Courtland Custom Homes v. Mid-Continent Cas. Co.

• Decision Date: 23 March 2005
• Docket Number: No. CIV.A. H-04-1089.,CIV.A. H-04-1089.
• Citation: 395 F.Supp.2d 478
• Parties: COURTLAND CUSTOM HOMES, INC. Plaintiff, v. MID-CONTINENT CASUALTY COMPANY Defendant.
• Court: U.S. District Court — Southern District of Texas

395 F.Supp.2d 478

COURTLAND CUSTOM HOMES, INC. Plaintiff, v. MID-CONTINENT CASUALTY COMPANY Defendant.

No. CIV.A. H-04-1089.

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

March 23, 2005.

COPYRIGHT MATERIAL OMITTED

Lee Howard Shidlofsky, Nickens Keeton et al., Austin, TX, for Courtland Custom Homes Inc, Plaintiff.

James Hans Barcus, Envgavl & Hlavinka LLP, John Logan Engvall, Jr., Engvall & Hlavinka, Houston, TX, for Mid-Continent Casualty Company, Defendant.

ORDER

HARMON, District Judge.

This is an insurance coverage dispute. Pending before the court is the Plaintiff, Courtland Custom Homes, Inc.'s (hereinafter "Courtland") Motion for Partial Summary Judgment (Doc. 6), and the Cross-Motion of Defendant Mid-Continent Insurance Company ("Mid-Continent") for Final Summary Judgment. (Doc. 13.) Courtland filed this declaratory judgment action seeking a ruling from the court that Mid-Continent has a duty to defend Courtland against allegations asserted in an underlying lawsuit styled Greg and Linda Turman v. Courtland Custom Homes (Cause No. 03-CV-127872), currently pending in the 268th Judicial District of Fort Bend County, Texas (the "underlying lawsuit"). Having considered the parties' briefs, all matters of record and the applicable authorities, the court concludes that Courtland's Motion should be DENIED and Mid-Continent's GRANTED. The court finds that Mid-Continent has no duty to defend Courtland, and subsequently no duty to indemnify Courtland.

I. Legal Standard

A. Summary Judgment

When both parties move for summary judgment, the court reviews each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party. Ford Motor Co. v. Tex. DOT, 264 F.3d 493, 498 (5th Cir.2001). Each movant seeking summary judgment must inform the court of the basis of his motion and point out those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, that show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the movant bears the burden of proof on an issue either because he is the plaintiff or as a defendant asserting an affirmative defense, he must establish beyond peradventure all of the essential elements of the claim or defense to warrant judgment in his favor. Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir.1986). The substantive law governing the suit identifies the essential elements of the claims at issue and therefore indicates which facts are material; i.e., only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, 477 U.S. 242, 256-57, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The movant need not negate the opposing party's claims nor produce evidence showing the absence of a genuine issue of fact, but may rely on the absence of evidence to support essential elements of the opposing party's claims. Celotex, 477 U.S. at 323-25, 106 S.Ct. 2548. However, "[o]n summary judgment the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)). If it is evident that the party seeking summary judgment against one who bears the proof burden has no access to evidence of disproof, and ample time has been allowed for discovery, he should be permitted to rely upon the complete absence of proof of an essential element. Fontenot v. Upjohn, 780 F.2d at 1195. If the moving party fails to meet its initial burden, the motion must be denied, regardless of the non-movant's response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994).

If the movant meets his burden, the burden then shifts to the non-movant to set forth specific facts and competent summary judgment evidence to raise a genuine issue of material fact on each essential element of any claim on which he bears the burden of proof at trial. Fed.R.Civ.P. 56(c). The non-moving party may not rest on mere allegations or denials in its pleadings, but must produce affirmative evidence, and specific facts showing that there is a genuine issue for trial. Fed. R.Civ. P. 56(e); Anderson, 477 U.S. at 256-57, 106 S.Ct. 2505. The non-movant may point to evidentiary documents already in the record that set out specific facts showing the existence of a genuine issue. Lavespere v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 178 (5th Cir.1990). Furthermore, the non-movant does not likewise have to present its own evidence, but may point out genuine issues of fact extant in the summary judgment evidence produced by the movant, if any. Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 198-200 (5th Cir.1988).

