Carolina Cas. Ins. Co. v. Sowell, Civil Action No. 3:07-CV-1783-D.

Citation603 F.Supp.2d 914
Decision Date17 February 2009
Docket NumberCivil Action No. 3:07-CV-1783-D.
PartiesCAROLINA CASUALTY INSURANCE COMPANY, Plaintiff-counterdefendant, v. James E. SOWELL, et al., Defendants-counterplaintiffs.
CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas

Eric Brian Porterfield, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, Andrew K. Gordon, Law Office of Andrew K. Gordon, San Francisco, CA, for Plaintiff.

Tammy Sue Wood, John RW Fugitt, Bell, Nunnally & Martin, Dallas, TX, for Defendants.

Karl G. Dial, Fulbright & Jaworski, Dallas, TX, for Counter-Claimant.

David S. Coale, K & L Gates, LLP, Dallas, TX, Andrew K. Gordon, Law Office of Andrew K. Gordon, San Francisco, CA, Dirk E. Ehlers, Duane Morris, LLP, Chicago, IL, Joanne J. Matousek, Duane Morris, LLP, Chicago, IL, for Plaintiff/Counter Defendant.

M. David Bryant, Jr., Cox Smith Matthews Incorporated, Dallas, TX, for Counter Defendant.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, Chief Judge.

In this insurance coverage dispute, the court must decide on the parties' cross-motions for summary judgment whether the insurer, plaintiff-counterdefendant Carolina Casualty Insurance Co. ("Carolina"), has a duty under a management liability insurance policy (the "Policy") to defend four underlying lawsuits (the "Underlying Lawsuits"). This question turns on whether three Policy exclusions bar coverage. Concluding that Carolina has established beyond peradventure that it has neither a duty to defend nor a duty to indemnify in the Underlying Lawsuits, the court grants Carolina's motion for summary judgment, denies defendants-counterplaintiffs' motions for partial summary judgment, and enters judgment in favor of Carolina.

I

Carolina brings this suit against individual defendant James E. Sowell ("Sowell")1 and individual defendant-counterplaintiff Jeffrey Ellis ("Ellis"), and corporate defendants-counterplaintiffs James Sowell Co., L.P. ("Sowell LP"), Union Industrial Gas & Supply, Inc. ("Union"), DGS, L.L.C. ("DOUS"),2 and Gas Holdings, Inc. ("GHI") (collectively, the "Corporate Defendants"), who are insureds under the Policy. Carolina seeks a declaration that it has neither a duty to defend nor a duty to indemnify in the Underlying Lawsuits. All defendants except Sowell counterclaim seeking a declaration that Carolina has a duty to defend and indemnify, and alleging that Carolina is liable for breach of contract, breach of the duty of good faith and fair dealing, violations of Chapters 541 and 542 of the Texas Insurance Code, and damages under § 17.50 of the Texas Business & Commerce Code based on alleged deceptive insurance practices that violated Chapter 541.

The Underlying Lawsuits were filed in the aftermath of Hurricane Katrina, and they arise out of a dispute concerning a leased property located in New Orleans (the "Leased Property") that was damaged in the hurricane. At the time of the hurricane, Doussan Properties, L.L.C. ("DPL") had leased the property to Union, DOUS, and GHI.

In the first lawsuit at issue, DPL sued Union, DOUS, and GHI in the United States District Court for the Eastern District of Louisiana. See Doussan Props., L.L.C. v. Union Indus. Gas & Supply, Inc., No. 06-4167, 2006 WL 2707586 (E.D. La. filed Aug. 9, 2006) (the "Federal Lawsuit"). In the Federal Lawsuit DPL asserted three principal allegations. First, it alleged that the defendants failed to secure sufficient insurance for the Leased Property, as they were required to do under the lease. DPL asserted that, because of this breach of the lease, it was entitled to the difference between the amount received under the insurance in effect at the time of the loss and the insured value of the property, as well as attorney's fees and court costs. Second, DPL alleged that the lessees refused to remove their personal property from the Leased Property, as required under the lease. Third, DPL alleged that the lessees failed to return the Leased Property in the condition in which they took possession, as required by the lease and Louisiana Civil Code Articles 2719-20. Based on the second and third allegations, DPL asserted that it was entitled to compensation for loss of rents or, alternatively, damages for the cost of removing the lessees' personal property, the inability to lease or use the property, and additional damage caused to the building. The Federal Lawsuit was dismissed for lack of subject matter jurisdiction, but defendants still seek coverage for costs expended defending this suit.

