American Nat'l Gen. Ins. Co. v. Ryan

• Decision Date: 12 December 2001
• Docket Number: No. 00-20988,00-20988
• Citation: 274 F.3d 319
• Parties: (5th Cir. 2001) AMERICAN NATIONAL GENERAL INSURANCE COMPANY; AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY, Plaintiffs - Appellees, v. STEPHEN R. RYAN; ET AL., Defendants, LINDA ISBELL, Individually, and as next friend of Jordan Isbell and Kaitlyn Isbell, Defendant - Appellant LINDA ISBELL, Individually, and As Next Friend of Jordan Isbell and Kaitlyn Isbell, Plaintiff - Appellant v. AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY; ET AL., Defendants AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY; AMERICAN NATIONAL GENERAL INSURANCE COMPANY, Defendants - Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 319

274 F.3d 319 (5th Cir. 2001)

AMERICAN NATIONAL GENERAL INSURANCE COMPANY; AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY, Plaintiffs - Appellees, v. STEPHEN R. RYAN; ET AL., Defendants, LINDA ISBELL, Individually, and as next friend of Jordan Isbell and Kaitlyn Isbell, Defendant - Appellant LINDA ISBELL, Individually, and As Next Friend of Jordan Isbell and Kaitlyn Isbell, Plaintiff - Appellant v. AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY; ET AL., Defendants

AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY; AMERICAN NATIONAL GENERAL INSURANCE COMPANY, Defendants - Appellees

No. 00-20988

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

December 12, 2001

REVISED DECEMBER 14, 2001

[Copyrighted Material Omitted] Appeal from the United States District Court For the Southern District of Texas, Houston Before KING, Chief Judge, and JOLLY and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Linda Isbell, individually and as next friend of Jordan Isbell and Kaitlyn Isbell, Stephen Ryan, and Charlotte Ryan appeal the district court's grant of summary judgment to American National Property and Casualty Company ("ANPAC") and American National General Insurance Company ("ANGIC") (collectively, "American National"). The issue is whether a homeowner's policy provides coverage for a lawsuit seeking damages caused by a parent's negligent failure to warn of her minor son's propensity to commit acts of sexual molestation against other minor children. Because we conclude the facts alleged in the negligence action do not constitute an occurrence as defined by the homeowner's policy, we AFFIRM.

I

The facts in this case are essentially undisputed. MFI is the son of Charlotte Ryan and her first husband, Michael G. Isbell. MFI lived with his mother and her second husband, Stephen Ryan, during most of the year, but regularly visited and spent a part of each summer with his father, Michael Isbell, his second wife, Linda Isbell, and their two minor daughters. In 1995, MFI stayed with the Isbells for part of the summer. In June 1995, the Isbell daughters told their mother that their half-brother had repeatedly sexually molested and abused them. The Isbells reported the incidents to the appropriate authorities, and MFI was charged with two counts of aggravated sexual assault. The court found that MFI committed the charged conduct.

Linda Isbell, individually and as next friend of her two minor daughters, filed suit in state court against Charlotte Ryan, individually and as next friend of her minor son MFI. In her petition, Linda Isbell alleged that Charlotte Ryan breached her duty to warn the Isbells of MFI's propensity to molest children. Specifically, she alleged that Charlotte Ryan was aware of MFI's proclivities from an investigation of MFI conducted by Child Protective Services (CPS) after MFI was accused of sexually molesting a male cousin in 1993-1994. CPS found good cause to believe the sexual and physical abuse had occurred, referred the Ryans to appropriate services, and obtained an agreement from the alleged victim's mother not to allow MFI access to his cousin. According to Linda Isbell, Charlotte Ryan did not convey to the Isbells the result of the CPS investigation, did not apprize them of other accusations against MFI of sexual impropriety, did not warn of MFI's proclivities for sexual improprieties with other children, and did not warn that MFI was a danger to minor children.¹

At the time the events alleged in Linda Isbell's negligence action took place, Charlotte and Stephen Ryan were insured by a Texas Standard Homeowner's Policy ("the Policy") issued by ANGIC.² ANGIC filed a declaratory judgment action in federal court against Stephen and Charlotte Ryan seeking a declaration that it had no duty to defend the Ryans in the state court action under the Policy, nor any obligation to pay or indemnify them for any damages recovered by Linda Isbell. Thereafter, Linda Isbell instituted a declaratory judgment action in state court against ANGIC and ANPAC for a declaration of her rights with respect to the Ryans' Policy. Linda Isbell's action was removed to federal court, and by agreement of the parties, consolidated with ANGIC's action. The parties agreed to realign themselves in the consolidated action, with ANGIC and ANPAC as plaintiffs and Linda Isbell and the Ryans as defendants.

