Admiral Ins. Co. v. Ford

• Decision Date: 21 May 2010
• Docket Number: No. 09-50671.,09-50671.
• Citation: 607 F.3d 420
• Parties: ADMIRAL INSURANCE COMPANY, Plaintiff-Appellant,v.Randall K. FORD, doing business as R.K. Ford and Associates; R.K. Ford & Associates Incorporated; RKF Consultants Incorporated, doing business as R.K. Ford & Associates, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

607 F.3d 420

ADMIRAL INSURANCE COMPANY, Plaintiff-Appellant,v.Randall K. FORD, doing business as R.K. Ford and Associates; R.K. Ford & Associates Incorporated; RKF Consultants Incorporated, doing business as R.K. Ford & Associates, Defendants-Appellees.

No. 09-50671.

United States Court of Appeals, Fifth Circuit.

May 21, 2010.

Nathan Montgomery Rymer and David Clay Wilkerson (argued), Debra Ibarra Mayfield, Rymer, Moore, Jackson & Echols, Houston, TX, for Admiral Ins. Co.

Stanley Everett Crawford, Jr. (argued), Johnson & Associates, Midland, TX, for Defendants-Appellees.

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

Before JOLLY and GARZA, Circuit Judges, and STARRETT^*, District Judge.

EMILIO M. GARZA, Circuit Judge:

Appellant Admiral Insurance Company (“Admiral”) appeals from the district court's grant of summary judgment in favor of Appellees (“Ford”). The appeal asks us to determine the applicability of a professional services exclusion in an insurance contract that Admiral sold to Ford.

I

Ford purchased two insurance policies from Admiral. The Commercial General Liability (“CGL”) policy provided occurrence-based coverage with a $1 million limit per occurrence. The professional liability (“PL”) policy provided “claims-made” coverage, which covered “oil and gas consultant” operations with a $50,000 limit per claim.

The CGL policy contained an exclusion for designated professional services. This exclusion provides, in relevant part:

SCHEDULE

Description of Professional Services:

1. ALL OPERATIONS OF THE INSURED

2.

3.

(If no entry appears above, the information to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

With respect to any professional services shown in the Schedule, this insurance does not apply to “bodily injury,” “property damage,” “personal injury,” or “advertising injury” due to the rendering or failure to render any professional service.

After Ford purchased the policies, Exco Resources, Inc. (“Exco”) hired Ford to create a drilling plan for an oil well and to consult and assist in the drilling of the well. During drilling, the well had a blowout, and Exco sued Ford. Admiral paid Ford $50,000 pursuant to the PL policy, then filed the instant lawsuit for a declaratory judgment that it did not owe Ford any coverage under either the CGL or the PL policy.¹ Admiral claimed that the professional services exclusion to the CGL excludes coverage for Exco's lawsuit because the underlying conduct required Ford's specialized or technical knowledge. Ford responded that because the professional services exclusion purports to apply to “all operations of the insured,” the exclusion destroyed any grant of CGL coverage, and therefore should not be given effect.

On cross-motions for summary judgment, the district court ruled in favor of Ford, finding that the professional services exclusion was illusory because it defined professional services as all operations of the insured. The court found that this broad description of professional services obliterated the entire insurance policy, and gave the exclusion no effect. It found that Admiral owed a duty to defend Ford in the underlying lawsuit. Admiral timely appealed.

The Exco litigation was settled before oral argument of this case. A justiciable controversy remains, however, regarding Admiral's duty to defend since the determination of that duty affects the legal fees expended in defense of the Exco litigation before it was settled.²

II

This Court reviews the district court's grant of summary judgment de novo. Am. Nat'l Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th Cir.2001) (citing McClendon v. City of Columbia, 258 F.3d 432, 435 (5th Cir.2001)). “The district court's interpretation of an insurance contract is a question of law that we also review de novo.” Id. Because this is a diversity case involving a Texas contract, “Texas rules of contract interpretation control.” Id. (citation omitted).

