Aspen Specialty Ins. v. Muniz Engineering

• Decision Date: 30 March 2007
• Docket Number: Civil Action No. H-05-0277.
• Parties: ASPEN SPECIALTY INSURANCE COMPANY f/k/a Dakota Specialty Insurance Company, Plaintiffs v. MUNIZ ENGINEERING, INC., Defendants.
• Court: U.S. District Court — Southern District of Texas

514 F.Supp.2d 972

ASPEN SPECIALTY INSURANCE COMPANY f/k/a Dakota Specialty Insurance Company, Plaintiffs v. MUNIZ ENGINEERING, INC., Defendants.

Civil Action No. H-05-0277.

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

March 30, 2007.

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Camille Johnson, William Albert Reece, II, Savrick Schumann et al, Dallas, TX, Jessica Marcoux Hall, Savrick Schumann et al, Austin, TX, for Plaintiffs.

Christine Kirchner, Steven Jon Knight, Chamberlain Hrdicka et al, Houston, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

MELINDA HARMON, District Judge.

Plaintiff Aspen Specialty Insurance ("Aspen") sued Defendant Muniz Engineering Inc. ("MEI") seeking a determination of their respective rights and liabilities under an insurance policy issued by Aspen's predecessor, Dakota Specialty Insurance Company ("Dakota"). (Comp. ¶ 14 Dkt. 44.) At issue was Aspen's duty to defend MEI in a state court wrongful death action. Aspen claimed it had no duty to defend based on an exclusion in the policy for liability resulting from activities other than computer consulting. The court granted Aspen's motion for summary judgment, finding (1) that the policy excludes coverage for liability arising from activities other than computer consulting and (2) that supervising lock out tag out procedures on electrical systems is not an activity incident to computer consulting. (See Order Dkt. 45.)

Prior to the court's ruling, MEI filed a third party complaint (Dkt. 11) against JMC/IC Insurance Agency doing business as Insurance Concepts and William T. Baycroft (collectively "Insurance Concepts"). Insurance Concepts acted as agent in procuring the Dakota policy for MEI. MEI claims that the policy was inadequate and that therefore Insurance Concepts is liable for its damages. MEI states claims for negligence, violation of the Texas Deceptive Trade Practices Act, violation of the Texas Insurance Code, negligent misrepresentation, breach of fiduciary duty, and breach of contract. (Third-Party Compl. ¶¶ 15-23 Dkt. 137.)

Pending before the court are Insurance Concepts' motion to dismiss and for summary judgment (Dkt. 74, 75). For the following reasons, the court ORDERS that Defendants' motion to dismiss is DENIED, Defendants' motion for summary judgment is GRANTED-in-part and DENIED-in-part.

I. Facts

MEI was formed in 1992 by Lt. Col. Edelmiro Muniz ("Muniz"), a retired member of the United States Air Force. (Muniz Aff. ¶ 3 Dkt. 90 Ex. A.) At the time, MEI helped large contractors tailor their bids to the government. (Id.) MEI's primary services were marketing, bid and proposal support, and engineering analysis. (Id.)

MEI grew quickly. It was formed with one full-time employee, Muniz, a part-time employee and an independent contractor. (Id. ¶ 4). By the mid-1990s, the company had grown to nearly 100 employees. (Id.) By 2001, it had approximately 250 employees. (Id.) Today, it has approximately 700 employees. (Id.) The company expanded its services as it grew. In 2002, MEI's business included technical and administrative services; contract support services, such as ground safety support; and other services related to engineering projects. (Id. ¶ 14.) Its clients included government agencies such as NASA and other companies in the aerospace industry. (Id.)

Soon after forming MEI, Muniz approached Baycroft for insurance. (Muniz Aff. ¶ 5.) Baycroft testified that MEI's business came to him on the recommendation of a mutual acquaintance, Muniz's secretary. (Baycroft Depo. 90:17-23 Doc. 90 Ex. B.) Baycroft did not "recall the exact conversation" he had, or who he had it with, but was sure that he indicated that he "could provide workers' compensation, general liability" insurance, i.e., "the normal for a startup company." (Id. 93:13-19.).

Baycroft testified that, according to his business practice, he would complete an application for insurance with a representative of the business seeking insurance (Baycroft Depo. 59:4-24.), then he would present that information to the market place, i.e., to underwriters who analyze companies and issue insurance policies. (Id. 147:23-25; see also King Depo. 94:4-8 Dkt. 74 Ex. 5.) Insurance Concepts would repeat this process each year during the renewal period. Specifically, Baycroft would discuss documents called "renewal reviews" with clients, reviewing all the information in the system including the prior application. (Baycroft Depo. 89:14-90:4.) Then Baycroft would return to the market place to procure a new insurance policy on his client's behalf.