Following dismissal of the Federal Lawsuit, DPL filed a similar suit against Union, DOUS, and GHI in the Civil District Court for the Parish of Orleans, State of Louisiana, and that lawsuit was removed to the United States District Court for the Eastern District of Louisiana. See Doussan Props., L.L.C. v. Doussan Gas & Supply, L.L.C., No. 07-5508, 2007 WL 3028666 (E.D. La. removed Sept. 11, 2007) (the "Orleans Parish Lawsuit"). In the Orleans Parish Lawsuit DPL asserts the same allegations against the lessees as it did in the Federal Lawsuit.3 It alleges in the alternative that the lessees' failure to secure adequate insurance for the Leased Property constitutes negligence, and it asserts that Union, DOUS, and GHI are liable for the difference between the insurance proceeds received and the insured value of the Leased Property. DPL also avers that Ellis, as principal manager of the three lessees, breached a duty to DPL by intentionally and/or negligently refusing to ensure that adequate insurance was obtained, as the lease required.

DOUS later sued DPL in the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana. See Doussan Gas & Supply, L.L.C. v. Doussan Props., L.L.C., No. 645-011 (24th Dist. Ct., Jefferson Parish, La. filed May 17, 2007) (the "Jefferson Parish Lawsuit"). In the Jefferson Parish Lawsuit DOUS seeks a declaratory judgment determining its rights and status under the lease. In the alternative, but only if it is determined that DOUS failed to obtain sufficient insurance, DOUS seeks a declaration that the DOUS officers who knew of the insufficiency of the obtained insurance breached a fiduciary duty owed to DOUS.

In the final Underlying Lawsuit, defendant Sowell filed a shareholder derivative action on behalf of DOUS against Leonard Doussan III ("Doussan III"), Leonard Doussan, Jr. ("Doussan Jr."), Ellis, and DOUS in the 68th Judicial District Court of Dallas County, Texas. See Sowell v. Doussan, No. 07-10557 (68th Dist. Ct., Dallas County, Tex. filed Sept. 10, 2007) (the "Dallas County Lawsuit"). Sowell alleges, in relevant part, that Doussan III, Doussan Jr., and Ellis breached fiduciary duties owed to DOUS. The claims concern the failure to provide adequate insurance for the Leased Property and DOUS's mismanagement of the litigation concerning the Leased Property. Subsequently, another DOUS shareholder, Robert Welsh ("Welsh"), intervened in the Dallas County Lawsuit, also alleging a breach of fiduciary duty by Ellis.

The Policy at issue in this suit is a management liability insurance policy issued by Carolina to Sowell LP and covering the period January 16, 2006 to January 16, 2007. The Policy insures Sowell LP and several "additional insured entities," including Union, DOUS, and GHI. Coverage A of the Policy provides coverage for the directors and officers of an insured entity when they face a claim arising out of any wrongful act. "Coverage A. Directors and Officers Liability Insurance," provides:

This Policy shall pay the Loss of:

1. each and every Director or Officer of the Insured Entity arising from any Claim first made against the Directors or Officers during the Policy Period or the Extended Reporting Period (if applicable) for any Wrongful Act, except and to the extent that the Insured Entity has indemnified the Directors or Officers.

2. the Insured Entity arising from any Claim first made against the Directors or Officers during the Policy Period or the Extended Reporting Period (if applicable) for any Wrongful Act, but only to the extent that the Insured Entity has Indemnified the Directors or Officers for such Loss as permitted by law.

Corporate Ds. July 21, 2008 App. 7.4

Coverage B of the Policy covers an insured entity itself when it faces a claim arising out of a wrongful act. "Coverage B. Corporate Liability Insurance," provides: "This Policy shall pay the Loss of the Insured Entity arising from any Claim first made against the Insured Entity during the Policy Period or the Extended Reporting Period (if applicable) for any Wrongful Act." Id. The Policy provides that all claims based upon, or arising out of, the same wrongful act or related wrongful acts are considered a single claim. See id. at 13.

Policy coverage is subject to three pertinent exclusions. First, the exclusion in § IV.N (the "Contract Exclusion") provides that Carolina

shall not be liable to make any payment for Loss in connection with a Claim made against any insured . . . based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving any oral or written contract or agreement. This exclusion shall not apply to Coverage A. or Coverage C., in the event that such liability would have attached to an Insured in the absence of the oral or written contract or agreement, or in the event a claimant alleges a breach of implied contract.

Id. at 10, 12.

Second, the exclusion in § IV.D.2 (the "Property Damage Exclusion") provides that Carolina is not liable for loss in connection with a claim made against any insured for "damage to or destruction of any tangible property, including the loss of use thereof." Id. at 11.

Third, the exclusion in § IV.F (the "Insured v. Insured Exclusion") provides that Carolina is not liable for loss in connection with a claim made against any insured "by, on behalf of, or...

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