American Int'l Specialty Lines Ins. Co. v. Rentech Steel

• Decision Date: 21 September 2010
• Docket Number: No. 08-11052.,08-11052.
• Parties: AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Plaintiff-Appellant, v. RENTECH STEEL, L.L.C.; Preston Teel; Lesa Crosswhite; Jennings Teel, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

620 F.3d 558

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Plaintiff-Appellant,

v.RENTECH STEEL, L.L.C.; Preston Teel; Lesa Crosswhite; Jennings Teel, Defendants-Appellees.

No. 08-11052.

United States Court of Appeals,Fifth Circuit.

Sept. 21, 2010.

Wade Crosnoe (argued), Thompson, Coe, Cousins & Irons, L.L.P., Austin, TX, Ellen Mary Van Meir, Harrison Henry Yoss, Thompson, Coe, Cousins & Irons, L.L.P., Dallas, TX, for Plaintiff-Appellant.

Harvey L. Morton, Law office of Harvey L. Morton, Lubbock, TX, for Rentech Steel LLC.

Russell Stanley Post, David Watkin Jones, William Curtis Webb, Beck, Redden & Secrest, L.L.P., Houston, TX, Steven L. Clack, Kerrville, TX, for Preston Teel, Lesa Crosswhite, Jennings Teel.

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

Before KING, BARKSDALE and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

This case addresses whether an insurance policy that excludes coverage for an “obligation” incurred under “any workers' compensation law” bars coverage for a judgment that an employee recovers in a negligence action against a Texas employer that does not subscribe to the Texas workers' compensation system. Because the Texas Workers' Compensation Act (“TWCA”) imposes no obligation on a nonsubscriber to compensate an employee for injuries sustained due to the employer's own negligence, we find that the exclusion is not applicable. Accordingly, we AFFIRM the district court's summary judgment in favor of defendants-appellees.

I.

Plaintiff-Appellant American International Specialty Lines Insurance Co. (“AISLIC”) appeals from the district court's summary judgment in favor of defendants, holding that AISLIC's umbrella insurance policy (“the AISLIC policy”), issued to Rentech Boiler Systems, Inc., covered the negligence claims that Preston Teel, Lesa Crosswhite, and Jennings Teel (“the Teels”) asserted against Rentech Steel, L.L.C. in the underlying litigation and the resulting judgment. Rentech Steel, Rentech Boiler Systems, Inc., and Renz Family Partnership, Ltd. are entities under the control of or owned by a common owner/entity. Rentech Steel, a nonsubscriber to the Texas workers' compensation insurance system, maintained both a primary indemnity policy, which is not implicated in this case, and the AISLIC Policy. Rentech Steel shared the AISLIC Policy with Rentech Boiler Systems, a subscriber to the workers' compensation system, but they maintained separate primary policies due to their differing statuses in relation to the workers' compensation system.

The underlying litigation commenced when sixteen-year-old Preston Teel sustained severe injuries while working at Rentech Steel's manufacturing facility in Abilene, Texas. Following the incident, the Teels sued Rentech Steel in state court for gross negligence, negligence, and negligence per se. Lexington Insurance Company, Rentech Steel's primary insurer, initially defended Rentech Steel in the litigation. But after Lexington Insurance denied further coverage, AISLIC assumed Rentech Steel's defense as the umbrella insurer. A few weeks before trial was to begin, AISLIC sought a declaratory judgment that it had no obligation to defend or indemnify Rentech Steel in the lawsuit. On the first day of trial, Rentech Steel entered Chapter 7 bankruptcy. According to Rentech Steel, the bankruptcy was necessary because AISLIC would not pay for the suit. The bankruptcy court, however, lifted the stay and permitted the case to proceed to trial on the condition that any recovery would be limited to the proceeds of the AISLIC insurance policy.

The jury found for the Teels on their negligence and negligence per se claims, but it did not find gross negligence on the part of Rentech Steel. The court then entered a judgment against Rentech Steel for $12,470,000 in actual damages, which was reduced to $10,570,000 after applying a settlement credit. Rentech Steel has appealed the judgment, and AISLIC has continued to defend Rentech Steel under a reservation of rights during the appeal. As a consequence of the state-court judgment, the Teels became proper claimants to Rentech Steel's insurance policy.

