Classic Performance v. Acceptance Indem.

Citation464 F.Supp.2d 652
Decision Date13 September 2006
Docket NumberCIV.A. No. H-05-3929.
CourtU.S. District Court — Southern District of Texas

Karen L. Normand, Attorney at Law, Houston, TX, for Plaintiff.

George T. Jackson, Burck Lapidus et al., Houston, TX, for Defendant.


MILLOY, United States Magistrate Judge.

On March 20, 2006, the parties consented to proceed before a United States magistrate judge, for all further proceedings, including trial and entry of a final judgment, under 28 U.S.C. § 636(c). (Docket Entry # 18). Pending before the court is a request from Classic Performance Cars, Inc. d/b/a Performance Mustangs ("Classic Performance," "Plaintiff'), for a judgment in its favor, on the claim that Acceptance Indemnity Insurance Company ("Defendant," Acceptance Indemnity") breached the contract of insurance between them. (Plaintiffs Motion for Partial Summary Judgment ["Plaintiffs Motion"], Docket Entry # 9). In response, Acceptance Indemnity has filed its own motion for summary judgment on all of Plaintiffs claims. (Acceptance Indemnity Insurance Company's Motion for Summary Judgment and Response to the Motion for Summary Judgment of Classic Performance Cars, Inc. DBA Performance Mustang ["Defendant's Motion"], Docket Entry # 11). A series of responses and replies followed those cross motions. (Classic Performance Cars Inc.'s Response to Acceptance Indemnity Insurance Company's Motion for Summary Judgment ["Plaintiffs Response"], Docket Entry # 15; Classic Performance Cars, Inc. Supplemental Response and Reply to Acceptance Indemnity Insurance Company's Response and Motion for Summary Judgment to Classic Performance Cars, Inc. DBA Performance Mustang's on Duty to Defend ["Plaintiffs Supplemental Response and Reply"], Docket Entry # 16). After considering the pleadings, the evidence, and the applicable law, Defendant's motion for summary judgment is GRANTED, and the case is dismissed.


This insurance dispute between Classic Performance and Acceptance Indemnity was triggered by the insurer's refusal to defend Plaintiff in two lawsuits now pending in state court. (See Defendant's Motion at 3-9). Although neither party makes it clear, it appears that Classic Performance is in the business of selling used cars.1 Used car businesses typically present special risks for their owners and insurers, because of the liability issues raised by their general business activities, as well as those that arise from use of the automobiles themselves. Garage liability coverage-Nature of coverage-What are considered "garage operations," 5 Law and Prac. of Ins. Coverage Litig. § 55:14 (2006). For this reason, used car dealerships often obtain insurance policies which provide what is known as "garage operations" coverage. In general, these garage operations contracts provide insurance coverage for two separate liability risks. In such contracts, the insurer agrees to indemnify the insured, not only for damage caused by use of the automobiles, but also for damage caused by any business operations which do not involve the autos. Id. Classic Performance purchased such a policy from Acceptance Indemnity. (Plaintiff's Motion, Ex. A: Policy No. CG00032978 ["the policy"]). Under that policy, Acceptance Indemnity was required to defend and indemnify Classic Performance for any damages resulting from its usual business operations. However, the policy expressly excluded from coverage a number of specified activities, including any conduct related to the repossession of autos that had been purchased from the car dealer. (Plaintiffs Motion at ¶ 25; Defendant's Motion at ¶ 7). It is that exclusion that forms the basis of the parties' dispute. (See Defendant's Motion at Ex. B ["Clough lawsuit"]; Defendant's Motion at Ex. C ["Kenny lawsuit"] ). When Classic Performance was sued in two state court actions, because of injuries purportedly suffered during the repossession of a vehicle, it requested a legal defense and, if necessary, indemnity from Defendant under the policy in effect. The insurer, however, invoked the noted policy exclusion and denied those requests. To determine whether Defendant's refusal is legitimate, it is obvious that the state court claims must be examined more fully.

