Argonaut Ins. Co. v. Rio Marine, Inc.

Citation477 F.Supp.3d 576
Decision Date02 July 2020
Docket NumberCivil Action No. H-19-2296
Parties ARGONAUT INSURANCE COMPANY, Plaintiff, v. RIO MARINE, INC., et al., Defendants.
CourtU.S. District Court — Southern District of Texas

Mary Reyes Hartsfield, Stephen A. Melendi, Tollefson Bradley Ball Mitchell, LLP, Dallas, TX, for Plaintiff.

Anjali P. Gillette, Linda Broocks, Kean Miller LLP, Houston, TX, for Defendant Rio Marine, Inc.

Michael Alan Orlando, Meyer Orlando LLC, Houston, TX, for Defendant John Bludworth Shipyard, LLC.

Marc Bradley Johnson, BairHilty, P.C., for Defendant Performance Personnel, LLC.

MEMORANDUM AND OPINION

Lee H. Rosenthal, Chief United States District Judge

A subcontractor's employee injured at a shipyard sued the shipyard and another subcontractor working at the same site. Victor Martinez, a Performance Personnel, LLC employee, was injured working at the John Bludworth Shipyard. Martinez sued Bludworth and Rio Marine, another of Bludworth's subcontractors working at the same worksite, for negligence and gross negligence. See generally Martinez v. Rio Marine, Inc. , No. 2018CCV-61604-3 (Co. Ct. at Law No. 3, Nueces County, Tex. filed Sep. 4, 2018). This underlying case is ongoing and currently scheduled for a jury trial starting August 3, 2020.

This is one of two federal lawsuits by an insurer arising from that state-court lawsuit. In the first lawsuit, Navigators Insurance Company, which issued a marine general policy to Bludworth, sued for a declaratory judgment defining its obligations to Bludworth's subcontractors, Performance and Rio Marine, for the costs and liability they face in defending Martinez's negligence claims against them. The issues in that lawsuit are whether Master Service Agreements between Bludworth and Rio Marine, and between Bludworth and Performance, required Navigators to defend and indemnify either or both subcontractors under the insurance policy Navigators issued to Bludworth.

This second declaratory judgment lawsuit is by another insurance company, Argonaut, which issued a marine general liability policy to Performance. The issue in this second lawsuit is whether Argonaut's policy covers liability for the costs and damages caused by an employee's bodily injuries if those costs and damages are assumed by Performance in an "insured contract." Performance contends that its Master Service Agreement with Bludworth is such a contract. A related issue is whether a general exclusion for employee liability applies to insured contracts. Starstone Insurance Company, Performance's excess policy insurer, intervened on Argonaut's behalf. The facts are undisputed; the issues are presented in cross-motions for summary judgment.

Based on the pleadings in this case, the underlying Martinez litigation, the motions and briefs, the record, and the applicable law, Argonaut's motion for summary judgment is granted and Rio Marine and Bludworth's motions for partial summary judgment are denied. Argonaut's policy does not cover Performance's defense and indemnity obligations contained within the Performance-Bludworth Master Service Agreement.

The reasons for these rulings are explained below.

I. Background

The Performance-Bludworth subcontractor relationship was governed by a Master Service Agreement. This Agreement contained the following indemnification clause:

6.1 HOLD HARMLESS & INDEMNIFICATION: THE SUBCONTRACTOR [Performance] AGREES TO INDEMNIFY AND HOLD HARMLESS BLUDWORTH, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND OTHER SUBCONTRACTORS FROM AND AGAINST ALL DAMAGE, LIABILITY OR COST, INLCUDING ATTORNEYS’ FEES AND DEFENSE COSTS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE PERFORMANCE OF THE SERVICES BY SUBCONTRACTOR UNDER THIS AGREEMENT, WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF, INCLUDING ILLNESS, BODILY INJURY OR DEATH TO ANY OFFICER, EMPLOYEE, AGENT, REPRESENTATIVE OR INVITEE OF SUBCONTRACTOR, ILLNESS, BODILY INJURY OR DEATH TO ANY THIRD PARTY OR ILLNESS, BODILY INJURY OR DEATH OF ANY EMPLOYEE, OFFICER OR DIRECTOR OF CONTRACTOR, AND ANY PROPERTY DAMAGE TO THE PROPERTY OF BLUDWORTH, SUBCONTRACTOR OR THIRD PARTY WHETHER SUCH ILLNESS, BODILY INJURY OR PROPERTY DAMAGE IS CAUSED BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF BLUDWORTH, EXCEPTING ONLY SUCH DAMAGE, LIABILITY OR COST ARISING OUT OF THE WILFUL MISCONDUCT OF BLUDWORTH.

(Docket Entry No. 23-4 at 7) (emphasis in original).

