Ewing Constr. Co. v. Amerisure Ins. Co.

• Decision Date: 15 June 2012
• Docket Number: No. 11–40512.,11–40512.
• Citation: 684 F.3d 512
• Parties: EWING CONSTRUCTION COMPANY, INCORPORATED, Plaintiff–Appellant, v. AMERISURE INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

684 F.3d 512

EWING CONSTRUCTION COMPANY, INCORPORATED, Plaintiff–Appellant,

v.AMERISURE INSURANCE COMPANY, Defendant–Appellee.

No. 11–40512.

United States Court of Appeals, Fifth Circuit.

June 15, 2012.

Lee Howard Shidlofsky (argued), Douglas Paul Skelley, Shidlofsky Law Firm, P.L.L.C., Austin, TX, for Plaintiff–Appellant.

Richard Brent Cooper (argued), Diana L. Faust, Michelle Elaine Robberson, Cooper & Scully, P.C., Dallas, TX, for Defendant–Appellee.

Patrick J. Wielinski, Rene Pinson, Cokinos, Bosien & Young, P.C., Irving, TX, J. James Cooper, Gardere Wynne Sewell, L.L.P., Houston, TX, for Texas Bldg. Branch of the Associated Gen. Contractors of America, American Subcontractors Ass'n, Inc., ASA of Texas, Inc., TEXO—The Const. Ass'n, Associated Gen. Contractors—Houston Chapter, Texas Ass'n of Builders, National Ass'n of Home Builders, Associated Builders and Contractors of Texas, Amici Curiae.

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

Before JOLLY, DAVIS and BARKSDALE, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This appeal calls upon us to interpret, under Texas law, a Commercial General Liability (CGL) insurance policy. Although CGL policies are standard-form documents, their terms are not interpreted uniformly nationwide. In many jurisdictions, the term that is the subject of this appeal—the contractual liability exclusion—is given a highly-technical, less-than-obvious meaning. In Texas, the same term is given its plain meaning, and functions so as to exclude insurance coverage for liabilities that the insured assumes by contract.

The district court held that a CGL policy's contractual liability exclusion applied in this case, and that no exception restored coverage. The insured construction company faces liability, if at all, because it contracted to construct usable tennis courts for a school district, and it has allegedly failed to perform. We hold that the district court correctly interpreted the contractual liability exclusion, and correctly applied that exclusion with respect to the insurer's duty to defend the construction company. We also hold, however, that the district court was premature in applying the exclusion to the insurer's duty to indemnify. We AFFIRM in part, VACATE in part, and REMAND.

I.

In June 2008, Ewing Construction Company, Inc. (“Ewing”) entered a contract with Tuloso–Midway Independent School District (“the School District”), in which Ewing agreed to construct tennis courts at a school in Corpus Christi, Texas. Soon after Ewing completed the tennis courts, the School District complained that the courts were cracking and flaking, rendering them unfit for playing tennis. On February 25, 2010, the School District filed a petition (“the underlying lawsuit”) in Texas state court, seeking damages for defective construction, and naming Ewing as a defendant. Ewing tendered defense of the underlying lawsuit to Amerisure Insurance Company (“Amerisure”), its insurer under a CGL policy. Amerisure denied coverage.

On July 29, 2010, Ewing filed the instant action against Amerisure in the District Court for the Southern District of Texas, contending that Amerisure was obligated to defend it in the underlying lawsuit. Ewing's complaint seeks declaratory relief, contract damages, relief under the Texas Prompt Payment of Claims Statute, and attorney's fees.

After Amerisure answered and counterclaimed, the parties filed cross-motions for summary judgment and a joint stipulation of facts to aid the court in its consideration of these motions.

On April 28, 2011, the district court denied Ewing's motion, granted Amerisure's motion, and entered a final judgment dismissing the case. The court held that Amerisure owed no duty to defend or indemnify Ewing in the underlying lawsuit because the CGL policy's contractual liability exclusion excluded coverage, and no exception to that exclusion applied. For the same reasons, the court held that Amerisure had not violated the Texas Prompt Payment of Claims Statute. Ewing appeals.

II.

