382 F.3d 546 (5th Cir. 2004), 03-10861, Primrose Operating Co. v. National American Ins. Co.

Docket Nº:03-10861.
Citation:382 F.3d 546
Party Name:PRIMROSE OPERATING COMPANY; CADA Operating, Inc., Plaintiffs-Appellees, v. NATIONAL AMERICAN INSURANCE COMPANY, Defendant-Appellant.
Case Date:August 23, 2004
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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382 F.3d 546 (5th Cir. 2004)

PRIMROSE OPERATING COMPANY; CADA Operating, Inc., Plaintiffs-Appellees,

v.

NATIONAL AMERICAN INSURANCE COMPANY, Defendant-Appellant.

No. 03-10861.

United States Court of Appeals, Fifth Circuit

August 23, 2004

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        Rickey Gene Strange (argued), Cotton, Bledsoe, Tighe & Dawson, Midland, TX, for Plaintiffs-Appellees.

        Mark D. Johnson (argued), James Ellis Davis, Davis Munck, Dallas, TX, for Defendant-Appellant.

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

        Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.

        DeMOSS, Circuit Judge:

        Primrose Operating Company ("Primrose") and CADA Operating, Inc. ("CADA") (collectively, "Plaintiffs"), filed suit in Texas state court against National American Insurance Company ("NAICO"), seeking damages for an alleged breach of NAICO's duty to defend Plaintiffs in a lawsuit filed against them in Texas state court. NAICO removed to federal court based on complete diversity between the parties. A jury found for Plaintiffs and awarded damages against NAICO. NAICO filed a motion for judgment as a matter of law, which the district court denied. Following the district court's entry of judgment, NAICO filed a motion to alter or amend judgment and a renewed motion for judgment as a matter of law. The district court denied these motions as well. NAICO now appeals the orders entering judgment and denying NAICO's motions.

        BACKGROUND & PROCEDURAL HISTORY

        The Senn family owns a ranch in West Texas. Primrose operated an oil and gas lease on the ranch from 1992 to 1999, and CADA succeeded Primrose in 1999 as the operator of that lease. In September 1999, the Senns sued Plaintiffs,1 and several other oil companies, for polluting their ranch, asserting claims including, inter alia, negligence, gross negligence, trespass, and nuisance. Primrose was insured during the time it operated the Senns' lease by three insurance companies: (1) Chubb Insurance Group ("Chubb") from April 1, 1991 to April 1, 1997; (2) Mid-Continent Casualty Company ("Mid-Continent") from April 1, 1997 to April 1, 1999; and (3) NAICO from April 1, 1999 until the time CADA succeeded Primrose as the lease operator in December 1999. CADA was solely insured by NAICO from December 1999 until April 1, 2001.

        Primrose reported the suit to all three insurers and requested a defense. Chubb and Mid-Continent agreed to defend Primrose under a reservation of rights and retained, and agreed to pay the bills of, Kathleen McCulloch of Shafer, Davis, Ashley, O'Leary & Stoker (the "Shafer" firm).

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NAICO, however, denied coverage and refused to provide a defense for Primrose. NAICO also refused CADA's request for a defense. CADA, in turn, retained Ackels & Ackels (the "Ackels" firm) for its defense in the Senn litigation. In March 2001, Primrose retained Rick Strange of the law firm of Cotton Bledsoe Tighe & Dawson (the "Cotton Bledsoe" firm), in addition to the representation Primrose was then receiving from the Shafer firm.2

        At the time the Senn litigation went to trial in October 2001, a number of the other defendant oil companies, although it is unclear if all, had been dismissed. During the first week of trial, CADA settled with the Senns and was dismissed from the suit. Although Primrose received a judgment substantially in its favor, the state court granted the Senns a partial new trial limited to surface contamination issues. The case was retried against Primrose in October 2002. The jury in the second state action found that Primrose had negligently damaged the Senns' ranch, awarding the Senns damages in the amount of $2,194,000. Primrose has appealed this judgment.3

        Plaintiffs filed the present lawsuit in Texas state court in March 2002, seeking damages for NAICO's alleged breach of its duty to defend Plaintiffs in their suit with the Senns. Plaintiffs, both citizens of Texas with their principal places of business in Texas, specifically asserted breach of contract claims under the insurance policies issued to them by NAICO, in addition to claims under the Texas Insurance Code, and the Texas Deceptive Trade Practices Act (the "DTPA"). NAICO, a foreign corporation with its principal place of business in Oklahoma, thereafter removed the case to federal court based on complete diversity. The case was presented to a jury, and after the close of all evidence, both Plaintiffs and NAICO moved for judgment as a matter of law. The district court denied Plaintiffs' motion in its entirety, while granting in part NAICO's motion as it related to Plaintiffs' failure to offer any evidence to support their DTPA claims and CADA's inability to present sufficient evidence supporting its claims under the Texas Insurance Code.

