American Guarantee v. Shel-Ray Underwriters

• Decision Date: 05 March 1993
• Docket Number: Civ. A. No. H-91-2618.
• Citation: 844 F. Supp. 325
• Parties: AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff, v. SHEL-RAY UNDERWRITERS, INC., Bunker Hill Insurance Agency, Inc., Surplus Underwriters Casualty Insurance Company and Midcontinent General Agency, Inc., Defendants.
• Court: U.S. District Court — Southern District of Texas

844 F. Supp. 325

AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff, v. SHEL-RAY UNDERWRITERS, INC., Bunker Hill Insurance Agency, Inc., Surplus Underwriters Casualty Insurance Company and Midcontinent General Agency, Inc., Defendants.

Civ. A. No. H-91-2618.

United States District Court, S.D. Texas, Houston Division.

March 5, 1993.

Patricia Kay Dube, Kroll & Tract, H. Lee Lewis, Jr., Griggs & Harrison, Houston, TX, for American Guarantee and Liability Ins. Co.

Jill Annette Schaar, Liddell Sapp Zivley Hill & LaBoon, Houston, TX, for Shel-Ray Underwriters, Inc. and Bunker Hill Ins. Agency, Inc.

Jeffrey Wayne Glass, Houston, TX, for Surplus Underwriters Cas. Ins. Co. and Mid-Continent General Agency, Inc.

MEMORANDUM

HARMON, District Judge.

Plaintiff American Guarantee and Liability Insurance Company ("AGLIC") brings this action seeking a Declaratory Judgment that it has no duty to defend or indemnify defendants Shel-Ray Underwriters, Inc. ("Shel-Ray"), and Bunker Hill Insurance Agency, Inc. ("Bunker Hill") in a state court action brought by Surplus Underwriters Casualty Insurance Company ("SUCIC") and Mid-Continent General Agency, Inc. Pending before the Court is the Motion for Summary Judgment (Instrument No. 7) submitted by AGLIC and the cross motion for summary judgment submitted by Shel-Ray and Bunker Hill (Instrument No 11). Having considered the motions, the responses, and the applicable law, the Court is of the opinion that AGLIC's motion should be granted.

I. STATEMENT OF FACTS¹

In 1988 SUCIC started to offer competitive insurance plans to Texas nursing homes. Some of SUCIC's accounts were previously underwritten by Northland/North-field Insurance Companies ("Northland") whose agent is Bunker Hill. Original Petition at ¶¶ XIII and IV. Ray Thomas, Bunker Hill's founder, fearing competition made false representations to SUCIC in an attempt to garner the position as SUCIC's local recording agent. Thomas allegedly promised SUCIC that the alliance would be mutually beneficial, that SUCIC would receive $700,000.00 in annual premiums, and that Bunker Hill would act fairly and honestly toward SUCIC. Original Petition at ¶¶ XIV & XV. SUCIC alleges that Bunker Hill violated that trust to the extent that SUCIC felt compelled to suspend Bunker Hill's authority to represent it. Bunker Hill then made additional assurances in order to retain their authority to represent SUCIC. Original Petition at ¶ XVII. The petition states that the above mentioned actions were committed prior to December 28, 1988. Rather than mending its ways Bunker Hill then disparaged SUCIC's business reputation by knowingly disseminating false, misleading, and damaging information. Original Petition at ¶¶ XVIII & XIX. Bunker Hill's business practices toward SUCIC were knowingly violative of their agreement and caused SUCIC to terminate Bunker Hill. Original Petition at ¶ XIX. After Bunker Hill was terminated by SUCIC it continued to mar SUCIC's reputation. Bunker Hill allegedly fabricated loss data in order to restrain trade, misrepresented SUCIC's financial solvency, misrepresented the nature of its insurance coverage, and disrupted SUCIC's daily operations. Original Petition at ¶¶ XXI & XXII. SUCIC maintains that the representations made by the defendants were known to be false at the time they were made. Original Petition at ¶ XXXI. Legal action was then instituted; a state court action brought by Surplus Underwriters Casualty Insurance Company and Mid-Continent General Agency, Inc. v. Shel-Ray Underwriters, Inc., Great Midwest Insurance Company, Bunker Hill Insurance Agency, Inc., Paul Poston, Sheldon Ouster, and Ray Thomas, Cause No. 90-060868, is currently pending in the 334th District Court of Harris County, Texas.