We review the district court's grant of summary judgment de novo, applying the same standards as the district court. Int'l Fid. Ins. Co. v. Sweet Little Mexico Corp., 665 F.3d 671, 679 (5th Cir.2011). Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

This case is a diversity action, so we apply the substantive law of Texas, as interpreted by Texas courts. Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 593 (5th Cir.2011). We must predict how the Texas Supreme Court would resolve the controversy, using existing Texas Supreme Court precedent as guidance. Id. at 593–94.

We note at the outset that an insurer in a CGL policy assumes two duties: (1) to defend the insured against covered lawsuits and (2) to indemnify the insured against all covered claims and judgments. D.R. Horton–Tex., Ltd. v. Markel Int'l Ins. Co., Ltd., 300 S.W.3d 740, 743 (Tex.2009). These duties are distinct, and one may exist without the other. Id. We will consider them separately.

A.

We first consider whether the Texas Supreme Court would, under the facts of this appeal, determine that Amerisure owes a duty to defend Ewing in the underlying lawsuit. An insurer's duty to defend is determined by the eight-corners rule, that is, by looking to the plaintiff's pleading in the underlying lawsuit and then to the insurance policy. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002). If the plaintiff's pleading in the underlying lawsuit alleges facts that might fall within the scope of the policy, then that pleading triggers the insurer's duty to defend. Id.

Our application of the eight-corners rule begins with the School District's petition¹ in the underlying lawsuit, which alleges the following:

On March 20, 2008 Plaintiff entered into a contract with Ewing in the amount of $2,168,000 for construction of tennis courts for the Tuloso–Midway ISD High School and Middle School, the work to commence on March 30, 2008 and substantial completion of the entire work to be not later than November 24, 2008. In fact, the notice of substantial completion came on or about April 20, 2009 and change orders increased the overall contract amount significantly....

The petition goes on to allege the following failures:

Serious tennis court cracking and flaking problems began shortly after completion of the work and have continued since. Chunks of the court surfaces are coming loose. Flaking, crumbling, and cracking make the courts unusable for their intended purpose, competitive tennis events....

It then alleges that Ewing breached its contract and performed negligently:

Defendant Ewing Construction has breached its contractual commitments, proximately causing damages to Plaintiff. On information and belief, Plaintiff says that Defendant Ewing and/or its subcontractors breached its contract in the following respects:

a) Failing to complete construction in accordance with the contract plans and specifications;

b) Failing to exercise ordinary care in the preparation, management and execution of construction;

c) Failing to perform in a good and workmanlike manner; and

d) Failing to properly retain and supervise subcontractors.

Furthermore, Defendant Ewing Construction and/or its subcontractors was/were guilty of negligence proximately causing damage to Plaintiff in the following respects:

a) Failing to properly prepare for and manage the construction;

b) Failing to properly retain and oversee subcontractors;

c) Failing to perform in a good and workmanlike manner; and

d) Failing to properly carry out the construction so that it was in [sic] completed in accordance with the plans and specifications.

The petition also states that Ewing “breached [its] duty to Plaintiff to use ordinary care in the performance of [its] contract[ ], proximately causing damages to Plaintiff.”

In addition to this language from the School District's pleading, we must consider the terms of the CGL policy between Ewing and Amerisure. The CGL policy states that Amerisure must defend Ewing against any suit seeking “damages because of ‘bodily injury’ or ‘property damage’ ” if the “ ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory.’ ” The CGL policy then provides the following:

2. Exclusions

This insurance does not apply to:

...

b. Contractual Liability

“Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement....

Here, the parties agree that the alleged physical defects in the tennis courts constitute property damage caused by an occurrence that took place in the coverage territory. The parties dispute whether coverage is excluded by the contractual liability exclusion and whether the liability alleged in the underlying lawsuit is of the sort that Ewing would have in the absence of a contract.

1.

The district court, relying on the Texas Supreme Court's decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118 (Tex.2010), held that the CGL policy's contractual liability exclusion applied in this case.

In Gilbert, the Dallas Area Rapid Transit Authority (DART) contracted with a construction company (Gilbert) to construct a light rail system. Id. at 121–22. The contract required the company to protect the area surrounding its work site, and the company contractually agreed with DART to repair damages to the property of third parties caused by its construction. Id. at 122. During construction, heavy rains caused flooding in a building near the work site, and the third party building owner sued the construction company under several theories. Id. The construction...