        The jury awarded Plaintiffs damages for NAICO's breach of contract and for Primrose's claim under Article 21.55 of the Texas Insurance Code. NAICO filed a motion for judgment as a matter of law and an alternative motion for a new trial, both of which were denied by the district court. After the district court entered judgment for Plaintiffs, NAICO filed a motion to alter or amend the judgment, arguing that the district court miscalculated prejudgment interest and the statutory penalty under Article 21.55. NAICO also renewed its motion for judgment as a matter of law and for a new trial. The district court also denied these motions. NAICO timely filed the instant notice of appeal with respect to the district court's orders entering judgment and denying NAICO's motions for judgment as a matter of law and to alter or amend the judgment.

        DISCUSSION

         I. NAICO's Duty to Defend

        NAICO first contends that the district court erred by failing to grant its motion for judgment as a matter of law on the issue of whether NAICO had a duty to

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defend Plaintiffs. This court reviews a district court's denial of a motion for judgment as a matter of law de novo. Pineda v. United Parcel Serv., Inc., 360 F.3d 483, 486 (5th Cir. 2004). "A motion for judgment as a matter of law should be granted if 'there is no legally sufficient evidentiary basis for a reasonable jury to find for a party.' " Id. (quoting FED.R.CIV.P. 50(a)). "[I]f reasonable persons could differ in their interpretations of the evidence, then the motion should be denied. A post-judgment motion for judgment as a matter of law should only be granted when the facts and inferences point so strongly in favor of the movant that a rational jury could not reach a contrary verdict." Id. (internal quotations and citations omitted).

        Under Texas law, an insurer may have a duty to defend a lawsuit against its insured.4 See State Farm Lloyds v. Borum, 53 S.W.3d 877, 889 (Tex.App.--Dallas 2001, no pet.) (finding that the duty to defend is broader than the duty to indemnify). Texas employs the "eight corners" or "complaint allegation" rule when determining whether an insurer has a duty to defend. Potomac Ins. Co. v. Jayhawk Med. Acceptance Corp., 198 F.3d 548, 551 (5th Cir. 2000). The eight corners rule requires the finder of fact to compare only the allegations in the underlying suit--the suit against the insured--with the provisions of the insurance policy to determine if the allegations fit within the policy coverage. Id. The duty to defend analysis is not influenced by facts ascertained before the suit, developed in the process of litigation, or by the ultimate outcome of the suit. Id. Fact finders, however, may look to extrinsic evidence if the petition "does not contain sufficient facts to enable the court to determine if coverage exists." Western Heritage Ins. Co. v. River Entm't, 998 F.2d 311, 313 (5th Cir. 1993).

        The eight corners rule is to be applied liberally in favor of the insured, with any doubts resolved in favor of the insured. Guaranty Nat'l Ins. Co. v. Azrock Indus., Inc., 211 F.3d 239, 243 (5th Cir. 2000). "If any allegation in the complaint is even potentially covered by the policy then the insurer has a duty to defend its insured." Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1492 (5th Cir. 1992) (emphases added); Terra Int'l, Inc. v. Commonwealth Lloyd's Ins. Co., 829 S.W.2d 270, 271-72 (Tex.App.--Dallas 1992, writ denied) (observing that courts are to "liberally construe the allegations in the third-party complaint to determine if they fall within the provisions of the insurance policies," and "[i]f there is any doubt about whether the allegations reflect a potential liability, such doubt must be resolved in favor of the Insured").

        To determine if NAICO had a duty to defend, this court must first look to the allegations in the underlying suit filed by the Senns. As "an amended pleading completely supersedes prior pleadings, ... the duty to defend rests on the most recent pleading." Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 194 (5th Cir. 1998). Therefore, the operative pleading for purposes of our analysis is the Senns' Fourth Amended Original Petition, in which the Senns alleged that Primrose and CADA, along with several other oil companies, polluted their ranch through releases of saltwater, oil, and other fluids. Specifically, the Senns contended that these releases contaminated the surface, subsurface, and groundwater of their ranch.

        In an insurance coverage dispute analyzed under the eight corners rule,

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"[t]he insured bears the initial burden of showing that there is coverage, while the insurer bears the burden of proving the applicability of any exclusions in the policy. Once the insurer has proven that an exclusion applies, the burden...

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