Harbor Ins. Co. v. Urban Const. Co., 92-2288

• Citation: 990 F.2d 195
• Decision Date: 22 April 1993
• Docket Number: No. 92-2288,92-2288
• Parties: HARBOR INSURANCE CO., Plaintiff-Appellee, v. URBAN CONSTRUCTION CO. and Augusta Court Co-Owners Association, Inc., Defendants, Urban Construction Co., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 195

990 F.2d 195

HARBOR INSURANCE CO., Plaintiff-Appellee, v. URBAN CONSTRUCTION CO. and Augusta Court Co-Owners Association, Inc., Defendants Urban Construction Co., Defendant-Appellant.

No. 92-2288.

United States Court of Appeals Fifth Circuit.

April 22, 1993.

Rehearing Denied May 27, 1993.

Robert D. Green, Houston, TX, for defendant-appellant.

Robert C. Tarics, Michael Branisa, Bonham, Carrington & Fox, Houston, TX, for plaintiff-appellee.

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

Before REYNALDO G. GARZA, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This is a dispute between a commercial insurer and its insured. The insured, Urban Construction Co., was held liable for damage caused by defects in its condominium project. Harbor Insurance Co. held an umbrella policy during construction and, relying on their diversity of citizenship, sought a declaration from the federal courts that it had no duty to indemnify Urban. Urban counterclaimed for damages. The district court granted summary judgment to Harbor.

Harbor sold twelve-month umbrella, or excess liability, policies to Urban for three successive years. ¹ These policies were sold through Harbor's agent and affiliate, Swett & Crawford. Swett dealt with Urban's independent insurance agent, Collier Cobb & Associates. The first of these policies contained a standard list of exclusions, including the following:

This Policy shall not apply ... (e) to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith. ²

For the second policy the following year, the parties negotiated a special endorsement with a corresponding additional premium. This endorsement modified exclusion (e) by stating:

It is understood and agreed that exclusion e [of the policy] is amended to read as follow:

e. to property damage to the Named Insured's work performed by the named insured arising out of the work or any portion thereof, or out of materials, parts, or equipment furnished in connection therewith.

This endorsement deleted exclusion (e)'s reference to work done "on behalf of" the insured. It was effective from April 1980 to April 1981. The endorsement was intended to broaden the policy's coverage to property in the "care custody and control" of Urban. This modification followed a similar modification of the underlying primary policy.

In 1981, Swett and Collier Cobb negotiated a twelve-month renewal of the existing umbrella policy. Collier Cobb completed an application provided by Swett. In response to the application's inquiry about restrictions of the underlying primary coverage policy, Collier Cobb indicated "Care Custody and Control Amendment-Following Form Endorsement Required." Exhibits produced by Swett and Collier Cobb indicated that the umbrella policy was to be renewed under the same terms as the existing policy. In its summary judgment pleadings, Harbor admitted that the parties intended to modify exclusion (e) when they renewed the umbrella policy for 1981-82. ³

Swett signed the 1981-82 renewal policy for Harbor and delivered it to Collier Cobb. The modifying endorsement was not attached to the delivered renewal policy. The renewal policy did contain a "Contractors Limitation" endorsement. This endorsement stated:

It is understood and agreed that except insofar as coverage is available to the Insured in the underlying insurances as set out in the attached schedule this insurance shall not apply:

1. to products and completed operations ...

3. to loss of or damage to property while in the care, custody, or control of the insured.

The schedule referred to by the contractors limitation endorsement listed the primary general liability insurance policy provided by Aetna Casualty and Surety. The primary policy included a "Broad Form Comprehensive General Liability Endorsement" modified by endorsement. ⁴

Collier Cobb recognized that the renewal policy lacked a modifying endorsement. John Irwin of Collier Cobb directed someone to see about obtaining the endorsement from Harbor. At some point, Collier Cobb informed Urban of the omission.

During the renewal policy's coverage period, Urban was the general contractor for a condominium project. Urban contracted with Augusta Court Associates, Ltd. in 1979 to construct the project. Urban subcontracted most of the work on the project. The project's certificate of substantial completion was dated March 22, 1982. An architect, however, discovered water leakage problems causing corrosion. Urban then performed corrective roofing work. When more leakage complaints arose in 1983, Urban denied that any remaining problems were due to its work.