The first suit against Classic Performance was initiated in 2005, by Robert and Sherry Clough. The Cloughs had reportedly defaulted on their installment contract with Plaintiff, which required them to make monthly payments on their automobile, until the balance was paid in full. The Cloughs claim, however, that Classic Performance authorized an extension of the final payment deadline. (Defendant's Motion, Ex. B at 2). They claim, in fact, that by agreement, the last payment on the red Lincoln Continental they purchased from Plaintiff, was to be made on February 23, 2005. They would then receive the car title free of any liens. In their lawsuit, the Cloughs allege that, on the day before this final payment was due, Classic Performance took steps to repossess the car. (Id.). The state court pleadings allege that Plaintiff hired an unidentified company to repossess the Lincoln, and that this company then delegated the job to two unnamed individuals. These two purportedly went to the Cloughs' home to take the car away from them. (Id. at 2-3). The Cloughs claim, that, while driving the Lincoln away, one of the men hit a travel-trailer which was parked in the driveway and, in the process, damaged both the car and the trailer. Before leaving, the driver supposedly sped through the yard and also damaged the Clough's property. In addition, Sherry Clough claims that the unknown driver hit her with the Lincoln as she attempted to stop him. (Id.). When Robert Clough was alerted to this activity, he began to chase the Lincoln in his own truck. (Id. at 3-4). During this chase, Robert Clough swerved into oncoming traffic and collided with another car, which was occupied by the Kenny family. (Defendant's Motion at 7). The Kennys, who filed the second suit at issue, claim that the collision with Clough not only resulted in injuries to each of them, but that it also caused Cynthia Kenny to suffer a miscarriage. (Defendant's Motion, Ex. C at 4).

Predictably, the Cloughs sued Classic Performance in the state district court in Montgomery County, alleging violations of the Texas Business and Commerce Code, negligent and fraudulent misrepresentation, breach of contract, fraud, theft, and negligence.2 (Defendant's Motion, Ex. B at 5-13). The Cloughs claimed, specifically, that Classic Performance "failed to use ordinary care in the manner in which [it] handled the repossession of [their] vehicle." (Defendant's Motion, Ex. B at 6). Likewise, the Kennys sued for their injuries, alleging negligence on the part of both the Cloughs and Classic Performance.3 (See Defendant's Motion, Ex. C). The Kennys alleged Classic Performance's negligence stemmed from "the manner in which [it] performed the repossession and breached the peace." (Defendant's Motion, Ex. C at 4). When Plaintiff received notice of these suits, it requested Defendant to defend and indemnify it, if found liable, as the policy allegedly requires. Acceptance Indemnity rejected Classic Performance's demand, and as a result, it was added to the Clough lawsuit as a third party defendant. (See Third Party Petition ["Complaint"], Docket Entry # 1, at 6). Acceptance Indemnity had those allegations severed, and it then removed this insurance dispute to federal court, invoking diversity jurisdiction. (See Complaint at 1-4, 17-18). Acceptance Indemnity now asks this court to declare its duties under the policy as to the liability claims brought against Classic Performance by the state court plaintiffs.


The Declaratory Judgment Act provides that "Din a case of actual controversy within its jurisdiction, ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a) (1994). The United States Supreme Court has repeatedly characterized the Declaratory Judgment Act as an "enabling" statute only, "which confers a discretion on the courts rather than an absolute right upon the litigant." Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (quoting PSC v. Wycoff Co., 344 U.S. 237, 241, 73 S.Ct. 236, 97 L.Ed. 291 (1952)). The Court has explained, as well, that "the propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed by the teachings and experience concerning the functions and extent of federal judicial power." Id. (quoting Wycoff 344 U.S. at 241, 73 S.Ct. 236). Disputes relating to insurance coverage are often resolved in an action for declaratory judgment. Harris v. United States Fidelity & Guaranty Co., 569 F.2d 850, 852 (5th Cir.1978). It is well established, however, that § 2201 is merely procedural, and that it extends only to those controversies within the jurisdiction of the federal courts. Gaar v. Quirk, 86 F.3d 451, 453-54 (5th Cir.1996); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1176-77 (5th Cir.1984). For that reason, federal courts may not entertain declaratory judgment actions unless there is an independent basis for subject matter jurisdiction. Lowe, 723 F.2d at 1177. As the present case is based on diversity of citizenship, under 28 U.S.C. § 1332, the jurisdictional requirements are satisfied, and Acceptance Indemnity's request for declaratory relief is properly before this court. Acceptance Indemnity now asks the court to exercise that jurisdiction, and grant a summary judgment in its favor on all claims.

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