Nat'l Liab. & Fire Ins. Co. v. Young

• Decision Date: 12 May 2020
• Docket Number: No. 6:19-CV-031-H,6:19-CV-031-H
• Citation: 459 F.Supp.3d 796
• Parties: NATIONAL LIABILITY & FIRE INSURANCE COMPANY, Plaintiff, v. John YOUNG d/b/a Rio Restaurant Group, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

459 F.Supp.3d 796

NATIONAL LIABILITY & FIRE INSURANCE COMPANY, Plaintiff,

v.John YOUNG d/b/a Rio Restaurant Group, et al., Defendants.

No. 6:19-CV-031-H

United States District Court, N.D. Texas, San Angelo Division.

Signed May 12, 2020

Rhonda J. Thompson, Victoria Leigh Watson, Thompson Coe Cousins & Irons LLP, Dallas, TX, for Plaintiff.

Jeffrey Scott Lisson, Carter Boyd Lisson & Hohensee, San Angelo, TX, Douglas P. Skelley, Rebecca DiMasi, Shidlofsky Law Firm PLLC, Austin, TX, for Defendants.

ORDER DENYING NATIONAL LIABILITY'S MOTION FOR SUMMARY JUDGMENT

JAMES WESLEY HENDRIX, UNITED STATES DISTRICT JUDGE

Before the Court is National Liability and Fire Insurance Company's Motion for Summary Judgment. Dkt. No. 42. In this declaratory-judgment action, National Liability asks the Court to issue a judgment that National Liability has no duty to defend or indemnify the defendants in connection with an underlying state-court lawsuit arising out of a tragic car accident. Under Texas law, the eight-corners rule governs whether an insurer has a duty to defend an insured in an underlying lawsuit—courts may consider only the text of the insurance policy and the text of the pleading in the underlying lawsuit. The Court finds that the First Amended Petition in the underlying lawsuit implicates coverage under the eight-corners rule and that National Liability has not identified any applicable exception to the rule. Because the defendants have not moved for summary judgment, the Court will afford National Liability an opportunity to respond before the Court considers whether to grant summary judgment to the defendants on National Liability's duty-to-defend claim. Additionally, judgment with respect to the duty to indemnify would be premature. Thus, the Court denies National Liability's Motion for Summary Judgment.

1. Factual and Procedural Background

National Liability issued business auto insurance policy number 73 APR 366778 to John Young d/b/a Rio Restaurant Group for the policy period July 23, 2018 through July 23, 2019. Dkt. No. 33 at 3. The policy covers only a specific list of "autos," but it provides for the coverage of any "auto" that the insured "do[es] not own while used with the permission of its owner as a temporary substitute for a covered ‘auto’ you own that is out of service because of its: a. Breakdown; b. Repair; c. Servicing; d. ‘Loss’; or e. Destruction." Id. at 4.

The policy covers all sums that the insured "legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies." Dkt. No. 33-1 at 24. As to the duty to defend, the policy provides that the insurer has "the right and duty to defend any ‘insured’ against a ‘suit’ asking for such damages ... However, we have no duty to defend any ‘insured’ against a ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’... to which this insurance does not apply." Id. at 25.

On February 6, 2019, Gustina Penna was operating a vehicle rented from Enterprise Rent-A-Car to John Young d/b/a Rio Restaurant Group when she was involved in a collision with Rogelio Castellanos. Dkt. No. 33 at 6. Mr. Castellanos suffered fatal injuries from the collision. Id.

Yadira, Bryzeida, and Brayza Castellanos subsequently filed Cause No. D190092C in the 391st Judicial District Court in Tom Green County, Texas against John Young d/b/a Rio Restaurant Group, Rio Concho Catering, Inc., and Gustina Penna, seeking to recover damages for negligence and gross negligence arising from the collision. Dkt. No. 33-2. The plaintiffs in the underlying lawsuit subsequently filed their First Amended Petition. Dkt. No. 33-3. National Liability concedes that the First Amended Petition "specifically alleges the vehicle operated at the time of the incident in question was rented temporarily to John Young d/b/a Rio Restaurant Group Inc. and was being used temporarily as a substitute for one of his permanent vehicles that was being repaired or serviced at the time of the incident." Dkt. No. 33 at 7.

This federal lawsuit is a declaratory-judgment action in which National Liability seeks a judgment that it has no duty to defend or indemnify in the underlying state-court lawsuit. The insurance company alleges that the rented vehicle that Penna drove at the time of the accident was not covered under the terms of the policy because Young rented the vehicle continuously between August 2018 and February 2019 and because "none of Defendant Rio Restaurant's Specifically Described ‘Autos’ under the Policy were being repaired." Id. at 5. The Court has jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201, and because the parties are completely diverse pursuant to 28 U.S.C. § 1332. The parties agree that Texas law governs this dispute.

