Gonzalez v. Mid-Continent Cas. Co.

• Decision Date: 13 August 2020
• Docket Number: No. 19-10565,19-10565
• Citation: 969 F.3d 554
• Parties: Gilbert GONZALEZ, doing business as GG Construction, Plaintiff-Appellee, v. MID-CONTINENT CASUALTY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

969 F.3d 554

Gilbert GONZALEZ, doing business as GG Construction, Plaintiff-Appellee,

v.MID-CONTINENT CASUALTY COMPANY, Defendant-Appellant.

No. 19-10565

United States Court of Appeals, Fifth Circuit.

FILED August 13, 2020

Jody Dewayne Jenkins, Jenkins, Wagnon & Young, P.C., Lubbock, TX, for Plaintiff - Appellee.

Richard Brent Cooper, Esq., Diana L. Faust, Cooper & Scully, P.C., Dallas, TX, Kyle Mitchell Burke, 1321 Coastal Drive, Garland, TX, for Defendant - Appellant.

Before HAYNES and OLDHAM, Circuit Judges, and HANEN, District Judge.^*

ANDREW S. OLDHAM, Circuit Judge:

Gilbert Gonzalez allegedly damaged a house's electrical wiring while installing siding. Although Gonzalez had purchased a commercial general liability insurance policy underwritten by Mid-Continent Casualty Company, Mid-Continent refused to provide him with defense and indemnity for the accident. Gonzalez sued Mid-Continent. The district court granted Gonzalez a partial final judgment, holding that Mid-Continent owed him a duty to defend. We affirm.

I.

Norman Hamilton hired Gilbert Gonzalez to install new siding on his house during the summer of 2013. To cover his liability for any accidents, Gonzalez bought a commercial general liability ("CGL") insurance policy underwritten by Mid-Continent. Gonzalez's initial policy lasted from July 15, 2012, through July 15, 2013. He renewed the policy for an additional year, though he canceled it on June 6, 2014. It is undisputed that the policy covered Gonzalez's work on Hamilton's house.

In December 2016, Hamilton's house was damaged in a fire. Hamilton and his insurance provider sued Gonzalez in Texas state court (the "Underlying Litigation"). Hamilton claimed that the fire started because Gonzalez negligently hammered nails through the house's electrical wiring when he installed the siding in 2013. Gonzalez sought defense and indemnity for the Underlying Litigation from Mid-Continent pursuant to the CGL policy he had purchased. Mid-Continent refused to provide either. So Gonzalez sued Mid-Continent, also in Texas state court, for breach of contract, breach of the duty to defend, breach of the duty to indemnify, and a declaratory judgment concerning the parties’ rights and obligations under the insurance policies.

Mid-Continent removed the case to federal court and moved for summary judgment. The district court denied Mid-Continent's motion. Furthermore, it entered a partial final judgment holding that Mid-Continent owed Gonzalez a duty to defend, expressly finding "no just reason for delay" under Federal Rule of Civil Procedure 54(b). In a footnote, the court explained that "Plaintiff's claims regarding damages and the duty to indemnify remain pending." Mid-Continent appealed.

II.

Our review is de novo . United States ex rel. Drummond v. BestCare Lab'y Servs. , 950 F.3d 277, 280 (5th Cir. 2020). Because Gonzalez brings claims under Texas law in this diversity-jurisdiction case, we apply the substantive law of Texas. See Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

Under Texas law, Mid-Continent's duty to defend is governed by the "eight-corners rule." Richards v. State Farm Lloyds , 597 S.W.3d 492, 494–95 (Tex. 2020). "The eight-corners rule provides that when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from [the] terms of the policy and the pleadings of the third-party claimant." GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church , 197 S.W.3d 305, 307 (Tex. 2006). "Resort to evidence outside the four corners of these two documents is generally prohibited." Ibid.