The Performance-Bludworth Master Service Agreement required Performance to maintain a general liability insurance policy to cover contractual liability, and an excess liability insurance policy "specifically including" contractual liability. (Id. at 4–5). Under the Agreement, Performance obtained a general marine liability insurance policy from Argonaut Insurance Company and an excess insurance policy from Starstone Insurance Company.

After Martinez sued in state court, Bludworth sent a demand letter to Performance and Argonaut for its defense and indemnity under the Master Service Agreement. (Docket Entry No. 24-4). Argonaut's policy generally excludes contractual liability undertaken by its insured, but it does contain an exception for "insured contracts." (Docket Entry No. 23-1 at 15). The policy defines "insured contracts" as "[t]hat part of any other contract or agreement pertaining to the business of the Named Insured ... under which the Named Insured assumes tort liability of another party to pay for Bodily Injury or Property Damage to a third person or organization" so long as the contract does not "indemnif[y] another for the sole negligence of such other person or organization." (Id. at 38).

Argonaut denied Bludworth's coverage demand, arguing that the Performance-Bludworth Master Service Agreement was not an "insured contract" under the policy. (Docket Entry No. 24-5). Argonaut cited an additional exclusion that denied coverage for damages "arising out of" an employee's bodily injuries "in the course of employment by the insured." (Docket Entry No. 23-1 at 16). This employee exclusion applies "whether the insured may be liable as an employer or in any other capacity; and to any obligation to share damages with or repay someone else who must pay damages because of the injury." (Id. ). Argonaut explained that even if the Master Service Agreement was an insured contract, coverage for the injuries to Martinez are excluded by this additional policy provision. (Docket Entry No. 24-5 at 3).

Because Argonaut rejected Performance's claim for coverage based on Bludworth's demand, Bludworth's Insurer, Navigators Insurance Company, has funded Bludworth's defense in the Martinez suit. (Docket Entry No. 24-2 at 1). Navigators filed the sister case, arguing that the Master Service Agreement between Performance and Bludworth requires Performance to defend Bludworth in the Martinez suit and to indemnify Bludworth for any damages it incurs in that litigation. See generally Navigators Ins. Co. v. Rio Marine, Inc. , No. 4:19–cv–00461 (S.D. Tex. filed Feb. 11, 2019).

After Navigators filed its declaratory judgment action in the sister case, Argonaut filed this case, arguing that the insurance policy it issued to Performance does not cover any defense or indemnification expenses resulting from the Martinez suit. (Docket Entry No. 1). Bludworth and Rio Marine counterclaimed, seeking a declaratory judgment that the Argonaut policy covers the Master Service Agreement as an insured contract and that the exclusion of coverage for an insured's contractually assumed liabilities does not apply. (Docket Entry Nos. 9, 10). Starstone intervened, arguing that the policy did not apply to the defense and indemnification costs Bludworth and Rio Marine have incurred in the Martinez suit. (Docket Entry No. 29).

After initial disclosures, Argonaut, Bludworth, and Rio Marine moved for summary judgment. (Docket Entry Nos. 23, 24, 25). Starstone also moved for summary judgment, taking the same position as Argonaut. (Docket Entry No. 45). In addition to the contractual arguments outlined above, Argonaut argues that Rio Marine and Bludworth lack standing to seek coverage directly under the Argonaut policy because they are not third-party beneficiaries to the policy and equitable subrogation does not apply to their claims. (Docket Entry No. 30 at 17–19).

The parties’ arguments are addressed in turn under the legal standards that apply.

II. The Legal Standards
A. Summary Judgment

"Summary judgment is appropriate only if ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " Vann v. City of Southaven , 884 F.3d 307, 309 (5th Cir. 2018) (per curiam) (quoting Griggs v. Brewer , 841 F.3d 308, 311–12 (5th Cir. 2016) ). "A genuine dispute of material fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " Burell v. Prudential Ins. Co. of Am. , 820 F.3d 132, 136 (5th Cir. 2016) (quoting Anderson v. Liberty Lobby , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "The moving party ‘bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.’ " Brandon v. Sage Corp. , 808 F.3d 266, 269–70 (5th Cir. 2015) (quoting Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ).

B. The Law That Applies

The parties agree that Argonaut issued its policy to Performance in Texas and that Texas law controls its interpretation. N. Am. Specialty Ins. Co. v. Debis Fin. Servs., Inc. , 513 F.3d 466, 470 (5th Cir. 2007) ("Absent a specific and controlling federal rule, cases involving marine insurance contracts are governed by state law.").

"Insurance policies are controlled by rules of interpretation and construction which are applicable to contracts generally." Richards v. State Farm Lloyds , 597 S.W.3d 492, 497 (Tex. 2020) (quoting Nat'l Union Fire Ins. Co. of Pittsburgh...

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