II. Background & Analysis

It is alleged that Courtland, a residential home builder and general contractor, constructed a home pursuant to a contract for Steven and Robin Rosen ("Rosens") from whom Greg and Linda Turman (the "underlying plaintiffs" or "Turmans") bought the home. Subsequent to their home's completion, the Turman's brought suit against Courtland. The Turman's Second Amended Petition (Doc. 6, Exh. A-3)¹, raises causes of action under the DTPA, for breach of warranty and for negligence.² At issue before the court is whether Mid-Continent has a duty to defend and indemnify Courtland in the underlying suit the Turmans have brought against it; the duty to defend being distinct from, and broader than, the duty to indemnify. See St. Paul Fire & Marine Ins. Co. v. Green Tree Fin. Corp. — Texas, 249 F.3d 389, 391 (5th Cir.2001).

A. Analysis under the "Eight Corners" Rule

The court applies Texas law in this diversity case. Interpretation of insurance contracts in Texas is governed by the same rules as interpretation of other contracts, and when terms are defined in an insurance policy, those definitions control. See Harken Exploration Co. v. Sphere Drake Ins. P.L.C., 261 F.3d 466, 470 n. 3 (5th Cir.2001); See also Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex.1997) (citations omitted). In determining an insurer's duty to defend, courts apply the "eight corners" rule, examining the factual allegations in the petition and the language of the insurance policy. Malone v. Scottsdale Ins. Co., 147 F.Supp.2d 623, 627 (S.D.Tex.2001) (citing Cowan, 945 S.W.2d at 821-22). Courts compare the words of the insurance policy with the allegations of the plaintiff's complaint to determine whether any claim asserted in the pleading is potentially within the policy's coverage. Federated Mutual Ins. Co. v. Grapevine Excavation, 197 F.3d 720, 726 (5th Cir.1999). If some of the claims in the Turman's state court complaint when taken as true, state a cause of action within the policy terms, then Mid-Continent can be found to have breached its duty to defend. See Hartford Cas. Co. v. Cruse, 938 F.2d 601, 605 (5th Cir.1991).

When applying the "eight corners rule," the court gives the allegations in the petition a liberal interpretation, meaning that "in cases of doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in insured's favor." National Union Fire Ins. Co. of Pittsburgh, PA v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997) (quoting Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22 (Tex.1965)). In conducting this analysis, a court must focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged. Id. (quoting Merchants Fast Motor Lines v. National Union Fire Ins. Co., 919 S.W.2d 903, 905 (Tex.App. — Eastland 1996) rev'd on other grounds, 939 S.W.2d 139).

"The burden is on the insured to show that a claim against him is potentially within the scope of coverage under the policies; however, if the insurer relies on the policy's exclusions, it bears the burden of proving that one or more of those exclusions apply." Id. (citing Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir.1998); Canutillo Indep. Sch. Dist. v. National Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir.1996); Sentry Ins. v. R.J. Weber, 2 F.3d 554, 556 (5th Cir.1993)). Even if the underlying plaintiff's allegations do not clearly show there is coverage, the insurer, as a general rule, will be obligated to defend if there is, potentially, an action alleged within the coverage of the policy. Heyden, 387 S.W.2d at 26.

The duty to indemnify, on the other hand, is triggered by the actual facts establishing liability in the underlying suit. Cowan, 945 S.W.2d at 821 (citing Heyden, 387 S.W.2d at 25); See also Malone, 147 F.Supp.2d at 629 (citing Pilgrim Enter., Inc. v. Maryland Cas. Co., 24 S.W.3d 488, 490 (Tex.App. — Houston [1st Dist.] 2000, n.w.h.)). A court may determine that an insurer has no duty to indemnify "when the insurer has no duty to defend and the same reasons that negate the duty to defend negate any possibility [the] insurer will ever have a duty to indemnify." Id. at 630 (citing cases). Because the duty to defend is broader than the duty to indemnify, "logic and common sense dictate that if there is no duty to defend, then there must be no duty to indemnify." Acceptance Ins. Co. v. Newport Classic Homes, Inc., No. Civ.A.3:99-CV-2010BC., 2001 WL 1478791, at *2 (N.D.Tex. Nov. 19, 2001) (citing American States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th Cir.1998)). Therefore, a party may secure a declaratory...