When the language of an insurance policy "is susceptible to more than one construction, it should be construed strictly against the insurer and liberally in favor of the insured." Mid-Continent Cas. Co. v. JHP Dev., Inc. , 557 F.3d 207, 212 (5th Cir. 2009) (citing Barnett v. Aetna Life Ins. Co. , 723 S.W.2d 663, 666 (Tex. 1987) ). "The court resolves all doubts regarding coverage in favor of coverage." Amerisure Ins. Co. v. Navigators Ins. Co. , 611 F.3d 299, 309 (5th Cir. 2010) (citing King v. Dall. Fire Ins. Co. , 85 S.W.3d 185, 187 (Tex. 2002) ; Nat'l Union Fire Ins. Co. of Pittsburgh v. Merchs. Fast Motor Lines, Inc. , 939 S.W.2d 139, 141 (Tex. 1997) ).

We begin by analyzing the applicable coverage provisions in the CGL policy and conclude that they cover the Underlying Litigation. We then consider the j(5) and j(6) exclusions from the CGL policy and conclude that they do not apply. These two conclusions lead us to hold that Mid-Continent has a duty to defend Gonzalez in the Underlying Litigation.

A.

Under the eight-corners rule, "[t]wo documents determine an insurer's duty to defend—the insurance policy and the third-party plaintiff's pleadings in the underlying litigation, which the court must review ‘without regard to the truth or falsity of those allegations.’ " Amerisure , 611 F.3d at 309 (quoting GuideOne , 197 S.W.3d at 308 ).

1.

We start with the third-party plaintiffs’ operative pleading in the Underlying Litigation (the "Petition"). The Petition contains a single paragraph describing the factual allegations forming the basis of the plaintiffs’ claims:

The injuries and damages suffered by Plaintiffs and made the basis of this action arose out of an occurrence on or about December 1, 2016, at the property in question that relates back to construction and/or installation of siding occurring before the date of loss. The property in question had a fire caused by the construction and/or installation of siding by Defendants when Defendants improperly hammered nails through electrical wiring. Defendants were in charge of and oversaw the construction and/or installation of siding at the property in question, and their acts and/or omissions allowed a fire to occur.

In sum, the Petition alleges that when Gonzalez installed the siding on Hamilton's house in 2013, he hammered nails through electrical wiring and created a dangerous condition that caused a fire three years later in 2016.

Next, we consider the four corners of the CGL policy. The applicable coverage provision states:

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; (2) The "bodily injury" or "property damage" occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II – Who Is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemed to have been known prior to the policy period.

The policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." And it defines "property damage" as including: "Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it." Putting this all together, then, the policy applies to (1) an accident (2) that causes physical injury to tangible property (3) during the policy period.

The Petition in the Underlying Litigation satisfies these three requirements. First, the accident. The Petition alleges that Gonzalez "improperly hammered nails through electrical wiring." That satisfies the policy's definition of an "occurrence," which means "an accident."

Second, the accident caused physical injury to tangible property. Wires are "tangible property." Piercing those wires with nails constitutes "physical injury." In addition, the Petition alleges that the accidental piercing of those wires caused the property damage that occurred in the 2016 fire.

Third, the property damage occurred during the policy period. There is no dispute that Gonzalez took all of his actions, including hammering the nails in question, during the policy period. That means the alleged damage to the electrical wiring happened during the policy period. In addition, the Petition alleges that the 2016 fire "relates back to [the] construction and/or installation of siding" in 2013. Recall that the CGL policy defines "property damage" as "[p]hysical injury to tangible property, including all resulting loss of use of that property," and it expressly states that "[a]ll such loss shall be deemed to occur at the time of the physical injury that caused it." As a result of this provision, the damage from the 2016 fire "shall be deemed" to have occurred in 2013 when the electrical wires were damaged. Because it is alleged that both the damage to the electrical wires and the fire can be traced to 2013, when the policies were in effect, the property damage alleged in the Petition took place during the policy period. All three requirements of the CGL policy's coverage provisions have been satisfied, triggering Mid-Continent's duty to defend.

2.

This result is supported by Don's Building Supply, Inc. v. OneBeacon Insurance Co. , 267 S.W.3d 20 (Tex. 2008). The question in that case was whether property damage "occurred" when synthetic stucco imperceptibly allowed water to seep into the walls, or later when the property damage became noticeable from wood rot. Interpreting policy language identical to the language in this case, the court chose the former. Id. at 29–30. The court wrote: "Considering these provisions together and reading them for their plain meaning, we hold that property damage under this policy occurred when actual physical damage to the property occurred.... The date that the physical damage is or could have...