On February 14, 1985, Augusta sued Urban alleging negligence and breach of contract. Augusta sought damages caused by construction defects. Urban advised both Aetna and Harbor of this lawsuit in July 1985. By letter of April 19, 1989, Harbor reserved its rights under the umbrella policy pending an investigation of Augusta's claims. On June 28, 1989, Urban made demand upon all of its primary and excess carriers, including Aetna and Harbor, to settle the lawsuit prior to binding arbitration. ⁵ Aetna and another primary insurer each tendered $100,000, the limits of their property damage liabilities, to Augusta.

Urban advised Harbor that Augusta had made a settlement offer within the limits of the umbrella policy, and advised Harbor of Urban's willingness to pursue legal action against Harbor if Harbor failed to comply with its obligations.

Harbor continued to reserve its rights and investigate. Meanwhile, the arbitration proceeding awarded Augusta $1,261,450.00 on August 14, 1989. Urban promptly demanded indemnification by Harbor for this award. On September 1, 1989, Harbor denied coverage of the claim. This suit followed.

Harbor sued on September 6, 1989, seeking a declaration that it had no liability or duty to indemnify Urban or pay Augusta. Harbor asserted that Urban's claim for coverage was excluded by the work performed provision. Urban counterclaimed alleging breach of contract, negligence, and violations of Texas's Insurance Code and Deceptive Trade Practices Act.

Harbor moved for partial summary judgment on the coverage issue, contending that the work performed clause excluded coverage for the arbitration award. Urban responded by submitting evidence to establish mutual mistake in the formation of the renewal policy contract. According to Urban's evidence, the policy should have been renewed on the same terms as the previous policy, including an endorsement modifying the work performed clause.

Harbor did not contradict the evidence of mutual mistake. Harbor admitted that the parties intended to modify the work performed clause. Harbor maintained, however, that Urban's reliance on mutual mistake was an effort to reform the contract. Relying upon the statute of limitations for reformation actions, Harbor claimed that this effort was time barred.

The district court granted Harbor's motion for partial summary judgment on July 8, 1991. The court did not reach the statute of limitations issue. Instead, the court held that it could not consider any extrinsic evidence--even that offered to prove mutual mistake. Confining its inquiry to the terms of the renewal policy as delivered, the court held that the work performed clause denied coverage. Finding that the exclusion of coverage gave Harbor a reasonable basis for denying Urban's claim, the court also granted judgment in Harbor's favor on Urban's claims for negligence and breaches of the duties of good faith and fair dealing.

Harbor then sought summary judgment on Urban's remaining statutory claims. Harbor asserted that those claims were time barred, because the applicable statute of limitations began to run when Urban became aware of the omission of the endorsement modifying the work performed clause. Urban responded that the limitations period did not begin to run until Harbor denied coverage in 1989. Agreeing with Harbor, the district court held the statutory claims were time barred. The court found that Urban should have discovered that the renewal policy lacked the desired endorsement when delivered, or at latest when Augusta sued Urban in 1985. The court granted Harbor's supplemental motion and entered its final judgment, disposing of the entire case, on February 28, 1992. Urban filed a timely notice of appeal.

We review the granting of summary judgment de novo, applying the same criteria as the district court. Hanks v. Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.1992). "Summary judgment is proper only if 'there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.' " Harbor Insurance Co. v. Trammell Crow Co., 854 F.2d 94, 98 (5th Cir.1988) (quoting Fed.R.Civ.P. 56(c)). We consider all of the facts contained in the pleadings, depositions, admissions, answers to interrogatories, affidavits, and the inferences to be drawn therefrom in the light most favorable to the non-moving party. Weyant v. Acceptance Ins. Co., 917 F.2d 209, 212 (5th Cir.1990). We review the district court's interpretation of an insurance policy de novo. Heinhuis v. Venture Associates, Inc., 959 F.2d 551, 553 (5th Cir.1992).

Our review is not limited to the district court's analysis. A grant of summary judgment may be affirmed on a legal basis not ruled upon below. "We may affirm even in situations in which the district court's ruling was incorrect, as long as the result was proper." Texas Refrigeration Supply, Inc. v. Federal Deposit Ins. Corp., 953 F.2d 975, 980 (5th Cir.1992).

Urban contends that the renewal policy should not be enforced as written due to mutual mistake. Harbor has admitted that the delivered policy did not reflect the agreement of...