. The Security Contract required Global to provide security services and patrols for the “area immediately outside the premises of the Nightclub, such as the front door area and entry way, the periphery of the building, the parking lot and the remote parking lot areas.” Id. Global was not required to provide security services inside Treasures, other than in the door area, “unless specific assistance is requested by managerial staff of Nightclub.” Id. Global agreed to obtain a general liability insurance policy with Treasures and its employees as additional insureds.[3] See Id . at 2.

         Maxum issued a Commercial General Liability Insurance Policy for Global, Policy Number GLP-6021221-05 (the “Policy”). The Policy contains an Additional Insured endorsement, which provides additional insured status for:

Any person or organization for whom [Global is] performing operations when [Global] and such person or organization have agreed in writing in a contract or agreement prior to the date of loss that such person or organization be added as an additional insured on [Global’s] policy.

         Policy, Exh. 4 to Complaint [Doc. # 1], ECF p. 44. The parties all agree that Princeton’s insureds – Treasures, and its manager, Jason Brannen – qualify as additional insureds under this endorsement to the Policy.

         The Policy provides coverage for “those sums that the Insured becomes legally obligated to pay as “damages” because of “bodily injury” or “personal injury” to which the Policy applies. See Policy, ECF pp. 16, 22. The Policy applies to “bodily injury” that is caused by an occurrence that takes place in the “coverage territory” and during the Policy period. See Id . at ECF p. 16. The Policy applies also to “personal injury” caused by an offense arising out of the insured’s business, with certain exclusions, if the offense was committed in the “coverage territory” during the Policy period. See Id . at ECF p. 22. The Policy defines “personal injury” to mean an injury, other than “bodily injury, ” arising out of certain offenses, including false imprisonment and malicious prosecution. See Id . at ECF p. 31.

         The Policy provides that Maxum has the “duty to defend the Insured against any ‘suit’ seeking those ‘damages, ’” but has no duty to defend the Insured against a suit seeking damages to which the Policy does not apply. See id.

         The Policy contains a “Designated Operations Exclusion” (“Exclusion”) that states:

This insurance does not apply to “bodily injury”, “property damage”, “personal injury” or “advertising injury” arising out of the operations shown in the Schedule.

         Schedule

         Description of Operation:

Any Work at or in Bars, Restaurants, Taverns or any other Establishments Selling or Providing Alcoholic Beverages.

Id.

         Significantly, the Designated Operations Exclusion states also that it “does NOT apply to Parking Lot Security at Gentlemen’s Clubs.” Id. (emphasis in original). This provision creates an exception ...


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