Peggy Bristow ("Bristow") was in charge of "interfac[ing] with the William T. Baycroft and later Insurance Concepts Insurance Agency ... the insurance agents to whom [MEI] outsourced the responsibility for its insurance needs." (Bristow Aff. ¶ 4 Doc. 90, Ex. C.) It was her responsibility to provide "the information requested by [MEI's] agents in initially securing insurance coverage on behalf of [MEI]." (Id. ¶ 5.) Later, she would provide "information requested by [MEI's] during the annual `renewal review'" and participate "in the `proposal meeting' conducted each year during which Mr. Baycroft explained the coverages being proposed to [MEI]." (Id.) She would review the policies to determine whether they listed the proper amounts, locations, and entities, but relied on the expertise of Baycroft and Insurance Concepts to select the proper terms and conditions and "did not review the actual forms, terms, and conditions contained in the policies[.]" (Id.) She does not recall that the business classification of "Computer Consultant" was ever discussed with her. (Id. ¶ 6.)

In 1998, Donna Lancon ("Lancon") assumed Bristow's duties. (Lancon Aff. ¶ 2 Doc. 90 Ex. D.) Like Bristow, Lancon provided information about MEI's business to Insurance Concepts and attended meetings at which Baycroft would propose the policies for the coming year. (Id. ¶ 3.) Like Bristow, Lancon did not review the terms of the policies, but instead relied on Baycroft's expertise in selecting policies for MEI. (Id.)

In addition to obtaining the general commercial liability policy, Bristow and Lancon also obtained certificates of insurance for various contracts that MEI performed. (Bristow Aff. ¶ 7; Lancon Aff. ¶ 4.) To obtain these insurance certificates, they transmitted descriptions of the work to be performed to Insurance Concepts. (Id.) In a "certificate of liability insurance" dated July 12, 2002, Baycroft certified that MEI held liability insurance through Dakota. (Certificate of Liability Insurance Dkt. 74 Part 4 Ex. 9 p. 32.) The certificate describes MEI's operations as "ground safety contract w/JSC," i.e., the Johnson Space Center. A second certificate described MEI's work as "engineering work." (Certificate of Liability Insurance Dkt. 74 Part 4 Ex. 9 p. 34.)

Between July 15, 2001 and July 15, 2002, MEI held a commercial general liability policy (Dkt. 97 Ex. 4) issued by United National Insurance Company. The policy describes MEI as a "Computer Consultant." (Id. 1.) It, like the later Dakota policy, excludes coverage for any liability arising from professional services and includes the SL-6 exclusion for "classification or operations not disclosed." (Id. 2.) The SL-6 exclusion does not list any specific classification or operations, but incorporates the declarations on page one of the policy. Therefore, it excludes coverage for any activity other than computer consulting.

On March 5, 2002, Carol King ("King"), of Insurance Concepts, contacted MEI about renewing its general liability policy. (Letter Dkt. 74 Ex. 6).. She requested information about any changes in MEI's business, and if there were none, promised to "proceed with the renewal based on our current information." (Id.) Lancon denies that anyone asked her to provide a description of the scope of MEI's business during the renewal and review process. (Lancon' Aff. ¶ 5.) Instead, she claims she spoke with King over the telephone and provided information related to MEI's payroll and a list of locations at which MEI was performing work. (Id.) She denies making any changes to MEI's classified business activities (Id.) and avers that she believed Baycroft understood MEI's business because he commented on the awards the company had received, the types of contracts MEI had been awarded, and MEI's recent growth in revenue and employees. (Lancon Aff. ¶ 6.)

Lancon testified she delivered copies of MEI's marketing materials, such as brochures and PowerPoint presentations, describing MEI's operations. (Id. ¶ 7.) These brochures describe MEI as engaging in operations that are far more diverse than computer consulting or programming. (Dkt. 91, Ex. 0.) In fact, the website that MEI used in 2001 did not describe itself as a computer company, but as an "engineering company that provides engineering, safety and product assurance, and information technology and management services[.]" (Id. # 1068.) On the same website, MEI described its capabilities as including "engineering services" such as "spacecraft systems engineering and design, shuttle payload integration and operations, launch vehicle and payload integration, developmental and operational test evaluation, structural engineering;" "safety and product assurance" such as "mission safety, industrial safety, reliability, risk management;" and "information technology and management" such as "software/graphics program development, configuration management, program management support." (Id. 1079.) MEI's website, as it appeared in 2002, described its business in similar language: "Muniz Engineering, Inc. is a Houston based engineering company that provides engineering, safety and product assurance, and information technology and management services to government and industry." (Id. # 1084.)

Despite having this information at its disposal, the application for insurance submitted to Dakota by Insurance Concepts (Dkt. 91 Part 5 Ex. J)...