Empire Indem. Ins. Co. v. Allstate County Mut. Ins.

• Citation: 617 F.Supp.2d 456
• Decision Date: 08 May 2008
• Docket Number: Civil Action No. 3:06-CV-1415-O.
• Parties: EMPIRE INDEMNITY INSURANCE COMPANY, Plaintiff, v. ALLSTATE COUNTY MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Texas

617 F.Supp.2d 456

EMPIRE INDEMNITY INSURANCE COMPANY, Plaintiff, v. ALLSTATE COUNTY MUTUAL INSURANCE COMPANY, Defendant.

Civil Action No. 3:06-CV-1415-O.

United States District Court, N.D. Texas, Dallas Division.

May 8, 2008.

COPYRIGHT MATERIAL OMITTED

George T. Jackson, Burch Lapidus & Lanza, Houston, TX, for Plaintiff.

Ronald J. Restrepo, Max C. Weber, Doyle Restrepo Harvin & Robbins, Houston, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

REED O'CONNOR, District Judge.

Before the Court are Empire Indemnity Insurance Company's Motion for Summary Judgment and Brief in Support (Doc. # 17) filed October 19, 2007; Allstate County Mutual Insurance Company's Cross-Motion for Summary Judgment on Plaintiff's Claim for Declaratory Relief (Doc. # 18) filed November 2, 2007; and Allstate's Partial Motion for Summary Judgment on the Amount Potentially Recoverable by Plaintiff (Doc. # 29) filed January 4, 2008. The parties also filed responses, replies, and sur-replies to the applicable motions. Having review the pleadings, evidence, and the applicable law, the Court finds that Plaintiff's motion should be and is hereby DENIED. The Court further finds that Defendant's motion for summary judgment should be and is hereby GRANTED.

I. BACKGROUND

This action involves a dispute between insurers. Plaintiff Empire Indemnity Insurance Company ("Empire") initiated this action by filing an original complaint against Allstate County Mutual Insurance Company ("Allstate") seeking declaratory relief. See Doc. No. 1 (3:06-CV-1415-O) (N.D.Tex. Aug. 8, 2006). The crux of the dispute requires the Court to determine which insurer had the duty to defend and indemnify Lewis Breeden¹, a repossession company employee, who while street racing a repossessed car, caused an accident resulting in severe injuries to Bruce and Debra Babcock. Empire also contends that Allstate had a duty to indemnify Innovative Assets Solutions, Inc. ("Innovative"), the repossession company.

a. The insurance policies

Empire issued a commercial liability insurance policy to Innovative for the period from July 26, 2002 to July 26, 2003 under policy number CL305198.² (Pltff's App. at Ex. C). This policy provides liability coverage to an "insured" that must pay "damages because of `bodily injury' or `property damage' to which this insurance applies caused by an `accident' and resulting from `garage operations' involving the ownership, maintenance or use of covered `autos.'" (Id. at p. 7). As applicable, a "covered auto" under the Empire policy is defined as "any auto you do not own, lease, hire, rent or borrow used in connection with your garage business described in the declarations." (Id. at 2, 6). The policy also provides an "Other Insurance" provision that states, in part, "for any covered `auto' you don't own, the insurance provided by this coverage form is excess over any other collectible insurance." (Pltff's App. at Ex. C, p. 18).

Allstate issued an automobile policy (number 3 29 418164 10/12) to Edward Espinoza that provided coverage for the vehicle involved in the accident, i.e., a 2001 Mitsubishi Eclipse. (Pltff's App. at Ex. A). The liability provisions in the Allstate policy provide coverage for "damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident." (Pltff's App. at Ex. A, p. 14). A "covered person" is specifically defined, in pertinent part, as "any person using [the] covered auto." (Id.). This policy also contains an exclusion excluding coverage for any person "using a vehicle without a reasonable belief that that person is entitled to do so." (Id., p. 15). Empire contends Innovative & Breeden are covered persons under the Allstate policy because Breeden was driving a covered auto, i.e., the Mitsubishi Eclipse owned by Espinoza.

b. The Mitsubishi Eclipse

Espinoza financed the Mitsubishi Eclipse through Mitsubishi Credit and subsequently defaulted on the note. Upon default, Mitsubishi Credit contracted with Innovative to repossess the vehicle. (Def.App. at Ex. B). On September 13, 2002, Lewis Breeden and Josh Saunders were dispatched to repossess Espinoza's vehicle. (Def.App.³ at Ex. A, p. 9). Breeden and Saunders arrived at the address where they were sent to pick up the vehicle sometime in the early evening hours. (Def.App. at Ex. A, p. 9, 21). A man whom they believed was the father of the owner of the vehicle came out of the residence and Breeden showed him their paperwork to repossess the vehicle. (Def.App. at Ex. A, p. 11). The man then called his son to bring the vehicle home. (Id.). After being informed that the keys to the car were in the glove box, Saunders drove the vehicle away from the residence, but subsequently stopped at a convenience store a few blocks away and loaded the Mitsubishi Eclipse on the tow truck. (Def.App. at Ex. A, pp. 34-35; Pltff's App. at Ex. D, p. 99).