2. Legal Standards

Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In considering a motion for summary judgment, courts must not make credibility determinations or weigh evidence but must instead draw all reasonable inferences in favor of the non-moving party. See Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co. , 530 F.3d 395, 398–99 (5th Cir. 2008) ; Wyatt v. Hunt Plywood Co., Inc. , 297 F.3d 405, 409 (5th Cir. 2002). Nevertheless, summary judgment "may not be thwarted by conclusional allegations, unsupported assertions, or presentation of only a scintilla of evidence." Hemphill v. State Farm Mut. Auto. Ins. Co. , 805 F.3d 535, 538 (5th Cir. 2015).

3. Analysis

A. The Court denies National Liability's Motion for Summary Judgment as to the duty to defend because no exception to the eight-corners rule applies.

i. The text of the insurance policy and the text of the First Amended Petition in the underlying lawsuit implicate coverage.

Under Texas law, where "the four corners of a petition allege facts stating a cause of action which potentially falls within the four corners of the policy's scope of coverage, the insurer has a duty to defend." Liberty Mut. Ins. Co. v. Graham , 473 F.3d 596, 600 (5th Cir. 2006) ; accord GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church , 197 S.W.3d 305, 308 (Tex. 2006). There is no duty to defend where all the facts alleged in a petition fall outside the policy's scope, but the Court must "resolve all doubts regarding duty to defend in favor of the duty." Graham , 473 F.3d at 600 ; accord Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc. , 939 S.W.2d 139, 141 (Tex. 1997).

Here, the First Amended Petition in the underlying lawsuit alleges that the "vehicle in question was being used temporarily by John Young in his catering business, Rio Concho Catering, Inc., as a substitute for one of his permanent vehicles that was being repaired or serviced at the time of the incident in question." Dkt. No. 33-3 at 3. Additionally, the First Amended Petition alleges that Young gave Penna permission to use the vehicle and that she was operating it pursuant to her employment with Rio Concho Catering at the time of the incident. Id. Under the policy, coverage extends to vehicles that the insured "do[es] not own while used with the permission of its owner as a temporary substitute for a covered ‘auto’ you own that is out of service because of its: a. Breakdown; b. Repair; c. Servicing; d. ‘Loss’; or e. Destruction." Dkt. No. 33-1 at 4.

Application of the eight-corners rule to this case is therefore straightforward. The First Amended Petition alleges that the vehicle Penna was driving at the time of the accident was a temporary substitute auto within the meaning of the insurance policy. National Liability has not identified any applicable exclusion within the policy's text, and the Court has not located any such exception. Thus, the First Amended Petition implicates the policy's coverage. See Graham , 473 F.3d at 602.

ii. The only recognized exceptions to the eight-corners rule under Texas law are the Fifth Circuit's Northfield exception and the Texas Supreme Court's exception for collusive fraud by the insured.

The eight-corners rule is "a settled feature of Texas law." Richards v. State Farm Lloyds , 597 S.W.3d 492, 499 (Tex. 2020). In its Motion for Summary Judgment, National Liability relied heavily on a district court's proposed exception to the eight-corners rule that would allow district courts to consider extrinsic evidence where the policy does not include an express agreement to defend claims that are "groundless, false or fraudulent." See Dkt. No. 42 at 8–10; see also Richards , 597 S.W.3d at 495 (citing State Farm Lloyds v. Richards , No. 4:17-CV-753-A, 2018 WL 2225084, at *3 (N.D. Tex. May 15, 2018) (McBryde, J.)). The Texas Supreme Court held that the omission of groundless-claims clauses does not give rise to an exception to the eight-corners rule. Richards , 597 S.W.3d at 495. Thus, the omission of a groundless-claims clause from the insurance policy that is at issue here cannot support an exception to the eight-corners rule.

The Fifth Circuit, interpreting Texas law, has periodically applied an exception to the eight-corners rule when (1) "it is initially impossible to discern whether coverage is potentially implicated;" and (2) "the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case." Id. at 496–97 (quoting Northfield Ins. Co. v. Loving Home Care, Inc. , 363 F.3d 523, 531 (5th Cir. 2004) ). But while the Texas Supreme Court has acknowledged the Northfield exception, that court has never addressed the exception. Richards , 597 S.W.3d at 496–97 ; see also Zurich Am. Ins. Co. v. Nokia, Inc. , 268 S.W.3d 487, 497 (Tex. 2008) (acknowledging but not addressing the Fifth Circuit's Northfield exception).

Where "a panel of the Fifth Circuit has ruled on a specific question or issue and such holding has not been superseded by either Texas ...