Shel-Ray and Bunker Hill made several demands on AGLIC to provide a defense to the suit. AGLIC declined.

AGLIC based its decision on its reading of the Texas Special Businessowners Policy, No. TBP XX-XX-XXX-XX, it issued to Shel-Ray, Bunker Hill and Memorial General Agency, Inc., which became effective December 28, 1988 and expired December 28, 1989. It is uncontested that the insurance policy contained an "Exclusions" provision. AGLIC now seeks a declaratory judgment to enforce the terms of the policy, including the exclusions, and to declare that it has no obligation to defend or indemnify Shel-Ray or Bunker Hill.

Shel-Ray and Bunker Hill assumed their own defense in the state action and brought a counterclaim in this action for breach of contract, claims under the Texas Deceptive Trade Practices Act and the Texas Insurance Code, breach of good faith, and exemplary damages to recover damages, attorneys' fees and all other costs incurred in connection to the state court suit.

The policy covers certain actions, among others, "personal injury" or "advertising injury," that result in business liability for the insured. The definitions of the terms "personal injury" and "advertising injury" appear in the policy as follows:

F. LIABILITY AND MEDICAL EXPENSES DEFINITIONS

1. "ADVERTISING INJURY" means injury arising out of one or more of the following offenses:

(a) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

(b) Oral or written publication of material that violates a person's right of privacy;

(c) Misappropriation of advertising ideas or style of doing business; or

(d) Infringement of copyright, title or slogan.

* * * * * *

Pl.'s Motion for Summary J.Ex. A at p. 26.

10. "PERSONAL INJURY" means injury, other than "bodily injury" arising out of one or more of the following offenses:

(a) False arrest detention or imprisonment;

(b) Malicious prosecution;

(c) Wrongful entry into, or eviction of a person from a room, dwelling or premises that the person occupies;

(d) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or

(e) Oral or written publication of material that violates a person's right of privacy.

Pl.'s Motion for Summary J.Ex. A at p. 28.

A. COVERAGES

1. BUSINESS LIABILITY. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies. ....

a. This insurance applies only:

. . . . .

(2) To "personal injury" caused by an offense:

(a) Committed in the "coverage territory" during the policy period; and

(b) Arising out of the conduct of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you.

(3) To "advertising injury" caused by an offense committed:

(a) In the "coverage territory" during the policy period; and

(b) In the course of advertising your goods, products or services.

* * * * * *

Pl.'s Motion for Summary J.Ex. A at p. 18.

The following exclusionary provisions are relevant:

B. EXCLUSIONS

1. Applicable to Business Liability Coverage — This insurance does not apply to:

* * * * * *

p. "Personal injury" or "advertising injury":

(1) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;

(2) Arising out of oral or written publication of material whose first publication took place, if done by or at the direction of the insured with knowledge of its falsity;

(3) Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured;

* * * * * *

q. "Advertising injury" arising out of:

(1) Breach of contract other than misappropriation of advertising ideas under an implied contract;

* * * * * *

Pl.'s Motion for Summary J.Ex. A at p. 22.

In other words, if Shel-Ray or Bunker Hill commits an offense through "oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services" during the "policy period" that either "arise out of the conduct of their business" or is committed "in the course of advertising" then it falls within the scope of the policy and AGLIC would have a duty to defend and indemnify. However, the insurance does not apply to, among other things, injuries arising out of the publication of material that is known to be false, or whose publication took place before the beginning of the policy period, or injuries that arise out of willful violations of a penal statute.

AGLIC contends that since the complaint alleges that Shel-Ray and Bunker Hill knowingly committed fraudulent acts that it is not bound to defend them. The complaint also alleges acts that were executed before the beginning of the policy period and that may be violative of certain penal statutes.

II. DISCUSSION

A. Summary Judgment Standard

Rule 56(c) provides that "summary judgment shall be rendered forthwith if the pleading, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A party seeking summary judgment bears the initial burden of informing the district court of the basis for its motion, and identifying those portions of the pleading, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). The moving party has the burden of showing that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Williams v. Adams, 836 F.2d 958, 960 (5th Cir.1988). The burden is not on the movant to produce evidence showing the absence of a genuine issue of...