In the consolidated action, the parties cross-moved for summary judgment. The district court granted ANGIC's and ANPAC's motion for summary judgment and denied Linda Isbell's and the Ryans' motion. The district court issued a memorandum and opinion holding that the facts alleged in Linda Isbell's negligence action against Charlotte Ryan did not constitute an "occurrence" as required by the Policy as a prerequisite to coverage. Alternatively, the district court held the sexual molestation committed by MFI to be excluded under the Policy's intentional acts exclusion. As a result, the district court held that neither ANGIC nor ANPAC had a duty to defend nor any obligation to pay or indemnify the Ryans under the Policy. Linda Isbell and the Ryans now appeal.

II

We review a district court's grant of summary judgment de novo. McClendon v. City of Columbia, 258 F.3d 432, 435 (5th Cir. 2001). The district court's interpretation of an insurance contract is a question of law that we also review de novo. Am. States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir. 1998); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins., 99 F.3d 695, 700 (5th Cir. 1996). We will affirm a district court's grant of summary judgment when, viewing the evidence in the light most favorable to the nonmoving party, the record reflects that no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).

Texas rules of contract interpretation control in this diversity case. Bailey, 133 F.3d at 369. Under Texas law, the same rules apply to the interpretation of insurance contracts as apply to the interpretation of other contracts. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); Cicciarella v. Amica Mut. Ins. Co., 66 F.3d 764, 767-68 (5th Cir. 1995) (citing Barnett v. Aetna Life Ins. Co. 723 S.W.2d 663, 665 (Tex. 1987)). A court's primary concern is to give effect to the intentions of the parties as expressed by the policy language. Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex. 1983). The terms used in the policy are given their plain, ordinary meaning unless the policy itself shows that the parties intended the terms to have a different, technical meaning. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984). "Ambiguous insurance contracts will be interpreted against the insurer." Tex. Dep't of Hous. & Cmty. Affairs v. Verex Assurance, Inc., 68 F.3d 922, 929 (5th Cir. 1995) (citing Nat'l Union Fire Ins. Co. v. Hudson Energy Co. 811 S.W.2d 552, 555 (Tex. 1991)). "The policy of strict construction against the insurer is especially strong when the court is dealing with exceptions and words of limitation." Blaylock v. Am. Guar. Bank Liab. Ins. Co., 632 S.W.2d 719, 721 (Tex. 1982).

A

Linda Isbell and the Ryans contend that American National has a duty to defend and potentially a duty to indemnify Charlotte Ryan in Linda Isbell's state action against her. Under Texas law, the duty to defend and the duty to indemnify are separate and distinct obligations. Am. Alliance Ins. Co. v. Frito-Lay, Inc., 788 S.W.2d 152, 153 (Tex. App.-Dallas 1990, writ dism'd). The duty to defend is broader than the duty to indemnify; if the insurer does not have a duty to defend the insured, then the insurer also does not have a duty to indemnify. See Lay v. Aetna Ins. Co., 599 S.W.2d 684, 687 (Tex. Civ. App.-Austin 1980, writ ref'd n.r.e.) ("[A]ppellee had no duty to defend appellant, and, in turn, appellant has no right to indemnification."). Thus, we address American National's duty to defend first.

We determine an insurer's duty to defend from the factual allegations of the plaintiff's petition in the underlying action. Argonaut S.W. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973). Using Texas's "eight corners rule," we look to the four corners of the policy and the four corners of the complaint to determine whether there is a duty to defend. Bailey, 133 F.3d at 369; Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). An insurer is required to defend in any case in which at least some of the allegations in the pleadings potentially state a claim covered by the policy. Gulf Chem. & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365, 369 (5th Cir. 1993). "In reviewing the underlying pleadings, the court must focus on the factual allegations that show the origin of the damages rather than the legal theories alleged." Merchs. Fast Motor Lines, Inc., 939 S.W.2d at 141 (quoting Merchs. Fast Motor Lines, Inc. v. Nat'l Union Fire Ins. Co., 919 S.W.2d 903, 905 (Tex. App.-Eastland 1996, writ granted)); Adamo v. State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex. App.-Houston [14th Dist.] 1993, writ denied) ("It is not the cause of action alleged which determines coverage but the facts giving rise to the alleged actionable conduct."); Maayeh v. Trinity Lloyds Ins. Co., 850 S.W.2d 193, 195 (Tex. App.-Dallas 1992, n.w.h.) ("If the petition only alleges facts that, even if true, are excluded by the policy, the insurer does not have a duty to defend regardless of the legal theories involved in the case."). "The insured bears the burden of showing that the claim against him is potentially within his policy's coverage." N.Y. Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir. 1996).

By the terms of the Ryans' Policy, in order for coverage to exist and American National to have a duty to defend, the underlying...