Shortly after the state court entered its judgment, AISLIC filed a declaratory judgment action in federal court seeking to establish that it had no duty to either defend Rentech Steel in the underlying state-court lawsuit or to indemnify Rentech Steel for the judgment because the AISLIC policy's “Various Laws” exclusion excluded coverage for any “obligation of the Insured under ... any workers' compensation, disability benefits, or unemployment compensation law, or any similar law.” AISLIC moved for summary judgment, arguing that a negligence claim filed against a nonsubscribing employer is an obligation arising under the TWCA, not state common law, so the Teels' judgment against Rentech Steel was necessarily an “obligation” under Texas's workers' compensation law-an obligation explicitly excluded from coverage under the “Various Laws” exclusion. The Teels and Rentech Steel opposed AISLIC's motion.

The district court denied AISLIC's summary-judgment motion, holding that the judgment against Rentech Steel did not fall within the Policy's “Various Laws” exclusion. The order explained that, although the TWCA deprives appellees of the right to assert a common-law negligence or negligence per se claim against a subscribing employer, the Act imposed no “obligation” on a nonsubscribing employer to compensate an employee for injuries resulting from the employer's negligence, but merely limited an employer's defenses against an employee's common-law claims. Alternatively, the court held that, because the “Various Laws” exclusion was ambiguous, Texas law required that the exclusion be interpreted against AISLIC and in favor of coverage where appellees' interpretation of the exclusion was reasonable.

Following the district court's denial of AISLIC's motion for summary judgment, appellees filed for summary judgment on the ground that the AISLIC policy's “Various Laws” exclusion did not bar coverage of the judgment against Rentech Steel, which the district court granted. This appeal followed.

II.

We review a district court's summary judgment de novo, applying the same legal standards that the district court applied, viewing the evidence in the light most favorable to the nonmoving party. Am. Int'l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 259-60 (5th Cir.2003). We affirm “only if there is no genuine issue of material fact and one party is entitled to prevail as a matter of law.” Cedyco Corp. v. PetroQuest Energy, LLC, 497 F.3d 485, 488 (5th Cir.2007) (citations omitted). Where, as here, parties have filed cross-motions for summary judgment, each motion must be considered separately because each movant bears the burden of showing that no genuine issue of material fact exists and that it is entitled to a judgment as a matter of law. Shaw Constructors v. ICF Kaiser Engr's, Inc., 395 F.3d 533, 538-39 (5th Cir.2004).

III.

At issue in this case is whether an employee's negligence action against an employer that does not subscribe to the Texas workers' compensation system is an “obligation” under the TWCA, such that it is excluded under the AISLIC Policy's “Various Laws” exclusion. The AISLIC Policy's “Various Laws” exclusion provides:

This insurance does not apply to any obligation of the Insured under any of the following:

1. the Employee Retirement Income Security Act of 1974 (including amendments relating to the Consolidated Omnibus Budget Reconciliation Act of 1985), or any amendment or revision thereto, or any similar law; or

2. any workers' compensation, disability benefits or unemployment compensation law, or any similar law.

Because Texas law governs this claim, we employ the principles of Texas contract construction in interpreting the “Various Laws” exclusion. Texas law provides that insurance policies are construed according to common principles governing the construction of contracts, and the interpretation of an insurance policy is a question of law for a court to determine. New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir.1996). Limiting our inquiry to the four corners of the underlying complaint and the four corners of the insurance policy, we interpret the contract to discern the intention of the parties from the language expressed in the policy. See Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 309 (5th Cir.2010). “No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument.” See Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983) (citations omitted). Where, as here, the disputed provision is an exclusion, the insurer bears the burden of establishing that the exclusion applies. Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir.1998).

Whether a contract is ambiguous is a question of law. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998). An ambiguity does not arise simply because the parties present conflicting interpretations; it “exists only if the contractual language is susceptible to two or more reasonable interpretations.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003) (citation omitted). “If policy language is worded so that it can be given a definite or certain legal meaning, it is not ambiguous,” and the court construes it as a matter of law without admitting evidence for the purpose of creating an ambiguity. Id.; see Univ. C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951). But if the policy language is ambiguous, we construe it “strictly against the insurer and liberally in favor of the insured,” Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex.1987), and an “even more stringent construction is required” where the ambiguity pertains to an ...