H.E. Butt Grocery Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa.

• Decision Date: 26 August 1998
• Docket Number: No. 97-50215,97-50215
• Citation: 150 F.3d 526
• Parties: H. E. BUTT GROCERY COMPANY, Plaintiff-Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 526

150 F.3d 526

H. E. BUTT GROCERY COMPANY, Plaintiff-Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA Defendant-Appellee.

No. 97-50215.

United States Court of Appeals Fifth Circuit.

Aug. 26, 1998.

Wallace Bernard Jefferson, Ellen B. Mitchell, Crofts, Callaway & Jefferson, Mark A. Giltner, San Antonio, TX, Wade Bryant Shelton, Shelton, Lot & Valadez, San Antonio TX, for Plaintiff-Appellant.

Charles Mark Stratton, Tina Louann Snelling, Hirsch, Robinson, Sheiness & Glover, Houston, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Western District of Texas.

Before WIENER, EMILIO M. GARZA and BENAVIDES, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

H.E. Butt Grocery Company ("HEB") brought suit against National Union Fire Insurance Company ("National Union") seeking a declaratory judgment to determine its rights and responsibilities under a comprehensive general liability insurance policy that National Union issued to HEB. The district court granted summary judgment in favor of National Union. We affirm.

I

This insurance coverage dispute arises from an HEB employee's sexual abuse of two children in an HEB grocery store. While both children have been compensated for the sexual assaults, this dispute concerns how the loss will be allocated between HEB and National Union. Under the terms of its insurance policy, HEB is its own primary insurer--it must pay a self-insured retention ("SIR") limit of $1,000,000 per "occurrence" as that term is defined in the policy. National Union is then responsible for the payment of damages after HEB has satisfied its SIR limit for each occurrence. The question for this Court is how many "occurrences" arise from the two sexual assaults.

The relevant facts for this appeal are not disputed. In 1994, an HEB employee sexually assaulted two different children on different days in the restroom of an HEB store. The two sexual assaults took place approximately one week apart and involved the same employee and the same store. The family of each child filed claims against HEB in unrelated suits in Texas state court. Each suit alleged that HEB was negligent in several respects, including failing to provide adequate security, failing to warn, failing to adequately supervise its employees, and in hiring and retaining employees when it knew or should have known that its employees were unable to provide a safe environment in its store. The lawsuits also alleged that HEB knew that the same employee had committed an act of "untoward sexual conduct" in the past with a different child at another store and that the sole corrective action taken was to transfer the employee to another store location. HEB eventually settled each lawsuit for $1,000,000, the amount of its SIR limit per occurrence under the insurance policy.

HEB then brought suit against National Union in state court seeking a declaratory judgment that its payment of $1,000,000 to settle the first lawsuit satisfied its SIR obligation for both suits because they arose from the same "occurrence"--i.e., its negligence in overseeing its pedophilic employee. National Union removed the case to federal court on diversity grounds and sought summary judgment, arguing that the two separate instances of sexual abuse constituted two occurrences under the policy. The district court agreed and granted summary judgment in favor of National Union. HEB now appeals the grant of summary judgment.

II

We review the district court's grant of summary judgment de novo, taking the facts in the light most favorable to the non-moving party. See New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir.1996). We will affirm a summary judgment ruling if we are "convinced, after an independent review of the record that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Yeager v. City of McGregor, 980 F.2d 337, 339 (5th Cir.1993); see also FED.R.CIV.P. 56(c). Here, both parties agreed below that the only question to be decided was whether two unrelated molestations of different children on two separate dates were one or two "occurrences" under the terms of the policy. ¹

Because this case comes before us through diversity jurisdiction, we apply Texas law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). A contract of insurance is generally subject to the same rules of construction as other contracts. See National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 554 (Tex.1991). The court's primary concern is to give effect to the written expression of the parties' intent. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). If the written contract is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and will be enforced as written. See National Union Fire Ins. Co. v. CBI Indus., Inc. 907 S.W.2d 517, 520 (Tex.1995).

