Bituminous Cas. Corp. v. Vacuum Tanks, Inc., 91-2709

• Decision Date: 22 October 1992
• Docket Number: No. 91-2709,91-2709
• Citation: 975 F.2d 1130
• Parties: 23 Envtl. L. Rep. 20,215 BITUMINOUS CASUALTY CORPORATION, Plaintiff-Appellant, v. VACUUM TANKS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1130

975 F.2d 1130

23 Envtl. L. Rep. 20,215

BITUMINOUS CASUALTY CORPORATION, Plaintiff-Appellant, v. VACUUM TANKS, INC., Defendant-Appellee.

No. 91-2709.

United States Court of Appeals Fifth Circuit.

Oct. 22, 1992.

Beverly G. Godbey, Joanne Early, Gardere & Wynne, Dallas, Tex., for plaintiff-appellant.

Norman Riedmueller, Ellen A. Yarrell, Mary Sue LeBlanc, Houston, Tex., for defendant-appellee.

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

Before JOHNSON, GARWOOD, and WIENER, Circuit Judges.

JOHNSON, Circuit Judge:

Bituminous Casualty Corporation (Bituminous) appeals a declaratory judgment entered by the district court in favor of Vacuum Tanks, Inc. (VTI). The district court found that Bituminous had a duty to defend VTI against claims arising under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) which resulted from VTI's waste dumping activities from 1959-1965. Bituminous was VTI's liability insurance carrier during that time period, but neither the parties nor the insurance agent could find copies of the insurance policies. VTI proved that Bituminous issued comprehensive general liability policies but produced no evidence as to the specific terms of the policy. Bituminous searched the file it maintained on VTI, but was unable to find copies of the policies. During the search, it did locate a specimen policy in the file. The district court determined that the specimen policy found by Bituminous in VTI's file provided evidence of Bituminous' duty to defend VTI. The court also ordered that Bituminous reimburse VTI for past defense costs of $59,843.00 and pay VTI's attorney fees through trial and appeal. Finally, the district court found no evidence that Bituminous breached its duty of good faith and fair dealing in its decision not to defend based on the inability to determine the policy terms. VTI did not appeal this portion of the judgment. After a review of the record and the arguments presented by the parties, this Court concludes that the judgment of the district court should be vacated and the cause remanded to the district court.

I. Facts and Procedural History

The underlying facts of this case are basically undisputed. VTI is in the business of transporting liquid waste materials from industrial sites to disposal sites. VTI has performed these services for many years. During the time period from 1959-1965 VTI purchased insurance from Bituminous. The policy coverages apparently included automobile liability, worker's compensation, and comprehensive general liability (CGL). In 1982, the Environmental Protection Agency (EPA) began investigation of some of the disposal sites to which VTI had transported waste. Owners of property adjacent to one of the disposal sites (not parties to the instant case) also sued VTI. All of the claims revolved around environmental pollution resulting from waste disposal. VTI was found to be a de minimis contributor to the disposal sites and managed to escape the lawsuits with minimal liability. However, the legal costs incurred in extricating itself were considerable. VTI provided notice to Bituminous of the claims arising in the years in which Bituminous was its insurer. Bituminous declined to defend VTI because it could not determine coverage under the policies. Bituminous could not find the policies of insurance issued to VTI, and neither VTI nor the insurance agent who sold the policies could produce copies. VTI did manage to locate information which provided policy numbers and types of coverage from the Texas Railroad Commission, but no copies of the actual policies were ever located.

At trial, VTI produced sufficient evidence to prove that insurance policies had existed during the relevant time period. VTI's president testified that he believed the policy coverage purchased by VTI covered incidents such as the ones in question. Two insurance agents testified that, had VTI sought insurance coverage for its waste dumping activities from them at the time, they would have recommended comprehensive general liability insurance. However, no one testified as to the actual provisions contained in the lost policies.

Bituminous officials testified that any of several forms could have been used to provide the coverage purchased by VTI and that, without knowing the precise form, it is impossible to decide whether the waste disposal came within the terms of the policies. Furthermore, Bituminous presented evidence that it had attempted in good faith to locate the policies, but that, due to the twenty-five year delay between the policy dates and notification of the claims, it was likely that the policies had been destroyed. In its attempt to prove good faith, Bituminous introduced the contents of its VTI file which included the specimen policy from approximately 1962. VTI objected to the hearsay nature of the specimen policy, and the district court admitted it for the limited purpose of demonstrating the contents of the file on the issue of good faith. ¹

In its order, the district court found that Bituminous had a duty to defend VTI based on the language of the specimen policy. The court further concluded that it was reasonable for VTI to expect coverage for the waste disposal suits under a CGL policy and that "a comprehensive general liability policy at least arguably would have covered the claims raised by Vacuum Tanks." (Final Judgment, at 6). Bituminous argues on appeal that the district court erred in applying an incorrect legal standard to determine that Bituminous owed VTI a defense under the policies and that the district court erred in considering the specimen policy for purposes other than those for which it was admitted. Bituminous also challenges the district court's award of attorney's fees to VTI. Bituminous filed a motion for new trial after judgment but failed to move for a directed verdict or judgment notwithstanding the verdict in the district court.

II. Discussion

This Court reviews the district court's determination of state law under a de novo standard. Jones v. Roadway Express, Inc., 931 F.2d 1086, 1088 (5th Cir.1991) (quoting Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991)).

A. The Duty to Defend

The district court in the present case concluded that, to establish coverage, VTI need only prove that a CGL policy had been issued by Bituminous. Based upon that belief, the language of the specimen policy, and a finding that a reasonable insured would carry CGL insurance, the district court, without citation to legal authority, found that Bituminous owed a duty to defend VTI. This Court finds that the district court erred in failing to apply Texas law to the facts of this case.

The well-settled rule in Texas mandates that an insured must prove the terms of the insurance contract between the parties in order to establish coverage under the policy. Dairyland County Mut. Ins. Co. of Tex. v. Martinez, 484 S.W.2d 785, 788 (Tex.Civ.App.--El Paso 1972, writ ref'd n.r.e.). There appear to be two ways to prove the terms of the contract. The first and simplest is to introduce the actual policy into evidence. This was clearly impossible in the present case. Where the actual policy is not available, the terms of the contract can also be shown by secondary evidence. This alternative requires evidence of the policy terms, not just evidence of the existence of the policy. Ranger County Mut. Ins. Co. v. Chrysler Credit Corp., 501 S.W.2d 295, 298 (Tex.1973). This type of secondary evidence is admissible under Federal Rule of Evidence 1004 as long as the original contract has not been destroyed or lost in bad faith.

In this case there was no evidence of any bad faith on the part of VTI, and secondary evidence of the policy terms would have clearly been admissible. However, VTI failed to introduce any evidence sufficient to prove the actual terms of the policy. ² VTI did introduce the policy numbers, dates of coverage, and coverage amounts of the CGL policies. However Texas cases have held that such information is insufficient for the court to make coverage decisions absent proof of the actual policy terms. Hartford Accident & Indemnity Co. v. Parrott, 486 S.W.2d 405, 407 (Tex.Civ.App.--Beaumont 1972, no writ); Equitable Life Assurance Soc'y of U.S. v. Nelson, 396 S.W.2d 517, 518-19 (Tex.Civ.App.--Ft. Worth 1965, no writ); Wann v. Metropolitan Life Ins. Co., 41 S.W.2d 50, 52 (Tex.Comm'n App.1931, holding approved). ³

The district court used a specimen policy introduced by Bituminous as evidence of the terms of the lost policies. The district court admitted the specimen policy over VTI's hearsay...