III

A

Admiral argues that the “all operations” language does not define professional services, but rather provides the scope of the exclusion. According to Admiral, the “all operations” language simply means that the parties intended the legal definition of professional services to exclude coverage for professional services in any of Ford's operations. Admiral urges the court to apply the legal definition of professional services, as articulated by Texas courts, which would limit professional services to those that require the professional's “specialized knowledge or training.” In response, Ford essentially relies on the district court's plain language reading, urging the court not to “re-write” the exclusion.

Texas law instructs that we are to ascertain the scope of coverage by examining the policy as a whole and determining the parties' intent. Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202 (Tex.2004). “ ‘The court must adopt the construction of an exclusionary clause urged by the insured as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent.’ ” Id. (quoting Nat'l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991)). Terms are given their ordinary meaning unless the insurance policy shows that the words were meant in a technical or different sense. Markel Ins. Co. v. Muzyka, 293 S.W.3d 380, 385 (Tex.App.-Fort Worth 2009, no pet.). The court, however, must “read all parts of the contract together ... striving to give meaning to every sentence, clause, and word to avoid rendering any portion inoperative.” Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex.1998) (citations omitted).

Ford's plain language argument, though simple, is nonetheless strange. In effect, Ford reads the exclusion so broadly as to defeat any coverage, and then claims that because the coverage is rendered illusory under this broad interpretation, the exclusion should be given no effect. Whereas normally the insured advances an interpretation that provides broader coverage, here Ford's interpretation of the exclusion is that all of its operations are excluded from coverage. Needless to say, it is difficult to understand why Ford would purchase a policy that it believed to exclude all of its operations from coverage.

Courts analyzing insurance contracts with essentially the same format as the instant contract have not accepted the phrase following “description of professional services” as the definition of professional services.³ For example, in Atlantic Lloyd's Insurance Co. of Texas v. Susman Godfrey, L.L.P., 982 S.W.2d 472, 476-77 (Tex.App.-Dallas 1998, pet. denied), the insured, a law firm, had written a description of its practice following the phrase “[d]escription of professional services.” Id. at 476. Nonetheless, the court surveyed how other courts had defined “professional services” before settling on a legal definition. Id. The court found that “[t]o qualify as a professional service, the task must arise out of acts particular to the individual's specialized vocation, [and] ... it must be necessary for the professional to use his specialized knowledge or training.” Id. at 476-77.

Although Texas courts have often applied a legal definition of “professional services” in the context of a professional services exclusion to an insurance contract, the district court found that a recent decision of this court prevented it from applying the legal definition of professional services. The district court stated that Davis-Ruiz Corp. v. Mid-Continent Cas. Co., 281 Fed.Appx. 267, 272 (5th Cir.2008) (unpublished) (per curiam), mandates that if the term “professional services” is not defined in the policy, then “as a matter of law, no court can determine if ‘professional services' were rendered.” The district court, however, misinterpreted Davis-Ruiz.

In Davis-Ruiz, the parties disputed an identical professional services exclusion except in that case, the area under “Description of Professional Services” was blank. 281 Fed.Appx. at 271-72. The court then looked to the specific instruction of the professional services exclusion, which said “if no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.” Id. at 272. Accordingly, the court looked to the Declarations, concluding that the exclusion should be applied to the insured's business as defined in the Declarations. Id. Although there was no specific definition of professional services in the contract, the court applied the legal definition of professional services to the insured's business. Id.

Davis-Ruiz does not suggest that a court may only look to the contract to define “professional services.” Using the legal definition of “professional service” was not an issue. At issue was to which of the insured's operations the exclusion applied. Id. at 271-72 (“[T]he exclusion does not apply to all professional services, but only to those shown in the Schedule[, which limited the exclusion to those professional services that involved radiography].”). When the policy does not specify a definition of professional services, a court is free to apply the legal definition of “professional services” to the exclusion, and Texas courts, as well as courts interpreting Texas law, often do so.

In conclusion, although the provision is confusingly worded and a literal interpretation would imply that “all operations” are excluded as professional services, the literal interpretation is unreasonable. Admiral has advanced the only reasonable interpretation of the exclusion: that the parties intended the legal definition of professional services to exclude coverage for professional services in any of Ford's operations.

B

Having determined that the professional services exclusion is operative, we now turn to whether the exclusion defeats coverage....