While Breeden and Saunders were towing the vehicle, the tow truck broke down due to a busted belt. (Def.App. at Ex. A, pp. 15, 22, 76-77). Breeden and Saunders radioed the main office to advise them of the problem, and they were instructed to take the Mitsubishi off the tow truck and drive it to go buy a replacement belt. (Id.). Breeden and Saunders needed petty cash to purchase a new belt so they first drove the Mitsubishi to a company office in New Braunfels, Texas. (Def.App. at Ex. A, p. 22). After obtaining the necessary cash, Breeden and Saunders went to a Rip Griffin parts store in New Braunfels, Texas. (Def.App. at Ex. A, p. 23, 80). When they could not find the replacement part at Rip Griffin, Breeden and Saunders again radioed the main office and inquired whether they should drive to San Antonio to look for the belt at parts stores there. (Def.App. at Ex. A, p. 23). A company representative instructed that they should go to San Antonio. (Id.). Ultimately, Breeden and Saunders were unable to locate the part in San Antonio and decided to head back to the location of the tow truck. (Id.). As they were traveling southbound on Loop 1604 in the Mitsubishi Eclipse, a white mustang pulled alongside and began to speed up and then slow down in front of Breeden. (Def.App. at Ex. A, p. 33-39, 78). Breeden accelerated rapidly to go around the mustang, and when he was moving from the fast lane to the slower lane, Breeden lost control of the vehicle and went into a skid at approximately 80 miles an hour. (Def.App. at Ex. A, pp. 39, 90-91). While in a skid, Breeden hit a Ford Explorer that went out of control, and flipped over before landing on the median. (Id.). Bruce and Debra Babcock were in the Ford Explorer and suffered serious injuries.

c. The underlying lawsuit

On April 1, 2003, Bruce and Debra Babcock filed suit in the 57th Judicial District Court of Bexar County, Texas against Innovative, Luis Breeden,⁴ and Vance Services Corp. alleging claims of negligence, respondeat superior, and gross negligence. (Pltff. App. at Ex. B). The facts as alleged in the Babcocks' petition state:

On or about September 14, 2002, Plaintiffs were southbound on N. FM 1604. Defendant Luis Breeden was street racing against another vehicle southbound on N. FM 1604, when he suddenly and unexpectedly smashed into the rear of the Plaintiffs' vehicle, causing it to flip end over end and causing Plaintiffs to incur serious bodily injuries, which are set out below.

(Pltff's App. at Ex. B, p. 3). Empire provided Breeden and Innovative with a defense subject to a reservation of rights, and ultimately settled the Babcocks' claims for $1,000,001. (Pltff's MSJ at 2-3). It is undisputed that neither Breeden or Innovative gave notice of a claim under the Allstate policy. Instead, Empire argues that it properly tendered the claim to Allstate and requested that Allstate defend Breeden and Innovative against the Babcocks' claims. (Def.App. at Ex. E, F). Allstate did not undertake the defense of Innovative or Breeden or otherwise participate in the underlying litigation. (Def.App. at Ex. G).

Empire filed suit in this Court seeking to recover from Allstate the amounts paid to settle the underlying claims, defense costs, and attorney's fees. See Doc. No. 1 (3:06-CV-1415-O) (N.D.Tex. Aug. 8, 2006). Empire now moves for summary judgment on the grounds that Allstate had a duty to defend and indemnify Breeden and Innovative because it cannot rely on the exclusionary provision to deny coverage as a matter of law, and that there are no genuine issues of material fact that Breeden and Innovative had a reasonable belief they were entitled to use the vehicle. (Pltff's MSJ at 5-6). Allstate has filed a cross-motion for summary judgment on Empire's claim for declaratory relief on the grounds it had no duty to defend Breeden or Innovative in the underlying state court action.⁵ Additionally, Allstate moves for summary judgment on the grounds that Breeden and Innovative failed to comply with the notice provision in its policy, and that the amounts potentially recoverable by Empire are limited as a matter of law.

II. LEGAL STANDARDS

Summary judgment is proper when the pleadings and evidence on file show that no genuine issue exists 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). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. The movant makes a showing that there is no genuine issue of material fact by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine material fact issues. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The pleadings, depositions, admissions, and affidavits, if any, must demonstrate that no...