If the court is uncertain as to which of two or more meanings was intended, a provision is ambiguous. See Butler & Binion v. Hartford Lloyd's Ins. Co., 957 S.W.2d 566, 570 (Tex.App.1995, writ denied). An ambiguity in a contract is either "patent" or "latent." See CBI Indus., Inc. 907 S.W.2d at 520. "A patent ambiguity is evident on the face of the contract. A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter." Id. (citation omitted). Only after a court has determined a contract is ambiguous can it consider the parties' interpretations. See id. at 520. When a contract is not ambiguous, the court will construe the contract as a matter of law. See Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex.1983).

III

The outcome of this case depends on the meaning of "occurrence" under the policy. HEB argues that "occurrence" is ambiguous and that its interpretation is a reasonable construction of the term. Whether a provision is ambiguous is a question of law for the court to decide. See CBI Indus., Inc. 907 S.W.2d at 520. HEB does not specify whether it believes that the definition of "occurrence" is "patently" or "latently" ambiguous; consequently, we will consider each proposition in turn.

The policy defines "occurrence" as follows:

"Occurrence" means an event, including continuous or repeated exposure to conditions, which result[s] in Personal Injury or Property Damage during the policy period, neither expected nor intended from the standpoint of the Insured. All Personal Injury or Property Damage arising out of the continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

This definition of "occurrence" is virtually identical to the definition contained in standard-form commercial liability policies. See American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 854 n. 21 (Tex.1994). Texas courts have routinely applied the term without concluding that it is patently ambiguous. See, e.g., Foust v. Ranger Ins. Co., 975 S.W.2d 329, 332-33 (Tex.App. 1998, n.w.h.); Transport Ins. Co. v. Lee Way Motor Freight, Inc., 487 F.Supp. 1325, 1327 (N.D.Tex.1980) (applying Texas law). Not surprisingly, HEB cannot cite a single Texas case that has found a patent ambiguity in the definition of "occurrence." We conclude that the definition of "occurrence" in the policy is not ambiguous on its face. See Foust, 975 S.W.2d at 334 (concluding that virtually identical definition of "occurrence" was "clearly define[d]" and not ambiguous).

Although no Texas court has interpreted "occurrence" in the context of a pedophilic employee and the sexual abuse of two different children, we must make an Erie guess as to how the Texas Supreme Court would decide the issue. See Farm Credit Bank v. Guidry, 110 F.3d 1147, 1149 (5th Cir.1997) (when state law is silent, court must make "Erie guess" as to how state supreme court would rule). A latent ambiguity does not arise simply because the parties advance conflicting interpretations of the term; an ambiguity exists only when the term cannot be given a definite and certain legal meaning and more than one reasonable interpretation exists. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996). Thus, we must decide whether Texas law prescribes a definite legal meaning to "occurrence" under the circumstances in this case.

Texas courts agree that the proper focus in interpreting "occurrence" is on the events that cause the injuries and give rise to the insured's liability, rather than on the number of injurious effects. See, e.g., Maurice Pincoffs Co. v. St. Paul Fire & Marine Ins. Co., 447 F.2d 204, 206 (5th Cir.1971) (applying Texas law and holding that the events giving rise to liability constitute the "occurrence"); Goose Creek Consol. I.S.D. v. Continental Cas. Co., 658 S.W.2d 338, 339 (Tex.App.1983, no writ) (explaining that a majority of courts apply a "cause" analysis to determine whether a set of facts involve only one or several occurrences); Lee Way Motor Freight, 487 F.Supp. at 1330 (explaining that "[t]he great majority of courts have adopted a 'cause' analysis"). The question under Texas law becomes whether HEB's negligent employment relationship with its pedophilic employee, rather than the two acts of sexual abuse, "caused" the injuries to the two children and gave rise to HEB's liability. ²

HEB's argument--that we can ignore the immediate cause of each child's injuries and look only to the underlying negligent supervision--is similar to one rejected by the Texas courts in Burlington Insurance Co. v. Mexican American Unity Council, Inc., 905 S.W.2d 359, 362 (Tex.App.1995, no writ). In Burlington, a resident of a youth home sued the youth home, alleging that it negligently allowed her to leave its premises unsupervised and that she was assaulted by...